New phone service cuts off carriers

They call it telephony, this emerging technology that will allow you to place and receive phone calls through the Internet connection in your home.

Technically, it's called VoIP -- Voice over Internet Protocol. Clearly, it's the "next big thing" in telecommunications.

Just as clear is the hotly debated pivotal issue of taxation and regulation, which have pitted major traditional phone line carriers (like Verizon) against tech start-ups like Vonage.

There are a couple of significant technical issues to be resolved with VoIP, but all of the parties agree the availability of digital broadband to the home has cleared the way for this new wave of telephone service.

Armstrong Cable customers in areas such as Connellsville, Mt. Pleasant and California, have access to the new service. No doubt they have noticed in advertisements the substantially lower monthly service charges for unlimited local and long-distance service via Internet when compared to a traditional phone line provider package.

That vastly lower cost of doing long-distance business has the phone carriers fuming and sets the stage for a regulatory donnybrook next year in a ring presided over by the members of the Federal Communications Commission.

The primary reason rates are considerably lower is a function of federal regulations.

Traditional phone carriers collect from their customers an assortment of mandated fees and taxes per phone line. There aren't any such access charges for long-distance service with VoIP because Internet phone customers do not use a traditional phone line and therefore aren't subjected to the full scope of those add-on charges.

Internet phone service, however, can only be activated if a consumer also subscribes to a cable television company's broadband Internet service.

Those fees and taxes are the crux of a heavyweight battle that is imminent between such giants as BellSouth, Qwest, SBC and Verizon, and the new corporations which supply the Internet phone service.

"It's simply not a fair competition," says Bobbi Henson, a spokeswoman for Verizon in Dallas. "We've already been expressing our concern with the FCC. Why are we the only one taxed• It's not fair that if we both are providing a similar service, only one is subject to those taxes.

"Actually, we aren't interested in more taxes across the board. We'd much prefer less regulation for everyone."

Next big thing?

The field will explode in 2004, according to developments just in the past week.

Time Warner Cable will roll out its national Internet-based telephone service. Qwest will expand its test market to 14 other states. AT&T will jump in during the first quarter.

A spokeswoman for Adelphia Communications, based in Denver, says Adelphia will enter that market probably in the first quarter of 2005 as significant equipment upgrades are finished. A spokesman for Comcast said the company now offers a traditional phone service, but it has been testing Internet telephony in several markets and expects to offer it to more and more customers throughout 2004.

Verizon will most likely enter the field in the second quarter of 2004, Henson says.

"We recognize it's an emerging technology, and we view it as an opportunity and not a threat," Henson says. "We think our record in the telecommunications field will provide us with a distinct advantage in terms of bundling and providing various services."

Armstrong Cable recently unveiled its Zoom Phone service. The price is $34.95 for unlimited local and long-distance calling, or $24.95 for an unlimited local package and 500 long-distance minutes a month. Extras like *69 callback, voicemail, call waiting, caller ID, etc., are included in the base price. There are various other bells and whistles as well.

The service itself is provided by Vonage, the New Jersey-based telecommunications company considered the first to roll out Internet phone service. Armstrong merely provides use of its existing lines for the service.

There's a one-time activation fee of $30, and Vonage sends an adapter box within two days. A spokeswoman says it can be installed in less than five minutes.

"We are competing with the Verizons of the world and all their millions of miles of line," says Brooke Schultz, vice president of corporate communications for Vonage.

"We just rolled out our partnership with Zoom in late summer, and we understand they've already signed up thousands of customers," Schultz said. "Even after a couple of the required taxes and fees, the bill for unlimited local and long distance is still under $40."

Some differences

There are some important differences between phone line and Internet phone service.

You may or may not be able to retain your current number. Switching over could take upward of 20 days.

On the other hand, you are no longer tied to your current area code. Your area code can be anywhere in the country if it's on the list available to you. Friends and family in Philadelphia• Use that area code and make it a local call for those folks even if you're in Connellsville.

In the event of a power outage, however, the phone will not work. And you have to pay your bill with a credit card.

Perhaps the most significant technical drawback of concern to the industry -- one that is expected to be smoothed out within a year or so -- occurs with accessing 911 service.

Internet phone users of Armstrong Zoom, for example, must "activate" a pseudo-911 service in advance by filling out a form that specifies the exact physical location of the phone.

This information is filed with a Public Safety Answering Point, which will not have the automatic capability of displaying the caller's phone number and address as occurs with the enhanced 911 system.

Callers will have to be very specific and concise about where they are calling from and the nature of the emergency. The Point service will then relay the information to the local emergency response unit designated on the form.

Schultz says Vonage is testing "solutions" to the 911 dilemma and adds that it is a priority of the FCC as well.

"We realize the 911 issue may be a hindrance in the eyes of some consumers but we feel that we will be able to work out the 911 issue within the next year," she said.

In addition to the significant regulation and taxation issues, the 911 issue is one of the key areas that will be studied by the FCC's new Internet Policy Working Group, which will begin in earnest next month. That panel was just created in the past few weeks.

The group also will address FBI concerns that VoIP will thwart the ability to use wiretaps and will also discuss the possible impact on rural telephone systems, which draw on a $6 billion fund established through collection of the Universal Service Fee on traditional telephone bills.

The FCC battle is likely to be a scratch-and-claw one. A federal judge in Minnesota already has ruled that state regulators must keep their hands off services provided by Vonage "because of the recognizable congressional intent to leave the Internet and information services largely unregulated," U.S. District Court Judge Michale Davis wrote.

Phone company representatives and those of new companies such as Vonage have both expressed concerns about fees, taxes and regulations to the FCC.

"It's our contention that the Universal Service Fee program for rural phone service needs to be overhauled anyway," Schultz says. "It's essentially funding old technology. We need to consider the expansion of broadband as well."

"All we want," Henson says, again, "is a fair playing field."