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Feds expected to ease Net phone rules

Sources say FCC on Tuesday will further exempt Internet calls from state rules and taxes. But is cable a fly in the ointment?

The nation's top telephone regulators are widely expected to decide on Tuesday to further deregulate Internet phone services.

States would be barred from imposing telecommunications regulations on Net phone providers, which treat calls no differently than any other application on the Internet, according to those familiar with the Federal Communications Commission.

That class of operators includes Vonage Holdings, which asked the FCC for just such a designation last May, plus Verizon Communications, AT&T and dozens of other commercial Internet providers, according to those familiar with the FCC's thinking.

"This is going to be huge," said Jeff Pulver, co-founder of Free World Dialup, a free PC-to-PC telephone service provider that won exemption from federal and state regulations last year. "Otherwise, anyone who wanted to offer Internet phone services could be subject to 51 different sets of state regulations."

A tougher regulatory stance may hurt projections that VoIP services will expand from the 1 million homes foreseen at year's end to about 10 million by the end of the decade. As traditional phone carriers see more local calls flow over the Internet rather than their own more expensive networks, they have been adding their own VoIP-based services to lure business customers away from those companies that specialize in Net phone technology.

Complicating matters somewhat is what Vonage Chief Financial Officer John Rego described Monday as a "zero hour" request by Time Warner Cable and other cable providers to be included in the FCC's Tuesday decision. Cable providers, most of which now sell telephone plans, fear that they'll be left out of the ruling, because their services run over privately owned and operated networks, not the public Internet.

"Basing (the decision) on whether a particular service uses the public Internet or a managed IP network would unfairly favor certain business models," a group of cable lobbyists, the National Cable & Telecommunications Association, wrote in a letter to the FCC.

An FCC spokesman could not be reached Monday for comment. Traditionally, the FCC tips its hand about a week before each of its monthly meetings, when its agendas are published. If an issue is on the agenda, it has typically been approved by the commission, though sometimes with drastic changes. As of Monday, the Vonage petition was still slated for discussion.

Also, a recent comment from FCC Chairman Michael Powell suggests his attitude toward the issue. He said during a public appearance two weeks ago that "to hold that packets flying across national and international digital networks should be subject to state commission economic regulatory authority is to dumb down the Internet to match the limited vision of government officials."