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One of the goals of the 1996 Telecommunications Act was to open up broadband access beyond cable and phone companies to alternative providers and technologies such as fixed-wireless and satellite.

Thanks to the phone and cable companies’ clout in the U.S. government (and a few good loopholes), it didn’t happen that way. The alternative broadband providers were pushed aside to niche markets, and broadband satellite and fixed-wireless services failed to take off.

With only two major broadband technologies, dominated by a handful of companies, price competition has been modest. Phone companies finally dropped their DSL pricing below $30 per month, but cable-modem customers still regularly pay over $40. Even the new bundled-services discounts have yet to generate significant cost savings.

Now, Voice over Internet Protocol (VoIP), which has thrived within the business community in recent years, is following the same broadband pathways into the home. Although those channels are controlled by less than a dozen big cable and phone companies, VoIP services will not be as easily dominated.

One encouraging sign for upstart companies is the recent Federal Communications Commission (FCC) ruling that categorized VoIP as an interstate service, settling a dispute between Vonage and the state of Minnesota and sending a message to cash-strapped governments to look elsewhere for new tax sources. A side benefit was that it also gave smaller VoIP service providers the chance to keep dropping prices.

The ruling, though, won’t save independent VoIP providers from competition. In many respects, the squeeze is on. Citing the FCC ruling, SBC Communications announced it would launch its own residential VoIP service in 2005, joining Verizon Communications and Qwest Communications International.

Yet, there are several reasons why larger companies will have a harder time dominating this market.

  • The continuing lack of taxation and regulation will offer more advantages to the independents. Vonage, BroadVoice, VoicePulse and Net2Phone lack the resources to compete in a heavily regulated industry with all the overhead and price pressure.

  • Unlike independent DSL providers that were forced into bankruptcy, due in part to  onerous “unbundling” terms, VoIP providers don’t require equipment to be housed within the Baby Bells’ local access centers. As a result, they’re much less dependent on the broadband providers. A sign of the times: DSL provider Covad has emerged from bankruptcy and is on the rebound thanks in part to adding VoIP to its services.

  • The arrival of Voice over WiFi technology should provide independent VoIP providers with another way to further extend their networks, and compete with both traditional broadband providers and cellular services. In recent months, VoIP providers, including BroadVoice, Vonage and Net2Phone, have announced Voice over WiFi phones. If consumers have a phone that works in their home, on their WiFi networks at work, and at public hotspots, they may not need either a cell phone or a standard landline.

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