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VoIP: The New Service on the Block

Affordable phone service, consumer protection, and universal service are at stake as Internet phone service ("VoIP" or "Voice over Internet Protocol") emerges as an alternative to traditional phones.

A ruling by the Federal Communications Commission (FCC) found that Vonage's VoIP phone service is an "interstate" service that is not subject to state jurisdiction.  FCC Chairman Michael Powell said the FCC has decided that states do not have a right to regulate VoIP, leaving regulations up to the federal government.  However, the FCC failed to provide any framework that addresses the issues of public safety, consumer protection and universal service.

Exempting VoIP from virtually all of the public interest obligations and consumer protections that apply to telecommunications services will ripple through the market, according to a statement from Consumers Union, diminishing the quality and driving up the cost of basic telephone service for those who simply cannot afford to pay for computers or high speed connections to the Internet.

Public Safety and Consumer Protection at Risk

By approving the Vonage petition, the FCC tied the hands of state regulators who have asserted that VoIP is no different from traditional phone service in terms of public safety, universal service and consumer protection. Until the FCC acts to provide a framework for ensuring public safety and consumer protection, companies can market VoIP as an alternative to traditional phone service, while consumers are left in limbo over vital issues, such as whether E911 will work on their Internet phone.

Not a Perfect Substitute

Because VoIP requires a high-speed broadband connection, low-and middle-income consumers will not benefit from lower VoIP prices until they can afford to pay for a broadband connection (about $30 a month), in addition to the cost of the cable or phone service that is required to get a broadband connection. Also, if the power cuts out so does your telephone.

Another Bottleneck?

The largest telephone and cable companies are already positioning themselves to dominate the market for this service.  Deregulating high-speed Internet gives cable and telephone companies the opportunity block VoIP calls from independent providers.  Such a policy will allow the phone companies and cable companies to favor their own affiliated VoIP services over others and thereby limit VoIP competition.

When a small local phone company, Madison River, tried this and blocked their DSL customers from using Vonage service in 2004, the FCC quickly stepped in and Madison River stopped the practice and paid a fine. But the regulations that explicitly banned blocking have been overturned.  Currently a statement of FCC policy prohibits blocking, but itís unclear how the Commission will enforce that in the future.

Some telephone companies already force their customers to purchase their telephone service when they sign on for high-speed Internet service such as DSL.  This practice undermines competition, since consumers are unlikely to be willing to pay for two voice service providers.

Learn More

The Washington Internet Project, a non profit group, dedicated to raising awareness and promoting participation in federal initiatives relevant to the Internet has in-depth information on VoIP.

Most consumers use VoIP services from companies independent from local cable or telephone companies.  These independents could be at risk if cable and telephone companies block Open Access and Content.

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