FCC ruling stirs up VoIP competition

The FCC's Nov. 9 decision to preempt state regulation of VoIP operators should result in more choices and lower prices to telecom customers, with particular benefit to telecommuters, according to industry analysts, service providers and equipment vendors.

The decision already has opened the pocketbooks of two VoIP companies looking to expand their offerings. Pulver.com, founded by Internet telephony pioneer Jeff Pulver, plans to launch a prepaid calling service called LibreTel by early December, and Vonage Holdings plans to expand its leased-fiber network to offer higher-quality calls and local phone numbers in more locations.

Vonage was the immediate winner in the ruling, in which the FCC granted the company's petition that its DigitalVoice service should be exempt from traditional telecommunications carrier regulation by the Minnesota Public Utilities Commission. Among other things, the regulations would have required Vonage to get a license to operate in the state. Services such as DigitalVoice, which lets subscribers make and receive calls over a broadband connection from anywhere in the world, should not be regulated by both state and federal governments because it's impossible to distinguish between local and long-distance calls, the FCC said.

The decision, which also cited the FCC's deregulatory policies and the federal government's policies to promote Internet development, had been expected to favor Vonage. The fight over how to regulate VoIP is far from over, but the latest ruling should clear up some uncertainty and benefit the VoIP industry, analysts and industry executives say.

"Effectively, everyone's been green-lighted now to go and launch their products," says Pulver, president and CEO of Pulver.com. Even though the industry still is waiting for a broader FCC decision on whether VoIP should be regulated as a telecom or a data service, he adds, "There's a window of opportunity for people to come out and offer services and not worry about what's at the state level." Pulver.com's own free VoIP service, Free World Dialup, got a favorable ruling earlier this year when the FCC exempted it from most regulation. Unlike most VoIP services, Free World Dialup is free and allows calls only between subscribers.

Pulver says the new prepaid LibreTel service will offer a "virtual" phone number and unlimited VoIP calls for a flat monthly fee. Had LibreTel required state approvals, Pulver.com would have had to post bonds of millions of dollars in some cases.

"I saw no value in pushing the envelope until there was certainty," Pulver says. "The administrative cost of the service would far outweigh any profit margins I'd have."

Vonage has held off investing in new infrastructure until the decision was made, says CEO Jeffrey Citron. The DigitalVoice service can reach any phone by handing off calls to the public telephone network, but in areas where Vonage has its own network it can provide local numbers. These let Vonage subscribers establish a virtual local presence so relatives, friends and business associates can call them at local rates. Now Vonage plans to expand its network to Iowa, Maine, North Dakota and other states, according to Citron.