Senate Commerce Committee Passes VOIP Regulation Bill

July 22, 2004. The Senate Commerce Committee (SCC) amended and approved S 2281, the "VOIP Regulatory Freedom Act of 2004". This bill began as an attempt to restrict regulation of voice over internet protocol (VOIP) applications. It would have removed states from the regulatory process, and limited the Federal Communications Commission's (FCC) authority to impose regulations. The bill as amended by the SCC now includes numerous opportunities for states to tax and regulate VOIP applications. The bill's title now misrepresents its content. See, S 2281 as amended on July 22, 2004.

Sen. John Sununu (R-NH) introduced S 2281 in the Senate on April 5, 2004. Also, Rep. Chip Pickering (R-MS) introduced HR 4129, also titled the "VOIP Regulatory Freedom Act of 2004", in the House on April 2, 2004. The two bills, as introduced, were very similar, but contained several differences in the section dealing with FCC's authority to regulate connected VOIP applications. The version just approved by the SCC contains additional differences.

See, story titled "Sununu and Pickering Introduce VOIP Regulatory Freedom Bills" and story titled "Summary of VOIP Regulatory Freedom Bills", both published in TLJ Daily E-Mail Alert No. 872, April 8, 2004.

Also, on July 6, 2004, Rep. Cliff Stearns (R-FL) and Rep. Rick Boucher (D-VA) introduced HR 4757, the "Advanced Internet Communications Services Act of 2004". See, story titled "Rep. Stearns and Rep. Boucher Introduce VOIP and Internet Regulation Bill" in TLJ Daily E-Mail Alert No. 935, July 12, 2004.

Bill Summary. S 2281, as introduced, provides that regulation of VOIP is an exclusively federal matter, that states cannot regulate or tax the offering or provision of a VOIP application, and that the FCC has regulatory authority only over enumerated topics: interprovider compensation, universal service contributions, and law enforcement surveillance.

The SCC approved an amendment in the nature of a substitute offered by Sen. Sununu, Sen. Ted Stevens (R-AK) and Sen. Maria Cantwell (D-WA), as amended by an amendment offered by Sen. Conrad Burns (R-MT), and an amendment offered by Sen. Byron Dorgan (D-ND).

The bill provides two key definitions. A VOIP application is "software, hardware, or network equipment for real-time 2-way or multidirectional voice communications over the public Internet or a private network utilizing Internet protocol", while a connected VOIP application is "a VOIP application that is capable of receiving voice communications from, or sending voice communications to, the public switched telephone network".

The bill as approved by the SCC maintains the general provisions that the regulation of a VOIP application is reserved to the federal government, and that state regulation of VOIP applications is prohibited.

The original bill also included a non-delegation provision, which the bill as approved deleted.

The bill as approved added six major exceptions to the general limitations on state regulation. First, it allows states to regulate and tax connected VOIP applications with respect to 911 and E-911 services. This exception was in the Burns amendment.

Second, it allows states to tax and regulate VOIP application providers with respect to intercarrier compensation. Third, it allows states to tax and regulate VOIP application providers with respect to subsidization of service providers, which is also referred to as universal service. These second and third exceptions were in the Dorgan amendment.

Fourth, it allows states to regulate any VOIP application if the statute is labeled as a criminal prohibition. Fifth, it allows states to regulate any VOIP application if the statute is drafted as a consumer protection measure. Six, it allows states to regulate any VOIP application if the statute is drafted as a unfair or deceptive trade practices.

The original bill also contained a separate ban on state taxation of VOIP applications, which the bill as approved deleted.

The original bill also contained a section barring the FCC from writing rules that regulate any VOIP applications. However, the original bill also contained a section that allowed FCC regulation and taxation of connected VOIP applications in three areas -- intercarrier compensation, universal service taxes and subsidies, and extension of the Communications Assistance for Law Enforcement Act (CALEA). Although, the CALEA authority was limited.

The bill as approved deletes the general ban on FCC rulemaking. It also deletes the provision regarding FCC authority with respect to intercarrier compensation and universal service taxation. It gives the states authority with respect to intercarrier compensation and universal service taxation, but does not preclude FCC rulemaking in these areas.

The bill as approved also deletes the provision regarding FCC authority with respect to CALEA, and instead delays Congressional consideration of this issue while the Congress' General Accounting Office (GAO) conducts a major study.

The bill as approved maintains a section requiring the FCC to write rules regarding 911 and E-911 obligations of connected VOIP application providers.

Thus, the bill as approved does nothing to limit FCC rulemaking authority with respect to VOIP applications or connected VOIP applications. Moreover, it creates a broad array of state and local powers, most of which apply to any VOIP application, not just connected VOIP applications.

The bill as approved maintains the title "VOIP Regulatory Freedom Act of 2004". The bill does nothing to provide freedom from federal regulation. The bill does maintain the general provision that VOIP regulation is a federal issue. And, it provides no express exceptions for price regulation, disability regulation, reliability regulation, or security regulation. Although, state authority with respect to crimes, consumer protection and trade practices would enable some regulation in these areas.

See also, following story titled "Summary of VOIP Related Bills".

Further Consideration. Sen. Sununu (at right) stated in a release on July 22 that "I will continue to work with my colleague Congressman Chip Pickering (R-MS) to complete similar VOIP legislation in the House and pursue final passage of a bill this year."

Neither the House Commerce Committee, nor its Subcommittee on Telecommunications and the Internet, has approved either S 2281 (Sununu), HR 4129 (Pickering), or HR 4757 (Stearns/Boucher). HR 4129 has also been referred to the House Judiciary Committee.

Sen. Sununu also stated that "This is an important step forward, and a small victory in the effort to establish a clear and limited regulatory framework for IP services like VOIP. Despite the addition of two amendments, the basic message is clear: Congress does not want states implementing new regulations that will inhibit this emerging technology."

Nevertheless, the Congress has recessed for political conventions and its usual August and Labor Day vacations. Since this is an election year, little substantive legislation other than critical bills will be passed before the election.

Thus, there is little chance that S 2281 or any other VOIP related bill will become law this year. Rather, the SCC markup of S 2281 is likely just one step in a legislative process that will play out over multiple years.

Reaction. Russell Frisby, the CEO of CompTel/ASCENT, stated in a release that "we are disappointed in the success of efforts to impose inappropriate obligations on this nascent technology. While CompTel/ASCENT fully believes that thorny issues such as universal service and the historic access charge regime need to undergo a complete overhaul to better address current marketplace realities, we fear that premature assessment of fees and taxes will undermine the potential of new technologies that will revolutionize the way Americans communicate."

Walter McCormick, P/CEO of the U.S. Telecom Association (USTA) stated in a release that "this bill creates more questions than answers. With dramatic changes in technology, Congress must address all of the critical issues facing the industry in a comprehensive way. By fast-tracking the needs of just one application in a diverse and rapidly innovating marketplace, we deepen existing regulatory disparities rather than lead to the true free marketplace in telecommunications that consumers deserve today. USTA will continue to work with Congress toward comprehensive reform that is pro-innovation rather than simply pro-VoIP."

Peter Davidson, SVP for Federal Government Relations at Verizon, stated that "While there are still issues to be addressed in this area, we support Sen. Sununu's effort, endorsed by the Senate Commerce Committee, to set a national policy that will allow VoIP to flourish in an environment of robust competition. This legislation would ensure that the development of VoIP is not encumbered by a patchwork of potentially inconsistent state rules."

Davidson added that "Specifically, this bill calls for a three-year moratorium on state regulation of this broadband service until Congress can address the disconnect between advances in technology and obsolete telecom laws and regulations. For the sake of consumers, students, health care patients and the national economy, let's hope Congress doesn't take the whole three years."