Michigan Bureaucracy Threatens VoIP

Published November 1, 2004

State and federal regulators should welcome the unfettered progress of Internet telephony. But rather than allow new marvels of telecommunications to advance freely, attempts are underway in both Lansing and Washington, DC to impose antiquated regulations on the new technology.

There is some question whether the Michigan Public Service Commission (MPSC) is authorized under existing state law to regulate Internet telephony. Even if it is, the public interest would not be served by further expanding the very government interference that for decades stifled competition and innovation in telecom.

Internet telephony, one of many applications of Voice over Internet Protocol (VoIP), transmits calls through the Internet by converting the sound waves of voice into data packets. Internet telephones connect through computer connections, not the standard phone jack in the wall. Internet telephony users can call phones attached to other computers, bypassing entirely the wireline telephone system, and they can make calls to conventional telephones, as well.

Ford Chooses VoIP

VoIP makes phone service cheaper and far more versatile. But drawbacks remain. Unlike traditional wireline service, VoIP requires an electrically powered adapter to connect with a personal computer, leaving it more vulnerable to power outages. Internet viruses or other network interference may also impair service.

Nevertheless, progress already has been made to address those issues–so much so that Ford Motor Co. was comfortable signing a contract with SBC to migrate its entire corporate telephone system–more than 50,000 lines–to VoIP over the next several years.

VoIP currently holds only a slight share of the market. But exponential growth is expected in the near term, with some analysts forecasting VoIP will capture 18 percent of phone lines within five years. AT&T, Cox, Cablevision, Time Warner, and Verizon all have launched VoIP service. Comcast executives have announced plans to offer the service to the company’s 21.5 million subscribers by the end of 2005.

VoIP has so far escaped the regulatory encumbrances that plague most other segments of the telecom market, including price controls, subsidies, and service mandates. Unfortunately, that may soon change. The Michigan Public Service Commission has launched an “investigation” into VoIP “in order to formulate an informed, consistent regulatory policy.”

A truly “informed” policy would abolish the regulatory regime originally crafted decades ago to control government-created telephone monopolies. Consumers know well that the choices of affordable services available today can seem downright dizzying, making the old monopoly mindset obsolete.

A Level Playing Field

The telecom world no longer belongs to Ma Bell. Wireless connections comprise the same proportion of the Michigan market as wireline–41 percent, according to government data. High-speed broadband connections account for another 6 percent. This competition is further enhanced by the availability of full-service packages, including both local and long-distance calling, from wireline, wireless, cable, and VoIP companies.

Aiming for “consistency” in policy usually means protecting special interests. Competing telecom firms are understandably anxious about the regulatory double-standard that saddles their services, but not VoIP, with taxes, surcharges, and myriad other fees, mandates, and obligations.

The more rational policy course is to end unnecessary regulation, thereby creating a true “level playing field”–the open market. All of the social objectives underlying current telecom regulation, including universal service, 911 access, and affordable rates, could be accomplished faster and cheaper through deregulation.

The commission’s investigation of VoIP is also premature. The Federal Communications Commission (FCC) has yet to decide whether states will have any regulatory authority over Internet telephony. This is no small point. By its very nature, VoIP is unconfined by geographic boundaries and thus clearly constitutes interstate commerce. Regulatory authority, therefore, falls solely to the FCC, which is in the midst of its own rulemaking proceedings.

This is hardly the first time the Michigan commission has overstepped its authority. For example, the MPSC is continuing to develop rules governing competition in landline calling, despite a federal court ruling earlier this year that this regulatory responsibility belongs to the FCC alone.

Gov. Jennifer Granholm has repeatedly stressed the importance of streamlining regulation to bolster the state’s economy. And rightly so. Michigan was ranked a lousy 34th among the states in the U.S. Economic Freedom Index recently released by the Pacific Research Institute. The state simply cannot afford unnecessary and costly regulations that propel industry outside Michigan’s borders. If the MPSC cannot overcome its regulatory impulses on VoIP, it should be reined in by the governor and legislature.

Diane Katz ([email protected]) is director of science, environment, and technology policy for the Mackinac Center for Public Policy, Midland, Michigan.