States Find Success Promoting Advanced Communications Technologies

By Jon Anzur

The dynamic and fluid nature of the Internet has helped to ease communications, but those same characteristics make the Web ill-suited to state and federal regulation. As Free State Foundation President Randolph May points out in a recent blog post, some states—most notably Washington—are finding success deregulating Internet services, and the federal government should take note.

Communications have evolved considerably since narrowband technology first enabled email, instant messaging and text. Today, high-speed broadband networks allow for instant interpersonal telecommunication. Voice over Internet Protocol (VoIP), a technology that uses broadband Internet to transmit local, long distance, mobile and even international calls, is just one of the latest telecommunications innovations helping to connect people and businesses across the globe.

But as communications technology grows more sophisticated, it becomes increasingly difficult—if not impossible—to distinguish between intrastate and interstate communications, raising jurisdictional problems for regulators.

The regulatory confusion stems from the government’s attempt to apply outdated laws to new technology. The Communications Act—the federal statute governing communications policy—was last amended in 1996 at the dawn of the Internet age. The Act grants the Federal Communications Commission (FCC) interstate jurisdiction over telecommunications service, including telephone service. States, meanwhile, have intrastate jurisdiction over telecommunications service. However, most Internet-based services are not classified as telecommunications services, but as “information services.” States do not have jurisdiction to regulate information services. VoIP complicates this regulatory framework: It mimics traditional telephone service but transmits through the Internet, raising the question of whether or not states have the authority to regulate.

“Because intrastate and interstate communications travel over the same networks, the FCC and the states share jurisdiction over the same physical plant,” May writes. “So an unnecessarily burdensome, unduly costly regulatory regime in one jurisdiction may affect the delivery of telecom services in the other by impacting incentives to invest in upgrading and building-out networks.”

In other words, given the ambiguity surrounding intrastate versus interstate communications, jurisdictional separations can be costly. When states invoke their power to regulate intrastate communications, they risk inhibiting the development of today’s global telecommunications networks.

More than half of the states are avoiding this problem altogether by deregulating VoIP services. Washington State offers a convenient example.

On July 22, the Washington Utilities and Transportation Commission (UTC) issued an Order granting Frontier Communications, a local telecommunications provider, regulatory relief with the intention of “bolstering the ability of Frontier and its competitors to provide effective competitive telecommunications services to the ultimate benefit of [Washington’s] consumers.”

The commission continued: “If alternative providers of telecommunications services exist and the Company no longer serves a significant captive customer base, we will substantially reduce historic regulation, particularly economic regulation, in favor of the disciplines of an effectively competitive marketplace. In the world as it exists today, our traditional role must devolve to one increasingly focused on preserving and promoting conditions for competition.”

May encourages the FCC to take note of Washington’s willingness to provide regulatory relief as a means to foster innovation and investment in VoIP services. He writes that “in rejecting several forbearance requests for regulatory relief, the FCC has continued its failure to account properly for the obvious competitive impact of wireless and VoIP services.”

Consumers and companies lose when government attempts to subject today’s innovative and competitive telecommunications marketplace to outdated regulations. In order to maintain what the Washington commission called “the remarkable transformation in the telecommunications industry” and foster the Internet-based innovations that are helping to ease communications, May concludes that WashingtonD.C. should follow WashingtonState in deregulating VoIP services.