California VoIP Deregulation Bill Moves Forward Despite Consumer Advocate Fears

The bill, introduced in February, now travels to the Assembly Appropriations Committee for consideration before moving to the full Assembly. Telcos and other companies back the bill, while nonprofits that represent consumers and interests including state regulators oppose it. The bill’s sponsor, State Sen. Alex Padilla (D), described the legislation as “codifying the regulatory approach we have followed for many, many years” and said “there’s a recognition on my part of the federal preemption made clear by the FCC.” The California PUC has exercised no authority over VoIP providers, and SB-1161 would eliminate “a question that still hovers around the PUC” of whether it should exercise authority, he said.

Among the backers is Voice on the Net Coalition, whose members include AT&T, Google, Microsoft, Skype, Vonage and Yahoo. The legislation offers “predictable regulatory environment that allows innovative IP enabled applications and services to remain free from regulations originally intended for plain old telephone services,” Executive Director Glenn Richards said before the Assembly committee. He praised the proposed “predictable regulatory environment that allows innovative IP enabled applications and services to remain free from regulations originally intended for plain old telephone services” and said the bill would encourage “increased competition,” “cost savings,” and “increased infrastructure investment and accelerated broadband deployment.” Other supporters include Charter Communications, Cisco, Time Warner Cable and Verizon. VoIP deregulation statutes have passed in at least two dozen states as well as the District of Columbia, said Padilla’s office.

California’s current VoIP regulatory regime is “pretty successful,” said General Counsel Jim Hawley of SB-1161 backer TechNet. Robert Callahan, state government affairs director for fellow SB-1161 backer TechAmerica, said the bill would create “regulatory predictability for tech.” A March 20 California Senate Committee on Energy, Utilities and Commerce report noted VoIP service is expected to “increase dramatically” in coming years and AT&T and Verizon had “a combined 29 percent increase in the number of VoIP customers in the six months from June to December 2011.” The report cited a desire to avoid “patchwork regulation” among all states on the FCC’s part, and that agency’s 2004 Vonage preemption order. The committee report said “state regulation would directly conflict with the pro-competitive policy disfavoring utility-type regulations that hinder development of innovative new services.” California had 3.5 million interconnected VoIP subscriber lines from 25 providers at the end of 2010, another state Senate report said (http://xrl.us/bnckdg).

Opposition has risen. Regina Costa, acting telecom chair of the National Association of State Utility Consumer Advocates (NASUCA) and research director of The Utility Reform Network (TURN), said she’s spent “the bulk of her time” in recent months battling SB-1161 and criticizes “this notion that as technology evolves, regulation should disappear.” Without state regulation, oversight will fall to the FCC, which will eventually need to craft national standards for VoIP, which will not be “good enough,” Costa said. “States have to do it,” she said of regulation. The FCC has refused to “make the hard choices,” NASUCA telecom committee member Chris White said, by avoiding precise definitions about what VoIP is. Costa compared the FCC’s linguistic twisting to that of a pretzel.

VoIP without proper regulation will be an unreliable “mess” that may be demonstrated when a disaster such as a fire or earthquake strikes, Costa said. “It’s a juggernaut -- it’s moving ahead,” Sean McLaughlin, executive director of Access Humboldt and a New America Foundation fellow, said of the bill. The bill “goes beyond just deregulating” and removes state and local voices, he said. He’s “flabbergasted at the lack of integrity, quite honestly,” as the political process has downplayed the concerns of the bill’s opponents. Opponents include AARP California, NATOA, the California Broadband Policy Network, Center for Media Justice and several consumer advocacy groups.

Op-eds have echoed these concerns. T. Santora, president of the Communications Workers of America Local 9003 called the bill “catastrophic” for funding of municipalities, in a June 17 Los Angeles Daily News op-ed (http://xrl.us/bnb9mw). Collection of the utility user tax, which added about $258 million to Los Angeles’ general fund, could be hurt and that would “wreak havoc on city and county budgets,” Santora wrote, because telecom companies would not feel the need to pay the tax. The legislation’s text says it does “not affect … the local utility user tax” (http://xrl.us/bncfnv). TURN Executive Director Mark Toney called the bill “actually the most anti-consumer bill ever introduced in California,” in a May 23 California Progress Report op-ed (http://xrl.us/bnb9np) for allowing industry to dictate its own regulation. Rural phone service would be “jeopardized,” and the millions of VoIP customers would be at risk in case they need to make a 911 call when power’s out because providers “would no longer be required to provide basic disclosures relating to emergency calls and power outages,” he wrote.

These criticisms have appeared in letters to California politicians from consumer advocates, towns and organizations. “SB 1161 would make rural, low-income, and Native customers even more vulnerable to the whims of companies primarily interested in profits and that see them as unprofitable,” wrote Edyael Casaperalta on behalf of the Center for Rural Strategies and Rural Broadband Policy Group, in an April 16 letter to the California Senate committee. Casaperalta and colleagues have tracked many similar deregulation bills this year, starting in Kentucky and also in New York, New Hampshire, Ohio and other states, she said in an interview.

The Free Press Action Fund started a petition against SB-1161 (http://xrl.us/bncfdb) and Humboldt County wrote Padilla requesting it be withdrawn or modified due to the “crucial oversight role” of the state PUC (http://xrl.us/bncgay), as did Mendocino County (http://xrl.us/bncgdg). Lynn Sadler, director of the Office of Governmental Affairs-Sacramento (OGA), wrote that, even with amendments made to the bill in May, it would “tie the Commission’s hands if it decides in the future that there is a need to reassess its regulatory role over VoIP.” OGA estimated a fiscal impact of about $228,097.

Padilla said he addressed the concerns in the amendment process and the bill’s “not getting rid of state authority completely” since it would still allow the PUC to regulate VoIP if the legislature adopted a statute. “This bill does NOT eliminate any of the federal and state consumer protections that apply to those services, which include the requirement to provide 911 service, make facilities accessible to disabled users, protect customer’s private records, notify customers of backup power needs, among others,” Padilla wrote Toney April 26. A recent fact sheet from Padilla’s office says that, in accordance with federal law, SB-1161 would grant the CPUC authority “to require payment of fees for 911 service and state universal service programs, adopt consumer education requirements related to backup power, and obtain specified data from VoIP providers related to proceedings under federal law.” Callahan sees the opposition as proof of California’s need for the bill. “There’s a huge desire out there for regulation -- the bill’s as critical as ever now,” he said. It’s “very pro-consumer,” he said. Hawley said some opponents have made arguments “that are not accurate” and “the intent of the bill was never to upset phone service.”

The telecom industry has donated heavily to the sponsoring politicians’ campaigns, critics note. AT&T was the fifth-largest donor to Padilla’s campaigns from 2007 to 2010, according to campaign finance tracker Maplight, at $23,900. Maplight shows AT&T was the largest donor to Assemblyman Steven Bradford’s campaigns, based on 2009-2010 data, at $19,600. That Democrat chairs the Committee on Utilities and Commerce, which voted in favor of the bill June 18. “The telecom industry is driving the bus” and its lobbying in California reflects national trends that place “control in hands of the large telephone companies,” which is “bad for democracy and bad for reasoned decision-making,” said Costa, of NASUCA and TURN. “Out here [in California], they're trading telecom regulation for campaign finance.” Padilla finds that critique “insulting,” he said. “I think the policy is sound.” He said there have been hours of debate, that the tech sector is “a bright spot in a down economy” he hopes to keep in California, and that the bill has received “overwhelming bipartisan support the whole way.”