Congress Hangs Up on VoIP for 2004

Federal legislation to exempt Internet telephony from state regulations and
tariffs has all but failed in the 108th Congress, ending an ambitious effort
to carve out and protect Internet-related issues from looming, and highly
uncertain, telecom reform.

The idea was simple enough. Because IP-enabled networks are inherently
interstate in nature, they should fall solely under the jurisdiction of the
federal government and its appointed agent, the Federal Communications
Commission (FCC). No matter what telecom reform might bring, the distinction
in the meanwhile would allow the emerging Voice over IP technology to
compete free of state regulations and tariffs for the next few years.

For good measure, the FCC would be prohibited from delegating any authority
to regulate IP traffic to the states, a position supported by the majority
of the five-member FCC that is conducting its own VoIP investigation under
the constraints of the 1996 Telecommunications Act.

John Sununu (R-N.H.) introduced the VoIP Regulatory Freedom Act on April 5.
The idea was attractive enough to make Senate Commerce Committee Chairman John McCain’s July 22 markup agenda, a
remarkable pace for a Senate locked in a historic political gridlock.

But it was rewritten in such a way that it maintained the uncertain status quo. It
also reversed Sununu’s original intentions.

“The intention of the bill is to prevent 50 states from
regulating, and this [amendment] gives back to the states the power to
regulate as they choose,” Sununu said in response.

The amended Sununu bill passed on a 13-9 vote and
now awaits a widely unexpected full floor vote, a victim of what CompTIA’s
Mike Wendy calls a “maelstrom of interests and issues.”

Among them are the rights of states to regulate local telephone service as
they have for the last century. Billions are literally on the line for the
states as they envision traditional voice traffic moving beyond their reach
and their pockets to unregulated IP networks.

In the absence of federal
definitions, both Minnesota and New York have already moved to regulate
Vonage, the non-facilities-based VoIP provider with more than 240,000 lines
in service. Both attempts to define the software-based application in the
same manner as traditional facilities-based telecommunications carriers have
been rebuffed in the federal courts.

In turn, VoIP providers worry that without federal relief from the myriad
layers of state regulations, venture capitalists will be reluctant to invest
in the technology.

Vonage CEO Jeffery Citron says his company received $35
million in investment capital shortly after it defeated Minnesota in court. That
decision didn’t deter New York in its attempt to regulate Vonage, and more
states, including California, are eyeing similar moves.

“[The Sununu bill] telegraphs the problems out there,” Wendy said.

Mark Uncapher, SVP and counsel for the Internet division at the Information
Technology Association of America (ITAA), added, “It turned out to be a
little bit more contentious than some thought. It is a reminder of how
difficult it is to get some of these things through.”

The lack of congressional action on VoIP this year promises to create
several more years of regulatory uncertainty for nascent Internet
telephony businesses.

“Voice communications are at a watershed moment. The adoption and deployment
of VoIP applications allow providers to completely reject old ideas and
limitations over voice communications,” Sununu said earlier this year.
“Beyond improving productivity and creating valuable new service features,
the innovation created by VoIP applications forces a complete shift in the
way traditional voice communications is viewed.”

If Sununu is right, that watershed moment is going to pass Congress by for
the next few years. With lawmakers planning a major telecom law overhaul in
the next two-year session of Congress beginning in January, VoIP and all
other IP-based networks and services are likely to be swept up in the reform
movement. The process wouldn’t be completed before 2007 and that doesn’t
even count the inevitable court challenges that will come.

“All indications are both the House and Senate will consider telecom reform
[in the next session of Congress],” said Peter Pitsch, Intel’s
communications policy director and the president of the VON Coalition,
describing the Senate Commerce Committee’s July actions as “surprising and

While Congress ponders, the Washington VoIP focus now turns to the FCC,
which faces the same regulatory dilemmas as VoIP but, unlike Congress, has
no authority to change the 1996 Telecommunications Act. The FCC is left with
a mandate that VoIP be defined as a telecommunications service like an
incumbent or competitive telephone company, or as an information service
exempt from state regulations.

The FCC’s choices are narrow and sure to rouse state utility commission
opposition. In a June FCC filing, the states argued that VoIP is just
another evolution in telephony and should be regulated in the same manner as
traditional telephone companies.

Another problem with FCC-imposed regulations is the agency’s history of
having its decisions rejected by the courts. As the ITAA’s Uncapher said,
“The FCC is forever adding things to its agenda without taking things off
its agenda.”

Jeffrey Carlisle, senior deputy bureau chief of the FCC’s Wireline
Competition Bureau, told a House committee earlier this summer, the FCC has
some ability to “fine tune” treatment of new technologies, but the FCC “must
still act within the bounds of the Communications Act.”

He also told the lawmakers, “If you believe VoIP and other new technologies
are working changes in the telecommunications market such that new
regulatory approaches are necessary, you may have to consider whether the
tools the commission has today are sophisticated enough for the task.”

Nine months ago, VoIP arrived in Washington as an unregulated service. Since
then the FCC has ruled that pure Internet-to-Internet voice traffic that
never touches the Bell’s legacy network is an unregulated information service,
but the VoIP traffic carried by long-distance company AT&T carries a telecommunications element and is not

The situation adds up to a muddle in Washington as to what to do about
VoIP regulation. It appears it will be a few more years before there’s an answer.

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