[Senate Report 108-425]
[From the U.S. Government Publishing Office]
108th Congress Report
SENATE
2d Session 108-425
_______________________________________________________________________
Calendar No. 812
VOIP REGULATORY FREEDOM ACT OF 2004
__________
R E P O R T
OF THE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
on
S. 2281
DATE deg.December 7, 2004.--Ordered to be printed
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred eighth congress
second session
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
FRANK LAUTENBERG, New Jersey
Jeanne Bumpus, Staff Director and General Counsel
Rob Freeman, Deputy Staff Director
Samuel Whitehorn, Democratic Staff Director and Chief Counsel
Margaret Spring, Democratic Senior Counsel
Calendar No. 812
108th Congress Report
SENATE
2d Session 108-425
======================================================================
VOIP REGULATORY FREEDOM ACT OF 2004
_______
December 7, 2004.--Ordered to be printed
_______
Mr. McCain, from the Committee on Commerce, Science, and
Transportation, submitted the following
R E P O R T
[To accompany S. 2281]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 2281) to provide a clear and
unambiguous structure for the jurisdictional and regulatory
treatment for the offering or provision of voice-over-Internet-
protocol applications, and for other purposes, having
considered the same, reports favorably thereon with an
amendment (in the nature of a substitute) and recommends that
the bill (as amended) do pass.
Purpose of the Bill
The primary objective of this legislation is to provide a
legal framework for the jurisdictional and regulatory treatment
of voice-over-Internet-protocol (VOIP) applications.
Background and Needs
VOIP generally describes a type of technology available in
many forms that enable the sending and receiving of voice
communications by packetizing, transporting, and routing such
communications as data. The principal difference among various
types of VOIP offerings is the degree to which Internet
Protocol (IP) or an IP network is used to complete an end-to-
end call, with some VOIP calls riding entirely over the
Internet and others originating, terminating, or doing both, on
the public switched telephone network (PSTN).
Over the past few years, improvements in VOIP technology and
the deployment of broadband Internet service have led to
increased offering and use of IP telephony services. This in
turn raises questions of whether, and how best, to regulate the
services. Under the 1996 Telecommunications Act, the regulatory
obligations that apply to the provision of this service depend
largely on whether it is classified as a telecommunications
service or an information service. Generally, information
services are subject to minimal, if any, regulation.
Telecommunications services, however, are subject to
significant common carrier regulation under Title II of the
Communications Act with respect to all interstate
telecommunications services, as well as separate State
regulation with respect to all intrastate telecommunications
services.
S. 2281 was introduced in response to this situation and is
intended to give authority to the Federal Government to
regulate VOIP services.
Legislative History
On April 4, 2004, Senator Sununu introduced S. 2281, ``The
VOIP Regulatory Freedom Act.'' The Committee on Commerce,
Science, and Transportation held two hearings concerning the
appropriate Federal and State regulatory treatment of VOIP and
the provisions of S. 2281 on February 24, 2004, and June 16,
2004 respectively. Witnesses at the hearings included members
of Congress, representatives of the Federal Government, the
Federal Communications Commission, and a diverse group of
companies, associations, and private parties interested in the
regulatory treatment of VOIP services.
On July 20, 2004, the Committee met in open executive session
to consider an amendment in the nature of a substitute to S.
2281 offered by Senators Sununu and Stevens. The substitute
amendment generally preempts States from regulating voice-over-
Internet-protocol applications and was adopted by unanimous
consent.
Senators Burns and Nelson offered an amendment to preserve
the ability of States to require VOIP applications to provide
911 and E911 services and was adopted by rollcall vote 22-0.
Senator Dorgan offered an amendment clarifying that nothing
in the bill would exempt providers of a VOIP application from
requirements imposed by a State commission on all providers of
telecommunications services and to pay appropriate compensation
for the transmission of a VOIP application over the facilities
and equipment of another provider. The amendment was adopted by
rollcall vote 12-10.
The amendments were adopted, and the bill was ordered to be
reported as amended, by voice vote.
Estimated Costs
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate and section 403 of the
Congressional Budget Act of 1974, the Committee provides the
following cost estimate, prepared by the Congressional Budget
Office:
S. 2281--VOIP Regulatory Freedom Act of 2004
Summary: S. 2281 generally would reserve the authority to
regulate a form of telephone service known as Voice-over-
Internet-Protocol (VOIP) to the federal government for three
years. States would retain jurisdiction over the regulation of
state Universal Service Funds--programs to ensure all citizens
have access to phone service--emergency 911 services, and
compensation among phone companies. Within 180 days after
enactment of the bill, the Federal Communications Commission
(FCC) would be required to develop rules to ensure that all
VOIP carriers provide 911 service, to the extent possible. S.
2281 also would require both the Comptroller General and the
FCC to complete studies of the effect of the legislation.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing the bill would cost the federal
government about $1 million a year over the 2005-2009 period.
Enacting the bill would not affect direct spending or revenues.
By prohibiting most state and local regulation of VOIP, S.
2281 would impose an intergovernmental mandate as defined in
the Unfunded Mandates Reform Act (UMRA). CBO estimates,
however, that the costs to comply with this mandate would be
small and would not exceed the threshold established in UMRA
($60 million in 2004, adjusted annually for inflation).
S. 2281 also would impose private-sector mandates, as
defined in UMRA, on providers of VOIP services. CBO estimates
that the aggregate cost of those mandates would not exceed the
threshold for private-sector mandates established by UMRA ($120
million in 2004, adjusted annually for inflation).
Estimated cost to the Federal Government: S. 2281 would
require the FCC to regulate voice-over-Internet-protocol
technology. Based on information provided by the FCC and
assuming appropriation of the necessary amounts, CBO estimates
that implementing the bill would cost about $1 million a year
over the 2005-2009 period for additional regulatory staff.
Enacting the bill would not affect direct spending or revenues.
Estimated impact on state, local, and tribal governments:
S. 2281 would prohibit states from regulating VOIP for three
years. It would preserve the ability of states to regulate and
assess fees on state Universal Service Funds, emergency 911
services, and compensation among phone companies for the use of
telephone lines. While this preservation of state authority
would protect significant state and local government revenues,
the underlying prohibition on state regulation of VOIP would
constitute an intergovernmental mandate as defined in UMRA.
Because the bill would not require states to implement costly
programs or prohibit them from raising significant revenues,
however, the costs of S. 2281 would be small and would not
exceed the threshold established in UMRA ($60 million in 2004,
adjusted annually for inflation).
Based on information from industry analysts, CBO assumes
that the bill would not prohibit states from taxing VOIP in the
same way that they tax other telephone services. While there
are currently court cases pending in both Minnesota and New
York, as well as expected FCC action that will address the
issue of what state taxing schemes may be applied to VOIP, this
legislation does not address that issue.
Estimated impact on the private sector: S. 2281 would
impose private-sector mandates, as defined in UMRA, on certain
providers of VOIP. Section 4 would require providers of VOIP
applications capable of connecting to the public switched
telephone network to provide 911 and enhanced 911 (E-911)
services for their subscribers--to the extent that it is
technologically and economically feasible--on terms comparable
to 911 services offered by traditional telecommunications
carriers. CBO estimates that the aggregate cost of mandates in
the bill would not exceed the annual threshold for private-
sector mandates established by UMRA ($120 million in 2004,
adjusted annually for inflation).
VOIP companies incur start-up and ongoing costs to provide
911 and E-911 services to their subscribers. Start-up costs
include additional data processing, personnel training, and the
development and purchase of equipment. Primary ongoing costs
include the costs of maintaining an accurate database of
addresses and operating linkages between the Internet protocol
networks and the telephone network. According to information
from public safety sources, the start-up costs to VOIP
providers could amount to about $75 million per year over the
next five years.
CBO assumes that the demand for VOIP services will grow
over the next five years to account for roughly nine million
U.S. households with telephone service in 2009. Public safety
sources estimate that the ongoing monthly cost of 911/E-911
services for VOIP providers would average about 35 cents per
household. Using those figures, CBO estimates that operating
costs of providing 911/E-911 services in 2009 would be about
$40 million. Thus, in 2009 the cost of implementing 911/E-911
services for VOIP providers is estimated to be about $115
million.
The 911 requirements under the bill are already being
discussed or implemented by some VOIP market participants. VOIP
service providers have an incentive to provide 911 services in
order to be competitive with other telephone services and some
providers are already offering 911 and similar services. In
addition, representatives of the VOIP provider industry are
currently working with the National Emergency Number
Association to develop voluntary standards for VOIP 911
services. Because some VOIP providers would offer 911 services
independent of the mandate in S. 2281, the incremental cost to
the industry of complying with the mandate would be lower than
the total cost of implementing 911 services.
Estimate prepared by: Federal Costs: Melissa Zimmerman.
Impact on State, Local, and Tribal Government: Sarah Puro.
Impact on the Private Sector: Philip Webre.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
Regulatory Impact Statement
In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following evaluation of the regulatory impact of the
legislation, as reported:
NUMBER OF PERSONS COVERED
S. 2281 would establish a regulatory framework for VOIP
applications. Thus, the bill would cover any provider of these
applications.
ECONOMIC IMPACT
The bill would clarify the regulatory treatment of VOIP
applications. The use of such applications may increase given
the increased regulatory certainty provided by the legislation.
PRIVACY
S. 2281 would not alter or affect the personal privacy
protections of consumers using VOIP applications.
PAPERWORK
S. 2281 would require the Federal Communications Commission
and the Government Accountability Office to submit reports to
Congress regarding the ability of law enforcement to access
VOIP applications.
Section-by-Section Analysis
Section 1. Short title
This section would set forth the short title of the bill as
the ``VOIP Regulatory Freedom Act of 2004.''
Section 2. Assertion of federal jurisdiction
Subsection (a) reserves authority to the Federal Government
to regulate the offering of a voice- over-Internet-protocol
application.
Subsection (b) prohibits any State or political subdivision
from enacting or enforcing any law, regulation, standard, or
any other provision, or has the effect of regulating the
offering or provision of a VOIP application.
Subsection (c) preserves the authority of a State to enact or
enforce criminal laws or regulations of general applicability
regarding doing business in that State, consumer protection, or
unfair or deceptive trade practices.
Subsection (d) specifies that nothing in this act limits
State jurisdiction of 9-1-1 or enhanced 9-1-1 services,
including State jurisdiction over connected VOIP applications
with respect to 9-1-1 and enhanced 9-1-1 services or the
ability of State and local governments to require providers of
all connected VOIP application to collect fees to support the
provision of 9-1-1 or enhanced 9-1-1 services.
Subsection (e) specifies that nothing in this act exempts
providers of a VOIP application from requirements imposed by a
State commission on all providers of telecommunications
services and to pay appropriate compensation for the
transmission of a VOIP application over the facilities and
equipment of another provider. It also specifies that all
providers of a VOIP application contribute on an equitable and
non-discriminatory basis to the preservation and advancement of
universal service.
Section 3. No impact on transmission facilities
This section specifies that nothing in this act shall affect
the authority of the FCC or any State to regulate the
transmission facilities use to transmit a voice communication
of a VOIP application.
Section 4. 9-1-1 and enhanced 9-1-1 services
Subsection (a) requires the Commission to conclude a
proceeding no later that 180 days after the date of enactment
of this Act establishing a transition period in which providers
of a VOIP application are required to provide 9-1-1 and
enhanced 9-1-1 services comparable to those provided by other
telecommunications carriers.
Subsection (b) requires the FCC to report to the Senate
Committee on Commerce, Science, and Transportation and the
House of Representatives Committee on Energy and Commerce on
the progress of enhanced 9-1-1 implementation for connected
VOIP applications.
Section 5. Law enforcement
Subsection (a) specifies that nothing in this act modifies,
impairs, or supersedes the Communications Assistance for Law
Enforcement Act (CALEA) and not alter the obligation of a
provider of a VOIP application to furnish to an authorized law
enforcement agency all information and technical assistance
necessary.
Subsection (b) requires the Government Accountability Office
within 6 months after the enactment of this Act to submit a
report assessing law enforcement's current technical capability
to intercept and analyze data over the Internet; assess any
problems intercepting data over the Internet; a description of
options for addressing any such problems; an evaluation of such
options for different configuration of broadband access,
connected VOIP service, and VOIP applications in terms of
effectiveness, effect on innovation, effect on privacy, and the
cost to customers; an assessment of the first 10 years of
implementation of CALEA.
Subsection (c) requires an FCC study no later than 6 months
after the date of the enactment of this act that includes an
assessment of the first 10 years of implementation of the
CALEA.
Section 6. Expiration
This section would provide that the legislation expires 3
years after the date of enactment.
Section 7. Definitions
This section would provide definitions of terms in this Act.
In accordance with paragraph 7(c) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following description of the record votes during its
consideration of S. 2281:
Senator Burns offered an amendment for himself and Senator
Nelson to the substitute amendment proposed by Senator Sununu
et al. to ensure that States retain jurisdiction of 9-1-1 and
enhanced 9-1-1 services with respect to connected VOIP
applications and to require the Commission to adopt rules to
ensure that VOIP service providers provide 9-1-1 and enhanced
9-1-1 service comparable to that provided by telecommunications
carriers. By a rollcall vote of 22 yeas and 0 nays as follows,
the amendment was adopted:
YEAS--22 NAYS--0
Mr. Stevens
Mr. Burns
Mr. Lott
Mrs. Hutchison
Ms. Snowe
Mr. Brownback
Mr. Smith
Mr. Fitzgerald
Mr. Ensign
Mr. Allen
Mr. Sununu
Mr. Hollings
Mr. Inouye\1\
Mr. Rockefeller\1\
Mr. Breaux
Mr. Dorgan
Mr. Wyden
Mrs. Boxer
Mr. Nelson
Ms. Cantwell
Mr. Lautenberg
Mr. McCain
\1\By proxy
Senator Dorgan offered an amendment to the substitute
amendment proposed by Senator Sununu et al. to provide that
nothing in the bill may be construed to exempt VOIP application
providers from State requirements to compensate other providers
for the transmission of VOIP applications or to contribute to
the universal service fund. By a rollcall vote of 12 yeas and
10 nays as follows, the amendment was adopted:
YEAS--12 NAYS--10
Mr. Burns Mr. Stevens
Mrs. Hutchison Mr. Lott
Ms. Snowe Mr. Smith
Mr. Brownback Mr. Fitzgerald
Mr. Hollings Mr. Ensign
Mr. Inouye\1\ Mr. Allen
Mr. Rockefeller\1\ Mr. Sununu
Mr. Breaux Ms. Cantwell
Mr. Dorgan Mr. Lautenberg
Mr. Wyden Mr. McCain
Mrs. Boxer
Mr. Nelson
\1\By proxy
By a rollcall vote of 13 yeas and 10 nays as follows, the
bill was ordered reported with an amendment in the nature of a
substitute:
YEAS--13 NAYS--9
Mr. Stevens Mrs. Hutchison
Mr. Burns Ms. Snowe
Mr. Lott Mr. Brownback
Mr. Smith Mr. Hollings
Mr. Fitzgerald Mr. Inouye\1\
Mr. Ensign Mr. Rockefeller\1\
Mr. Allen Mr. Breaux
Mr. Sununu Mr. Dorgan
Mr. Wyden Mr. Nelson
Mrs. Boxer
Ms. Cantwell
Mr. Lautenberg
Mr. McCain
\1\By proxy
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the Standing
Rules of the Senate, the Committee states that the bill as
reported would make no change to existing law.