Can You Regulate VoIP?


Candlestick telephone

House Bill 119 (First Substitute) would tax VoIP service for E911 service:

3 (a) Except as provided in Subsection (3)(b) and subject to the other provisions of this Subsection (3) a county, city, or town within which 911 emergency telephone service is provided may levy monthly an emergency services telephone charge on:
...
(iii) any other service, including voice over Internet protocol, provided to a user within the boundaries of the county, city, or town that allows the user to make calls to and receive calls from the public switched telephone network, including commercial mobile radio service networks.

Of course, the state already taxes landline and cell phones for these same services. There are some problems here:

  • How do you find all the VoIP providers to even notify them of this requirement?
  • Once you find them, what jurisdiction do you have to regulate them? Some VoIP providers do have some facility within the state. I think Vonage, for example, has some gear located in Utah in order to deliver service within the 801 area code, but that isn't required. Many do not. Skype isn't even a US company.
  • Why are you regulating voice traffic and not data traffic? If this works, then why not a tariff on Google searches to pay for anti-child pornography measures?

In the old days, geography mattered and so state-regulation of telephones worked. Whether it was right or not is a subject of a different blog. Now, geography matters less and less. That makes state arguments of jurisdiction harder to justify.

I'm sympathetic to the compelling interest the state has in making E911 service universal. I'm also a fan of service fees over general fund tax increases. Still, this one seems like a non-starter. I don't think it's possible and I don't think the courts will allow it.

At the same time, it's unfair for traditional phone companies to be regulated in this manner and VoIP companies to escape simply because of a technology difference. My general rule of thumb is that regulation shouldn't happen on the basis of technology because it will quickly be superseded by something new.

In general, the Internet has changed the technology and delivery of phone service radically and that has huge ramifications for regulators at the state and national levels.

I think the only solution in this case is to repeal the service fee for all phone customers and fund E911 service from the general fund. That more fair than any other alternative I can think of.