November 15, 2004 4:46 PM PST

Feds claim control over VoIP, leave tax issue open

Federal regulators have asserted their control of Internet phone service but have not yet fleshed out important details, including potential taxes and fees.

In an order made public late Friday, the Federal Communications Commission said it will address those "critical issues" in a separate decision that's expected next year. The order was announced earlier in the week.

The most striking short-term impact of the FCC's decision is how it undercuts Minnesota's efforts to treat Vonage, a prominent voice over Internet Protocol (VoIP) provider, as a traditional phone company. The 8th Circuit Court of Appeals in St. Paul, Minn., is scheduled to hear arguments Wednesday morning.

"The court doesn't have a lot of room after this recent decision by the FCC," said Phillip Marchesiello, an attorney at Akin Gump Strauss Hauer & Feld in Washington, D.C., who has followed the lawsuit.

A federal judge blocked Minnesota from forcing Vonage to comply with a stack of regulations, including obtaining business licensing and paying certain telephone taxes. Minnesota has appealed to the 8th Circuit.

Bill Wilhelm, an attorney at Swidler Berlin Shereff Friedman who is representing Vonage, said he's puzzled by why Minnesota has not abandoned its appeal after Friday's FCC ruling. "I'm somewhat surprised that they're going to continue to pursue this," Wilhelm said Monday. "I think at this point, it's silliness--frankly, a waste of resources."

Minnesota had asked the 8th Circuit to postpone this week's hearing, but the appeals court rejected the request, the court clerk's office said. Burl Haar, a spokesman for the state utilities commission, declined to comment, saying, "I don't think we're going to have a comment to make prior to the oral argument."

The forthcoming broader ruling on VoIP is expected to clear up a slew of outstanding topics, such as how Universal Service taxes--levied on telecommunications providers to pay for discounted phone service in rural areas--will apply to VoIP firms. Other topics include 911 service, disability access and "access charges" that traditional telephone companies pay to use each other's network.

FCC Chairman Michael Powell has said he favors a light regulatory touch for VoIP. But complicating an already complex situation is how Congress might rewrite the nation's telecommunications laws when it revisits the 1996 Telecommunications Act. One Senate panel has already voted to impose what would amount to heavy taxes on VoIP providers.

 

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