As most people in the VoIP world know, the FCC mandated that "interconnected" VoIP providers must provide E911 (which means 911 calling with transmission of your location) service to their customers. It is not optional, they can't allow the customer to opt out to save money.

It sounds good on the surface, if there's a phone there you want to be able to reach emergency services with it.

The meaning of interconnected is still being debated. It was mostly aimed at the Vonages of the world. The current definition applies to service that has a phone-like device that can make and receive calls from the PSTN. Most people don't think it applies to PBX phones in homes and offices, though that's not explicit. It doesn't apply to the Skype client on your PC, one hopes, but it could very well apply if you have a more phone like device connecting to Skype, which offers Skype-in and Skype-out services on a pay per use basis and thus is interconnected with the PSTN.

Here's the kicker. There are a variety of companies which will provide E911 connectivity services for VoIP companies. This means you pay them and they will provide a means for you to route your user's calls to the right emergency public service access point, and pass along the address the user registered with the service. Seems like a fine business, but as far as I can tell, all these companies are charging by the customer per month, with fees between $1 and $2 per month.

This puts a lot of constraints on the pricing models of VoIP services. There's a lot of room for innovative business models that include offering limited or trial PSTN connection for free, or per-usage billing with no monthly fees. (All services I know of do the non-PSTN calling for free.) Or services that appear free but are supported by advertising or other means. You've seen that Skype decided to offer free PSTN services for all of 2006. AIM Phoneline offers a free number for incoming calls, as do many others.

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Making calls to the PSTN has become quite cheap. You could offer people an hour per month of PSTN calling, for example, and with calls to big cities, you could pay as little as 30 cents to provide that. Adding a buck to 30 cents can make a big difference.

The E911 floor constrains pricing models. It stops you from having tons of low-usage users (who otherwise aren't costing you anything) without charging them a monthly fee. And of course it jacks up the fees of even people charged with more traditional pricing models.

What's the answer? We need an E911 service bureau that is willing to terminate E911 calls for a per-call fee. I'm not asking that bureau to lose money -- the fee will probably be fairly high. And I think they'll get a lot of business because this is how a lot of providers would like to pay.

In this case, a company offering VoIP services to customers with no monthly fee (or no fee at all) could still provide E911, but charge $10 per call for it. Or just eat the cost, knowing that these customers just aren't likely to make a lot of 911 calls. Most of them, after all, have other ways to call 911, be it landlines or cell phones. These innovative services, the young Skypes of the world, are not trying to replace regular phones and become your only path to emergency services.

This does mean that they would have to at least get a credit card, even on free services, as well as an address. And that is a pain, but it's a lot better than forcing a credit card and a monthly fee, which is the innovation/startup killer.

The E911 connection bureaus of course have decided that monthly fees will get them more revenue, and they are probably right because call volume is going to be lower than normal, but they can price it like it will be normal. $15 to $20 per year seems "only fair" for emergency connection, but it's actually a lot if you think about how often you call 911 on your landline.

Some will argue that a $10 per call fee might discourage people from calling 911, hurting them in a real emergency. Since I believe almost all customers of innovative startups will have another means to call 911 (where they are paying a monthly fee) I don't see this as a problem. I don't mind if companies offer the customer a choice of $20/year or $10/call, or even require the monthly/annual fee for unlimited 911 calling for customers who are using the service as their only phone service.

Now frankly I would rather that VoIP services weren't given E911 requirements this early in their life, and given more time to innovate free of regulation. Cell phone companies certainly got lots more time, and regular phones have had 911 for just a small fraction of their total lifetime. But if we're going to have an E911 mandate, it should be done in a way that doesn't stifle innovation.