California Assembly OKs Bill to Prevent Regulation of Internet Telephone Industry

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By Joyce E. Cutler  

SAN FRANCISCO--A bill that would require the California Public Utilities Commission to take a hands-off approach to internet telephone service Aug. 20 overwhelmingly passed the state Assembly and now returns to the state Senate for concurrence.

Senate Bill 1161 until Jan. 1, 2020, prohibits “any department, agency, commission, or political subdivision of the state from enacting, adopting, or enforcing any law, rule, regulation, ordinance, standard, order, or other provision having the force or effect of law,” regulating voice over internet protocol (VoIP) and internet protocol-enabled service unless the federal government orders otherwise.

Backers, including TechAmerica, TechNet and the Silicon Valley Leadership Group, argue that certainty is needed for the state's technology sector to continue to thrive.

SB 1161 does not affect CPUC's existing authority over non-VoIP and other non-IP enabled wireline or wireless service, according to an analysis contained in the bill. Also, it does not affect the enforcement of any state or federal criminal law or local ordinance that applies to the conduct of business, the California Environmental Quality Act, or a local utility user tax, the analysis said.

The bill passed the Assembly on a 63-12 vote. If signed by Gov. Jerry Brown (D), California would become the 25th state to enact legislation clarifying that VoIP services are not the subject of state-level regulation, the analysis said.

Critics Say Consumers Not Protected.

Critics decry SB 1161 as an unnecessary attempt to address a phantom problem of commission regulation while gutting consumer protections in favor of Federal Communications Commission oversight.

Steve Smith, California Labor Federation spokesman, said bill amendments “do not deal with the fundamental problem--this bill deregulates VoIP phone service, which is quickly becoming the predominant form of telephone service in the country.”

“Deregulating phone service before the FCC makes a decision on who should regulate VoIP and how basically handcuffs the state regulatory agency, the PUC, and leaves customers vulnerable to the profit margins of giant telecom corporations,” Smith said in an email to BNA.

VoIP subscriptions rose 46 percent from 2008-2010 while the number of subscribers to traditional wireline telephone services dropped 17 percent during that two-year period, the analysis said.

As of December 2010, 31 percent of the 87 million U.S. residential telephone subscriptions were provided by interconnected VoIP providers, the analysis said. AT&T and Verizon had a combined 29 percent increase in the number of VoIP customers between June and December 2011.

'Vibrant and Competitive' Internet.

SB 1161 says the internet and IP-based services have flourished to the benefit of all Californians under the current regulatory structure, providing faster networks, new and innovative applications and software, and continued innovation.

Network infrastructure companies have invested billions of dollars in California in 2011, and entrepreneurs and innovators launched close to a million apps to meet consumer demand, the bill noted.

The light-touch regulation would preserve the internet's future “by encouraging continued investment and technological advances and supporting continued consumer choice and access to innovative services that benefit California,” the legislation said.

SB 1161 said it would ensure a “a vibrant and competitive open Internet that allows California's technology businesses to continue to flourish and contribute to economic development throughout the state.”

The CPUC took a neutral stance on the bill after amendments in the Senate.

Predictability for Industry.

Robert Callahan, TechAmerica's state government affairs director, said SB 1161 changes nothing for California telecommunications customers.

“What the bill does do is codify California's existing framework whereby the Legislature, not the CPUC, sets policy for VoIP and Internet Protocol-enabled services, which would provide important regulatory predictability for California's technology community,” Callahan said Aug. 21.

FCC over the years has examined VoIP services and imposed requirements “in a very targeted, deliberate manner to protect consumers where necessary,” such as 911 obligations and requirements for VoIP providers to abide by federal privacy rules, Callahan said in an email to BNA.

The measure comes as FCC is debating whether internet service providers and even internet companies, like Google and Facebook, should have to contribute to the new universal service pool (145 TCM, 7/30/12).

Commissioner Has Doubts.

CPUC Commissioner Mike Florio said SB 1161 has “been like ships passing in the night and I think part of it has been trying to square what sort of the spin is with what it does.”

Florio told BNA “a big part of the worry” is unintended consequences. Issues can get bogged down on the federal level that can be taken to court, stopping initiatives until the court sorts out the actions, said Florio. “I think that's a far bigger risk to the future of some of these technologies than anything this commission would ever do,” he said Aug. 21.

Further, Florio said, the internet-based telephone application Skype is not thought of as poles and wires, “[a]nd yet what this legislation gets at is our regulation of poles and wires which concerns me a lot because that's the infrastructure that something like Skype works over.”

Amendments Passed.

The bill was amended to specify that the legislation does not supersede CPUC's authority relative to support structures, such as pole attachments, or for 911 or to facilities construction and maintenance. Nor does the bill affect state and local authority governing public rights-of-way use and management.

Also added was clarifying language that a state statute is not necessary if regulation of VoIP or IP-enabled service is required or expressly delegated by federal law.

The late amendments were “designed to mollify certain groups,” said Paul Goodman, a staff legal counsel for the consumer nonprofit the Greenlining Institute. As far as resolving concerns, the amendments do not satisfy consumer and labor groups, Goodman said Aug. 21.

“If you're tech savvy enough to get through to the FCC, then maybe you might” get some response about VoIP complaints, Goodman told BNA, adding, “the PUC's set up to do that. I don't see why we're giving this up.”

The most recent bill language is available online at The Assembly floor analysis is available at


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