Research & Commentary: Voice over Internet Protocol Deregulation

Published October 3, 2012

A product that is quickly changing the telecom industry and how people communicate is voice over Internet protocol (VoIP) calling, where voice and multimedia communication are conducted and transmitted over Internet protocol (IP) networks, such as the Internet. VoIP subscriptions have grown rapidly in recent years: According to the Federal Communications Commission, there were 34 million interconnected VoIP subscriptions as of June 2011, an increase of more than 50 percent since 2008. 

VoIP’s rapid expansion has made it a target for increased regulation. Currently, VoIP is regulated as an “information service,” which means it is not subject to telephone regulations and the associated added costs. In recent years however, the FCC has imposed several new requirements on the VoIP industry, including disability services, 911 enhancements, phone number portability, and contribution to the Universal Service Fund, which is designed to help pay for phone services for low-income and rural areas. 

To modernize their communications regulations and ensure the growth and expansion of their communications infrastructure, several states have moved toward deregulating VoIP and other telecom services by exempting VoIP from the authority of state public utilities commissions (PUCs). To date, 23 states have exempted VoIP from PUC authority. Over the past couple of years at least six states, including Colorado, Connecticut, Idaho, and New York, have proposed legislation to deregulate VoIP. 

Opponents of VoIP deregulation argue telecom companies freed from the regulatory authority of the state commissions will ignore consumers’ concerns and allow the telecom companies free rein in providing and pricing their services and maintaining communications infrastructure. 

That argument fails to acknowledge that the current regulatory system for telephone companies does not fit VoIP. By deregulating VoIP, states encourage innovation by removing the legacy rules that hinder telephone carriers. Ensuring price flexibility and lowering regulatory burdens spurs competition among telecom providers and gives consumers more options and greater access to the next-generation products they want. 

States need to consider VoIP deregulation in order to ensure that the rapid growth in new communication systems is not impeded by a wall of archaic regulations. 

The following articles examine voice over Internet protocol calling and VoIP deregulation from multiple perspectives.

10 Principles of Telecom Policy
In this Heartland Institute Legislative Principles booklet, Hance Haney and George Gilder describe what Indiana and other innovation leaders have done and how other states can follow their lead to reap the rewards of new investment in telecommunications services. 

California Legislature Passes Bill that Prohibits State VoIP Regulation
Fred Donovan of Fierce Enterprise Communications discusses a California bill that would prohibit the state from regulating VoIP or other Internet-based voice services. The bill currently awaits the signature of Gov. Jerry Brown (D). Donovan speaks with supporters and opponents of the legislation. 

Momentum Growing for State-Level Telecom Deregulation
Joan Engebretson of Telecompetitor examines the growing momentum across the country for state-level telecom deregulation, including VOIP deregulation. 

Legislators Guide to the Issues: Telecom Deregulation
Bill Peacock of the Texas Public Policy Foundation outlines telecom deregulation and tells how it could improve growth in Texas’s telecommunications market. 

Indiana Needs to Deregulate Now
Reason Foundation telecom policy analyst Steven Titch encourages Indiana to deregulate its telecommunications market. Deregulation can eliminate monopoly-era regulations that artificially sustain and protect obsolete services against competition from new technologies such as wireless and voice over Internet protocol (VoIP). 

ALEC Adopts Model VoIP Bill
Steven Titch of the Reason Foundation examines model legislation from the American Legislative Exchange Council calling for state deregulation of voice over Internet protocol calling. The model bill, Advanced Voice Services Availability Act of 2007, would enjoin state public utility commissions from regulating rates, terms, or conditions for VoIP services. 

Primer on State Efforts to Reform Telecommunications Policies
The New York Law School and the Advanced Communication Law and Policy Institute discuss state-level trends in telecom policy and the new laws emerging because of the move away from earlier communications technologies. 

Extending Deregulation: Make the U.S. Economy More Efficient
The Brookings Institution offers several deregulation proposals, including deregulation of telecom markets. 

The Year in Review: The Status of Telecommunications Deregulation in 2012
Sherry Lichtenberg of the National Regulatory Research Institute reviews state telecommunications deregulation bills enacted between 2010 and April 2012 and identifies and characterizes their limits on PUC jurisdiction over telecommunications providers. 

Deregulating Telecommunications in Internet Time
James B. Speta of Northwestern University diagnoses the failings of the Telecommunications Act of 1996 and prescribes a framework for reform. Speta outlines a new communications law that would increase intermodal competition. He also addresses local and state control of telecom carriers, regulatory parity, universal service reform, and government funding of research and infrastructure. He also offers a technology-neutral regulatory approach for VoIP that would accommodate the current speed and diversity of technological change. 

Why Stovepipe Regulation No Longer Works: An Essay on the Need for a New Market-Oriented Communications Policy
Randolph J. May of the Free State Foundation contends current telecom statutes regulate various communications services differently even though these services increasingly compete against each other in the marketplace. He argues for a new, market-oriented regulatory regime that employs antitrust-like principles focusing on market competition and the enhancement of consumer welfare to determine whether there is a need for regulatory intervention.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartlander’s Tech News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or [email protected].