September 22, 2003 2:59 PM PDT

VoIP provider Vonage to charge new fee

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Vonage, a Voice over Internet Protocol provider, has begun charging customers a $1.50 per month "regulatory recovery" fee.

Hoping to soften the blow of the new fee, Vonage also is cutting the prices of its dialing plans. Local phone customers will only end up paying about 50 cents more a month, while unlimited long-distance customers will pay about $2 less than what they used to, according to an e-mail the company sent to customers Friday.

The fees were announced just as a growing number of states are clamoring for VoIP providers to pay taxes or fees to fund staple services such as 911 connections. Cell phone and landline providers are already required to do so and can pass those costs onto customers in the form of so-called regulatory recovery fees.

Brooke Schulz, a Vonage spokeswoman, said Monday that the company already pays the fees, because it partners with major telephone companies, which enables its customers to make calls to any kind of phone, among other perks. The phone companies charge Vonage the same regulatory recovery fees as they do every customer. "We decided to break this (expense) out on the bill to show the world that Vonage and our customers contribute to these funds," Schulz said.


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"We also feel it is necessary to dispel a widespread confusion in the industry as to how and what Vonage and our customers pay into said funds," she said.

Since its commercial introduction in the late 1990s, VoIP dialing has been regulation-free, because states and federal agencies preferred to not dampen the business efforts of what was then a little-known but promising new technology to make phone calls over the Internet. The VoIP upstarts didn't need regulations--or the extra costs and technical problems that go with them.

But as the number of U.S. Internet Protocol (IP) telephony subscribers increased, a growing number of states, along with the Federal Communications Commission, put VoIP providers on their regulatory radar. Minnesota regulators in August asked Vonage to apply for a traditional phone provider's license. Regulators in Wisconsin recently made a similar move against VoIP provider 8x8.

At the time of Minnesota's decision, the regulatory activity had Internet telephony's earliest supporters believing that the technology had progressed from its early 1990s geek-chic reputation to a mainstream service--although its use is still relatively tiny compared with traditional phone dialing.

A spokesman for the Minnesota Public Utilities Commission said Monday that he's unaware of any impact the new Vonage fees may have.

Although regulations may finally force VoIP providers to offer essential services such as 911, many VoIP operators say consumers should brace themselves for higher prices, slower introductions of new Internet telephony services and the demise of some of the same start-ups that are just beginning to win customers.

 

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