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24 February 2004

Sununu on Taxing New Internet Voice Communication Technology

Op-ed column by Republican senator for New Hampshire

(This column by Senator John Sununu, Republican of New Hampshire, was published in the Wall Street Journal February 24 and is in the public domain. No republication restrictions.)

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Voice Over Internet Protocol (VOIP) of the People
By John Sununu

Should local governments have an inherent right to regulate and tax any communication between two individuals that utilizes a human voice? Should we discourage the use of broadband networks for fast, reliable and cheap communications simply because a new technology doesn't fit neatly into an existing regulatory slot? Should regulations discriminate between two data files simply because one carries instant messaging and the other someone's voice?

Until quite recently, these questions were relegated to circles of academics, techies or regulation junkies (yes, they do exist) speculating about how the Internet might affect entrenched telephony providers. Today, these issues have become practical, substantive questions that will make or break the implementation of Voice Over Internet Protocol (VOIP) -- a new technology that utilizes the packet-based method of Internet communications and, in some instances, the architecture of the Internet to bring new voice applications to consumers. VOIP generates significant network efficiencies, reduces capital expenditures and produces considerable cost savings. Moreover, the innovative features and robust functions underscore that VOIP is not just a fancy phone network and must not be treated as such.

The debate has just begun, but the wagons are already being circled by those determined to protect a regulatory scheme based on the copper wire telephone system invented by Alexander Graham Bell. Our goal should be to allow this new technology to evolve, which will dramatically reduce the cost of voice communication to a level commensurate with that of any other bit of data transmitted over the Internet. To ensure that a misguided approach does not develop and to provide certainty to the marketplace, I will introduce VOIP legislation in the coming weeks to establish several key protections for this new technology.

-- First, my legislation will treat VOIP as an information service. The broadband cable, DSL or high-speed line you are using does not care whether data packaged using the Internet Protocol is a spread sheet, e-mail, instant message or voice traffic. Recognizing this simple fact helps establish a level playing field for all forms of data in order to fit a regulatory system designed five, 10, 20, 30, 50 or 100 years ago. Conversely, there exists no sound basis for discriminating among different types of data. Would anyone argue that taxes for e-mail should be different from those imposed for transmitting financial spreadsheets or power point presentations? The same principle should extend to an Internet voice call as well.

-- Second, we should establish federal jurisdiction over VOIP applications. Internet packet switching routes data across a global network requiring a national framework and treatment. Allowing thousands of state and local regulators to wrap their tentacles around VOIP will place costly and unnecessary burdens on a growing interstate communications network. What would happen to e-mail or instant messaging if states imposed regulations on those applications? The role of the federal government should be to establish a clear and efficient regulatory structure that will not discourage investment in the development of these new systems.

-- Third, my bill will protect this data service from taxation. The Internet-access tax-moratorium debate has highlighted the need to prevent tax commissioners from imposing oppressive tax treatment for telecommunication on VOIP. Those who believe that e-mail should be taxed will disagree on principle. All others place themselves in the awkward position of trying to differentiate different sets of ones and zeros in binary code in order to protect tax collections or corporate revenues. Both attempts are signs of short-sightedness -- one on the part of big government, the other on the part of big business.

Since our nation's founding, legislators have justified regulations on the basis that they serve the public interest. A regulatory framework may be advanced to improve public safety, inform consumers or protect public health. In fact, public-interest concerns such as enhanced 911, disability access, and interaction with law enforcement will be among those considered by comprehensive legislation. But extending these obligations must be done with an understanding of the unique architecture and technical aspects of this new application. Unfortunately, within the developing VOIP debate, this governing principle of public interest has been turned on its head. The defenders of the existing regulatory scheme seek to protect the existing tax, distribution of revenues, or other vested interests, at the expense of sound public policy.

If there is one thing we have learned about the information economy, it is that innovation circumvents a flawed regulatory regime. Let's get this one right from the start.

(Mr. Sununu is a Republican senator for New Hampshire.)

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