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ARTICLE:
Some new Internet calling services, touted as a cheaper alternative to regular phone service, are going to be hit by rising costs as a result of a Federal Communications Commission requirement to include E-911 emergency calling soon.
The ruling Thursday will help traditional phone companies by possibly thinning out some of their newest competitors, analysts said.
Many of these competitors got started only because Internet phone service, also called Voice over Internet Protocol or VoIP, is cheaper to establish and run, said Will Stofega, research manger for VoIP services at the technology research firm IDC in Framingham, Mass.
VoIP saves money by breaking up a phone call into bits of data scattered over the Internet, instead of sending a single continuous signal over the traditional telephone network. Phone companies pay access fees to one another to complete conventional voice calls but not to connect Internet traffic.
Many VoIP services offer no access to the country's E-911 system, which also saves money. By fall, however, they will have to buy access to the E-911 system, which is owned and supported by local phone companies, Stofega said.
"It could add only a couple of dollars" to a monthly phone bill, "but then your whole argument of offering a cheaper alternative starts to wilt away," he said.
The ruling will add another cost burden to the VoIP companies that have not offered E-911 service to date, said Lisa Pierce, a vice president and telecommunications analyst at Forrester Research in Cambridge, Mass.
"Already there are some companies that are having problems," she said.
VoIP supporters have argued that it is the smaller, newest companies that have been offering lower prices and more innovation in the burgeoning Internet telephone market, undercutting large emerging players like AT&T or the Baby Bells.
"I hope we don't get to the spot where only the big companies can offer VoIP," said Jim Kohlenberger, executive director of the VON Coalition, a lobbying group for Internet telephone companies.
Nonetheless, even if some new VoIP companies fall by the wayside, experts expect adoption of Internet phones to explode over the next few years. About 1.5 million Americans use the phones now but 27 million could be making calls over the Internet by 2009, IDC estimates.
Key to the FCC's ruling is that E-911 automatically provides emergency dispatchers with the street address of the caller. Some Internet phone services allow customers to move their phones to different cities or even countries and still use the same phone number. Combining both features would pose a special challenge to VoIP providers, and probably contribute to raising their costs, Pierce said.
Bigger VoIP providers welcomed Thursday's FCC decision. "It's a call to action to get this done and get this done quickly," said Brook Schulz, spokeswoman for Vonage, which with more than 650,000 customers is the nation's largest VoIP provider.
Vonage charges $25 a month for unlimited local and long distance calling in the United States, Canada and Puerto Rico and will absorb the additional cost of E-911 service without raising its prices, Schulz said.
Time Warner Cable in Minneapolis and Qwest, Minnesota's largest local phone provider, already provide E-911 access through their respective VoIP phone services.
"VoIP providers must treat 911 access as integral to the service they provide, and as a necessary cost of doing business," Qwest senior vice president of federal relations Gary Lytle said.
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