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Alaska cancels VoIP contract

The state ends a $100 million telecommunications deal with its largest phone company, saying the firm failed to deliver an Internet-based phone system on time.

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Alaska has canceled a $100 million telecommunications contract with the state's largest phone company, saying it failed to deliver an Internet-based phone system on time.

Alaska Gov. Frank Murkowski's office said in a statement released Monday that Alaska Communications Systems (ACS) had promised to install 20,000 voice over Internet Protocol (VoIP) phones at more than 400 sites by April 2003, but the company had delivered only 239 phones as of last week.

Ray Matiashowski, Alaska's deputy commissioner of administration, added that the installed phones, which all came from Cisco Systems, did not pass quality standards agreed to in the ACS contract.

"There were some voice quality issues, jitter," Matiashowski said in an interview Tuesday. "The phones have not met the criteria necessary for final sign-off."

ACS CEO Chuck Robinson fired back at the state on Monday, insisting his company had fulfilled its obligations under the contract. He added that the company had fallen behind schedule because the government did not provide an adequate inventory of its existing equipment, delaying the company's efforts to complete the VoIP installation and other projects.

"ACS has invested more than $20 million to meet its obligations under this agreement and has consistently accommodated the state even beyond the scope of the original agreement," Robinson said in a statement.

Monday's decision ends a sweeping outsourcing deal struck in 2001 that covered about a dozen state communications services, and it puts the state's VoIP overhaul up for grabs.

Matiashowski said the state intends to go ahead with the upgrade plans and will likely re-bid the VoIP contract and other aspects of the canceled deal following a disentanglement period. He added that the delays and ongoing problems with the system had not dampened the state's enthusiasm for VoIP, or for Cisco.

"We're very comfortable with the technology," he said. "There is no fault by Cisco at all."

Matiashowski said he did not consider the quality issue a major problem but noted that the installed Cisco equipment did not yet meet the state's requirements given plans to install the phones in law enforcement and emergency services offices, where clear, reliable connections are essential.

A Cisco representative declined to comment on the Alaska contract dispute but defended the voice quality of its VoIP phones.

"VoIP call quality was a concern several years ago in the early development period of this technology," the representative said. "However, today, all IP telephony vendors can deliver high-quality IP voice, and Cisco consistently rates near the top in voice quality evaluations by third parties."

VoIP is a new breed of cheaper phone service that lets people place calls through the Internet and avoid telephone companies' local and long-distance networks. Although it has a relatively small number of subscribers, analysts say Internet telephony is poised to threaten the longstanding dominance of major U.S. phone companies such as BellSouth, SBC Communications, Verizon Communications and Qwest Communications International.

The Alaska dispute comes as Internet-based phone systems are gaining traction in corporations and among consumers, setting off regulatory alarms in Washington, D.C., and a growing number of states.

Minnesota and Wisconsin recently weighed in on the issue, seeking to slap limits on VoIP services in those states. Meanwhile, a Pennsylvania state senator stepped up in defense of the technology on Tuesday, proposing a five-year ban on VoIP taxation and regulation.

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

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