Local, state groups gear up on VoIP

By Jeff Arnold
Deputy Legislative Director

The battle has begun. NACo, in coalition with other local and state advocacy organizations, has begun to develop a strategy, both regulatory and legislative, to address the regulatory and fiscal challenges presented by the growing use of telecommunication technology known as Voice over Internet Protocol, or VoIP.

The coalition partners face an army of telecommunications company lobbyists, who are attempting to make VoIP exempt from virtually any regulation or taxation.

VOIP technology allows phone users to make phone calls over the Internet rather than using the traditional public switched telephone network Ð the copper wires than run from your phone through a central switch to another phone.

With the spectre of a rewrite of the Telecommunications Act of 1996 hovering on the horizon of the upcoming 109th Congress, and the Federal Communications Commission’s (FCC) inquiry about how to regulate VoIP, local and state governments are very concerned about the implications for quality service delivery and revenue from telecomm taxes and fees.

At a telecomm conference in Boston on Oct. 19, FCC Chairman Michael Powell said he would seek broad regulatory authority for the federal government over Internet-based telephone services to avoid states or local governments from stifling the emerging market.

Powell told the receptive audience that "letting states regulate VoIP services would lead to a patchwork of conflicting rules like those which have ensnarled the traditional phone business for decades." To do so, Powell said, is to "dumb down the Internet back to the limited vision of government officials. That would be a tragedy."

Powell said he "will push Ñ before the next president is inaugurated Ñ to protect fledgling Internet telephone services from getting taxed and heavily regulated by the 50 state governments."

Powell said his goal is to keep Internet phone subscribers from having to pay the fees and taxes levied on conventional phone service offered by traditional phone companies. He also wants to prevent state or local price and service regulation from squelching a fast-growing, but still small, industry that has about 1 million U.S. subscribers. This number is growing steadily, up from approximately 131,000 just last year, and will explode as traditional phone companies switch to the new technology.

The loss of telecommunications revenue could mean hundreds of millions of dollars in lost revenue to state and local governments. Affected programs would include the Universal Service Fund, which provides a subsidy for high-cost areas, and E911 funds, which are used to fund the public safety answering points (PSAPs), more commonly known as 911 call centers.

The regulatory structure as envisioned by Powell also calls into question the applicability of CALEA, the Communications Assistance to Law Enforcement Act, which allows for legal wiretaps on criminal activity.

Powell’s approach could also impinge on other traditionally local responsibilities such as consumer protection in the cable service arena, since many of the high-speed Internet connections are through cable companies.

It is almost certain Congress will begin to review and rewrite the Telecommunications Act of 1996 in the upcoming Congress.

NACo believes that the question of VoIP local and state regulation and taxation should be considered as part of the larger review, and not be allowed to be "picked off" and treated differently from other Internet technologies.