VoIP: Another Square Peg In A Round Hole
December 24, 2003
Roz Allen - Washington
Voice over Internet Protocol (VoIP) is a method for transmitting voice communications over the Internet. Using a network translator device, human voice is converted into digital packets — the currency of the Internet. VoIP applications take a number of different forms. For example, numerous large corporate telecom users have realized substantial cost-savings by using the VoIP platform to shift voice traffic onto their private networks. Many telecommunications providers have incorporated an Internet backbone into switched networks to generate additional bandwidth for long-haul transport of voice and data communications. There are also VoIP services incorporating elements of the local exchange and/or interexchange networks and some that completely bypass the public switched telephone network (PSTN) by communicating directly between computers through peering arrangements or common server networks.
The Regulatory Environment is Changing
Future regulatory treatment of VoIP will directly affect the business plans of competitive and incumbent local exchange carriers, cable systems offering high-speed modem service and businesses of all sizes that rely on private networks to support a variety of enterprise solutions.
Despite the recent flurry of industry attention, VoIP is not a brand-new service. For several years, both the states and the FCC have accorded the same “hands-off” treatment to VoIP, regarding it as any other type of Internet service. Essentially, regulators have viewed packets as packets, whether carrying e-mail or voice transmissions. So why change?
With improved technology, decreasing prices and increasing penetration of broadband services, VoIP is finally on the verge of crossing over from carrier networks and large enterprise users to smaller businesses and consumers. As a result, VoIP service has proven its broader competitive potential, joining high-speed cable modem service and wireless service as the newest sources of technological innovation challenging traditional notions of how competing telecommunications services should be regulated. New technologies that challenge the market power of incumbent local exchange carriers inevitably create a square peg, technologically speaking, that cannot be crammed into the round hole of legacy regulations.
In this dynamic environment, the Federal Communications Commission (FCC) and the states are increasingly challenged to develop a streamlined regulatory framework that provides realistic incentives to deploy next-generation network architecture rather than furthering additional investment in archaic forms of telecommunications infrastructure. While regulatory obligations should be kept to a minimum, there must also be a means of sustaining important public interest goals that are unlikely to be achieved through market forces alone, such as universal service and public safety.
State Regulators and the Courts
A central issue posed by VoIP is whether, under the statutory definitions adopted by the Telecommunications Act of 1996, VoIP should be treated as a “telecommunications service,” with the regulatory obligations that classification implies, or whether VoIP should be treated as an “information service,” that is not subject to Title II regulation.
The state utility regulators are already weighing in on this issue. NARUC, at its November 2003 Annual Meeting, adopted a resolution expressing concern about the regulatory uncertainty surrounding VoIP. More specifically, NARUC stated that if Title II regulation did not attach to VoIP services, consumer protection would be compromised; the traditional balance between federal and state jurisdictional cost separations would be disrupted; federal, state and local public safety concerns, including authority over emergency dialing services, would be undermined; and there would be a reduction in the base of support for universal service as well as state and local fees/taxes.
A number of states are either examining their jurisdiction to regulate VoIP as an intrastate telecommunications service, or have already made that determination. At this point, the Florida Public Service Commission stands alone in declining to regulate VoIP as an intrastate telecommunications service, although the Pennsylvania legislature has introduced a law that would prohibit the public utility commission from regulating VoIP. Florida concluded that the public benefits of additional competition and promoting technological innovation, through a deregulatory market-based approach toward VoIP, outweigh all other considerations. California, Wisconsin and Minnesota have already determined that VoIP, using elements of the PSTN, must be regulated as an intrastate telecommunications service. New York, Washington, Alabama, North Carolina, Illinois, Ohio, Virginia, Oregon, Michigan and Texas are considering the regulatory status of VoIP, either in the context of rulemaking or in the resolution of complaints that VoIP providers are offering uncertificated intrastate telecommunications services.
The courts have already become involved in the VoIP controversy and it is certain that judicial involvement will increase over the coming months. The United States District Court for the District of Minnesota enjoined the Minnesota Public Utility Commission from regulating VoIP provider, Vonage, as an intrastate telecommunications service, finding instead, the VoIP service at issue was an information service not subject to the public utility commission’s jurisdiction.
Federal Action
In recent months, VoIP has generated considerable attention at the FCC. Three petitions for declaratory ruling are pending before the FCC seeking clarification of VoIP’s regulatory treatment. FCC Chairman Michael Powell convened a VoIP Forum on December 1, 2003 to develop a record on the regulatory challenges posed by growing use of VoIP applications. At the forum, Chairman Powell’s fellow-commissioners joined him in characterizing regulatory certainty for VOIP as a “top priority.” To that end, the FCC will shortly adopt a Notice of Proposed Rulemaking to clearly define the various forms VoIP services may take, and to determine what regulatory framework (if any) should govern this expanding source of competition in the market for voice service.
At this point, the regulatory issues likely to be raised in the upcoming VoIP rulemaking are fairly well defined. First, there is the issue of whether general Title II common carrier obligations should apply to VoIP. Such obligations include providing non-discriminatory access, as well as just and reasonable rates. If the FCC does find that certain forms of VoIP should be subject to these core Title II obligations, should states also be permitted to impose their own regimes to enforce these obligations on behalf of their telecommunications consumers, such as state tariffs; or should the FCC find that VoIP is an interstate service exempt from state regulation? An additional concern is whether VoIP providers should pay access charges and be subject to universal service obligations. These latter two issues will likely prompt a closer examination of how particular VoIP networks are configured; many VoIP providers obtain access to the PSTN through CLECs and/or interexchange carriers. Thus, these VoIP providers argue that they already indirectly pay their “fair share” of these charges through CLEC and interexchange carrier charges that are passed along to them. The circumstances under which VoIP service should be subject to obligations under the low-income programs (Lifeline and Linkup), or be eligible to receive high-cost funding also remain unclear. In addition, concerns have been raised about the obligations of VoIP providers to make their services accessible to disabled consumers.
State and local governments have also emphasized that effective delivery of public safety services will be compromised if VoIP providers are not required to offer customers 911 and e-911 services. Absent a specific regulatory mandate, the VoIP industry is nevertheless working closely with the National Emergency Number Association (NENA) to establish standards that will ensure VoIP provision of 911 and e-911 services, although the support mechanisms to implement those services have yet to be defined. Finally, the Federal Bureau of Investigation has consistently argued that regulation of VoIP as an information service will severely compromise federal law enforcement and homeland security initiatives, because, under the Communications Assistance to Law Enforcement Act (CALEA) information services are not required to configure their networks so as to facilitate surveillance operations.
Federal and state regulators will wrestle with these and other difficult questions about VoIP throughout the coming year. We will be pleased to apprise you of the FCC’s eminent adoption of the VoIP Notice of Proposed Rulemaking, as well as relevant dates for filing comments and replies. In addition, we will continue to report on significant developments in this area in the states and courts.
For more information, e-mail Rosalind Allen at rosalind.allen@hklaw.com or call toll free, 1-888-688-8500.