VoIP and US State Regulations

VoIP is becoming increasingly available through cable, DSL providers and pure-plays. However, regulation and policy towards VoIP is lagging. In the US case this is exacerbated by the struggle for authority between the federal centre and the states.

The federal centre, represented by the FCC, narrowly favors light regulation of VoIP, but many states are still hostile to any diminution of their power to regulate telecoms operators within their territory.

Public Utilities Commission or PUCs argue that they, not the FCC, are in the best position to judge the level of competition in the voice market within their states and therefore should have the power to regulate VoIP on a state-by-state basis. The PUCs undoubtedly have a point - action may be needed to ensure that VoIP pure-plays are able to compete effectively with the actual owners of last-mile broadband infrastructure - Baby Bells and cable operators. The expansion of VoIP services by these players in 2005 will put greater pressure on pure-plays and it is expected that some start-ups will struggle to win customers. Ultimately, it is expected that the FCC will take a hands-off approach to VoIP regulation, but further legal wrangling between states, the federal centre and service providers is likely to ensue.

Under US and European telecoms law, providers of PSTN telephony must guarantee access to emergency services to all users (free of charge). However, not all VoIP providers, whether they offer a free PC-to-PC service, or more advanced VoIP service over a cable modem of DSL connection, are able to provide guaranteed access to end-users. Many of the leading VoIP providers do offer or are planning to offer E-911 services to end-users. Vonage already provides E-911 access to all its customers and Level 3 recently announced that it can now provide E-911-enabled VoIP to over 60m households throughout the US and will expand coverage in 2005. These and other operators view the provision of E-911 as necessary to public expectations of a telephony service and to drive uptake.

However, as mentioned above not all VoIP providers are able to offer E-911 access. This is the issue that the Minnesota Public Utilities Commission (MPUC) has latched on to in its bid to overturn the Federal Communications Commission (FCC)’s ruling to exempt VoIP from state regulation. The MPUC has become the second state to appeal against the FCC’s decision to exempt VoIP from regulation by individual states. MPUC cites concern over whether VoIP providers are able to offer E-911 services to end-users.

MPUC and other PUCs will argue that the failure to regulate VoIP as a telephony service, and therefore not oblige VoIP providers to offer E-911 services, raises serious public safety questions. PUCs will, however, be just as concerned about a number of other issues, notably the impact of exempting VoIP providers from paying tax contributions to the universal services funds levied by states. VoIP providers, for their part, argue that excessive regulation of VoIP will stifle innovation in the VoIP market, competition in the voice market and, ultimately, end-user take-up. The clear message from VoIP pure-players such as Vonage is �leave well alone.