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California eases up on Net phone rules

The state shifts gears on oversight of VoIP service providers, dropping its "regulate now" approach in favor of a rule-setting process that could take 18 months.

The California Public Utilities Commission will now take its time to decide whether to regulate Internet telephone service providers, according to a commissioner.

The commission was "acting first and asking questions later" last September, when it told six Internet phone companies to get the same license that landline phone companies need to operate in California, Commissioner Susan P. Kennedy said Monday.

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But since then, the Federal Communications Commission (FCC) has signaled that by February, it is likely to have a federal policy on such companies that will preempt any state rules. As a result, the California PUC has pulled back from taking the immediate enforcement approach and opened up to a "more deliberative process" in setting regulations that could last up to 18 months, according to Kennedy.

Because of California's size, some industry insiders believe that the state's tactical shift could have an effect on New York and the handful of other states that are now weighing up the regulatory future of what are known as voice over Internet Protocol (VoIP) service providers. "The FCC sent signals to states to back off while (they) decide," said Jeff Pulver, the founder of Free World Dialup VoIP service, who testified during a December VoIP hearing the FCC conducted. "California took it as an action item. Maybe more states will too."

A representative from the New York State Public Service Commission was not immediately available for comment.

The move by California is a victory for VoIP providers such as Vonage, VoicePulse, Net2Phone and 8x8's Packet8, which argue that their calls avoid the traditional phone networks by using the Internet, and as a result, they are not subject to existing telephone taxes or rules. But traditional phone companies such SBC Communications say that despite any technological differences, VoIP providers should be regulated, because they sell a competing telephone service.

At stake are possibly billions of dollars in state taxes to support services like the E911 cell phone emergency plan. It also could affect the future of a special $2.25 billion-a-year tax that provides schools and libraries with discounts on everything from Internet access to phone lines for fax machines to domain name registrations.