A recent California bill, SB1161, reopens an old debate: Should VoIP be regulated as a public utility like its landline counterpart?

The California bill, which was passed by the California Assembly in May and awaits the signature of Gov. Jerry Brown, prohibits the state’s Public Utilities Commission (PUC) from imposing new regulations on VoIP and other Internet services. If the bill passes, it will join 24 other states that have similar legislation.

The argument in favor of regulating VoIP is that it is becoming an indispensible aspect of business, and there must be assurance that VoIP stays reliable, affordable and neutral, and at least as good as what it replaces; the FCC (News - Alert) has already forced VoIP providers to re-architect their services to handle 911 emergency services and data protection rules, things that landlines already must include.

But VoIP is not like landline phone service, as Larry Downes pointed out in a recent Forbes article. It is not a utility.

“According to the classic 1964 book Public Utility Economics,” wrote Downes, utilities “are that tiny subset of companies that ‘operate with government approval as monopolies and supply a service which is indispensable to modern life.’” Utilities are regulated because they are businesses that both work in an area with a high barrier to entry for competition and, at the same time, are essential. They must be regulated because competition is hard to come by.

VoIP does not suffer from this issue.

“The genius of the packet-switched network means new VoIP services can reach every user worldwide without any specific infrastructure investment,” noted Downes. “You don’t need eminent domain to build software.” Competition is robust, which keeps the consumer in charge.

On the surface, the passing of SB1161 will be a clear shield against the perils of regulation in California, which include slowed innovation and price inefficiencies among many other downsides. But it still leaves a patchwork quilt of regulation that allows each state to dictate the hoops VoIP providers must jump through.

The question of VoIP regulation is an old one. In 2004, TMC’s (News - Alert) Internet Telephony Magazine tackled the issue and noted that some thought VoIP should be regulated on the Federal level, if only so it wouldn’t be subjected to possible patchwork of regulations that vary from state to state, not unlike the confusing situation currently in the European Union.

“The FCC needs to get involved instead of having state-by-state regulations because it will make the market a mess,” In-Stat/MDR senior analyst Daryl Schoolar (News - Alert) noted at the time. “For one thing, there’s the issue of different rules being imposed by different states. For another, it’s using the mindset of the old telecom world on a new and very different kind of technology.”

This hasn’t played out so far in the U.S. market, but it could. Perhaps VoIP should be regulated on the Federal level, if only to ensure that it stays unregulated.

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