Opponents say result would be higher prices, while proponents argue FCC must set rules.
Whether states can impose a variety of taxes on VoIP is one regulatory topic the FCC is likely to address when it issues a notice of proposed rule-making on VoIP this month or next. VoIP service now is mostly free of government regulation, and FCC Chairman Michael Powell has indicated over the past couple of months that he’d like to see the commission exert a “light touch” on regulating VoIP.
As an early adopter of VoIP services, Mindbridge Software COO Scott Testa has seen the cost benefits of using this alternative to traditional telephone service.
The Philadelphia company has been experimenting with VoIP for about a year and a half and now is rolling it out companywide. Testa says Mindbridge saves about 25% per line by using VoIP instead of traditional voice. The savings will help Mindbridge double its workforce over the next year or so to about 180 people.
All of which makes Testa leery about any ideas that state and federal government might have to regulate the VoIP industry.
“Regulation means higher costs for customers,” says Testa, who uses AT&T and Sprint VoIP services. “Once the regulators get involved with stuff like this, they mess it up and certainly tax it.”
Whether states can impose a variety of taxes on VoIP is one regulatory topic the FCC is likely to address when it issues a notice of proposed rule-making on VoIP this month or next.
VoIP service now is mostly free of government regulation, and FCC Chairman Michael Powell has indicated over the past couple of months that he’d like to see the commission exert a “light touch” on regulating VoIP.
But the FCC faces difficult choices regarding VoIP regulation. First, the commission must decide whether VoIP services are interstate and borderless in nature, and thus regulated primarily by the FCC, or whether, like telephone services, they should be regulated by state public utility commissions.
While many observers predict the FCC will claim VoIP regulation for itself, the issue is not a slam-dunk. In August, the Minnesota Public Utilities Commission claimed regulatory jurisdiction over VoIP before a federal appeals court later ruled against the state agency. Other states have begun examining whether they should regulate and tax VoIP.
The FCC then faces a decision on whether VoIP is classified as a telecom service, subject to access fees and a variety of other federal regulations, or an information service like traditional Internet access, subject to little FCC oversight.
But VoIP defies traditional FCC labels. VoIP service can look similar to traditional phone service to customers; it’s just that phone calls move across IP networks, not the public switched telephone network (PSTN). But the U.S. IP infrastructure was not built by a government-supported monopoly, taking away the need for government regulation, argue opponents of VoIP regulation.
Those opponents say the government should keep its hands off VoIP and let the fledgling technology grow without regulations hindering it. They point to the hands-off approach the FCC took toward the Internet and cellular phone service in the 1990s.
Those who support government regulation, including certain state public service commissions, suggest that VoIP providers will have little incentive to provide services such as accessibility for the disabled and Enhanced 911 service without government requirements. Federal law enforcement agencies also want the authority to wiretap VoIP calls, as they can with traditional telephone calls.
What’s a VoIP call?
Defining what VoIP is further complicates the FCC’s decision on regulation. Not all VoIP calls are the same, at least in terms of the technology they use. Three petitions before the FCC ask commissioners to clarify the appropriate level of regulation on three types of VoIP calls.
A petition from Free World Dialup asks the FCC to keep its service regulation-free. Free World Dialup lets members of its service talk to each other over Internet broadband connections using VoIP phones or “softphone” software on their computers. The service does not interact with the PSTN.
These types of phone calls, only available between members of Free World Dialup, look most like other Internet applications, and some FCC observers predict the FCC will rule in favor of Free World Dialup. “It’s clear to me that the FCC is trying to do the right thing,” says Jeff Pulver, CEO of Free World Dialup’s parent company, Pulver.com.
On the other end of the VoIP spectrum is phone service offered by AT&T and other major providers that might travel over the Internet between starting and ending on the PSTN. AT&T’s petition in front of the FCC seeks clarification on that phone traffic, which now happens without customers knowing their calls are routed through the Internet.
AT&T argues it should pay lower access fees to the RBOCs when those part-time VoIP calls are switched back to the PSTN and terminated there. The RBOCs already are recovering their costs on access fees, says Bob Quinn, AT&T’s vice president for federal regulatory affairs.
If the FCC decides not to act on AT&T’s petition, as some observers predict, “they’re just putting their fingers in the dike for awhile,” Quinn adds. “IP telephony is coming, there’s no question about it.”
A third petition, from Vonage Holdings, seeks an FCC decision on VoIP service halfway between the Free World Dialup and AT&T services. Vonage is asking that its service be regulated by the FCC, not Minnesota or other states. Phone calls through Vonage’s service start as IP calls, but transfer to the PSTN when a Vonage customer calls someone with a traditional phone line.
State-level regulations would drive up costs to VoIP customers, says Vonage CFO John Rego. “We’re going to have a patchwork quilt of 50 regulations,” he adds.
In the Minnesota case, the state was attempting to impose a 911 tax on Vonage, but Rego argues his company is already voluntarily providing 911 service to customers.
The FCC’s Powell continues to urge regulators to think twice before imposing a variety of regulations on VoIP.
“If the consumer stands to benefit significantly from Internet voice we should let it blossom,” he said in a speech Jan. 14. “The burden should be placed squarely on government to demonstrate why regulation is needed, rather than on innovators to explain why it is not.”
Michael Volpatt, who switched his business line to the Vonage VoIP service in December, agrees with Powell. Volpatt, a partner in New York public relations firm Larkin/Volpatt Communications, switched his phone service to cut costs, and he fears that impending government regulations will cancel out the VoIP price advantage.
“I . . . love the service because I love my bill,” Volpatt says. “They advertise $34.99 a month, and that is what the bill is. . . . My fear is that if the VoIP market is regulated my bill will end up looking like what I used to get from MCI. They advertise $34.99 a month, but my bill was in the $50 range every month, mostly because of taxes.”
Gross is a correspondent with the IDG News Service’s Washington, D.C., bureau.
