Web Phone Providers Must Subsidize Services In Rural and Low-Income Areas, FCC Says

Vonage Holdings Corp. and other providers of Internet-based telephone service must help subsidize services in rural and low-income areas, American regulators said.A rule adopted today by the Federal Communications Commission requires providers of Voice over Internet Protocol, or VoIP, service to contribute 10.5% of their long-distance revenue to the Universal Service Fund if the calls pass through traditional phone networks. Mobile-phone companies such as Cingular Wireless LLC may have to pay more as well.“We take these actions because we recognize the changing telecommunications marketplace,” FCC Chairman Kevin Martin said during a meeting today. The rule is an interim measure that will help maintain the stability of the fund while the commission works to create a long-term, “technology-neutral” contribution system, Martin told reporters after the meeting.The rule, approved unanimously, is part of an FCC effort to restructure the $7 billion Universal Service program. It is funded by a surcharge on carriers’ long-distance revenue, which has declined in recent years as calling costs dropped. That has forced the FCC to raise the levy to maintain the program, which also funds Internet access in schools and libraries.The FCC now requires established carriers such as AT&T Inc. and Verizon Communications Inc. and mobile-service companies including Cingular to pay 10.9% of long-distance revenue into the fund.Carriers typically pass the fees on to subscribers through monthly surcharges, but the FCC doesn’t require them to do so. The contribution for all carriers is scheduled drop to 10.5% on July 1. The companies say Web-based providers shouldn’t be exempt.The biggest impact of the new rule will be on independent Internet-phone companies such as Vonage, said Jessica Zufolo, an analyst with Medley Global Advisors in Washington.The rule requires VoIP companies to pay Universal Service fees on as much as 64.9% of their revenue. Internet-phone providers can reduce the rate if they determine through “traffic studies” that less than 64.9% of their revenue is based on interstate calls.Complying will “impose a whole new regulatory cost on VOIP service providers,” Ms. Zufolo said yesterday in an interview.The rule also increases,from 28.5% to 37.1%, the maximum amount of mobilephone revenue that is subject to the tax. Mobile-phone providers also can pay less based on traffic studies. The rule won’t change the methods for calculating traditional carriers’ contributions.Shares of Holmdel, New Jersey-based Vonage fell 7 cents to $8.85 at 4:27 p.m. New York time in New York Stock Exchange composite trading. The shares have fallen 48% from their $17 offering price on May 23.

Web Phone Providers Must Subsidize Services In Rural and Low-Income Areas, FCC Says

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