Hands off VoIP

Published January 1, 2005

As unrecognizable as Voice over Internet Protocol (VoIP) might be as a term today, it will be on everyone’s lips, and in everyone’s homes, tomorrow if regulators are forced to keep their acquisitive hands off of it.

VoIP–which, among other applications, permits telephone calls to be made over the Internet–is a fledgling technology. VoIP providers make up a small sliver of the telephone service market. But they save consumers money and offer useful features at a reasonable cost. VoIP can do this because it bypasses the outmoded communications regulatory regime that unnecessarily adds costs to other telecommunications services. Because of its relative freshness, VoIP does not fall into any of the current regulatory classifications and so is flying virtually free.

That flight could be near its end, though. Government rulemakers get edgy when the private sector finds ways around their decrees.

Hoping to stave off this regulatory reflex, the Senate Commerce, Science and Transportation Committee approved on July 23 the VoIP Regulatory Freedom Act of 2004. The bill, if passed and signed, would exempt VoIP service from state taxes and rules and would place it in a federal regulatory classification that would keep Washington’s rulemakers from overburdening an important emerging industry.

It’s not a bill without traps, though. It contains a disappointing amendment that would allow states to continue requiring VoIP providers to hand over cash for state universal service programs. That universal service fee [discussed in Ray Gifford’s article in this issue; see page 1] is a needless burdensome leftover from another era and might be a significant tax that could smother the vast potential of VoIP.

In a day when “protecting the public interest” really means “the fear that somewhere, someone or something is going unregulated,” keeping rulemakers’ hands off this fledgling industry won’t be easy. But if we do, we will see just how much difference a little technology freedom can make.

The Institute for Policy Innovation (http://www.ipi.org) is based in Washington, D.C.