SB 1161 Promotes California’s Internet Innovation and Economic Growth

California is recognized as a world leader in Internet technologies and services. It is the home of companies, like Apple, Google, and Cisco, whose innovations are driving economic recovery in California and Internet innovation around the world. The success of these and many other California technology companies has been driven by the decentralized and largely unregulated Internet, which provides them with the ability to market their products and services globally.

California’s success is also its biggest threat. The economic growth, individual empowerment, and entrepreneurialism driven by Internet innovation in California have made it the envy of the world. As a result, local and international governments are increasingly proposing new regulations that would favor their own companies – and cripple California’s economy. A current example is the upcoming World Conference on International Telecommunications, which will consider proposals to impose price regulations on the Internet through an agency of the United Nations.

The U.S. government has long recognized the damage heavy-handed regulation would do to the Internet economy. As a result, Congress and the Federal Communications Commission (FCC) have largely exempted the Internet from economic regulation. Last week, the U.S. House Energy and Commerce Committee adopted a resolution (H. Con. Res. 127) expressing the sense of Congress that it is the “consistent and unequivocal policy of the United States to promote a global Internet free from government control.”

State Senator Alex Padilla, a San Fernando Democrat, introduced a bill (S.B. 1161) that would implement this policy in California. The bill would prevent the California Public Utilities Commission (PUC) from imposing new regulations on Voice over Internet Protocol, or “VoIP” services, which deliver telephone service over the Internet. It would not, however, affect any existing regulation of basic telephone services.

Exempting VoIP services from state regulation would provide California’s high tech industry with the certainty it needs to invest in the next generation of innovative Internet products and services. The Internet is a global phenomenon that seamlessly crosses countless local and international borders. Rising interest in localized Internet regulation is increasing the risk that the borderless Internet could succumb to balkanization – i.e., fragmentation of the Internet into separate enclaves – which would create a hostile environment for California’s digital entrepreneurs. Senator Padilla’s bill would send a powerful message to other states and nations around the world that California believes in an open Internet free from incompatible regulations and unnecessary government interference.

Despite these benefits, some consumers groups have attacked the legislation on the misguided assumption that it would eliminate consumer protections for telephone services. That is simply not true. The bill is designed to preserve the status quo, and would not deregulate any services that are currently regulated by the California PUC.

The FCC has regulatory responsibility over Internet-based services, including VoIP, because they are inherently international in scope. In exercising this responsibility, the FCC has imposed numerous consumer protection obligations on VoIP providers, including universal service support, enhanced 911, disability access, local number portability (the ability to keep your phone number when you switch providers), law enforcement access, and discontinuance of service.

There is no reason for the California PUC to regulate VoIP as well. Allowing the California PUC to develop its own set of Internet regulations would serve little purpose beyond setting a dangerous precedent. Local, state, and international governments who are contemplating Internet regulation would consider themselves entitled to act on their own rather than participate in the multi-stakeholder model that governs the Internet today. The resulting balkanization would require Internet entrepreneurs to develop products and services that are compliant with incompatible regulations and networking requirements around the world: a daunting task that would spell the end of the tech community’s garage entrepreneurs (Apple and Google both started in California garages) and California’s booming Internet industry alike.

The Internet is the economic engine of the 21st century digital economy. We should not decide its fate through fear mongering and political posturing at any level of jurisdiction, whether state, federal, or international. We should instead seek to fairly debate the substantive merits of Internet policy principles. I look forward to engaging any group willing to participate in a civil dialogue about Senator Padilla’s bill.