This past Friday Ravi Sakaria, the chief executive officer of New Jersey-based Voice Pulse had a rude awakening. He got letters from two California cities, Burbank and El Monte, both asking the company to pay certain utility taxes because the company was offering VoIP services to some of their residents. Forget states imposing their own regulations, this is local level regulation of VoIP. And it adds a whole new wrinkle to the regulatory mess that surrounds the Internet Voice market. “This really opens up a whole new can of worms,” says Sakaria.
Burbank and El Monte’s moves illustrate the fact, that unless the FCC steps in, and imposes federal rules on the VoIP technology, the start-ups who are trying to promote VoIP will go the way of the bell-bottoms and Bay City Rollers. This fact illustrates the potential havoc that could be wreaked on VoIP startups if they are subject to the regulation of 50 different regulatory bodies (states) much less deal with every city in the country that wants to impose their own set of rules and regulations on the service.
What if the VoIP carriers have to comply with these local regulations? They will have to deal with hundreds of cities, each with their own set of rules and paperwork. “It can put companies like us out of business,” says Sakaria. He says he would willingly have the VoIP regulated only if it made sense, like at the federal level. He feels that dealing with state and local regulation of VoIP doesn’t make sense. The old phone networks were more tied to the geographies. VoIP allows us to have 212 -area code numbers and use them in Idaho. A San Francisco-area code in Japan. “The current regulations don’t work for VoIP because we don’t really know where the customers are,” says Sakaria.
San Jose Mercury News reports that FCC is likely to take a strong stand for federal regulation of VoIP, but will likely face equally robust opposition from the states. States face loss of revenues if not allowed to regulate and tax VoIP as heavily as they tax old PSTN services. They are also saying that VoIP could mean fewer funds for Universal Service Fund. They are saying quality will suffer, and poor will be denied the basic service. The VoIP companies will have an unfair advantage over old line phone systems. In most cases, its all about the tax dollars. Telecom taxes help hide the inaptitude of most state governments whose grasp of basic math is less than that of a NBA star.
California in fact is one of the most vocal proponents of taxing VoIP services. Bryan Martin, chief executive of Santa Clara-based 8×8, told the Mercury News that his company might move out of state or reconsider service in some areas if subjected to state regulation. “It’s not like we’re trying to be cowboys and say, `We’re on Internet, we don’t have to play by any rules. It’s that the rules they’re trying to set up don’t apply to this technology.” I agree on this point. Why not have a Federal oversight, and have all the fees be collected by FCC and distributed to the states accordingly. “You can not take the current framework and port it to a new way of doing things,” says Sakaria, “The red tape is going to be so much, and it can easily stifle the growth of VoIP in this country. ” Here is some food for thought for state and local regulators: imagine a company based outside of US offering US phone numbers. How do you regulate that? The battle will come to a head tomorrow when FCC decides to rule on how to regulate VoIP services.
Vonage’s FCC request is a double-barreled blast at regulation. It asks the FCC to declare that its VoIP service is interstate and therefore outside state jurisdiction. Since Vonage customers can choose any area code and make calls from anywhere they can get a broadband connection, it would be impossible to say which calls are within state boundaries. (San Jose Mercury News)