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Senate panel hears VoIP arguments

While agreeing on the need to go easy with federal regulations, U.S. senators on Tuesday split over whether states should be able to tax Internet phone calls.

States should tax Internet phone calls to replace the estimated $13 billion in annual fees they won't collect as more calling takes place off traditional phone networks, a U.S. senator proposed Tuesday.

"I'm here to make sure state and local governments aren't tied to the tracks," Sen. Lamar Alexander, R-Tenn., told the U.S. Senate Committee on Commerce, Science and Transportation, which began a series of hearings Tuesday on the technology known as voice over Internet Protocol (VoIP).

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Alexander's proposal highlights one of the major issues--the role of states--that remain for lawmakers focusing on whether to regulate VoIP service providers, as is done with traditional phone networks. State governments depend on taxes on phone calls to pay for emergency calling, subsidized phone services and other social programs. But those coffers are likely to dwindle if, as expected, more and more phone calls take place over the Internet.

The head of one industry group testified against the need for new regulation, though he acknowledged the potential for lost revenue to state governments.

"We're not interested in seeing additional taxes on the telecom industry," said Stan Wise, president of the National Association of Regulatory Utility Commissioners (NARUC). "But in the long term, states are concerned (that there will be) policy that costs them up to $13 billion" annually.

Taking the opposite argument was Sen. Ron Wyden, D-Ore., who pointed out Tuesday that VoIP calls travels online using the Internet Protocol. That mechanism also conveys billions of e-mails, streaming video and other applications, so taxing a Net phone call, in theory, could lead to taxes on any other application using that protocol, he reasons.

"What this decision leads to is taxing everything, e-mails, etc., under the guise of VoIP," Wyden said.

But while its members hear arguments over state telephone taxes, the committee appears headed toward a hands-off approach by the federal government toward Internet telephone service providers. Critics say federal regulations could stifle the industry's growth, and also might be unenforceable under modern telephone rules that are based on older circuit-switched technology.

"We cannot make the mistake of just trying to slot VoIP into the existing (federal) regulatory framework," said committee member Sen. John Sununu, R-N.H.

The senators attending Tuesday's hearing generally agreed that VoIP providers should, however, be forced to follow some federal rules, such as being required to offer 911 service or comply with law enforcement wiretapping demands.