STATES PUSH TO REGULATEVOICE AS VOICE

Voice-over-IP provider and vendor 8X8 revealed last week that the Wisconsin Public Service Commission sent the company a letter telling it to become certified as a carrier before it resells intrastate services in Wisconsin. The move underscores state regulatory bodies' new interest in IP-based voice services, and demonstrates that the state commissions are still not sure how to handle the insurgent service provider faction.

At the center of the issue is whether VoIP providers should be regulated as carriers or information service providers. State commissions are leaning toward the former.

In its letter to 8X8, the Wisconsin PSC also told the company that any customer bills generated prior to certification would be void and that it would be forced to provide credits or reimbursements to customers for any bills collected.

8X8 and other VoIP providers argue that they don't resell services at all. They believe they should be treated like any large enterprise because they terminate traffic through partners registered as CLECs in various states.

“We pay them fees to originate and terminate our traffic on their network, and we assume they are paying whatever fees they're supposed to be paying,” said Hugh Reese, vice president of sales and marketing for 8X8.

While a state commission might want to tax intrastate traffic, doing so likely would be difficult. For one, VoIP providers don't always know where their customers are located.

“The way our service works, you can literally take our box anywhere,” Reese said. “We know where they signed up originally, but at any given time we don't have a clear idea as to their physical location. It's not black and white, and we don't think the commission has appreciated yet what this new method of calling means to that kind of mobility.”

Additionally, many service providers argue that VoIP is just one application among many that ride on data networks.

The State of VoIP Regulation Alabama: On July 31, 31 ILECs in the state ask the Public Service Commission for a declaratory proceeding on the classification of VoIP services. Colorado:In April, the PUC launched a one-month inquiry into VoIP providers without concluding how they should be regulated. No decision has been made yet. Florida: In a rare victory for VoIP providers, the Public Service Commission decided not to regulate VoIP. Minnesota:In August, the state PUC ruled that Vonage would not be allowed to operate in the state unless it becomes certified as a carrier. Ohio: PUC is asking whether VoIP providers are offering telephone service. No decision has been made yet on regulation. Pennsylvania: In May, the state PUC created a docket seeking comment on how VoIP should be regulated. No decision has been made. Wisconsin: Last week 8X8 revealed that it received a letter from the Wisconsin Public Service Commission asking it to clarify its role in providing voice services and whether it should be regulated as a traditional telco. Sources: State commissions, Pulver.com

One of those providers, Vonage—which in August was informed by the Minnesota Public Utilities Commission that it must be certified to operate in the state—argues that state commissions are taking a short-term view of VoIP services.

“Minnesota does not understand the technology,” said Lou Holder, executive vice president of product development for Vonage, which is providing service as both a retail service provider and as a wholesaler through cable operators and ISPs. “They say if it looks like a duck and walks like a duck, it's a duck. It's not that clear cut. The FCC is going to have to jump in at some point.”

Jeff Pulver, founder of Free World Dialup, recently argued at a Cato Institute forum that regulators are being pushed by the incumbent telco community, which he said is not threatened in any way by VoIP services because of the minute percentage of users the platform attracts. Free World Dialup took its case to the federal level in February when it filed a petition with the FCC asking that it not be regulated as a traditional telco.

“The key to the Free World Dialup petition is that voice is an application,” Pulver said during the forum, adding that VoIP is no different than Web surfing in that regard. “If you're looking at voice over the Internet as anything other than an application, you're missing the point.”

Indeed, incumbents are keenly aware of VoIP providers as another competitor even if they don't have a big market share, said Blaik Kirby, senior telecom analyst for Adventis.

“In some markets, cable companies have a 30% to 40% share where they have deployed cable telephony pretty aggressively,” Kirby said. “So the incumbent—which already has competition from the IXCs through UNE-P and from the cable companies through facilities-based competition—all of a sudden might not be the largest service provider in that market.”

Kirby isn't advocating that state commissions regulate VoIP providers as telcos. Instead, PUCs should use the opportunity to complete deregulation of local telephone service, but still require minimum service standards, he said. Vonage, for example, landed on the Minnesota PUC's radar screen originally because it didn't have a commission-approved 911 plan.

“If you're going be a provider of local telephone service, whether its VoIP or circuit, you have to provide minimum services that customers expect, like 911 and directory assistance,” Kirby said.

That's just how Bell company representatives see the issue. It makes no sense to apply an already outdated regulatory model to a new technology that doesn't fit neatly into that category, said David Young, director of technology policy for Verizon Communications.

“Fundamentally, I think the feeling is that where competition can regulate the market, it should be left alone rather than having a government regulator do the job,” Young said.

However, Young said VoIP providers should be “brought into the fold” by forcing them to pay interconnection access charges when appropriate and requiring them to provide the essential services that any local service provider must offer, such as 911 and directory assistance. But he conceded that having state commissions regulating VoIP would be problematic.

“It's hard to determine jurisdictionally where that IP endpoint is,” he said. “You don't know if it's next door, across the state or around the world. What will probably happen is that some default presumption will have to rule. Maybe VoIP will be presumed to be an interstate call unless it can be documented that it's something else.”

Qwest Communications, which is facing off with Vonage in Minnesota, argues that VoIP providers shouldn't be regulated but should be required to pay access fees like any other service provider if they terminate minutes on other carriers' networks.

“The VoIP providers want to say that if they have to pay access charges, then you're regulating the Internet,” said Steve Davis, senior vice president of policy and law for Qwest. “That's ridiculous.”

Davis agreed with Vonage's Holder that the FCC ultimately must get involved. “The FCC needs to make a declarative statement; right now people are making up their own rules,” Davis said.

Until it does, state commissions will be left to their own devices. Many are taking a wait-and-see approach. Illinois Commerce Committee Chairman Edward Hurley said VoIP is in such an embryonic stage that the commission needs to look at the competitive landscape before determining whether to exert its jurisdiction or regulation.

“We do have some concerns over things like 911, but this is one of those situations where we're not sure it's broke, so why fix it,” Hurley said.