June 17, 2004
On behalf of Consumers Union and Consumer Federation of America, we are writing to express substantial concerns about S. 2281, the VOIP Regulatory Freedom Act of 2004, sponsored by Senator Sununu. We believe this legislation would negatively impact the affordability of basic telephone service and the availability of emergency 911 services, as well as ignore the communication needs of people with disabilities. We must oppose this legislation unless dramatic changes are made to remedy these significant problems.
In the rush to insulate Voice Over Internet Protocol (VOIP) telephone services from regulation, this legislation fails to consider the implications for low- and middle-income consumers who cannot afford the broadband (high-speed) Internet connections necessary for VOIP services. By exempting VOIP services from virtually all of the public interest obligations and consumer protections that apply to telecommunications services, it likely will diminish the quality and drive up the cost of basic telephone service for those who simply cannot afford to switch to broadband.
The Federal Communications Commission (FCC) has concluded that the Telecommunications Act of 1996 ensures that all services that use the public telephone network will help to cover its costs. The FCC has exempted services that do not use the public telephone network or claim to provide a substitute for basic telephone service. By creating a new category of exempt service for VOIP, the legislation not only opens the door for regulatory arbitrage for new entrants, but gives incentives to the dominant local phone companies to migrate their most attractive customers to VOIP, while raising the price of basic service for consumers who cannot afford or do not want to spend at least $30 a month for broadband service. Currently, three out of four middle income households ($20,000 to $75,000) do not have broadband, and low-income households simply cannot afford it.
In addition to allowing certain VOIP services to send calls to and from users of the public telephone networks without paying a fair share for the facilities they use, the bill also exempts these services from the taxes that traditional phone services pay. This cost-shifting could raise basic rates and directly contradicts the fundamental principles of the 1996 Telecommunications Act, which prohibits subsidization of competitive services.
The bill also makes participation in the E-911 emergency services program voluntary, which could undermine the entire service. VOIP service providers will have an incentive to stay out of the program and avoid its direct and indirect costs. Meanwhile, the states, which fund the E-911 service, will be forced to collect revenues from an ever-shrinking number of customers.
The legislation also weakens the standard for services to consumers with disabilities, replacing an obligation “to ensure” that equipment and services “are accessible and usable by individuals with disabilities, if readily achievable,” to one which only encourages VOIP providers to improve services for the disabled. Most similar voluntary programs to improve services for consumers with disabilities have failed to advance access. And where they have worked, it has been under the threat of regulation. If Congress explicitly fails to ensure access, then it has done a disservice to people with disabilities and those who would communicate with them.
S. 2281 also eliminates consumer protections against slamming, misleading information and poor quality service, in an industry that has been plagued by these problems. The market for local telephone service is quite new, and competitive processes have not demonstrated the ability to discipline abusive sales and marketing practices. The race to the bottom in consumer protection has already begun, with dominant incumbent phone companies — who still have 90 percent of the residential market — demanding that they be excused from consumer protection regulations if the VOIP providers also are.
In seeking to prevent state public utility commissions or the Federal Communications Commission from regulating this telecommunications service, this legislation will lock in an anticompetitive and anti-consumer duopoly in which the cable operators and Bell companies are free to discriminate against VOIP service providers and consumers. VOIP services require a cable modem or DSL connection, but the FCC has eliminated the obligation for cable providers and the Bells to offer broadband on a nondiscriminatory basis — meaning that if a cable company offered its own VOIP service, it could block access to other company’s similar VOIP service.
For these reasons, this legislation undermines many of the most important public interest benefits that competition and telecom policy should foster. We urge you to avoid moving legislation that poses such enormous risks for consumers.
Director of Research
Consumer Federation of America
Senior Public Policy Director