Can VoIP survive Congress?

Washington politicos are about to kick off what will be a long and exhausting process aimed at deciding the future of phone calls made over the Internet.

On Wednesday, a House of Representatives panel will convene its first hearing devoted to considering how much of the thousands of pages of weighty telecommunications regulations should be imported to cover voice over Internet Protocol (VoIP) services. The apt title of the hearing: "VoIP: Will the Technology Disrupt the Industry or Will Regulation Disrupt the Technology?"

This is a process fraught with problems. For all the hype surrounding VoIP, it remains a fledgling industry that could be severely--perhaps even permanently--harmed if Congress veers in the wrong direction.

For all the hype surrounding VoIP, it remains a fledgling industry that could be severely--perhaps even permanently--harmed if Congress veers in the wrong direction.

Early signals from Congress are mildly encouraging. Rep. Charles Pickering, R-Miss., has introduced a bill prohibiting state regulators from seizing control of VoIP services, which is a welcome first step. But the measure also would impose a hefty stack of regulations, including ones related to wiretapping and universal service, on "connected" VoIP systems that offer the choice of calling people via the existing telephone network.

Rick Boucher, D-Va., and Cliff Stearns, R-Fla., are planning a press conference on Tuesday afternoon to announce a second House bill on VoIP. Boucher told me that while the legislation won't be finalized until the event, it has two major components: One of them is to block states from regulating VoIP. The other is to encourage the Federal Communications Commission to consider what 911, universal service, and access charges requirements will apply.

In the Senate as well, politicians are divided on how to react to VoIP. At a hearing last month, senators were skeptical of the Justice Department's requests for broad, new VoIP wiretapping powers. Others insisted that the FCC must levy universal service taxes on VoIP calls, with proceeds going to fund discounted analog phone service for low-income and rural American households.

The growth of VoIP is a big concern of state regulators, who say they fear losing tens of millions of dollars--from fees and subsidies provided by telephone companies--if more calls flow away from traditional phone networks and onto the Internet. States such as Minnesota and New York already are active in trying to seize authority over VoIP companies.

This is a classic Washington scenario that often heralds bad legislation. When just about everyone wants something, they tend to be willing to trade political favors for it. The Justice Department conceivably could ink a deal to back universal service taxes on VoIP--on the condition that certain senators drop their opposition to new wiretapping requirements, and so on.

This is a classic Washington scenario that often heralds bad legislation.

The danger is that either through ignorance or malice, politicians will impose 20th century regulations on a 21st century technology. A debate expected in the next year over revising the Telecommunications Act offers a convenient opportunity to do just that. Some of the leading candidates for regulatory shoehorning are wiretapping requirements, 911 emergency service, disability access, universal service and "access fee" taxes.

These rules, most of which are laid out in excruciating detail in Title II of the Telecommunications Act of 1934, may have had a place when the Bell system was the only way to make a phone call. Extending them to the Internet risks stifling the growth of a promising new technology with a web of taxes, entitlements, and cross-industry subsidies designed for a much earlier era.

Take "universal service," one of those rare taxes that enjoys enthusiastic bipartisan support. In its modern form, it was invented by a Republican Congress in the mid-1990s and can be politically dangerous for politicians to oppose. Telecommunications companies pay a total of about $6 billion a year in universal service taxes. Yet a 1998 analysis by Lawrence Gasman, head of a telecommunications consultancy in Charlottesville, Va., concludes it can't be justified even for analog telephone lines. If so, why should it be renewed in the form of higher taxes for VoIP users?

"We're directing the FCC to put the issue under the microscope and figure out a reasonable way to have universal service apply to VoIP," Boucher said. "What we are saying is that the commission shall apply universal service formulas to VoIP, and we leave it to the commission to make a decision on how to do that." Boucher said his bill would not prohibit the FCC from imposing universal service fees on offerings such as Free World Dialup, Skype and instant messaging programs that include voice chats.

A white paper released last month by the VON Coalition--which includes Microsoft, MCI, Intel and Pulver.com--points out that VoIP providers already "contribute to universal service either directly or indirectly" when they link to the phone network. The report also stresses that "phone companies are already fully compensated for their costs when Internet phone calls are terminated on their networks," so there's also no need to impose new access charge taxes. It concludes that imposing regulations designed "for a 100-year-old telephone network on innovative Internet communications services" may not make much sense.

Unfortunately, when Congress starts writing new telecommunications laws, a dollop of common sense often doesn't go very far.