June 24th, 2005

The world of net calling (referred to as "VOIP" in technical circles) is as disruptive to the telecom business as MP3 is to the music industry. I enjoy these periods because there's major new business opportunities as they go digital and there's never a dull day - that's why I started SIPphone. There are often legal battles as these new industries are defined and there have been several recent significant battles in the VOIP arena.

Late last year SIPphone filed a lawsuit contending that packaging for Vonage phone adapters was false and misleading to consumers. The word "free" was plastered more than 10 times on the box in ALL CAPS with no mention that there was a required monthly fee - not even in the fine print. Prominently on the front of the box was "No Contracts" with no mention that a credit card is required to make the unit work. And when you insert a credit card, you are forced to agree to a termination fee if you canceled their service. And finally, there's no mention that the unit would only work with Vonage.

I actually like Vonage (I even recommended their service to my Mom), but in these early days of VOIP, it's imperative that companies not be allowed use unfair and deceptive advertising. Consumers need to have all the facts so they can make an informed choice. There are in fact companies like SIPphone that offer a service, which really is free, has no contracts or termination fee and sells devices that can be used with other services - Vonage just isn't one of them. (SIPphone does not have all the features Vonage has, which is why we do not have a monthly fee.)

I'm pleased to announce that we settled with Fry's Electronics, who agreed to be more clear in their advertising for this service. Vonage is now shipping units with new packaging, which does in fact state that a monthly fee is required, termination fees apply and the device will only work with Vonage - exactly what we complained about in our lawsuit. That's great, but it shouldn't take lawsuits to get companies to give prospective buyers all the information. I hope others (like AT&T) follow Vonage's lead and change their packaging as well.

Meanwhile, other legal issues for VOIP have been brewing in Washington, D.C. Big telephone companies have devised a dirty tactic to slow down net calling. Let me explain.

The business world is littered with monopolies trying to block new competitors through any means possible, and one effective strategy is getting the government to intervene. This is why satellite TV couldn't carry local channels for years. It's why Southwest Airlines can't fly out of certain airports. It's why MCI had troubles using microwave repeaters to compete with AT&T. And it's also why XM radio can't do local weather or sports. In each instance, the incumbent had to get a law passed or a government body to impose regulations devised to slow or stop new competitors.

For VOIP, certain telephone companies went to the FCC and pushed them to demand that certain net calling companies provide e911 to their customers. They knew that this would add costs to their business - and perhaps even be unfeasible - since precisely determining the location for a computer on the Internet can be impossible.

A public hearing was held, where victims talked about tragedies that might have been averted or minimized if they had been able to use their Vonage telephone service to call 911. After the hearing, the FCC ruled that net phones must provide 911 to all their customers.

Vonage was the focus of the hearing and got unfairly broadsided by a smear campaign. Even if those unfortunate incidents were accurate, if it has happened two times on Vonage it has happened tens of thousands of times on traditional or mobile phone service.

Ten years ago, the FCC passed regulations requiring mobile carriers to route location data with 911 calls. A recent study commissioned by the New York City Police department and performed by RCC Consultants found that none of the major wireless carriers met federally mandated thresholds for pinpointing locations. Yet net carriers were given an unrealistic 60-day deadline to comply.

Anyone who uses a mobile phone can typically cite multiple locations where no 911 calls are possible because of poor coverage areas. A few years ago, I was involved in a 10-car crash on the freeway. None of those involved were able to get through to 911. If the goal is to improve 911 service then it seems rather arbitrary to criticize VOIP companies when much larger problems exist.

The FCC should have demanded exactly what SIPphone asked for in our lawsuit - full and complete disclosure. Most - if not all - net calling companies already clearly convey information about 911 on their service without any government mandate.

Furthermore, 911 should be an optional service a consumer can elect to purchase or not. They should be able to determine if it's a service they believe is valuable. Some may already have 911 on other phones (mobile or landline). Some might object to paying for it multiple times for every phone number they own. Others may think the 911 service is unreliable. Some may have private security. Regardless the reason, 911 should be a personal choice.

There is a growing number of phone providers, including cable companies and Internet companies. If 911 is important enough to customers, then those companies will be motivated to offer that service. The free market should be left to do what it does best and that is respond to consumer's needs. Consumers who value 911 access will have providers that serve them. Others looking for different options should be able to choose them - just make sure everyone has all the facts up front so they can make an informed decision.