Analysts Consider VoIP Regulation

Late last year (2004), the FCC determined that the types of voice over IP services provided by Vonage are not subject to traditional state public utility regulations—and that all other IP-enabled services with similar characteristics are also not subject to such regulations. By preempting state regulations regarding VoIP and not imposing any additional federal regulations, the Commission seemed to be giving the technology a free ride—for the time being.

Still, at the time of the announcement, FCC Chairman Michael Powell noted that regulations could eventually be imposed—just not at the state level. “This is not to say that there is no governmental interest in VoIP,” Powell said at the time. “There will remain very important questions about emergency services, consumer protections from waste, fraud, and abuse, and recovering the fair costs of the network.”

The point, Powell suggested, was that states shouldn’t be able to impose local regulations on a service that’s not local in nature. “VoIP services are nomadic and presence-oriented, making identification of the end points of any given communications session completely impractical and, frankly, unwise,” he said. “In this sense, Internet applications such as VoIP are more border-busting than either long distance or mobile telephony—each inherently, and properly classified, interstate services.”

So what kinds of regulations and fees, if any, can we expect to see imposed upon VoIP in the future?

Issues to keep an eye on
Elka Popova, Research Manager of IP Communications and Enterprise Solutions at Frost & Sullivan, notes that the FCC’s announcement only covers point-to-point (aka peer-to-peer) VoIP calls; when someone using VoIP connects to a PSTN user, many of the familiar fees and regulations do apply. “That’s when the company has to pay taxes and universal fund fees, because the call touches the traditional network,” Popova says.

In addition to taxes and Universal Service fees, E911 requirements are also under consideration for VoIP. Popova suggests, though, that regulation may not even be necessary in that arena. “It’s more a matter of how successfully they can market the service to business and residential users if they cannot offer fully reliable access to emergency services,” she says.

The other federal requirement under consideration is compliance with CALEA, the Communications Assistance for Law Enforcement Act, which involves access for wiretapping. “It’s difficult to offer CALEA support on VoIP networks, but it’s not really mandatory at this point,” Popova says.

IDC Senior Research Analyst William Stofega notes that many of these regulations stem from the Telecommunications Act of 1996, which may need to be reassessed in order to cover VoIP. “There’s nothing new about IP or voice over IP, but it wasn’t really factored into what was done in the ’96 Act, so there are a lot of different things that have to be taken into account—and there is some momentum on Capitol Hill to reshape the entire act,” Stofega says.

The states’ stake in VoIP
The larger issue, Stofega says, comes down to states’ rights. “The states get a lot of revenue from taxes imposed on telecom usage, and the states need the money,” he says. “How do you make up that revenue loss if the states lose the ability to impose fees? The FCC says VoIP belongs in the federal camp because it’s not bound by any locality—so do the states have the right to tax and control something that’s actually a service that goes into their location, and does the government have the right to say you can’t do that?”

In-Stat Senior Analyst Keith Nissen notes that many smaller rural providers are dependent on both federal and state Universal Service subsidies for their existence. “When you begin talking about the mass migration of consumers from the PSTN to voice over IP services, then you’re talking about huge amounts of taxes that are going to be impacted,” he says. “You’re talking about the whole foundation of the telecom industry.”

In that case, Nissen says, the states will have to find a way to replace the missing funds. “There’s going to be a lot of controversy if the FCC takes the very liberal approach to say, ‘You will not tax voice over IP services,'” he says. “The states are going to disagree with that right off the bat, and the question then becomes, what can they do about it? They’re going to find ways to get their money, one way or another.”

Ultimately, Nissen suggests, dealing with regulatory issues may prove to be more of a challenge than the technology itself ever was. “You’re seeing these companies laying out their five, six, seven year plans of how they’re going to bring fiber to the node, fiber to the home in some cases, and all of that is something that’s controllable,” he says. “What is not controllable is these other industry issues like pricing and fees, the regulatory stuff that various parts of the industry are going to fight tooth and nail for.”

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