Consumers Will Be On the End of the CPUC Regulatory Sledgehammer

California is poised to make a mistake in its quest to ensure voice calling quality. The California Public Utilities Commission (CPUC) staff recently proposed new regulations to improve service standards for communication technologies, including traditional phone services, VoIP, and wireless. While the intent behind these proposed regulations is commendable, in practice they are too rigid and will likely prove counterproductive, ultimately hurting consumers rather than helping them.

The proposed rules blunder into the complex world of voice networks with a sledgehammer of liability that would impose punitive fines on voice service providers for outages they couldn’t anticipate without exception. Service providers should be expected to account for foreseeable threats to their own networks, such as vandalism and power outages, and regulatory frameworks should incentivize reasonable precautions. But, no matter how careful one is, it is impossible to guarantee that a network will literally never go down.

The proposed rules ignore this reality and impose strict liability for service outages. It is reasonable to expect a voice provider to protect essential network equipment with locks and fences to prevent vandalism, but if a bad actor nevertheless penetrates state-of-the-art precautions, it makes no sense to hold the service provider liable for not preemptively stopping it. At some point, the cost of additional security exceeds the benefits it provides. We could always make systems slightly more secure at huge cost, but without some limiting principle for when the cost is no longer worth it, regulations become demagoguery, not consumer protection.

The staff proposal goes even further than this, however, by defining an outage from the consumer’s perspective regardless of the state of the network. That means that, for example, even if a voice provider has invested in backup generators to stay online during a power outage, a loss of power at the consumer’s house counts as an outage for which California would fine the provider. In that kind of case, the liability is no incentive for better behavior since the consumers’ power outage isn’t something a VoIP provider could have guarded against.

There are similar shortcomings with the proposed regulations’ other sources of liability. For example, mandating restoration of service within 24 hours for 100 percent of outages. While this is an admirable goal, it doesn't account for the fact that exceptional challenges can impede rapid repairs. Imposing strict liability without considering these factors creates a punitive environment that disincentivizes deployment and competition as providers can’t afford to stay in business. The best-case scenario is that providers become overly cautious, leading to increased operational costs as they attempt to cover every conceivable risk. These costs will inevitably be passed on to consumers in the form of higher prices, without necessarily leading to improved service reliability.

Another part of the proposal would impose fines for not getting 100 percent of customer calls to live agents within five minutes. But customer service wait times are likely to be most relevant at times of extreme weather events when large swaths of communications infrastructure may be compromised. That sudden increase in demand for customer service could overwhelm even a reasonably prepared service provider. We should not require that consumers shoulder the burden of the increased prices necessary to staff every moment as though it had the highest possible customer service call volume. Moreover, many consumers now prefer to get updates and solve problems with automated menus, chat services, or other non-in-person interfaces. A more flexible rule that acknowledges the need to adjust requirements when extreme circumstances warrant it would move the proposed rules toward a balance between costs and benefits.

To top it all off, the proposal backs up its expansive, inflexible liability scheme with an equally irrational fine system. Voice providers would be charged $5 per customer per day for outages, regardless of the price the consumer paid. Consumers should be made whole for outages, but that process shouldn’t morph into futile punitive fines. The proposal could instead credit consumers 1/30 of their monthly bill per day of an outage to compensate for the actual harm they suffered. Punitive fines can make sense if a company has disregarded standard network resilience practices, but since the proposed rules assign liability regardless of whether providers did anything wrong, they are inappropriate here. The CPUC should inject more balance into its rules by imposing punitive fines only when it finds that a voice service provider has been reckless in protecting its network.

Voice service is an essential part of our communications ecosystem, so the CPUC should take a step back and build a better case for precisely what new rules are necessary and why. The staff proposal is heavy on punishment but light on reasoning for it. Regulators should proceed with caution and humility rather than pushing forward with a no-exceptions crusade that will stick consumers with its unintended consequences.