- The Washington Times - Thursday, February 12, 2004

Federal regulators signaled an unwillingness to saddle a new Internet phone service with rules that could slow its growth.

The Federal Communications Commission yesterday said a New York company’s Internet phone service will remain free of regulation.

But the FCC will examine whether the voice-over-Internet-protocol market should be treated like traditional phone companies.

A small number of people use Internet phone service, which sends calls from computer to computer, but the nascent technology is gaining popularity and has attracted the attention of regulators.

“Our starting point … is the recognition that all [Internet] enabled services exist in a dynamic, fast-changing environment that is particularly ill-suited to the century-old telephone model of regulation,” FCC Chairman Michael Powell said.

In the FCC’s first decision on Internet telephone service, regulators voted 4-1 not to treat Melville, N.Y.-based Pulver.com like other phone companies because it is an information service.

Jeff Pulver started the computer-to-computer telephone service in November 2002, allowing subscribers to make calls over high-speed Internet connections free of charge.

The service has 150,000 subscribers, but after the ruling, Mr. Pulver predicted the company will have 1 million subscribers by year’s end.

“It should help increase [subscribership],” he said. “It clarifies that consumers won’t have to pay for the service.”

The decision about Pulver.com’s Free World Dialup calling is a narrowly tailored ruling because it applies only to that company and was made in response to a petition from Mr. Pulver for regulatory clarity.

FCC Commissioner Michael Copps, a Democrat, objected to the ruling. He said it could hinder law enforcement and national security because Pulver.com, and other services like it, won’t have to comply with law enforcement on court-approved wiretaps.

Commissioners still have significant decisions to make about other Internet telephone services, and yesterday they began the first major proceeding to examine what Mr. Powell called the most important telecommunications issue in history.

AT&T; Corp., SBC Communications Inc. and Vonage Holdings Corp. all have asked the FCC to decide whether Internet calling is a data service or a telephone service. The companies want Internet phone calls classified as an information service, not a telephone service. AT&T; wants the calls exempt from access charges.

The FCC must decide whether to regulate Internet phone calls because parts of each call rely on the phone network. Phone companies that use the network are obligated to pay access fees, the charges long-distance carriers pay local phone companies to connect and terminate calls, and pay into a fund that helps subsidize phone service for rural residents.

Verizon Communications, the nation’s largest local phone company, praised the FCC for stepping forward to provide some regulatory clarity, but it urged them to treat Internet phone calls like traditional phone service and force companies like AT&T; to pay its fair share.

“AT&T;’s petition attempts to paint its traditional long-distance service as voice over the Internet in order to avoid the access charges that other long-distance carriers pay. The FCC should act quickly and confirm that its existing rules require AT&T; to pay access charges on this service,” said Susanne Guyer, senior vice president for federal regulatory matters at Verizon.

Carriers using the phone network also must provide 911 service and allow law enforcement officials to tap phone calls.

Mr. Powell said the FCC will also examine law enforcement’s access to Internet calls, but he said it is unnecessary to postpone other regulatory decisions on Internet telephony while that work is in progress.

The market for Internet calls is expected to rise from $3.3 billion last year to $15.1 billion by 2007, according to technology research firm IDC.

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