VoIP Vendors Want Freedom

Industry representatives say central regulation will encourage innovation.

Mark S. Sullivan, Medill News Service

WASHINGTON, D.C.-- Some of the companies offering early Voice-over-IP service would prefer being regulated by the federal government, not by the states, saying they would be better able to innovate and keep costs down under such an arrangement.

Representatives of seven telecommunications firms say they prefer central regulation by the Federal Communications Commission to living under the same rules that regulate telephone service. They addressed the House Subcommittee on Telecommunications and the Internet earlier this week.

Juggling Rules

Virtually all who testified complained of a "regulatory patchwork," where every state has or is developing a disparate system to regulate VoIP providers in the absence of clear federal regulations. That, they said, will raise compliance costs and hinder further investment.

"VoIP providers, and their customers, continue to live in a kind of regulatory no-man's-land, with no clear direction from legislators," said Ron Vidal of Level 3 Communications, a wholesaler of broadband and VoIP services. "This regulatory uncertainty, if it is prolonged, may undermine VoIP deployment in this country."

The committee chair, Representative Joe Barton (R-Texas), asked each witness if he or she would support federal legislation preempting state regulation of Internet-based communications like VoIP. All seven telecommunications company representatives answered yes.

"We spend a lot of time and money internally dealing with the regulatory requirements for 51 different jurisdictions," said Jeffrey Citron, CEO and cofounder of Vonage, a provider of stand-alone VoIP services. "The uncertainty in the regulatory environment has impeded our ability to raise investment capital."

While many states are maintaining a hands-off approach, others, such as California and Florida, have threatened to impose their own brand of regulation if the federal government doesn't step in.

A central regulating body makes sense, witnesses said, because VoIP service knows no state borders and is not associated with any geographical place.

"You can sign up for VoIP service in New York, then move to Florida and keep your same number and service, said Cathy Martine, senior vice president of Internet telephony at AT&T.

New Regulations Urged

Witnesses and panelists alike stressed that the young VoIP industry could be stifled if regulated under the Telecommunications Act of 1996, which was written for a monopolistic telecom industry that offered only analog phone service.

Lawmakers in the subcommittee agree that a thorough reworking of the legislation is needed in light of the paradigmatic change wrought by the Internet during the last eight years.

Federal and state governments have traditionally regulated communications companies to protect consumers against fraud, to ensure that carriers are compensated for network use, to ensure emergency communication, and to make communications available to the poor and disabled.

The costs companies incur to comply with the regulations are typically passed on to the consumer in the form of fees that appear on phone bills every month.

Consumer Demand Grows

The witnesses testified that their VoIP subscribers are growing in number rapidly. Cablevision Chief Operating Officer Thomas Rutledge told the panel his company now has 11,000 users in the New York metropolitan area, and that Cablevision receives thousands of requests for the service every week.

Vidal said VoIP might be the "killer app" that brings broadband into mainstream use. Currently only about 22 percent of U.S. households subscribe to broadband service.

As many as 30 percent of all U.S. homes will subscribe to VoIP in the next three years, according to a Mercer Management survey reported in the New York Times on June 14. That would be explosive growth in contrast to market research group IDC's expectation that only 600,000 users will subscribe to VoIP by the end of this year, a third of those with Vonage.

What Next?

Two bills have been introduced by members of the committee to begin the process of freeing Internet-based technology from the rigorous regulations provided in the Telecommunications Act of 1996.

Representative Chip Pickering (R-Mississippi) and Senator John Sununu (R-New Hampshire) introduced in April the VoIP Regulatory Freedom Act of 2004, which would assert federal jurisdiction over VoIP and restrict state or local taxation and regulation on the industry.

Representatives Clifford Stearns (R-Florida) and Rick Boucher (D-Virginia) introduced a similar bill Tuesday. It would accomplish the same ends for "Advanced Internet Communications Services," a category that includes other digital communications, such as Internet video, in addition to VoIP.

Pickering said that industry consensus must happen now if there is any hope of moving forward with legislation in the near term. "Anyone who has been involved with telecommunications regulation like I have knows that it will take both sessions of the next Congress to accomplish comprehensive reform," he said.

Pickering supports enacting legislation that would establish the FCC as the sole regulating body as a starting point in overhauling the Telecommunications Act.

"We need to do the preemption now; if we wait it will be three years, and the market simply can't wait," Pickering said.