Long DistanceLong Gone

Long DistanceLong Gone

Journal Issue: 
Column Name: 
Journal Article: 

There are signs of an improving economy, but that doesn't mean that businesses, as well as individuals, have stopped looking for ways to cut costs. What if you could reduce or even eliminate your long-distance bill? Today's ever-improving technology can help to make that long-distance bill disappear.

Voice over Internet Protocol

In the simplest of definitions, Voice over Internet Protocol (VoIP) is the ability to make telephone calls over the Internet. Technically speaking, VoIP is not new technology. It has been around since the early 1990s; however, given the fact that very few people actually had computers or Internet access, there were few who could utilize this technology. Both parties to the phone call had to have computers and Internet access, as well as the VoIP software. As is normally the case, times have changed, and today there are hundreds of millions of Internet users both at home and in the workplace.

How Does It Work?

In order to understand the VoIP concept, it is first helpful to understand how a traditional long-distance telephone call works. When you pick up your phone and dial a long-distance number, the call first goes to your local telephone company. It then moves to the long-distance carrier of your choice who normally charges you a connection fee plus a per-minute charge. These charges appear on your long-distance bill, along with various taxes, line fees, surcharges, access charges, etc. (I'm not really sure what all the additional charges are for, but often they are more expensive than the actual long-distance calls.) All of these calls move across the Public Switched Telephone Network (PSTN), a technology that was developed decades ago.

VoIP actually can occur in a number of different ways—it depends on the VoIP service provider you select. One type of VoIP is where the consumer uses a VoIP phone or software installed directly on their computer. This service does not utilize the PSTN at all. Instead, the conversation occurs using only an Internet broadband connection; however, only subscribers of this service can talk to each other. Another more common type of VoIP service is where you pick up your phone and dial the long-distance number, which again goes through your local telephone company. From there the call goes to a VoIP provider who carries the call over the Internet to a local telephone company in the area where you were calling. This method does utilize the PSTN when it travels to the local telephone company. There is another type of VoIP service where the calls start out utilizing the Internet but switch over to the PSTN only where the receiver has traditional telephone service. Even though it takes a paragraph to describe these services, the connections occur in just seconds.

[T]he FCC must decide whether it even has jurisdiction to regulate VoIP services.

The Benefits

To an individual household, the cost benefit will really depend on how much you spend on your long distance. A VoIP provider will normally offer unlimited long distance, voice mail and caller ID for anywhere from $20-40 per month. If your average long-distance bill is larger, it would make sense to switch to VoIP.

For a business, the benefits could be enormous. First, a business would be able to significantly reduce its actual long-distance bill by negotiating a monthly or yearly flat access rate with the VoIP provider. Second, and more importantly, VoIP allows a business to merge its voice and data networks. This provides savings in a number of areas, especially where companies have various locations and/or utilize remote employees. VoIP permits companies to utilize a single network to deliver a uniform level of data and voice services to branch offices and remote employees. In addition, a company would eliminate the need for maintaining two separate voice and data networks, thereby saving money that is typically spent on the aspects of maintaining both networks, such as equipment and staffing.


One issue surrounding the Internet and VoIP that keeps rearing its ugly head is regulation by the federal and/or state governments. You only have to look at your current telephone bill and all of those additional charges to realize that regulation will cost the consumer more money.

Currently, the Internet, as well as VoIP, has avoided government regulation, and Federal Communications Commission (FCC) Chairman Michael Powell has indicated that the FCC has no intention of setting rules for VoIP service—not yet, anyway. Powell has said that he would like to see the FCC exercise a "light touch" on any regulation of VoIP. The FCC used that same "light touch" back in the early 1990s in the areas of the Internet and cellular phone service. Proponents of non-regulation argue that this hands-off approach has allowed for the rapid growth, advanced technology and competitive rates that consumers enjoy today from both industries.

Initially, the FCC must decide whether it even has jurisdiction to regulate VoIP services. Individual state public utility commissions generally regulate telephone services, and many state agencies are starting to act against VoIP services. Last year the Minnesota Public Utilities Commission (MPUC) filed a complaint against VoIP provider Vonage alleging, among other things, that Vonage had failed to obtain the proper licensing required to provide telephone service in Minnesota. The MPUC ordered Vonage to comply with the Minnesota statutes and rules regarding the offering of telephone services. See In the Matter of the Complaint of the Minnesota Department of Commerce Against Vonage Holding Corp. Regarding Lack of Authority to Operate in Minnesota, Docket No. P-6214/C-03-108 (Minn. Pub. Utils. Comm'n. Sept. 11, 2003). Vonage appealed to the U.S. District Court seeking a preliminary injunction against the MPUC. The U.S. District Court examined the legislative history, as well as the actual method that Vonage utilizes to provide VoIP service, and concluded that "Vonage is an information service provider. In its role as an interpreter of legislative intent, the court applies federal law demonstrating Congress's desire that information services such as those provided by Vonage must not be regulated by state law enforced by the MPUC. State regulation would effectively decimate Congress's mandate that the Internet remain unfettered by regulation. The court therefore grants Vonage's request for injunctive relief." See Vonage Holding Corp. v. The Minnesota Public Utilities Commission, et al., Docket No. 03-5287 at page 2 (D. Minn. Oct. 16, 2003).

Other states are starting to pay attention, so the FCC must move quickly to make some decisions. Another major problem facing the FCC is defining what VoIP actually is. As described previously in this article, it can depend on who the provider is before you can determine VoIP's definition. If it is decided that this service is interstate commerce and therefore subject primarily to the FCC, then may one regulate only where the VoIP provider utilizes the PSTN? What if PSTN is used only for some calls and not others? The Minnesota court didn't seem to have a problem with Vonage utilizing the PSTN as they noted that "the backbone of Vonage's service is the Internet." Ibid. at 8.

The technology is changing rapidly, and from the general comments of the FCC chairman, it appears that the FCC wants it to be given the freedom to develop. Regulation would strangle that development, so the best approach may be to follow the Minnesota district court and declare VoIP an information service and leave it alone, just like traditional Internet access. This will allow for growth, competition and, the best reason of all, a reduction of my telephone bill.

Journal Date: 
Thursday, April 1, 2004