[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.

                                  
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