Can VoIP Avoid the Usual Taxes?

WASHINGTON, D.C. -- Legislation to exempt Voice over Internet Protocol services from most state and federal regulation has drawn objections from several groups, including the U.S. Department of Justice, which says terrorists and criminals could circumvent wiretaps.

The VoIP Regulatory Freedom Act of 2004, sponsored by Senator John Sununu (R-New Hampshire), would exempt VoIP service from a wiretapping regulation called the Communications Assistance for Law Enforcement Act. CALEA is commonly used to listen in on traditional telephone calls, says Laura Parsky, deputy assistant attorney general for the Justice Department's criminal division.

"I am here to underscore how very important it is that this type of telephone service not become a haven for criminals, terrorists, and spies," Parsky told the Senate Commerce, Science, and Transportation Committee Wednesday. "If any particular technology is singled out for special exemption from these requirements, that technology will quickly attract criminals and create a hole in law enforcement's ability to protect the public and national security."

Legal Concerns

A bill defining VoIP as an unregulated information service instead of a heavily regulated telecommunications service is needed before dozens of state regulators start taxing and regulating the promising technology, Sununu said. Heavy regulation would "stifle innovation and discourage investment" in VoIP services, Sununu added.

Sununu and other supporters of his bill say the Justice Department and other law enforcement agencies have other ways to track communications over the Internet, including court orders requiring Internet companies to release communications to police. The Justice Department's current CALEA petition to the Federal Communications Commission doesn't ask for CALEA access to such technologies as instant messaging, e-mail, and peer-to-peer services, Sununu noted.

"Do you think the terrorists are not smart enough to read the petition?" Sununu said to Parsky. "Do you think the terrorists are not smart enough to use e-mail?"

The Justice Department has tried to single out VoIP as an Internet technology that must comply with the CALEA rules, Sununu told Parsky. Senator Ron Wyden (D-Oregon) asked Parsky for examples of criminals now using VoIP to avoid wiretaps, but she couldn't provide one. "It seems to me you are looking for a remedy for a problem that has not yet been documented," Wyden said.

The Justice Department supports most of Sununu's bill, Parsky answered, but doesn't want to lose law enforcement powers it has now. It expects traditional telephone traffic to move to VoIP in coming years.

Off the Hook?

Sununu and other supporters pushed for the committee to act on the bill this year, despite opposition from the Justice Department and other groups.

"Government must not be tempted to treat IP-based communications like traditional telecommunications, and must not attempt to squeeze IP-based communications into legacy telecommunications regulations," said Jeff Pulver, chief executive officer of Pulver.com, provider of the Free World Dialup VoIP service. "We, the IP-based communications pioneers, need room to innovate and experiment in a regulation-free zone for the Internet."

But other senators and witnesses raised concerns about the Sununu bill. Senators from rural states question its effect on the Universal Service Fund, a program that helps telephone companies provide access in rural and poor areas. The bill requires VoIP providers to contribute a flat rate to the fund, but Senator Byron Dorgan (D-North Dakota) suggested the bill could weaken the fund.

The bill also calls for industry groups to develop standards for VoIP providers to provide enhanced 911 service and services for the disabled. Law enforcement and 911 standards can be required without additional federal or state regulations, said Thomas Rutledge, chief operating officer of Cablevision Systems, a VoIP provider in New York. "These targeted policy goals can be achieved by focused regulation or industry commitments without carrying forward the costly and dated regime of local retail phone regulation from a monopoly era," he said.

Others called for mandatory 911 service, not industry commitments. Without a national requirement for 911, VoIP providers could avoid paying taxes supporting the improvement of 911 services, said David Jones, director of emergency services for Spartanburg County, South Carolina.

Fair Share Sought

VoIP providers should not be able to steer clear of regulations that other telephone service carriers must live by, added Arturo Macias, general manager of Wheat State Telephone, based in Kansas. Sununu's bill could prevent VoIP providers from paying access fees, those fees exchanged among telephone service carriers for ending calls on each others' networks. A large portion of many rural telephone carriers' budgets are supported by those access fees, Macias said.

"Rural consumers will not be able to enjoy the benefits of VoIP, if the underlying networks operated by rural telephone companies are compromised due to a lack of adequate cost recovery," he added.

Despite the opposition to the bill, committee chair John McCain (R-Arizona) praised Sununu for the introducing the bill. McCain said the questions raised by opponents are not simple issues, but he also called VoIP a "breakthrough technology" that will be beneficial to consumers.

"One thing we don't want to do is inhibit [VoIP's] ability to reach as many people as quickly as possible," McCain said.