VoIP is giving the states heartburn

Calling Vonage "the Amazon of VoIP," a recent article in Governing magazine discusses the issues surrounding the regulation and taxation of VoIP. The reason for the Amazon comparison is a feeling in the minds of State government officials that this "problem" is analogous to the issues States have in collecting sales tax revenues on eCommerce sales. The article says:

VoIP is only one part of this competitive explosion. What makes it so disruptive, however, is that it is the first old-line utility that can be delivered over any broadband medium. "These technologies are no longer beholden to the platforms they travel on," says David Quam, director of federal relations for the National Governors Association. "Our entire regulatory and tax systems are set up on these silos -- the infrastructure, as opposed to the service. But with VoIP, you don't have to lay lines, have facilities or physical plants. None of that is required. It's the poster child for the future of communications."

Most state-run public utility commissions (PUCs) are playing catch-up. They've spent their entire existence in a world where their primary focus was regulating big, monopoly utilities. Vonage, for all its success, is still small by telecom standards and has many competitors. PUCs can't treat them like they've treated Qwest and SBC, and so they don't know what to do with them.

A big part of the problem is structural. For example, when you get your phone bill each month there's a line for "universal service fees." These fees are collected from urban customers and sent to rural telecoms to subsidize rural phone service, among other things. Whether universal service fees are a good idea or not is a public policy question, but the problem from the standpoint of the PUC is that their funding is legislatively tied to a particular geographically-based platform. States have been repeatedly stymied in their efforts to collect these fees from and otherwise regulate VoIP companies.

While I love VoIP technology and service (I'm a happy Vonage customer) and don't like paying fees anymore than anyone else, I find the trend away from state regulation troubling. The trend is not likely to ultimately result a decrease in regulation and fees, but rather a transfer of regulatory authority from the States to the Federal Government. The article goes on:

VoIP also is helping to reshuffle the decks of federalism. For most of the past century, states played a crucial role in setting telecom rates and rules within their borders. But it