Why VoiP Regulation is Wrong

As California's Public Utilities Commission prepares to decide whether to regulate Voice over IP Service in the state, o­ne commissioner has already studied the issue and made up her mind: It's too early to regulate VoIP. In this commentary CPUC Commissioner Susan Kennedy encourages her colleagues to alllow VoIP to develop before even considering regulation

Internet telephone service is the hot technology that has regulators spinning in their cubicles all over the country.

A federal district court recently shot down Minnesota's attempt to regulate IP telephone service, stating that under federal law, Internet telephony is an information service like e-mail and not subject to regulation. California and other states are following Minnesota's lead,and a showdown at the Federal Communications Commission is nearing.

Thirty years ago, the FCC made a distinction between telecommunication and data communications, even though both used the telephone network. As technology advanced and those distinctions blurred, the FCC repeatedly drew the regulatory line between "basic" phone services and "enhanced" services. The FCC went to extraordinary lengths to limit the reach of regulation in the telecommunications industry to o­nly basic service, leaving all other services unregulated because they did not want to stifle the development of new technologies.

With the Telecommunications Act of 1996, Congress enunciated a clear national policy to "make advanced telecommunications and information services available to all Americans" by opening all telecommunications markets to competition and deregulation. While introducing a complicated plan to phase out regulation among wire-line phone companies, the 1996 act clearly stated that "information services" such as the Internet should be allowed to flourish "unfettered by federal or state regulation."

Enter voice over Internet protocol, or VoIP. Companies such as Vonage provide their customers with specialized computer equipment that converts voice signals into digital information packets and sends them over the Internet. The service uses a broadband Internet connection and can reconfigure the packets to terminate o­n the regular phone network. Vonage charges a monthly fee for unlimited calling or offers other packages, like wireless carriers.

So far, the FCC has treated IP telephony as an information service not subject to regulation. Although IP telephony looks an awful lot like the telecommunications services offered by regulated carriers,technologically speaking the two are very different. And trying to regulate VoIP would be a serious breach in the firewall protecting other Internet services from regulation.

For example, there is no distinction between digital packets transmitting voice services over the Internet and digital packets transmitting electronic mail, instant messaging or any other two-way communicationover the Internet.

Also, since the "location" of users is o­nly an Internet address, IP telephone customers could not be charged based o­n whether the calls are local or long distance.

State regulators argue that VoIP is a telecommunications service no different than the phone services. Therefore they should pay the same taxes and fees, as well as provide 911 services and access for the disabled. Regulating VoIP would protect consumers and provide a level playing field.

But new technologies don't develop o­n a level playing field. They develop in the proving ground of unfettered competition where the risks are high and the rewards are worth it. The FCC and Congress have been focused o­n the goal of promoting competition and innovation in telecommunications, keeping new technologies free from the constraints of regulation. This strategy has succeeded in bringing consumers products and services that were undreamed of just a decade ago. Someday these new technologies will be mature enough to carry their share of the social contract expected of other indispensable utilities. But until then, regulators should just keep their hands off.