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Are the Cost Benefits of VoIP Fading Away?

By Joel A. Pogar

October 2006, Volume 9/ Number 10


How will the FCC (News - Alert), the USF, and CALEA affect the future of VoIP? The question sounds more like alphabet soup than a business concern, but if you�re using VoIP, or considering a new VoIP deployment, these are acronyms you should know about. They are the regulatory agency and laws that will have the biggest impact on VoIP in 2006.

By now, we�re all familiar with the benefits of VoIP. One of the most significant advantages is the potential cost savings. By combing voice and data infrastructures, bypassing long-distance charges and avoiding associated taxes, companies can save 20�40 percent on their current telecommunications costs. However, that�s all changing.

In June of this year, the Federal Communications Commission (FCC) passed legislation subjecting VoIP calls to the same taxation as traditional analog phone calls. The new ruling will require VoIP providers to collect additional taxes and fees for the Universal Service Fund. The Universal Service Fund (USF) is a 70-year-old program sponsored by the federal government to subsidize telephone services in rural and low-income areas. Because the changes to the law are fairly new, exactly how much this will cost any given company or the average consumer is a little unclear. Industry analysts have projected the changes will cost VoIP users an extra 6 to 10 percent per month on their phone bills.

Proponents of the new legislation say it levels the playing field between VoIP providers and traditional phone companies. They also assert that the additional funds will help to make VoIP a more reliable and mainstream technology to end users. Critics have questioned the benefit of the USF and are concerned about its potential impact on small businesses. Politics aside, the FCC and USF are chipping away at the cost savings of VoIP.

Another significant development for VoIP is the Communications Assistance for Law Enforcement Act of 1994 (CALEA). This 12-year-old law requires telecommunications providers to �...assist in the electronic surveillance...and design or modify their systems to ensure that lawfully authorized electronic surveillance can be performed.� In layman�s terms, CALEA allows law enforcement agencies to �wire tap� phone lines and requires telecom providers to have the systems necessary to conduct the surveillance. Until recently, VoIP providers thought they were exempt from CALEA compliance. However, in May the FCC ruled that VoIP providers must be CALEA-compliant within 90 days.

There are many issues surrounding CALEA compliance, most of them around privacy concerns. What most people don�t consider is the added expense VoIP providers will incur to become compliant; the additional personnel, systems, and processes required will increase costs for VoIP carriers, and most carriers will pass these costs onto their customers. It�s difficult to estimate yet what the actual costs will be for CALEA compliance to providers or consumers, but many well-known service providers have publicly described their estimates as �burdensome.� And they will chip away at more of the VoIP cost savings.

What does all this mean for a consumer, a VoIP provider, or an enterprise? As a consumer, it means you�ll soon be paying a higher bill for VoIP services and Uncle Sam will have the ability to �lawfully intercept� your calls. In the future, you might not save much using VoIP over traditional phone service. If you are a VoIP provider, you�ll feel the most significant impact in terms of cost to provide service and the need for systems and processes to be compliant with the new regulations. Providers will not only have to implement CALEA measures, but will also have to maintain the personnel, accounting systems, and processes to collect USF fees and any additional taxes. Many analysts are now questioning the long-term impact this will have on the VoIP industry, as consumers or business may be less likely to make the jump to VoIP.

These regulations also come at a time when many VoIP providers are already struggling to make a profit and the low-cost competitive advantage is disappearing. If your company has outsourced its VoIP services and is using a provider, now is a good time to re-evaluate your strategy, as you could see higher rates in the very near future. While you won�t have the direct burden of collecting USF fees or becoming CALEA compliant, providers will most likely pass these costs on to you as the end user.

In a corporate environment, this may be the best time of all to deploy an internally managed VoIP system. By being your own provider and owning the system, you can avoid the additional fees and taxation on commercial providers. While CALEA requirements do not currently apply to the corporate environment, it wouldn�t be a bad idea to account for them in any new VoIP design. With today�s security conscious world, it�s better to plan for, or implement such capabilities now, rather than having to scramble to comply in the future.

Bottom line, VoIP is still a great and viable technology. These new regulations may dampen the near term outlook for providers and consumers, but the benefits to the enterprise remain strong. IT

Joel Pogar is a director in Forsythe�s network solutions and security practice. For more information, please visit the company online at

If you are interested in purchasing reprints of this article (in either print or PDF format), please visit Reprint Management Services online at or contact a representative via e-mail at [email protected] or by phone at 800-290-5460.


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