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FCC Fines N.Car. Provider $15K For Blocking Vonage

(UPDATED, 5:18 p.m. PST, 3/3/05)

So who's the guilty party that was blocking Vonage's Voice over IP service? A North Carolina-based service provider, which on Thursday agreed to pay a $15,000 fine for its actions and pledged not to block VoIP traffic in the future.

The Federal Communications Commission announced Thursday that it had reached a $15,000 consent decree with Madison River Communications, a Mebane, North Carolina service provider that calls itself the "17th largest phone company in the US," with "234,204 connections in service."

According to the FCC, Madison River pledged to "refrain from blocking VOIP traffic and ensure that such blocking will not recur." FCC chairman Michael Powell, who has made his vision for "Internet Freedoms" a very public crusade, said the decree supports his views that the Internet should remain open to all types of traffic.

"In my view, the surest way to preserve 'Net Freedom' is to handle these issues in an enforcement context where hypothetical worriers give way to concrete facts and -- as we have shown today -- real solutions," said Powell in a statement released by the FCC. "The industry must adhere to certain consumer protection norms if the Internet is to remain an open platform for innovation," he added.

In a phone interview, Vonage CEO Jeffrey Citron said his company "is very pleased by the FCC's swift action. It sends a clear and strong message that [VoIP] blocking is not going to be tolerated by the government."

In an e-mail reply, Steve Vanderwoude, chairman and CEO of Madison River Communications, said: "We are in a quiet period due to our S-1 on file with the SEC, we will have no comment."

According to a recent report in the Triangle Business Journal, a local business publication for the Raleigh, N.C. area where Madison River's headquarters is located, the company's planned IPO may be a move to make itself more attractive for a possible acquisition. According to its latest financial report, Madison River had $194.4 million in revenues during 2004.

Madison River Communications operates four rural telephone companies, in the states of Alabama, Georgia, North Carolina and Illinois, which offer local phone service, long distance, and DSL-based broadband Internet access. Vonage's Citron said the blocking incident affected approximately 200 Vonage customers in "more than one state," but said that the incident the company thoroughly investigated occurred in Alabama.

According to Vonage, its customers said that representatives of Madison River's phone companies had admitted that they were blocking Vonage, which Madison River called a "competing phone service." A spokesperson for GulfTel Communications, Madison River's Alabama-based operation, declined to comment, referring all questions to the corporate office.

While a $15,000 fine may not seem overly onerous, Citron said the fact that a fine was assessed quickly and forcefully could serve as a warning to other operators who might try the same tactic.

"Now that the world's on notice, if something like this happens again we'd expect an even stronger message and an even bigger fine [from the FCC]," Citron said.

Citron said Vonage did not contact Madison River directly, but instead took its findings to the FCC for the commission's advice on how to proceed. Citron said Vonage has since then detected "one or two other possible instances" of similar port-blocking from what he called "much smaller ISPs.

"Our hope is that they'll take notice of what the FCC did today, and if they are blocking ports, they'll stop," Citron said.

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