Voice-over-internet at heart of regulatory debate

The wildly expanding and lucrative push to voice-over-internet systems used by millions of people in California is raising questions about how – or even if – the powerful technology should be regulated.

A move by a group representing hundreds of communications companies, including AT&T and Verizon, would preclude the state Public Utilities Commission from regulating any IP-enabled communications services, including voice-over-internet, or VoIP, communications. Such regulation, if needed at all, is better handled at the federal level, they say.

One issue raised by alarmed critics is whether deregulating IP-enabled communications, because of the interconnectivity between VoIP and land lines, would cripple the PUC’s authority over traditional wired lines; AT&T alone has some 7 million lines in the state. Another is whether keeping IP-enabled services out of PUC control would loosen existing rules to serve the poor, rural residents and the disabled.

A Senate analysis – and the legislation’s author – says flatly that existing safeguards wouldn’t be disturbed.

“We will not take any steps backwards on consumer protections,” said Sen. Alex Padilla, D-Los Angeles, the powerful chairman of the Senate Energy, Utilities and Communications Committee.

But critics also note the political clout in the Capitol wielded by AT&T and other major communications companies that routinely make political contributions to members of both parties. And they fear that his bill, SB 1161, is a pre-emptive strike to block regulation of a multibillion-dollar industry.

“It’s a power play. It’s all about power and not about substance,” said Lenny Goldberg of The Utility Reform Network, one of a number of consumer groups that oppose the proposal.

The companies say the proposal, part of a national effort, would ensure a healthy, unregulated internet, bolster the kinds of economic gains that have marked other digital developments and leave any regulatory moves to the federal government, where it more properly belongs. Twenty-four other states have laws that in some fashion bar utility-type regulation of VoIP and IP-enabled services.

A trade association called TechAmerica, with hundreds of companies, and TechNet, a powerful technology lobbying group, as well as the Silicon Valley Leadership Group are sponsors of the bill, which Padilla said was aimed at ensuring California’s primacy in the global internet economy. Supporters include Microsoft, Cisco Systems, Comcast, Time Warner and others.

The PUC, which has broad authority over communications, railroads and electrical and natural gas utilities, does not regulate VoIP — yet. But comments by some commissioners have raised the possibility that such regulation is on the way.

“Virtually every state in the country has followed California’s lead in taking a very measured, targeted approach to obligations it places on VoIP,” Verizon attorney Charles Carrathers told a Senate committee. “Virtually no state regulates VoIP or IP-enabled services,” he added, because they “play such a crucial role in the broadband ecosystem and the resulting economic growth.”

As expected, the bill was approved Wednesday by Padilla’s committee.

Clearly, the stakes are big.

AT&T and Verizon – the two largest carriers in California – had a 29 percent increase in the number of their VoIP customers in just six months last year. There are some 3.5 million interconnected VoIP subscriber lines in California, serviced by some 125 VoIP companies, according to a Senate analysis. Nationwide, a third of all the 87 million residential telephone subscriptions were VoIP-based – a number that increased nearly 50 percent in three years. Meanwhile, traditional, land-based line customers dropped by some 17 percent.

One 2008 state study found that 96 percent of households have basic broadband access, placing California as a leader in broadband availability among all 50 states, but only about half the households actually used broadband.  Of those with access, only half were able to link to broadband at speeds greater than 10 Mbps.

To residential consumers, VoIP is attractive: The roughly $30 per month cost for broadband-based service typically includes such features as unlimited long-distance calls in the U.S. and Canada, automatic switching of missed calls to a customer’s mobile phone and emailing voice mail files. In one, year VoIP subscribers rose by 22 percent to 32 million.

“To discuss ‘IP-enabled’ goes far beyond the new cool whizz-bang technology or ‘ap’ for the internet,” said Christine Mailloux of TURN, a nonprofit group that advocates on behalf of consumers and ratepayers. “This isn’t about regulating the internet, it’s about regulating technology that millions of Californians rely on every day and that this Legislature and commission up to this point have found to be an essential service.”

Padilla says the Federal Communications Commission is the more logical venue for regulation, and rejects critics’ arguments that safeguards will be compromised. Those include such consumer safeguards as 911 access and universal service.

Consumers Union, the Consumer Federation of California, AARP California and the California Broadband Policy Network are among the bill’s foes.

In part, the discussion over regulation reflects the light-speed at which internet-driven, broadband and wireless technologies have developed in recent years. Literally, the velocity at which the services are adopted stress the ability of regulators to assure the public’s protection. For example, one in three adults lives in wireless-only households and don’t use land lines at all.

“The number of wireless telephones exceeds the size of the population over the age of seven,” said Stanford University economist Roger Noll. “This is ubiquitous technology that is a dramatic change,” he added. “Everything in your house is rapidly becoming something that is related to a computer.”