FCC Exempts VOIP From State Rules

Federal regulators gave a big boost to Internet phone call providers Tuesday by protecting the rapidly growing service from state regulation.

The Federal Communications Commission voted 5 to 0 to give Internet telephony companies the sort of relative regulatory freedom enjoyed by the cellphone industry.

The unanimous decision -- rare for the FCC -- is expected to speed the rollout of voice over Internet protocol, or VOIP, which is hailed by many as the next frontier in the $300-billion telecommunications industry.

The California Public Utilities Commission and other states’ regulatory agencies can impose some taxes and fees on Internet calls but are now precluded from imposing VOIP regulations that potentially would be conflicting.

“To subject a global network to disparate local regulatory treatment by 51 different jurisdictions would be to destroy the very qualities that embody the technological marvel that is the Internet,” said FCC Chairman Michael K. Powell, who campaigned in recent months to protect Internet calls from state rules.

VOIP chops conversations into packets of data and dispatches them, like e-mail, over the Internet. Before they reach their destination, the packets are reassembled into speech. Subscribers generally buy unlimited local and domestic long-distance calling for $20 to $35 a month.

Regional phone companies such as Verizon Communications Inc. and BellSouth Corp. praised the FCC decision. These companies -- which are losing customers to VOIP providers -- want to market their own Internet calling services because they are cheaper to provide than traditional phone services.

Susanne Guyer, a Verizon senior vice president, called the decision “a positive first step toward allowing” Internet telephony “to flourish in an environment of robust competition.”

One consumer group blasted the decision as anti-consumer because it weakens state oversight of a basic communications service.

“What’s at stake is whether” Internet telephony “addresses the needs of low-income communities, spurs economic growth and assists civic expression,” said Jeff Chester, executive director of the Center for Digital Democracy. “To do so requires having states and local government be able to make essential decisions about the welfare of their citizens.”

Tuesday’s vote was in a case involving Vonage Holdings Corp., which has 300,000 customers. The FCC preempted a bid by the Minnesota Public Utilities Commission to require Edison, N.J.-based Vonage to register as a telecommunications service, which would have allowed the Minnesota agency to apply state rate regulations and other rules to the company’s operations there.

Vonage, an Internet telephony pioneer, argued that its service shouldn’t be subject to regulation by states because the company lets customers make calls from any location that has a high-speed Internet connection, including such spots as hotel rooms and coffeehouses.

Unlike with calls made from regular phones that are tied to a physical address, there’s no way to tell from what state a VOIP customer is dialing.

In February, the FCC exempted from regulation an Internet phone service that exclusively used computers rather than regular phones to place calls. Later, in another case, the FCC ruled that AT&T; Corp. should pay traditional phone access fees for Internet phone calls placed by its customers because the company’s Internet telephony service relied heavily on the traditional phone network.

With cable companies such as Comcast Corp. announcing aggressive rollouts of Internet phone service to customers, the number of Internet telephone lines is expected to approach 1 million this year, up from about 131,000 last year, according to Yankee Group, a Boston consulting firm.

A spokeswoman for the California PUC declined to comment. But the FCC’s ruling was hailed by PUC Commissioner Susan Kennedy, who has been a vocal supporter of the FCC deregulatory initiatives.

“The FCC did the right thing today,” Kennedy said. “We need a uniform national framework in which VOIP can thrive.... A patchwork of various state regulations will only stand in the way and hurt consumers.”