Will VoIP Phone Service Be Regulated?

Business.com / Technology / Last Modified: February 22, 2017

Voice over Internet Protocol, or VoIP, has changed telecommunications forever, revolutionizing business phone systems and allowing...

Voice over Internet Protocol, or VoIP, has changed telecommunications forever, revolutionizing business phone systems and allowing people to make inexpensive or free phone calls all over the world.

But you may have wondered what kinds of regulations VoIP providers are subject to. The truth is that, so far, they are the subject of far less regulation than traditional phone companies, and some states want to ratify this lack of regulation into law so as not to stifle innovation and competition.

Here's how the current regulatory environment for VoIP shapes up.

States and VoIP Regulation

Back in 2004, the Federal Communications Commission (FCC) ruled that companies providing VoIP service should not be subject to the regulations that apply to telephone companies.

More recently, several states have weighed whether to prohibit state regulatory agencies from regulating VoIP providers. Most recently, the California state senate passed a bill on a 30-6 vote that prevents the California Public Utilities Commission (CPUC) from regulating VoIP providers in California. The bill states that neither CPUC nor other state agencies can regulate VoIP providers without a federal mandate.

The New Hampshire state senate passed a similar bill earlier this year. It  prevents the Public Utility Commission (PUC) from regulating VoIP providers. And in New York, the state senate is considering bill S. 5769, which eliminates state regulation of VoIP service, a bill supported by Gov. Andrew Cuomo.

Pros of VoIP Regulation

Those who are for regulation of VoIP providers say that without regulation, consumers could no longer bring complaints about service to state Public Service Commissions, and that states could not set standards for VoIP service in under-served regions.

They also argue that deregulation of landline phone providers has result in higher rates for most consumers. Furthermore, they argue, VoIP providers are not required to pay into funds supporting "lifeline" access to elderly and disabled people as regular phone companies do.

In New York, Communications Workers of America Research Economist Pete Sikora says, "The three main things that current telephone regulation covers are affordability, access and consumer quality. Under this legislation, if your VoIP phone breaks, good luck with that. If there is a long storm and lots of outages, there won't be any consequences if they don't fix the network."

Cons of VoIP Regulation

The main points those against VoIP regulation on a state level point to have to do with the stifling effect that regulation could have on technological innovations. They argue further that with less regulation, it's easier for VoIP start-up companies to launch their businesses, thus increasing competition and keeping prices for consumers low.

In California, State Senator Alex Padilla (D-Pacoima), sponsor of the recently-passed bill, says that the bill simply locks in the state's current "hands-off" policy as law. The result, Padilla says, will be a telecommunications industry that can continue creating innovative products and services. Marc Burgat, vice president of Government Affairs for CalChamber, says that keeping CPUC from regulating VoIP "would ensure that California maintains its competitive edge and continues to provide a regulatory environment that promotes advancements in internet technology."

The Transition from Copper Wire to VoIP

There is no question that VoIP technology has permeated all aspects of phone communications. It is inexpensive enough that it is expected to replace copper wire lines eventually. In fact, many copper wire networks already depend on VoIP for completion of most calls. VoIP technology is also at the core of cable, phone, and fiber optic calling services. In short, there appears to be no going back to the days of wired telephone dominance.

VoIP Regulation at the Federal Level

The FCC currently classifies VoIP systems as "information services," meaning that they are not subject to the regulations that apply to regular phone services. However, the FCC has managed to apply some regulations to VoIP, including:

  • Requiring VoIP providers to get an FCC certificate before discontinuing service, particularly if they are the only carrier in a certain area
  • Requiring providers to make services available to people with disabilities
  • Requiring number portability, allowing customers to take their phone number with them from one carrier to another
  • Requiring VoIP providers to provide enhanced 911 capabilities
  • Requiring VoIP providers to contribute to the Universal Service Fund, which is a federal program that helps pay for phone service in low-income and rural areas

The Bottom Line

The trend on both the federal and state levels is toward less regulation of VoIP service rather than more. Several states are enacting legislation that codifies in law the hands-off approach that most states have taken anyway. The effect of deregulation that is spelled out in law will play out over the next several years.

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