When it Comes to VoIP, It’s Still Buyer Beware

By Michelle V. Rafter

If you use an Internet-based phone service, do you know what your customer rights are if the carrier goes under? Government regulations are still catching up with VoIP, and until they do, companies should know where they stand.

If a local telephone company runs into trouble, they’re required to give customers 30 days’ notice before they shut down.

If an Internet-based phone company shuts down? Nothing.

The boom in voice over Internet protocol phone (VoIP) service occurred so quickly that government regulations haven’t had a chance to keep up. As a result, businesses that use VoIP carriers don’t have the same types of protections should the provider run into trouble or go under as they would if they used a traditional phone company. State and federal regulators are working to close the gap. Meanwhile, companies using VoIP for any or all of their phone service are on their own to craft back-up plans.

VoIP started out as a software-based method for making phone calls through a microphone and headset connected to a personal computer. Since then, the technology has evolved so that it can be used on PCs and laptops or traditional telephone handsets, and soon, cell phones. Companies such as Skype, which offers free software for computer-based VoIP service, have caused Internet phone service to grow to millions of users.

Reasons for concern

There are legitimate reasons for VoIP users to think they might need contingency plans. Despite its popularity, some VoIP carriers remain on rocky financial footing. Vonage Holdings Corp., the country’s biggest VoIP phone service, has 2.5 million customers and is signing up thousands more a month. But it is losing thousands of others every month due to service problems, and in recent months has paid more than $239 million to settle patent infringement lawsuits, adding to its short-term debts and causing auditors to question the company’s ability to stay in business. SunRocket, another largeVoIPcarrier, abruptly closed its doors in July 2007 due to financial difficulties, leaving 200,000 customers in the lurch. When that happened, SunRocket competitors stepped in to pick up the company’s customers, and some even honored annual subscription fees some users had already prepaid.

State and federal regulators are slowly moving to bring VoIP regulations in line with rules governing other phone carriers. The U.S. Federal Communications Commission now requires that VoIP carriers offer 911 emergency calling services and pay into a universal service fund that subsidizes phone service for low-income families. The FCC recently passed a number portability regulation, so after March 24, 2008 customers who want to change carriers can take their numbers with them, according to Mark Wigfield, an FCC spokesman in Washington D.C. “The commission started with a blank slate in terms of what needed to be regulated and is going after issues in order of priority,” Wigfield says.

What you should do

If a company goes out of business, being able to take your phone number to a different VoIP carrier is a step in the right direction, Wigfield says. Other steps that small businesses can take:

• Know what you’re getting. Use resources like The VoIP Mechanic or the FCC’s Consumer Fact Sheet on VoIP to find out more about services, plans and providers. VoIP Action, a VoIP industry news website lists information on terminology and plans, and has a checklist of things to consider when choosing a carrier.
• Check out carriers before signing a contract. After SunRocket folded, former customers used public message boards to share their experiences of scrambling to find new phone service. In their posted comments, they suggested checking out a potential provider with the Better Business Bureau, reading customer comments on public forums and blogs to find out what kind of service history a provider has, and even switching back to land-line phone service.
• Read contracts so you understand what remedies may or may not be available should something happen to the carrier.
• If you have a complaint, file it with your state public utility commission or consumer protection agency, a directory of which can be found at the website of theNational Association of Regulatory Utility Commissioners. Some state agencies have created VoIP fact sheets, such as this VoIP consumer alert from the Vermont Department of Public Service. Or use this form to register a complaint with the FCC, says Wigfield, the FCC representative.

The issue of carrier stability could abate as more regulations take effect and more established players get into the VoIP business. T-Mobile, for example, recently introduced a $10 a monthly unlimited local and domestic long-distance VoIP plan for its wireless subscribers. Comcast, better known as a cable TV and Internet provider, has a similar VoIP phone service.