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Wisconsin enters VoIP fray

State regulators say an Internet voice-calling provider is subject to the same rules as traditional phone companies, the second major move by a state against an Internet phone service.

Wisconsin regulators have informed Santa Clara, Calif.-based 8x8 that its Packet8 Internet voice-calling service is subject to the same rules as traditional phone companies, marking the second major move by a state against Internet-based phone operators.

The company said that the Wisconsin Public Service Commission (WPSC) informed it by letter last week that 8x8 cannot provide voice-calling services within Wisconsin without the commission's certification, and that Packet8's bills for all voice calls within the state are void.

Wisconsin's letter signals increasing regulatory scrutiny of Internet voice calling, and follows a similar warning issued to voice over Internet Protocol (VoIP) provider Vonage in Minnesota last month. Michigan's Public Utilities Commission ordered that New Jersey-based company to immediately pay fees to support 911 service.

A representative for 8x8 said Wisconsin's interpretation of its Packet8 service goes beyond VoIP, with wide ramifications for Internet-based services in general.

The WPSC "could potentially regulate e-mail because they don't distinguish between data communication and telephone communication," Huw Rees, a spokesman for 8x8 said. "It seems to be a lot of confusion to how and whether or not to regulate these types of services."

Rees said 8x8 will respond to the WPSC within 30 days.

The decisions strike at the heart of an increasingly controversial question concerning VoIP services: Should phone calls that use the Internet rather than the traditional public telephone network be regulated as a telecommunications service or an Internet service?

Consumer VoIP services are still in their infancy, but analysts predict a major shift away from traditional phone services to Internet-based rivals in the coming years. Treating Internet voice calls like data could have a major impact on taxes and other revenue from traditional phone services, with enormous potential fallout for programs such as universal service and the e-rate fund, a federal program that subsidizes Internet access for schools and libraries. These programs are funded through taxes on telephone calls.

The issue is still largely undecided. VoIP providers argue that their services should be considered data, since they travel over the same path as Web traffic.

Advocates of the technology submitted a petition earlier this year to the Federal Communications Commission seeking a declaratory ruling that VoIP providers are Internet services, and therefore beyond the reach of ordinary telephone regulations. Last year, the agency made just such a determination in the case of cable broadband providers.

A representative of the Wisconsin Public Service Commission did not immediately return calls seeking comment.

CNET News.com's Ben Charny contributed to this report