California Moves To Regulate Voice-Over-IP Providers

The California Public Utilities Commission has decided to treat voice-over-IP providers like all other telephone providers, and has told them that henceforth, they'll be regulated in the state.

While a few states--Wisconsin and Minnesota, specifically-have previously announced that voice-over-IP providers would be regulated, California, because of its size, is likely to influence other states--and possibly even federal regulators.

California's telecommunications division said this week that major voice-over-IP providers, including Vonage, VoicePulse, SBC Communications, Net2Phone, and Packet8, have been told to apply for telephone-operator licenses. The action is a disappointment for the companies, which had argued that they should remain unregulated because their traffic moves over the Internet.

The voice-over-IP market has been a brawling affair, and its future course is still unclear, although no one doubts that it will continue to grow rapidly. Market research estimates are all over the place, but the consensus is that the Internet-phone market--now placed at just under $2 billion a year--will double in two to three years.

Equipment suppliers are rushing handsets to market. Cisco Systems introduced a $600 voice-over-IP handset this summer, and Toshiba has signaled that it will soon begin marketing a $800 combination PDA-voice-over-IP phone that will also download Web pages. Others are more cautious--like Comcast, which said this week that it will begin testing voice over IP next year at the earliest.