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During
his
four
years
as
chairman
of
the
Federal
Communications
Commission,
Michael
Powell
championed
the
idea
that
new
communications
technologies
should
not
be
subject
to
federal
and
state
regulations.
But
since
Powell
steped
down
in
March,
Voice
over
Internet
Protocol
(VoIP)
--
the
technology
that
allows
telephone
calls
to
travel
over
the
Internet
--
faces
a
push
by
several
states
to
regulate
it
as
a
traditional
telephone
service,
a
move
that
many
fear
would
stifle
its
potential.
After
a
fitful
start
in
the
late
'90s,
VoIP
has
grown
into
a
more
reliable
product
offered
at
rates
as
much
as
50%
lower
than
traditional
phone
service.
Such
savings
are
cause
for
concern
among
state
officials
who
worry
that
as
consumers
drop
highly
taxed
and
regulated
landline
service
for
VoIP,
they
will
no
longer
contribute
to
tax
and
surcharge
revenues
that
the
states
rely
upon
to
meet
important
social
needs.
These
social
obligations
--
supported
by
required
contributions
to
the
Universal
Service
Fund
--
are
a
collection
of
subsidy
programs
for
telecommunications
services
in
rural
and
high-cost
areas,
including,
for
example,
broadband
connections
for
schools
and
libraries
as
well
as
911
emergency
calling.
The
Universal
Service
Fund
is
supported
partially
by
surcharges
on
certain
communications
services
and
partially
by
fees
embedded
in
the
rates
companies
pay
each
other
to
exchange
telephone
traffic.
'Let
Market
Forces
Work'
"VoIP
promises
to
be
pretty
scary
for
anybody
invested
in
traditional
wireline
phone,"
such
as
the
state
regulatory
commissions,
says
Gerald
Faulhaber,
Wharton
professor
of
business
and
public
policy,
and
chief
economist
at
the
Federal
Communications
Commission
from
2000
to
2001.
"There's
a
lot
of
money
here,
not
by
Defense
Department
standards,
but
about
$5
billion
to
$8
billion
sloshing
around,"
part
of
which
has
always
gone
to
the
states.
Fear
of
losing
this
revenue
source
has
mobilized
more
than
two
dozen
states
to
regulate
VoIP.
A
ruling
in
November
by
the
FCC
only
heightened
states'
concern
when
the
federal
agency
declared
that
Internet
telephony
service
"is
not
subject
to
traditional
state
public
utility
regulation"
and
that
the
FCC
"has
the
power
to
preempt
state
regulations
that
thwart
or
impede
federal
authority
over
interstate
communications."
The
FCC
ruling,
however,
did
call
for
the
states
to
"continue
playing
a
vital
role
in
protecting
consumers
from
fraud,
responding
to
complaints,
and
enforcing
fair
business
practices
According
to
telecommunications
experts,
the
main
group
that
the
FCC
and
VoIP
providers
must
stave
off
is
Congress.
By
themselves,
the
states
have
little
clout
in
reversing
the
FCC's
decrees.
"But
you
can't
tell
a
senator
from
Nebraska
that
we
are
going
to
cut
the
Universal
Service
Fund
from
which
your
constituents
have
been
getting
hundreds
of
millions
of
dollars
a
year,"
says
Faulhaber.
"Politically,
it
just
will
not
fly."
The
issue
of
jurisdiction
--
which
is
at
the
core
of
the
conflict
--
has
been
vigorously
debated
for
almost
a
decade.
Under
the
1996
Telecommunications
Act,
how
a
communications
service
is
regulated
depends
largely
on
whether
it
is
classified
as
a
telecommunications
service
or
an
information
service.
Generally,
information
services,
or
enhanced
data
services,
are
subject
to
minimal,
if
any,
regulation
in
order
to
foster
innovation.
The
law,
however,
required
telecommunications
services
to
be
heavily
regulated
for
calls
traveling
from
one
state
to
another
as
well
as
for
all
intrastate
telecommunications
services.
"The
idea
of
enhanced
services
in
a
totally
unregulated
space
became
an
arbitrage
opportunity,
for
example,
for
people
to
develop
Internet
telephony
completely
outside
the
realm
of
traditional
telephone
regulation,"
says
Faulhaber.
"The
states
are
saying,
'This
is
a
local
telephone
service,
and
we
are
the
local
telephone
regulators.'"
The
issue
of
jurisdiction
aside,
the
prospect
of
taxing
VoIP
suddenly
looms
larger
after
the
Congressional
Joint
Committee
on
Taxation
issued
a
report
on
January
28,
2005,
stating
that
an
excise
tax
on
telephone
service
passed
in
1898
to
finance
the
Spanish
American
War
could
be
applied
to
all
new
Internet
and
data
services
as
early
as
this
year.
The
report,
titled
"Options
to
Improve
Tax
Compliance
and
Reform
Tax
Expenditures,"
describes
a
number
of
proposals
to
help
reduce
the
size
of
the
tax
gap
by
shutting
down
tax
shelters,
closing
unintended
loopholes
and
generally
reforming
tax
law.
The
report
states
that
taxing
voice
services,
but
not
data
and
Internet
services,
creates
an
"economic
distortion."
The
most
aggressive
proposal
that
could
affect
VoIP
suggests
taxing
all
voice
and
data
services
because
the
two
are
becoming
"interchangeable
and
integrated
parts
of
modern
communications."
While
the
report
admits
that
taxing
new
services
and
technologies
"makes
them
more
expensive"
and
may
"slow
their
development,"
it
also
eyes
the
potential
tax
revenue.
It
notes
that
the
IRS
raised
about
$5.8
billion
in
2003
from
the
excise
tax
and
could
generate
even
more
if
the
tax
is
also
applied
to
data
and
Internet
services.
While
the
number
of
VoIP
subscribers
is
minuscule
compared
to
residential
phone
lines
subscribers,
VoIP's
growth
is
likely
to
accelerate,
driven
largely
by
lower
prices
that
are
the
direct
result
of
light
regulation.
Forecasters
expect
the
number
of
VoIP
subscribers
to
increase
from
about
one
million
subscribers
in
the
U.S.
now
to
18
million
by
2008.
Some
telecommunications
experts
note
that
while
there
have
been
predictions
for
several
years
that
VoIP
would
cut
tax
revenues
and
the
Universal
Service
Fund
program,
the
reality
has
been
vastly
different
thus
far.
In
fact,
the
opposite
has
occurred
in
some
cases
where
VoIP
services
indirectly
contribute
to
both
taxes
and
the
Fund.
"Even
if
VoIP
services
are
not
classified
as
regulated
communications
services
that
contribute
to
the
Universal
Service
Fund,
VoIP
providers
still
purchase
communications
capacities
that
have
those
subsidies
embedded,"
says
Kevin
Werbach,
a
professor
of
legal
studies
at
Wharton
and
the
FCC's
counsel
for
new
technology
policy
from
1994
to
1998.
"So
it's
not
that
all
the
money
goes
away
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