The launch of the FCC working group comes as debate heats up over whether VOIP (define) technology should be regulated in an approach similar to traditional telephone services, which also leads to taxation issues regarding calls flowing between states.

Powell made his stance clear. "I would say from the outset -- and I think most people would agree -- that moving more communications to IP is in the public interest," he said during opening remarks Monday.

"In my view, the policy environment must begin with the recognition that the Internet is inherently a global network that does not acknowledge narrow, artificial boundaries," Powell said, adding that he "unflinchingly (believes) in maintaining an Internet free from government regulation" and firmly supports the idea that VOIP should "evolve in a regulation-free zone."

Powell's announcement came during a day-long VOIP Forum meeting Monday in Washington D.C. where he insisted the VOIP (define) sector should "evolve in a regulation-free zone."

For the most part, FCC commissioners were in agreement that the migration of traditional communication services -- including voice calls -- to IP-based networks was inevitable.

The FCC, which is expected to rule on the issue early next year, is pushing an expedited VOIP federal policy as a means of staying ahead of the migration and to change the rules originally written to control a single monopoly.

According to the commissioners, the new policy will likely sever all ties from previous regulatory regimes.

All of which is bad news for the states, where telephone tariffs comprise a major part of state revenues and help fund Internet connections to schools and libraries and to support local 911 services.

"To be sure, health, safety and welfare concerns may give rise to uniquely state interests and it might be proper for them to play a role in these areas," Powell said. "Economic regulation, however, is an entirely another matter and we should approach that area of regulation with significant skepticism."

"[Internet-based services] are having an even greater impact on the future of telecommunications. By forming this Working Group, we hope to gain a greater understanding of how policy-makers can create rational policies to encourage growth in Internet services," Powell said.

"No regulator, either federal or state, should treat into this area without an absolutely compelling justification for doing so," Powell continued. "Innovation and capital investment depend on this premise. The entrepreneurs seated before us depend on this premise. In my view, we should come to this forum with a sense of regulatory humility, mindful that is the entrepreneurs, not governments, who came up with the idea of making high-quality, inexpensive phone calls over the Internet."

The Internet Policy Working Group will be staffed by FCC lawyers, engineers and economists. FCC chief of policy development Robert Pepper and senior deputy chief of the Wireline Competition Bureau Jeff Carlisle will co-direct the working group which has been mandated to reach out to state regulators, consumer groups and public safety organizations.

Commissioner Kathleen Abernathy said an expedited federal policy is necessary because some state public utility commissions are already targeting Internet telephone companies.

In the only court decision so far, a federal court in Minneapolis spiked Minnesota's attempt to regulate and enforce a tax on broadband phone company Vonage, ruling that the SIP-based VOIP firm did not have to register as a telephone company in order to conduct business in Minnesota.

California, Washington, Oregon and Florida are also litigating against Internet phone companies on the same issue.

"(VOIP) seems inherently an interstate service," Abernathy said. "It can not be neatly separated into interstate and intrastate categories."

The wild growth in the VOIP sector has seen the Baby Bells and cable firms hopping aboard the bandwagon. The likes of SBC, Verizon, BellSouth and Qwest are all planning VOIP offerings and, according to the Synergy Research Group, the boom has created a 50 percent growth rate in the worldwide market for enterprise IP telephony, generating almost $864 million in vendor revenue last year.