updated 2/24/2004 8:29:16 PM ET 2004-02-25T01:29:16

Government regulation of phone calls over the Internet could stifle an emerging industry and encourage companies to move overseas, lawmakers and the head of the Federal Communications Commission suggested Tuesday.

Congress and the FCC are discussing whether or how much to regulate the new service, which allows calls to be transmitted over high-speed Internet connections.

Members of the Senate Commerce Committee said the Internet technology emerged because companies have not been handcuffed by government regulation or taxes.

"We've seen this great industry blossom because we didn't know how to regulate it," said Sen. Conrad Burns, R-Mont.

The technology, known as Voice Over Internet Protocol, or VOIP, converts phone calls to data and sends them across high-speed Internet connections. The system bypasses at least part of the conventional telephone network, which converts voices into electronic signals and carries them across wires.

There are 175,000 subscribers to VOIP services, compared with 188 million conventional telephone lines and 155 million wireless customers, industry statistics show.

Officials of some Internet companies have urged the FCC and lawmakers to exempt them from the same encyclopedia of rules and regulations required of those providing local and long-distance phone service over traditional wires, including fees for 911 emergency services and bringing telephone service to poor and rural areas, schools and libraries.

"We understand that critical public policy needs must be met," said Jeffrey Citron, chairman of Vontage Holdings Corp. "Meeting these needs, however, does not require that VOIP be regulated under a system of rules created decades ago, intended to govern the conduct of wireline carriers."

The head of the trade group representing conventional phone companies said the growth of VOIP offered a new argument for revisiting all of the rules and regulations of the 1996 telecommunications law.

"It is clear that there is a growing awareness in Washington that the world of communications has changed fundamentally and the old rules no longer make sense in today's highly competitive marketplace," said Walter B. McCormick Jr., president of the United States Telecom Association.

Powell warns firms could move overseas
FCC Chairman Michael Powell said government regulation could prompt companies to move operations overseas to escape onerous rules and regulations.

"While Internet voice services offer great potential, they are also extremely easy to establish abroad," he said. "If we do not create the proper regulatory climate in the United States, it is quite possible our local calls will be routed through Canada and Mexico at cheaper rates, rather than through Kansas and Montana."

Since Internet calls can be made from anywhere, some lawmakers and regulators have questioned whether states should have a role in regulating the technology.

Stan Wise, a member of the Georgia Public Service Commission and president of the National Association of Regulatory Utility Commissioners, said states need to have a say just as they do on conventional phone service.

"It is not the intent of the state commissions to stifle this exciting technology," Wise said. "But it is telecommunications. It is our role to protect the consumer, the person who pays the bill and is the first to pick up the phone and tell me their story of poor service."

Republican Sen. Lamar Alexander, former governor of Tennessee, said state and local taxes on conventional telephone service raised $20 billion last year. He said states should be allowed to tax Internet calls as well.

"This is the worst kind of federal mandate _ a cost on state and local governments imposed by Congress without Congress reimbursing," Alexander said. "Banning a tax is just as much an unfunded mandate as requiring a service without paying the bill."

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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