U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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39–010

" SENATE ! 108TH CONGRESS

2d Session 

REPORT

2004

108–425

Calendar No. 812

VOIP REGULATORY FREEDOM ACT OF 2004

REPORT

OF THE

COMMITTEE ON COMMERCE, SCIENCE, AND 

TRANSPORTATION

ON

S. 2281

DECEMBER 7, 2004.—Ordered to be printed 


congress.#13
(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

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 voiceover-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 

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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 

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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 

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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 esti- mated 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. 

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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. 

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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 

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Mr. Allen 

Mr. Sununu 

Mr. Hollings 

Mr. Inouye1

Mr. Rockefeller1

Mr. Breaux 

Mr. Dorgan 

Mr. Wyden 

Mrs. Boxer 

Mr. Nelson 

Ms. Cantwell 

Mr. Lautenberg 

Mr. McCain

1By 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. Inouye1 Mr. Allen 

Mr. Rockefeller1 Mr. Sununu 

Mr. Breaux Ms. Cantwell 

Mr. Dorgan Mr. Lautenberg 

Mr. Wyden Mr. McCain 

Mrs. Boxer 

Mr. Nelson

1By 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. Inouye1

Mr. Ensign Mr. Rockefeller1

Mr. Allen Mr. Breaux 

Mr. Sununu Mr. Dorgan 

Mr. Wyden Mr. Nelson 

Mrs. Boxer 

Ms. Cantwell 

Mr. Lautenberg 

Mr. McCain

1By proxy

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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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