Getting a grip on VoIP: Internet phone service technology is so new and changing so fast, no one knows how to regulate it--or even if they should.

• Author: Prah, Pamela M.
• Position: Voice over Internet Protocol

Some states worry they will be cut off from regulating or taxing the next generation of phone calls as more people turn to the Internet for their local and long-distance conversations.

Using the Internet to make phone calls may sound futuristic, but nearly 1 million tech-savvy people already are using the new technology, called Voice over Internet Protocol (VoIP), and the number could climb to 16 million by 2008, according to Frost & Sullivan, a market research firm. More companies are jumping on board to offer Internet phoning. Comcast Corp., for example, said in January it hoped to attract 8 million customers to the cable giant's new cyberspace phone service over the next five years.

The problem for states is that the technology is so new and is changing so fast that no one has decided yet how to regulate it or even what to call it. A major question for states is this: Is Internet-based phoning a "telecommunications service," which states and the federal government generally regulate and tax, or is it an "information service" such as e-mailing that, for the most part, isn't subject to state regulation?

The difference is important. Among other things, companies that provide interstate "telecommunications services" must chip in and pay into special funds that in 2003 provided some $4.6 billion to help poor people get discounts on telephone services, wire rural areas and link public schools and libraries to the Internet as part of a program called the federal Universal Service Fund.

Currently, all telecommunications companies that provide service between states, including long-distance companies, local telephone companies, wireless telephone companies, paging companies, and payphone providers, are required to contribute to the universal fund.

Twenty-four states also have their own state programs, collecting another $1.9 billion to help make sure the poor and rural areas have telephone service. The more that people switch and go online to make calls over the Internet, the less money for these services because there are fewer old-fashioned phone calls generating fees.

"It's a huge issue," said Michael Mazerov, a state tax expert at the Center on Budget and Policy Priorities, a Washington group that focuses on policies that affect the poor. "If the laws have ambiguity as to whether [Internet calling] continues to be taxable, then a substantial chunk of that $12 billion is at risk," according to Mazerov who wrote a paper on the topic.

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