New York State Classifies Vonage As Phone Company

securitas writes "CNet's Evan Hansen reports that on Wednesday, the New York State Public Service Commission 'ruled that Vonage Holdings is a telephone company and thus subject to state regulation.' The decision is seen as a blow against the emerging voice over Internet protocol (VoIP) company and the industry in general."

Comments

First?

[bobbis.u]

Sounds like a bad call to me!

Re:First?

[N3WBI3]

Welcome to NY where if we cant tax and regulate it we dont want it..

Taxes?

[millahtime]

Does this state regulation mean the load of taxes thrown on it. The 911 tax I can't knock but all the others.

Re:Taxes?

[Shakrai]

Does this state regulation mean the load of taxes thrown on it. The 911 tax I can't knock but all the others.

Actually all this means is that they are subject to regulation by the PSC. That means they must file a tariff sheet with the PSC and that the PSC must approve any rate changes (up or down).

The decision is seen as a blow against the emerging voice over Internet protocol (VoIP) company and the industry in general.

I'm afraid I disagree. While I am somewhat leery of Government regulation the PSC does a good job. Ask anyone who has been stonewalled by their phone company. All it takes is one phone call to the PSC and a complaint and your phone company will fall all over you trying to fix the problem.

Three cases in point (both for the Agency I work at): One of our satellite offices changed locates. We informed Verizon two months before the move and followed up with them as it was happening. Yet for some reason the lines weren't moved. After two days of arguing with them ("We'll have your new lines installed in a week") I filed a complaint with the PSC. A Verizon vice President called me back (based on the information the PSC gave her -- she knew nothing about our other dealings with Verizon until I told her) and we had a techie at our site within two hours. Granted he only installed one line but it got us operational again and we had the others installed by the next day.

Another PSC story revolves around my boss deciding (against my better judgment) to move our local services to AT&T. Unfortunately the AT&T sales guy (actually working for a third-party that collected commissions from AT&T sales) lied to us about the services that they could provide. They were unable to provide us with an actual Centrex package so we lost the ability to transfer calls (our central offices handles all phone calls and dispatches them to the CSRs/Agents in the remotes that handle the account if we can't take care of the issue in the main office). This effectively shut our business down. I placed an order with Verizon's "Winback" group but AT&T refused to release the lines because they didn't have control over all of them yet -- so they claimed, funny how none of our Verizon features worked anymore and AT&T was billing us for calls during this time. After a full day of trying to get somewhere with AT&T (the PSC does require you to make a good faith effort to solve your problem first) I called up my friends at the PSC. Within twenty minutes I had somebody from AT&T corporate on the line who solved my problem and released the lines to Verizon. I also used the PSC (about a month later -- referring to the same case) to force AT&T to give us a credit for everything they billed us for since they (or their agents) lied about their services to begin with.

I also have a PSC story that relates to the power company. One day we received an automated call information us that our power would be shut off on Wednesday for "scheduled maintenance". The call didn't say where this outage would be (would it be in a remote office or our main one? They all have the same billing addresses/phone number since the main office handles all the accounts payable). Calling several people at NYSEG and none of them knew jack shit about it -- and they refuse (as a matter of policy) to let you talk to the actual guys that work on the lines. We needed to know which office it would be so we could make a decision -- if they are cutting power to the main office for six hours we will probably close the agency for that day -- but we can't make that decision without reliable information in hand. Anyhow after two days of dealing with this BS I called up the PSC and opened a case. Within an hour we were speaking to a NYSEG Manager who tracked down the field manager that was working on the project in question. He informed us where the outage would be -- turns out it was in an area that we used to

Re:Taxes?

[shrapnull]

Not only that but it creates a horrific precedent. Basically any translation from the web to the "real world" can be considered under this, including internet-to-internet phone calls as user-to-user calls are now.

This could be a staging ground to compare email to snailmail and attempts to apply applicable taxes will surely follow.

Not that I'm wholly opposed to a digital postage stamp as it would help deter spam, but we are surely in poor shape if the argument comes up in the state of New York. They don't seem to recognize that it's not the same market and if the tax on an email were more then a mere few cents, it will become painfully obvious that we're being gouged for replacing postal workers.

VoIP pays for it's use of carriers, but the users are not taxed. It transmits the signal into the local area via the internet and places the call from there. The use of taxes and fees has applied to the carriers internet connections from the very beginning, just not the end users.

However, switching to a "phone service" will supposedly keep local calls free for the forseeable future instead of giving telco's ammunition to charge per minute on local calls as they do in much of Europe.

Re:Taxes?

[Anonymous Coward]

I wholeheartedly disagree.

Vonage provides an internet phone service over your internet connection (which, btw, is not subject to the same stringent standards that your PSTN service is subject to).

Phone companes need to be regulated because they are a natural monopoly, as in they own and maintain the lines that provide these basic and nessecary services to your home.

The PSC shouldn't be used as a crutch for people who are too lazy to practice consumerism. If you don't like the service Vonage provides, don't use them! Your local Verizon service is subject to the rules your PSC puts out becuase Verizon is using public land and providing a type of service no one else can becuase they are given special rights to do this by the government.

This is just simply a ploy by the government to suck more money out of people that does not belong to them (save for 911 service which should be paid for).

Re:Taxes?

[duffbeer703]

Actually, from FY1993 through FY2003, no money went towards NY E911 services at all from that tax. Local counties or cities footed the entire bill.

Re:Taxes?

[jc42]

[I]t creates a horrific precedent. Basically any translation from the web to the "real world" can be considered under this, ..

Yeah; what I'm wondering is: Suppose I use the builtin microphone and speakers in my Mac Powerbook, or the plugin mike and speakers in my linux box, and write software to connect these to a program on another machine on the Net?

Am I now a phone company? Do I have to file the appropiate papers, pay taxes, and so on?

It gets more interesting when you consider that both I and my wife have PDAs with WiFi access. There are a number of these on the market now, such as the Palm Tungsten and the Blackberry RIM handhelds, and they mostly have a builtin mike and speaker. Also, voice-recognition software is available for all of these machines. Combine these with the Internet, and using them to remotely access sound files looks a lot like "phone" service.

So if I write a browser plugin that lets me talk into my PDA, which connects to my home machine and retrieves some files, am I now running a phone company? How about if I connect to a friend's home machine and do the same?

And some of us are working on voice-based interfaces for the benefit of the visually impaired. Is this all now to be considered a "phone" service, to be regulated and taxed as such?

Maybe it's time to just declare the Internet to be a phone system?

Oh Well

[kpogoda]

Looks like another stifled and regulated monopoly to me. So much for innovation in this industry. This looks like a bad case precedent.

Re:Oh Well

[Loconut1389]

Telephone company implies a telephone. IP telephony (a misnomer really) is sending audio signals over the internet to a designated IP address. Only because they are trying to bridge people to VOIP are there any telephone numbers associated with VOIP. VOIP itself does not require any use of POTS. It seems to me that a pure VOIP company (even if perhaps the device you speak into looks like a telephone) where there is no POTS based phone number attached nor does it traverse any of the POTS networks, should have no fees incurred. Now it would make sense to me to have taxes involved when a phone number is attached to it. But either way, it seems that the courts are trying to squeeze VOIP into the telephone paradigm, just like every non-technie in america. It makes it easier to embrace if its just a fancy phone.

Re:Oh Well

[hpavc]

sure ... now i want to see webex, microsofts meeting service, and others charge the same taxes as vonage is forced to.

Re:Oh Well

[h4rm0ny]

If it looks like a duck
Walks like a duck
and quacks like a duck


It must be a duck.

Seriously, did you think vonage WASN'T a phone company?

Vonage may or may not be a duck... I mean phone comapany, but what about less dedicated companies? What about an ISP that includes VoIP? What about a company that outsources their network management to a company that sets up VoIP for them internally to their company? What if some friends and I set up our own system, say about fifty of us? What if we've created a new animal that can quack when it wants to and bark the rest of the time?

The only clear cut off point is when we start connecting to the existing phone network. But I could set that up from my home network with a bit of fiddling. Would they come down on me?

If you don't use the connection to the existing phone network then do they want to monitor all internet traffic? Do they want to access encrypted traffic? Because that's the only way they can regulate VoIP.

And if they do use the connection to the existing phone network as their definition, then what happens 5-10 years down the line when VoIP dwarfs the old network. Do we just disconnect and saev ourselves a lot of money?

Re:Oh Well

[skarmor]

It seems to me that a pure VOIP company (even if perhaps the device you speak into looks like a telephone) where there is no POTS based phone number attached nor does it traverse any of the POTS networks, should have no fees incurred.

If there is no interconnection with the PSTN then no charges are incurred. The problem is that most voip companies are routing voip traffic over the public internet and then interconnecting to the PSTN for the last-mile.

It makes it easier to embrace if its just a fancy phone.

The problem is that voip is going to be used by everyone - not just techies. The average person is not going to see the difference between POTS and voip. They will expect voip service to behave the same as POTS. However, becasue it is not regulated, voip service does not currently need to provdie 911 service, full battery backup or meet any other quality of service standards.

Many people who will purchase voip services in order to save a buck will not understand that these standards are not there. So when one of these consumers tries to call 911 from their voip phone and the 911 operator thinks they are in NYC when they are really in Albany - there will be excessive bitching from the general public - and with good reason.

The same will be true in situations where the power goes out and these people can't use their phones. The regulators are just trying to stay "ahead of the curve"...

Re:Oh Well

[Frennzy]

YES! Incoming. Outgoing. It's a phone, dammit. The primary difference is they use a physical adapter to encapsulate an analog phone signal into IP packets. The device establishes a connection with Vonage proxies, which make the decision about how/where to route the packet, based on the destination phone number. If that number isn't a Vonage number, it ends up going out through a peering point (usually pretty damn close to the termination point of the phone call) and through the last mile copper to the destination. People keep talking about the 'internet' as if it's somehow completely distinct from the 'POTS' system. The vast majority of 'POTS' calls run over the same pipes as your internet data does. Major carriers aggregate circuit switched calls and push them into packet switched networks, because packet switched networks have much greater bandwidth. The thing is, I *already* pay taxes on my broadband connection. I also pay surcharges to Vonage. Why should there be an *additional* tax just because it's providing the same service as the incumbent telcos? Why the hell does the state gov have to be involved? Most of the work being done here is already paid for in other ways. Vonage is a Good Idea(TM) Company, and had the vision and agility to get to market early. They don't NEED regulation. They *lowered* their prices! The only reason phone companies are so heavily regulated is because they are typically lying, cheating, slamming scumbags. They NEED the government to watchdog them. Better yet, they need to be slapped down by the consumer. How? By consumers switching to things like Vonage. Pretty simple. Let the incumbent telcos end up as infrastructure managers. Keep them out of the consumer's pockets/homes.

So what kinds of extra fees do I have to pay now?

[whizkid042]

So, I use Vonage (and love it, btw) in New York State. And I have never known New York State to not charge a tax on something that it could. So, what kinds of extra taxes will I have to pay now?

If the taxes are large, then it is starting to look like I should just go back to having a cell phone again.

From the article

[I_M_Noman]

"I am quite disappointed to see that New York State decided to apply legacy telephone regulation to Internet based communications..." [Industry advocate Jeff Pulver] wrote.

Why am I not surprised that an "industry advocate" would be disappointed?

Re:From the article

[CptChipJew]

Jeff Pulver created Free World Dialup, and AMAZING service that is free, and lets you make any domestic US call for free, as well as toll-free numbers in the UK and Japan.

He is an advocate in that he wants to keep VoIP free. They make money be selling SIP phones (some of what actually look really cool).

He sees this as a disappointment, because if taxes are applied, it's going to be quite difficult to give a person free long distance in the US (from anywhere in the world) for free. They don't even sell off e-mail addresses.

This makes sense...

[asdfasdfasdfasdf]

It does have to connect to a real telephone exchange SOMEWHERE... If it was internet to internet telephony only, then I would be against this, but considering that it has to be able to send/recieve calls to other telcos, it should be considered a Telco itself, and taxed/regulated accordingly... Certainly vonage users should have to pay the 911 taxes. This is one of the few taxes in our society that actually pays for a service that is used directly.

I hate taxes (in general) as much as the next telephone user, I'm not saying they're fair-- but as long as they are there, customers should be taxed equally.

Re:This makes sense...

[gdbjr]

But what if you are calling another Vonage user? There should be no telephone exchange involved.

Re:This makes sense...

[Mazzie]

I agree with this 100%. I think that Vonage found a way to temprarily circumvent the taxes by originating all calls from an Internet connection, although I'm guessing a large percentage of the calls connect to a legacy phone system.

This idea is doomed for two reasons:

1. Goverment is cut out of tax revenue.
2. Mega monopoly telcos that lobby/stroke/pay-off politicians are now being undersold and are pissed.

If Vonage was strictly IP to IP and did not provide public services like 911, I think it would be a different story. Anyways, you really don't need a 3rd party involved for IP to IP. That technology has been around for quite a while, although both parties wanting to communicate need the hardware/software to make it work.

Re:This makes sense...

[Lehk228]

I am sure taxes will be adjusted accordingly

I live in NY, adjusted appropriately will mean raised through the roof to match everything else

Taxes

[stealthmidget]

I'd imagine the taxes will be quite large; the state isn't going to let Vonage come in and undersell the market. If this caught on tax-free, they'd be expected to get a significant portion of the market...now who knows

What about other VOIP apps

[MrRTFM]

If they are going to regulate companies that develop VOIP applications it will be interesting to see what happens with OS projects.

At the moment its only going to be 'minor regulations', but when it takes off and the "potential tax losses" start getting serious will we see all these companies/ projects move offshore.

Certainly not much could stop it if people want to use it.

Re:What about other VOIP apps

[DigiShaman]

When people start using applications to talk over the Internet, that's when you will have your Internet connection taxed. If the government can't micromanage the Internet as taxable revenue, why not just tax everyone's connection and be done with it? The only question I have, is when will it happen and not if.

The states want money

[WCMI92]

Hell hath no fury like government that thinks it's not getting it's "cut".

This is an attitude of our government that frankly, you and I shouldn't put up with, this thinking that government is entitled to tax EVERYTHING.

Already been declared void!

[Anonymous Coward]

I thought Oregon or California tried this and they lost the case! Moreover, the FCC along with Congress wrote legislation to prevent them from being regulated and taxed, thus I'd think anything NY state does would automatically be void too! I see a supreme court case in the works here to settle it once and for all. Most of NY state is the old GTE (now Verizon) phone company and the company stands to lose alot of jobs, along with state revenue.

It all depends...

[llamaguy]

Is Vonage a phone company? First, lets look up the meaning of telephone. Telephone: Noun, An instrument that converts voice and other sound signals into a form that can be transmitted to remote locations and that receives and reconverts waves into sound signals. (Dictionary.com) So, by this definition the service that Vonage was offering was a telephone service. However, like practically all else, this is open to debate. So go debate.

Re:It all depends...

[AKnightCowboy]

Is Vonage a phone company?

They seem to think they are. Right on their webpage is their tagline "The broadband phone company". Sounds like an open and shut case.. if you want to call yourself a phone company then prepare to be regulated like one. I have no problems with that.

The lesson here

[squarooticus]

The lesson here, especially to investors, is: "Don't try to provide innovative service in a heavily regulated industry." All that will happen is you'll blow a lot of money to get your business off the ground, only to be slapped down by a regulatory environment that, intentionally (through corruption) or not (through the law of unforeseen consequences), effectively acts as a defender of the status quo: the behemoth government-protected monopolies who've already learned the lesson.

Re:The lesson here

[malchus842]

And, said regulated industry has high-priced, professional lobbyists who are constantly making sure that a) their monopoly (if they have one) is protected; b) new entrants who try to offer a different, but competing service are barred from entry by regulation, taxes, etc , and c) that "shared" resources are priced high enough that startups have problems using them.

Look at the battle going on between the satellite companies and cable cos. Most cable cos are regulated locally, and have significant taxes. Satellite companies have been able (for the most part) to avoid this because of their model (only downlink located in most localities, and that downlink is privately owned).

I'm not surprised by this classification - every level of government believes that it has a $DEITY-given right to tax and regulate everything. Heck, hosting a home poker game in my state can get you a year in jail! I'm not opposed to all regulation by any stretch of the imagination, but regulation stifles creativity and needs to be applied only in very clear, very limited ways.

horrible precendent

[esarjeant]

This may be the deathknell for most small startups in the VoIP sector. Only the megaconglomerates (AT&T, Sprint, Verizon, SBC) will be able to compete in this kind of arena.

Very unfortunate. I had hoped to jump onboard the VoIP bandwagon in the near future (once my area code is available), but the cost benefit could be going out the window.

Right or wrong, it is going to stifle VoIP in NY.

[Matt1313]

New York State Public Service Commission said, "...saying that it nevertheless hoped to apply "only minimal regulations to ensure that it does not interfere with the rapid, widespread deployment of new technologies."

When was the last time a Government Agency applied "only minimal regulations" to anything? The tendency of bureaucracy, once involved in something, is to strengthen their involvement in that thing.

IP only telephony

[80N]

The incumbent telecoms companies ought to be really worried by VoIP. Right now they can get a slice of the action providing someone is trying to make a call to a legacy phone, by if its VoIP to VoIP they dont stand a chance.

Imagine, free unlimited and unrestricted (open source, of course) telephone services worldwide. Just like email. It will happen and there's nothing they can do about it.

And cell phones will be replaced by WiFi phones, with the gentle propagation of free WiFi hot spots in Cafes etc who's going to need to pay for a cell phone?

80N

Re:IP only telephony

[AKnightCowboy]

Imagine, free unlimited and unrestricted (open source, of course) telephone services worldwide. Just like email. It will happen and there's nothing they can do about it.

Oh, just wonderful. We all know how well e-mail works now that it's completely unregulated and free for all. VoIP spam. I can't wait. "Mommy, what's a hot young asian fuck stud and why does he want to sell me viagra?"

Re:IP only telephony

[redfenix]

The telcos don't get a slice for internet traffic? Since when?Who owns the internet backbones?

27.9% - UUNET/WorldCom/MCI
10.0% - AT&T
6.5% - Sprint
6.3% - Genuity (level 3)
4.1% - PSINet (cogent)
3.5% - Cable & Wireless
2.8% - XO Communications
2.6% - Verio
1.5% - Qwest
1.3% - Global Crossing

Hmm, these names are sounding awfully familiar!

Common Carier Laws?

[SWroclawski]

Okay, so most of us agree that this is a bad thing- it places more regulation on the Internet and protocals (taxes are just one step, wiretapping, etc. are of course going to follow and be required in all VOIP protocals (yes we know the reality is something else, nonetheless this is what I fear will happen).

But this does bring up an interesting point. Phone companies are regulated in what they are and aren't allowed to do with the phone conversations. They can't, for example, monitor your calls for marketing ala Gmail "Oh, you asked your wife to bring home some milk- well there's a deal at the local Megamart".

So can we as consumers now require that if VOIP providers are telephone companies, that ISPs be regulated in how they can and can't monitor us, and stop practices like purposefully slowing down connections from rivals? (Time Warner Cable vs Disney.com, etc.)

I would rather none of this existed, but maybe we can force the legal arm to swing in our favor as consumers.

Taxing Internet Traffic

[christowang]

By doing this, they are technically taxing Internet traffic. Right now Vonage adds on taxes for regulatory fees for the Phone number, but by doing this, what prevents New York from saying IM's or email's should be taxed as long distance communication?

Re:Regulation isn't always bad

[Cratylus]

It's also a government sponsored monopoly - not a multi-vendor competitive market. You can't pick your water company.

Price controls are warranted on government-created monopolies - not in the free market.

Regulate? Ok, but not exactly as a phone company.

[Jonny Royale]

Given the differences in technology between Vonage, and the traditional telco, and some of the items in the article, it seems that there's going to be different standards applied to the VoIP company, which is a good thing.

As the traditional telcos move from the traditional circut switched networks of current phone systems to a more packet switched network, there needs to be a way for the regulatory agencies to keep up with the changes, and ensure that necessary services (e.g. 911) and quality are maintainted.

In the long run, this will probably be seen as a good move, since they're actually trying to keep up with changes in technology, rather than waiting to get run over by it.

I find this very interesting timing

[_LORAX_]

Consitering that Time Warner just launched it's VoIP service in the past month. I have to wonder if they are pulling the strings in order to wipe out it's only signifigant competition in this area. TW's prices are ( of course ) much higher and provide fewer services than Vongae does.

Vonage Rocks

[qwerty75]

Personally I hope this does not signal an end to their business model. I have had Vonage service for 6 months and I could not be more pleased. Thier billing and reporting is awesome. I can actually log into their site to view all incoming and outgoing calls. I can download my voicemail to a wave file. Meaning I can check it anywhere there is a computer with internet access and a sound card. But here is the real shocker. I had a problem sending faxes through their system. Called them up. Had a short wait time ~30 Seconds. They had my problem fixed within 5 minutes. Not only that but they actually asked about what hardware and software I was using to add it to their knowledge base. I was floored. Try having that type of service from Southwestern HELL. Not to mention saving $30.00 a month and having way more features. And the voice quality is excellent.

Dear FCC,

[orangesquid]

It is the whole world's Internet.

Not just the U.S. Government's.

Please go home now and leave us in peace.

Thanks,
Matthew C. Williams
and a cast of thousands

If it looks like a telephone...

[north.coaster]

... sounds like a telephone, acts like a telphone, works like a telephone...

Then it must be a telephone!

Who cares what technology it uses? If I can pick up the handset, dial a number, and expect a recipient on the other end to answer, then the state has every right (and obligation) to deal with it like any other telephone service.

If this were not the case, then cellular telephones would also be exempt from taxes.

/Don

Nonsense

[north.coaster]

This is pure nonsense. Weren't cellular telephones at one time considered an innovative service in a heavily regulated industry? Didn't the cellular phone industry manage to survive dispite regulation?

VoIP will survive as long as it provides a useful service that is in some way advantageous over existing land-based and/or cellular systems.

/Don

This is a good thing!

[stephenisu]

This means schools and libraries will now have a better shot at getting E-Rate funding from the Universal Service Fund Again. Millions and millions of dollars were spent getting schools VOIP and the FCC decided that VOIP wasn't real phone service so they lost funding for it, almost closing many schools, public and private. If you have no idea what I am talking about, go to www.sl.universalservice.org for more info. You might be interested to find out where your USF charge on your phone bills go. (BTW I am an E-Rate consultant for schools, stephenisu@yahoo.com)

Re:This is a good thing!

[gcaseye6677]

The Universal Service Fund is the biggest scam. Much of the money is wasted. Schools in poor areas need to focus on academics and maintaining a safe environment, not connecting every student to the internet so they can play Yahoo games, which is about all we ever used the internet for when I was in school. Getting crap like this taken off of our regular phone bills will help a lot more than trying to expand the socialism to VOIP.

Re:This is a good thing!

[N3WBI3]

So our kids in poor schools wont be able to read but at leats they will be able to speetk 1337? I never touched a computer until University (1996) and did nothing to inhibit getting an EE degree with CSE minor..

Re:Right or wrong, it is going to stifle VoIP in N

[poot_rootbeer]

When was the last time a Government Agency applied "only minimal regulations" to anything?

Environmental protection, mental health care, the Microsoft antitrust case, food safety inspections, just about anything where megacorporations are involved...