VOIP Regulations Enter a Perfect Storm

As both Congress and the Supreme Court consider telecom regulations, Internet applications such as VOIP could be headed for government rules and taxes, industry experts warn.

SAN FRANCISCO—Upcoming legislative action and an impending Supreme Court decision are reawakening the prospect of Internet regulation, and this time around, policy experts are warning that applications such as voice over IP could get caught in the crosshairs.

During a policy panel here at the Supernova conference Wednesday, representatives from the telecommunications and Internet industries said the issue of whether to regulate and tax VOIP and other applications running on IP networks is coming to a head.

The U.S. Congress this year is revisiting the 1996 Telecommunications Act, which had set out an intricate set of rules for attempting to deregulate telecom. Meanwhile, the U.S. Supreme Court is likely to rule in the next week on a case known as "Brand X" that could determine whether broadband Internet over cable should follow the line-sharing regulations that govern telecom carriers.

On the legislative front, one of the most important issues facing lawmakers will be how to tax emerging Internet telephony service. Currently, taxes on traditional phone services are a substantial source of revenue for federal-government initiatives as well as for state and local governments, said Robert Blau, vice president of public policy development at BellSouth Corp.

"Voice over IP and other applications that ride on [IP] networks are treated as information services that are exempt for a vast majority of taxes," Blau said. "That, I think, is probably an unsustainable situation."

/zimages/4/28571.gifClick here to read an eWEEK editorial advocating a new telecom act.

As more voice traffic moves off of the PSTN (Public Switched Telephone Network) and onto IP, governments will be forced to look for a way to fill the tax gap, panelists said.

"The problem is not taxation and the problem is not bad government, but the problem is that the government has a flow of tax revenue right now, and the way the money is being collected is by applying tax to a service that is being replaced," said Bill Woodcock, research director at Packet Clearing House, an Internet-networking research nonprofit.

But the issue of regulation and taxation extends beyond the rise of voice traveling the IP networks. Voice is just one of an ever-growing number of applications depending on the Internet and the broadband connections into homes and business, said Andrew McLaughlin, senior policy counsel at search company Google Inc.

"Weve got to get away from [just] thinking about the taxation of voice," McLaughlin said.

BellSouths Blau warned that taxation could become a reality for more than VOIP, depending on the outcome of the Supreme Courts decision in the Brand X case. The case pits the Federal Communications Commission against a small Santa Monica, Calif.-based ISP, Brand X.

State regulators in particular are seeking the ability to regulate cable broadband like traditional phones lines so cable companies are required to open access to competitors. The case has arisen as cable companies increasingly offer new services such as VOIP on their broadband connections.

"If the states win that case and VOIP is treated as a telecom service, then not only will you get regulations of traditional phone services, [but] that also raises the specter of having all local, state and federal tax rates apply to these new services," Blau said. "If theyre applied to VOIP, then its only a short step before theres effort to apply them to some of the other applications."

While the panelists agreed that significant regulatory changes are possible, they differed on whether they support revoking the regulations covering the so-called Baby Bells.

/zimages/4/28571.gifWhat about VOIP port blocking? Click here to read about the FCCs take on the issue.

Greg Rogers, who oversees state regulatory affairs for Level 3 Communications Inc., said that particularly in rural areas of the United States, the traditional phone companies continue to have a stranglehold on phone and broadband access. Level 3 competes with Baby Bells as a wholesale provider of such services as VOIP.

"Theres no question that theres a monopoly in place, and they are going to protect their turf," Rogers said. "If you just deregulate everything, then you wind up in the same place you are today."

McLaughlin voiced support for widespread deregulation as the best approach for extending broadband access to more people. But he said that Google, as a major Internet company, is concerned about the potential for broadband providers to give preferential treatment to different kinds of IP traffic, such as the VOIP packets from their own voice service.

"Google does worry about idea that the network-level providers would start distinguishing between services," McLaughlin said. "We are in favor of a network neutrality principle."

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