Wisconsin Briefs

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Wisconsin Briefs

  1. 1. fpF Wisconsin Briefs from the Legislative Reference Bureau Brief 04−15 August 2004 VOICE OVER INTERNET PROTOCOL: NEW TELEPHONE SERVICE POSES REGULATORY CHALLENGES Telephone service choices are becoming more complex. Wireless telephony is already widely used, but consumers can now receive telephone service by using their broadband computer modems. Should the federal and state governments regulate this service in much the same way as standard telephone service, or is a different approach appropriate? Several states have begun to address the regulatory issues, but the federal government may end up preempting state authority. Wisconsin’s Public Service Commission continues to study the issue, and the 2003 Wisconsin Legislature considered but did not enact legislation on VoIP. WHAT IS VOIP? caller can place calls with a telephone as well as with a computer. Furthermore, the VoIP Using the Internet to make telephone calls subscriber can make calls with the same is called Voice over Internet Protocol (VoIP), telephone number from almost any also known as Internet telephony or Internet broadband connection in the world. VoIP voice. VoIP can take different forms, but all subscribers are also no longer limited to calling involve converting sound into encoded data other Internet voice users, but, depending on packets transmitted over the Internet’s the service purchased, can also reach infrastructure rather than over conventional conventional telephone subscribers or anyone analogue telephone lines. The data are else with a telephone number. Some estimates converted back into sound at the other end of suggest that about one million people the connection. currently use VoIP in the United States. During the 1990s some computer VoIP service is not, however, without the enthusiasts used VoIP to avoid long distance potential for problems. Because it requires a charges for some calls by calling functioning computer modem and Internet computer­to­computer rather than by service to function, a VoIP telephone customer telephone to others who used the same kind of could be without the ability to make or receive software. Sound quality could be inconsistent, calls during a power outage or an Internet but the calls were free. Today, the technology Service Provider’s (ISP) service interruption. has improved and many companies are Because VoIP uses the Internet to transmit promoting VoIP to broadband Internet calls, it could be subject to virus, spam, or subscribers as a potentially less expensive denial of service attacks. 911 service with VoIP alternative to conventional long distance and could be a challenge if the 911 system cannot local telephone companies. With the identify the location of the emergency call. introduction of telephone adapters for VoIP, a Law enforcement officials are concerned that Prepared by Robert Paolino, Legislative Analyst Reference Desk: (608) 266­0341 Web Site: www.legis.state.wi.us/lrb
  2. 2. −2 − LRB−04−WB−15 VoIP will hinder their wiretapping capabilities giving VoIP providers the unfair advantage of in investigating suspected criminal activity. a free­ride as they compete with each other for Hearing impaired users are concerned that customers. Others note that the early VoIP companies are not required to provide development of the Internet itself, on which appropriate services. VoIP is based, was aided by government Nonetheless, as VoIP develops to the point regulation and federal funding. that it can substitute for conventional The Federal Communications telephone service for an increasing number of Commission (FCC), in February 2004, has users, the growth of this new industry raises a already ruled that “pure” VoIP services, calls number of technological, economic, and made from computer­to­computer, are regulatory questions that the federal information services exempt from state government and state governments are only regulation. The more difficult question is the beginning to address. treatment of computer­to­telephone and telephone­to­telephone VoIP services. The REGULATORY ISSUES FCC hosted a forum in December 2003 to The heart of the regulatory debate over receive testimony on the issue. The public VoIP is how to define the service and its comment period ended in July, and the FCC underlying technology. Federal law expects to make some decisions late in 2004. distinguishes between “telecommunications STATE REGULATION AND TAXATION services” and “information services.” Standard telephone service and other State governments are concerned that a telecommunications services are subject to major shift of telephone business from state and federal regulation. The Internet is traditional telephone networks to unregulated considered an “information service,” and is Internet voice services will result in a severe generally not subject to regulation. VoIP falls reduction in the tax revenues that fund 911 in the grey area between the two. It functions emergency services and programs such as as telephone service and many VoIP providers universal service or school and library openly advertise it as telephone service to technology funds (“e­rate” fund). Some states replace that of consumers’ current telephone have begun to address the issue, generally companies, but the manner of transmission is arguing that functionally equivalent services as addressed data packets over the Internet, should be treated equally from a regulatory rather than over analogue telephone lines, and tax perspective, regardless of the specific until it intersects with the public switched technology used to provide the end product. telephone network (PSTN). Any future state regulation, however, may be limited by federal action if the FCC decides VoIP companies and other opponents of that the Internet component of the service VoIP regulation argue that regulation will means that federal jurisdiction preempts state hinder development of the emerging action. A number of states have begun to technology because it imposes regulation from study VoIP more carefully, and a few have a different era on their services. Some emerged as early leaders. standard telephone companies (many of which are employing digital technology for Wisconsin. In September 2003 the Wis­ some services) and others contend that consin Public Service Commission (PSC) exempting VoIP from the regulations and informed a California company that its Inter­ taxation pertaining to telephone companies net voice service needed to receive certifica­ violates the principle of a level playing field by tion, as would any other telephone company,
  3. 3. LRB−04−WB−15 − 3 − to be able to provide voice calling services In its September ruling, the Commission noted legally in the state. Without certification, the that Vonage offers unlimited local and long company’s bills for voice calls in Wisconsin distance calling, Caller ID, Call Waiting, and would be void. The PSC is still investigating Voicemail services and advertises that it possible regulatory approaches for VoIP. provides all­inclusive phone service that can Companion bills introduced in the replace a customer’s current telephone Wisconsin Legislature during the 2003­04 company service. Although the customer session, Assembly Bill 672 and Senate Bill 302, must have an ISP and computer modem, calls addressed possible regulation of VoIP by are made and received on ordinary touch­tone exempting broadband service from state and telephones and the service intersects with the local regulation. The bills, as introduced, PSTN. Because the service is functionally excluded broadband service (defined to equivalent to standard telephone service and include voice conveyance) from the definition because the Minnesota Legislature had not of a “telecommunications service.” The exempted VoIP technology from state substitute amendments, however, defined regulation, it ordered Vonage to comply with “broadband service” as a telecommunications Minnesota statutes and rules pertaining to service, but excluded it from the telephone service and to pay 911 fees for the telecommunications services that are subject period it served Minnesota customers but did to regulation. Both bills failed to pass. not pay fees. Vonage challenged the order and, in Minnesota. Minnesota was the first state October 2003, federal district court judge to take on the issue directly. In July 2003 the Michael Davis ruled for Vonage, rejecting the Minnesota Department of Commerce filed a “if it quacks like a duck, it’s a duck” argument, complaint with the Minnesota Public Utilities calling VoIP an information service, and Commission that Vonage Holdings Corpora­ therefore protected by federal law from state tion (one of the major VoIP companies) was telecommunications regulations. The decision offering local exchange service and long dis­ applies only in Minnesota, but may influence tance telephone services without first obtain­ future proceedings in other states. ing the certificate of authority required by Minnesota statutes, that it failed to provide California. The California Public Utilities adequate 911 service or pay any of the required Commission (CPUC) notified six VoIP provid­ 911 fees, and that it had not filed Commission­ ers in September 2003 that they needed to approved rates for services. Although Minne­ obtain telephone operator business licences to sota statutes define what a “telephone com­ be able to do business in California, citing the pany” is, they do not, specifically define what state’s Public Utilities Code, which defines a a “telephone service” is. telephone line “as any asset used to facilitate telephone communication,” and also, unlike Focusing on the manner in which service Minnesota law, specifically defines “telephone is provided rather than the function of the service.” The CPUC began an investigation service, Vonage countered that it was offering into possible VoIP regulations in February an “information service” rather than 2004, and is expected to be one of the most “telephone service”and was, therefore, not influential states in establishing a pattern that subject to the laws that apply to telephone other states may follow. services. The Commission accepted public Florida. A law enacted in 1985 that taxes comments and heard the case in August 2003. businesses that bypass the local telephone net­
  4. 4. −4 − LRB−04−WB−15 work by establishing their own communica­ 911 services, contribute to state universal tions networks is reportedly rarely enforced, service programs, and pay intrastate access with only about 10 companies voluntarily pay­ charges to other telecommunications ing the tax. The law was originally designed to providers. ensure that such businesses paid the same tax A similar bill in the House of as businesses using the regular telephone sys­ Representatives, H.R.4757, introduced by Rep. tem. If this “substitute communication” tax Cliff Stearns (R­FL), has not received approval and associated local option taxes were to be from the House Subcommittee on enforced on such services − including VoIP − it Telecommunications and the Internet. The could bring the state and local governments proposed Advanced Internet more than $1 billion in annual revenues, rather Communications Services Act of 2004, would than the current $600,000. The Florida Senate establish a new form of service, called passed a bill that would have prevented collec­ Advanced Internet Communications Services tion of the tax until 2006, but the Florida House as a way around the question of whether VoIP of Representatives refused to act on the bill is a telecommunications service or an before the close of the legislative session in information service. The bill would give the April 2004. The Florida Department of Reve­ FCC exclusive regulatory authority, but nue will now develop rules for the enforce­ neither the FCC nor the states would be able to ment of the tax. regulate rates or terms of service. The bill does include requirements for universal service New York. In May 2004 the New York funding, 911 service, disability access, and State Public Service Commission ruled that compensation to the affected telephone VoIP provider Vonage Holdings is a telephone companies when a VoIP user calls a traditional company and as such is, therefore, subject to telephone user on the PSTN. state regulation. In announcing its decision, however, the commission noted that it did not intend regulation to interfere with the CANADA “deployment of new technologies.” Canada appears to be taking a different FEDERAL LEGISLATION approach from that of the FCC to date in the The Senate Commerce, Science, and United States. Transportation Committee recommended in In April 2004, the Canadian July 2004 an amended version of a bill, S.2281, Radio­television and Telecommunications sponsored by Sen. John Sununu (R­NH) and Commission (CRTC) released a nonbinding called the VoIP Regulatory Freedom Act of decision that any company supplying 2004, that proposes to exempt VoIP from most subscribers with 10­digit telephone numbers regulation applicable to other telephone and allowing them to dial and receive calls on companies. The original bill gave the federal traditional equipment would be subject to the government sole authority to regulate VoIP, same regulations as other telephone prohibiting state involvement. It required a companies. The CRTC found that Internet and universal service fee and law enforcement traditional switching networks have common access, but made 911 and disability access functional characteristics that ought to be voluntary subjects for the industry. “subject to the same regulatory framework for Amendments to the bill would give the states local competition.” the authority to have VoIP companies provide

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