Competitive Intelligence

In a Defeat for Big Telecom, Minnesota Federal Judge Says Hands-Off VoIP

I noticed this story come out yesterday and was thankful my neighboring state has decided to lead by example - thus, perhaps, making it a little more certain the fate of my own VoIP service from Vonage. VoIP has been around for years, but usability and interoperability barriers with the traditional POTS system has made them a non-existent threat to big telephone companies until Vonage made a VoIP call seem a lot more like a regular phone call.

Naturally, the old hard-to-use VoIP services are still around - using essentially the same technology; they just aren't as much of a threat to the installed base of landline customers as Vonage has become - should we regulate IM providers like Yahoo, AOL and MSN, where VoIP is one option of their services?

"We're not suggesting that broadband telephony should never be regulated, but it can't be squeezed into existing regulation," Vonage Chief Financial Officer John Rego said in a recent interview. The link below provides some excellent competitive analysis of the situation - here're some excerpts:

Internet phone providers have won the first round in a clash with state regulators, providing needed momentum for the upstart industry.

In ruling from the bench late Tuesday, Minneapolis federal Judge Michael J. Davis permanently barred Minnesota from applying traditional telephone rules to Vonage, a pioneer in technology that lets consumers bypass the traditional phone network by making voice calls over a broadband connection. A written order that explains that the court's rationale is expected by Friday, according to the Minneapolis court clerk's office.

Minnesota Public Utilities Commission (PUC) analyst Stuart Mitchell said Wednesday that for now, the state plans to comply with the court decision and could conclude its proceedings against Vonage as early as Thursday, when the agency is next scheduled to meet.

"We've been told to stop, so we won't be enforcing our order," Mitchell said in an interview Wednesday. "I don't think the commission wants to violate a federal order."

Tuesday's ruling for now frees Vonage to sell its Internet phone service in Minnesota without obtaining a telephone operator's license or paying fees to support 911 services. More importantly, the order is the first to address the authority of a state to oversee so-called voice over Internet Protocol (VoIP) providers and could thus impact efforts by other states to regulate the Net telephony providers.

State regulators had threatened to stall VoIP's growth by forcing providers to follow the same rules as do traditional phone companies. As a result, the Minnesota suit was being closely watched by VoIP industry executives, consumers and traditional phone companies.

In the end, it's clear that, if we're going to regulate VoIP like we do POTS, we need to overhaul the regulatory system for telecom services as a whole; and that's not something you'll see big telecom pushing to have happen either.

- Arik