Regulate Internet phone

Congress Runs Into Voip Divide

July 7, 2004

By Declan McCullagh

WASHINGTON--The political debate over how to regulate Internet phone calls is showing early signs of dividing along traditional partisan lines.

At a House of Representatives subcommittee panel hearing Wednesday, the Republican chairman struck a more cautious tone than his Democratic counterparts over what federal rules should apply to voice over Internet Protocol technology.

"We will never know VoIP's tremendous potential if we saddle it with unwarranted government regulation," Rep. Fred Upton, R-Mich., said in his opening remarks at one of the first hearings to address Voip regulation. Upton, who chairs the House telecommunications subcommittee, warned that "VoIP providers should not be regulated like common carriers."

The senior Democrat on the subcommittee, Ed Markey of Massachusetts, was not nearly as laissez-faire. Markey said the need for "consumer privacy rules, billing protections, fraud protections" and affordable residential service "does not disappear simply because a voice call travels in packets rather than dedicated circuits."

Rep. John Dingell of Michigan, the top Democrat on the full committee, went even further. He criticized as "quite troubling" an FCC ruling in February that said voice communications flowing entirely over the Internet--such as Skype and Pulver.com's Free World Dialup--are not subject to traditional phone regulations. "I would like to take this opportunity to remind the FCC that it is a creature of the Congress, and the Congress has never intended that voice services be deregulated at the whim of the FCC," Dingell said.

Wednesday's hearing comes as Congress is taking a serious look at Voip regulation for the first time, with a bill introduced Tuesday that would submit Internet phone providers to many of the same rules that apply to traditional voice carriers.

Voip providers are hoping to secure protection from state governments eyeing Voip as a potentially lucrative revenue source, while the FBI and Justice Department are lobbying to extend telephone-wiretapping laws to the nascent technology. In addition, the IRS and Treasury Department said on Friday that they are considering applying an existing 3 percent excise tax to Voip services.

About 2.8 million people make phone calls over their broadband connection, a figure that includes about 2.2 million cable customers using circuit-switched technology and about 600,000 Voip subscribers. Corporations are gravitating toward Voip even faster than consumers, with as many as one in 10 business calls that once traveled over the traditional voice network now being completed entirely over the Internet.

"I think there's a more traditional wing of the (Democratic) party that thinks Voip is very similar to regular phone service and should be treated in similar ways," said Robert Atkinson, vice president of the Progressive Policy Institute.

"Then there are folks who look at Voip as more of an Internet application and think it should be treated as we treat the Internet," Atkinson said. "As a general rule, you could say that New Democrats are in the latter camp.

Republicans who are more deregulatory in nature are also in that camp." Atkinson's group is part of the centrist Democratic Leadership Council, which popularized the term "New Democrat" and was once chaired by Bill Clinton, when he was governor of Arkansas.

City versus country...

The split between politicians who favor less regulation of Voip and those who prefer more is not strictly a partisan divide. "I don't see this issue falling under partisan shot-taking," Rep. Upton said in a telephone interview after the hearing. "The technology is moving pretty fast, and we're going to stay up with it and get it deployed."

Another political component is the universal service taxes and access fee regulations that apply to traditional phone lines. Because they subsidize Americans who live in rural areas by charging urban subscribers more for phone service, the programs enjoy strong bipartisan support from politicians representing states with more rural populations.

"The deregulatory effort for Voip has been led by mostly Republicans, and that includes Republicans at the FCC," said Adam Thierer, director of telecommunications studies at the Cato Institute. But, Thierer cautioned, many "splits are not party-based but geography-based when it comes to telecommunications. It's often a rural-versus-urban or suburban issue. Often it comes down to parochial interests."

In the FCC's February ruling that Voip providers lauded as a "watershed event" for the industry, the two Democratic commissioners were the ones who argued that the ruling was too deregulatory. Commissioner Michael Copps opposed the decision, and Jonathan Adelstein said he partially dissented. Copps said the FCC's vote in favor of Pulver.com creates unreasonable "challenges for law enforcement and has implications for universal service and public safety."

Complicating the legislative outlook for Voip are the different types of products that exist. Vonage, for instance, sells Voip service that links with the existing telephone network--and is therefore most likely to be the target of regulations such as regulations dealing with enhanced 911 (E911) and disabled access, as well as access charges and universal service taxes. Voip providers such as Free World Dialup, and instant-messaging applications, do not fall into the same category and should expect to experience different regulatory treatment.

So far, each of the three bills in Congress that address Voip prohibits state governments from taxing and regulating companies that provide Internet telephone service. But the details vary: The two most deregulatory bills, introduced at around the same time in early April, are both backed entirely by Republicans.

The House bill's co-sponsors include Rep. Chris Cox, R-Calif., a prominent foe of Internet taxes and the fourth-most-senior House Republican.

The third bill, called the Advanced Internet Communications Services Act, is the only one with bipartisan support. It is also the most regulatory, saying that the FCC "shall by regulation" require Voip companies to offer E911 service and disabled access, in addition to paying universal service and related taxes.