Senate Weighs Rules for Internet Phones

WASHINGTON -- A U.S. senator, a state public utilities commissioner, and a telephone company executive have asked the Federal Communications Commission and Congress to slow down their rush toward declaring Voice over Internet Protocol service essentially free from government regulation.

Most members of the Senate Commerce, Science and Transportation Committee called for the "light touch" approach to regulating VoIP advocated by FCC Chairman Michael Powell during a hearing Tuesday. However, Senator Lamar Alexander (R-Tennessee) said efforts to exempt VoIP from telecommunications taxes will take money away from state and local governments.

Playing Favorites?

State and local governments across the U.S. currently collect about $20 billion yearly in telecommunications taxes and fees. If Congress exempts VoIP from those taxes, the states' income will shrink as more telecommunications carriers and consumers switch to VoIP, Alexander said. Exempting VoIP from state taxes would be an "unfunded mandate" from Congress, something the Republican majorities in Congress pledged to avoid, Alexander added.

Some committee members suggested VoIP will draw investment and expand broadband services, because most VoIP service is offered over broadband. But Alexander questioned why Congress should give broadband and VoIP special treatment.

"There's no justification...for Congress deciding to give telecommunications companies such a bonanza, then turn around and send the bill to governors and to mayors," Alexander said.

Earlier in February, the FCC began a rule-making process to determine the appropriate level of regulation for VoIP. Powell suggested the emerging voice service should be treated more like unregulated Internet service than heavily regulated telephone service.

Alexander also criticized congressional efforts to extend a temporary ban on taxes unique to the Internet, including Internet access taxes. The Internet Tax Non-Discrimination Act, a version of which passed the House in September, would make permanent the Internet tax ban that expired in November. But Alexander and other opponents say the bill's definition of "Internet access" could be interpreted to include VoIP as exempt from taxes.

If Congress wants to encourage broadband adoption, it should instead follow the lead of Texas and give broadband customers a sales tax exemption on the first $25 of their monthly bill, Alexander said. The sales tax exemption might cost $2 billion a year, while he says exempting VoIP from taxes could eventually cost states and local governments more than $10 billion yearly.

Other Proposals

Committee member George Allen, a Virginia Republican and cosponsor of the Internet Tax Non-Discrimination Act, responded to Alexander's testimony by saying he will introduce an amendment that clearly states VoIP services are not exempt from taxes. But other senators questioned if VoIP should be subject to state and local taxes.

Opening VoIP to state and local taxes could mean VoIP calls get taxed dozens of times as they travel through taxing jurisdictions, and could discourage investment in VoIP services, said committee member Ron Wyden (D-Oregon).

Committee member John Sununu (R-New Hampshire) said he will introduce legislation that creates federal jurisdiction for VoIP regulation, not state or local jurisdiction. Sununu's legislation will also exempt VoIP from state and local taxes, as Internet access was exempt under the tax moratorium that expired in November.

VoIP traffic should be treated the same as other IP traffic, such as e-mail, Sununu argued. "If we try to regulate or legislate, discriminating on the type of data that is being sent over a broadband network...then I think we are headed down the wrong path," he added. "We don't want to be in the position of looking at data and trying to determine, 'Is this an e-mail message, is this an instant message, is this voice traffic...are these photographs?' and then trying to regulate or tax based on what type of data is being sent."

Competitive Issues

But others argued VoIP providers shouldn't get special exemptions from taxes and regulations that other telecommunications carriers must deal with. Most VoIP calls end up on traditional phone networks built by telephone carriers, and VoIP carriers should have to pay access fees for the use of those lines and pay into the Universal Service Fund, which helps bring telephone service to rural and poor areas, said Glen F. Post III, chairman and chief executive officer of telephone service carrier CenturyTel of Monroe, Louisiana.

Post argued that VoIP should face the same regulations as traditional telephone services because it's essentially the same service over a different network.

"Certain petitions now before the FCC would lead us to believe that inserting the words 'Voice over IP' or 'Internet' into description of voice service magically changes the nature of that service," Post said. An AT&T petition to have the FCC declare traditional telephone calls partially carried over IP networks free from many regulations is "alarming," Post added.

If states can't tax VoIP, they could eventually lose $13 billion yearly, said Stan Wise, a commissioner with the Georgia Public Service Commission and president of the National Association of Regulatory Utility Commissioners. States don't want to lose the taxes and fees they're currently collecting, he said.

States can also make sure VoIP providers offer services such as 911 and ensure fair competition between voice providers, including access fee payments, Wise added. "My job is to facilitate competition in the state," he said. "It is our job to protect the consumer."

But most senators said consumers will benefit if VoIP service can grow without regulation.

"IP telephony is an important innovation which can give consumers something they deserve by driving down the cost of phone service," said committee member Maria Cantwell (D-Washington). "This is about innovation of a technology, and we need to preserve its nascent stage so that more competition can happen."