A member of the California Public Utilities Commission is calling for public hearings on the agency’s recent demand that Voice over IP service providers apply and be certified as full-fledged telephone companies. Commissioner Susan Kennedy says that it may be too early to regulate VoIP because it's difficult enough for new technologies to succeed "without the heavy hand of government regulators." The matter will be heard during the CPUC Oct. 30th meeting in San Francisco, and may lead to a vote that reverses the agency's action. That vote, though, may be too close to call.
A member of the California Public Utilities Commission has called for public hearings on the agency's recent demand that Voice over IP service providers apply and be certified as full-fledged telephone companies.
CPUC Commissioner Susan Kennedy, the Commission's most recent appointee and a close political confidante of embattled California Governor Gray Davis, expressed concerns that the agency's telecommunications division may have acted too hastily in trying to regulate the fledgling industry.
"The big question for me is 'Why now?'" said Kennedy of a Sep. 24 letter, signed by CPUC Telecommunications Division Director John Leutza, giving five companies – Net2Phone, Packet8, SBC Communications, VoicePulse and Vonage – until Oct. 22 to file an application with the agency.
Kennedy has put the matter on the Commission's regular agenda for its Oct. 30th meeting in San Francisco, and said the public will have an opportunity to comment.
Industry leaders have argued that regulating VoIP providers is equal to regulating the internet, which is outside the jurisdiction of state regulatory agencies. They also maintain that trying to regulate VoIP like a telephone company could potentially kill further development of a promising new technology.
The largest of the VoIP providers, Vonage, has only 5,300 customers in California, said Vonage Chief Financial Officer John Rego. That's too small a number, says Kennedy.
"The most important thing the commission can do is stay out of the way of emerging technologies," she said. "It's hard enough for a new technology to make it and become commercially viable without the heavy hand of government regulators coming in and clipping their wings."
Kennedy's action was applauded by VoIP service executives and their attorneys, who worry that California's status as a technology trendsetter portends tall hurdles for the nascent industry throughout the country.
"We welcome the dialog," said Ravi Sakaria, President and CEO of VoicePulse. "I do believe the commissioners in California will understand that there are better ways to allow competition to flourish and to protect consumers than attempting to put us in the same category as the major phone companies."
An attorney with Washington, D.C.-based Swidler, Berlin, Shereff and Friedman who advises a number of VoIP providers concurs with Sakaria, and called the "accusatory tone" of Leutza's letter "inappropriate and premature."
"Given the impact that this would have on internet service providers, voice over IP providers, software providers and the high tech community in California, the most appropriate process is to have an open dialog and public rule-making proceeding rather than to initiate a complaint proceeding based on facts that the staff is not yet in possession of," said attorney William Wilhelm, who represents Vonage and other VoIP providers.
"I cannot believe that California is saying the equivalent of 'Minnesota told me to jump off of a bridge so therefore I'm going to jump off of a bridge,'" said Wilhelm, in reference to a controversial Minnesota Public Utilities Commission ruling in August that declared Vonage in violation of state law for offering voice services without state certification.
According to Wilhelm and others, the letter's assertion that California's public utilities code "defines a telephone corporation as every corporation or person who owns, controls, or manages a telephone line for profit," does not apply to VoIP providers.
"This is not about VoIP," Wilhelm said. "This is about whether state utility commissions can, on their own discretion, decide to regulate any industry they choose to, without public comment, without any input and at their own whim."
Wilhelm said Vonage has not yet decided how it will respond to the CPUC's application demand. Sakaria says he's unsure whether to file an application, but is certain he will send the CPUC a letter expressing the company's position.
"We want to work with them," Sakaria said. "But I think they really do need to understand how we operate and why decades-old regulations are not appropriate."
An attorney for the CPUC said the reason the agency's staff acted without a public hearing or direction from the Commissioners is because it is required to do so by state law.
"We are empowered to exercise jurisdiction over services that are provided to protect consumers," said CPUC staff attorney Helen Mickiewicz. "From our perspective, we're saying you're not protecting consumers when you're not complying with the rules."
Those rules, said Mickiewicz, include providing 911 emergency services, contribution to funds supporting programs such as deaf and disabled telephone service and Universal Lifeline Service for low income families, and methods to resolve billing disputes.
"We're the consumer's representative," said Mickiewicz. "It's not as if we're a business and the VoIP providers are another business and we're just at war with each other. We are empowered to represent the public interest."
VoIP providers argue that, as an industry that is barely a year old, it is impossible for them to meet the regulatory demands placed on landline telephone providers who have been in the business for decades. They specifically point to the 911 requirement that emergency operators be provided an exact location of the caller on a computer screen as technically unfeasible in internet telephony today.
Wilhelm points out that wireless telephone companies were "given many years" before being required to provide 911 emergency service.
"The VoIP industry is no where near the size of the cell phone industry when they were forced to deal with 911 issues," Wilhelm said. "There needs to be an appreciation for that."
While the VoIP providers hope to reach a compromise with California regulators, Mickiewicz said she is not sure an agreement can be reached.
"I cannot tell you if there is room for compromise here because I am not in a position to say," she said. "The commission has to decide that when it gets no answer back from these carriers and it has to decide what to do next."
According to several sources within the CPUC, the outcome of a Commission vote on the matter is too close to call. Based on past actions, several said, it is likely that there are two votes in favor of regulation, and two votes against, including Kennedy's.
The swing vote, sources said, could be in the hands of Commissioner Geoffrey Brown, the former public defender in San Francisco and cousin of former California Governor and current Oakland mayor Jerry Brown.
Brown says the VoIP regulation issue "hasn't percolated up to me yet" and that he needs to study it further.
Robert Wullenjohn, an aide to Brown who works on telecommunications issues, said that he is hopeful "medium ground" can be reached.
"The commission has no interest in putting these people out of business," said Wullenjohn. "Maybe we work something out."