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California eyeballs VoIP rules

A state senate committee is set to hear arguments about whether telephone laws should apply to Net phone providers, adding to the ongoing debate about how regulators should treat the emerging industry.

California lawmakers are set to hear arguments Tuesday about whether state telephone laws should apply to Internet phone service providers--providing yet another forum for the debate about how regulators should treat the emerging industry.

The Energy, Utilities and Communications committee of the California State Senate is meeting to conduct its first-ever informational hearing on the practices of voice over Internet Protocol (VoIP) providers. Scheduled to testify are a half dozen VoIP luminaries, including representatives from 8x8 and from long-distance provider AT&T, which plans a residential VoIP service.

Also expected to address the committee is a representative from the Communications Workers of America, which represents telephone company workers.

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California regulates the traditional phone industry through laws that ban telephone industry practices such as slamming and cramming, and that dictate what kind of information must be included on phone bills. In addition, it requires traditional phone companies to collect fees to support state programs such as 911 emergency services.

"One of the things we're trying to find out is what are the limits of our jurisdiction," said a representative for the EUC committee. "It's not very clear right now."

The Golden State is a leader in addressing the question of Internet telephone industry regulation, an effort that promises to create a new avenue of oversight. Public utilities commissions in some other states have already tried to set rules for VoIP providers. However, a court decision that blocked a Minnesota proposal has helped to stall these efforts.

In addition, the Federal Communications Commission is expected to make several important findings regarding VoIP sometime in February.

"There's a whole step of educational outreach that needs to be done," said Bryan Martin, chief executive of 8x8. He is among the executives planning to testify Tuesday before the California Senate committee.

After years of overpromising and underdelivering, Internet telephony is generating significant interest among carriers, corporations and consumers, thanks to significant improvements in quality of service. VoIP is already being embraced by carriers as a way to cut traffic costs on international and long-distance calls, and it is expected to eventually replace the public switched telephone network, as big phone companies convert to IP-based fiber-optic gear.

Currently, about 11 percent of all voice traffic is classified as VoIP, although fewer than 1 percent of those calls are initiated on a VoIP phone.

If more conversations begin to flow through unregulated VoIP links instead of the heavily taxed public switched telephone network, federal and state governments stand to lose billions of dollars. Internet phone service providers, as they aren't regulated, aren't subject to the vast thicket of taxes and regulations that govern E911 and that guarantee wiretapping access for police.

Also at issue is the future of a special $2.25 billion-a-year tax--typically reflected in higher monthly phone bills--that provides schools and libraries with discounts in areas including Internet access, phone lines for fax machines and domain name registrations.