FCC’s VoIP Regulation dilemma

telephone 1835, “apparatus for signaling by musical notes” (devised by Sudré in 1828), from Fr. téléphone (c.1830), from télé- “far” (see tele-) + phone “sound” (see fame). Also used of other apparatus early 19c., including “instrument similar to a foghorn for signaling from ship to ship” (1844). The electrical communication tool was first described in modern form by P.Reis (1861); developed by Bell, and so called by him from 1876. The verb is attested from 1878.

Voice over Internet Protocol (VoIP) has become a mature technology that allows individuals to place phone calls using the Internet Protocol. VoIP utilizes the Internet infrastructure to make voice and video calls as opposed to the traditional public switched telephone network (PSTN) that has been in place for more than a century. VoIP service is less expensive to provide and operate as compared to traditional telephony. Another advantage of VoIP is that a subscriber can make a voice or video call from any global location with a broadband Internet connection. Modern VoIP telephony revolutionizes the boundaries of telephony by adding voice, presence management, chat and other services and by then embedding it into many business applications that are run on computers.

Yet, VoIP technology also has some disadvantages. VoIP does not provide an independent power source; thus, in the case of a power outage or a disruption in the Internet Service Provider (ISP), no VoIP calls can be made. Similarly, because VoIP utilizes the Internet to transmit phones calls, poorly designed networks may become subject to viruses, spam, and denial of service attacks. Also, since the same VoIP telephone number can be used in virtually any location in the world, VoIP poses a challenge for the “911” emergency service because the system cannot identify the exact location of an emergency call.

In the United States, as in most parts of the world, telecommunications is a highly regulated industry, but currently, the internet remains largely unregulated. The key issue facing legislatures and government officials is whether VoIP should be regulated. Regulators face the difficult task of balancing the public interest and the continued promotion of the advancement of emerging technologies.

In essence, the FCC needs to decide whether to classify VoIP as an “information service” or as a “telecommunications service.” The Telecommunications Act of 1996 sets forth the differences in definition and regulation of these services. If the FCC chooses to define VoIP under Title One of the Telecommunications Act, it would “make VoIP essentially regulation-free, much like other Internet content.” But if the FCC chooses the latter and defines VoIP under Title Two, the government will regulate VoIP under the myriad of regulations that has been developed for the telephone industry over the past 100 years.

Internet telephony — or Voice over Internet Protocol (VOIP) — has the potential to transform the world of voice communications more profoundly than anything since the invention of the telephone itself. As telecommunications incumbents and a new service providers, roll out commercial VoIP services, policymakers are struggling to deal with the regulatory implications. In the United States and the European Union, the two largest near–term VOIP markets, efforts are underway to fit VOIP into existing regulatory frameworks. This process of “regulatory classification” is by no means a purely administrative act. A lot is at stake and different interest groups have therefore mobilized their efforts to shape final outcomes. Because legacy regulatory systems in Europe and the United States differ, the regulatory treatment of VOIP in the two markets is beginning to differ as well. Yet in both markets there is a substantial danger that fitting VOIP into existing classifications will force VOIP to look more like regular telephony, thereby limiting its innovation potential.

Regulation and policy towards VoIP is lagging in the United States. This is exacerbated by the competition for authority between the federal center and the states. The federal center, represented by the FCC, narrowly favors light regulation of VoIP, but many states are hostile to any attempt to diminish their power to regulate telecom operators within their territory. “Regulatory creep” is used to describe the propensity of regulators to broaden regulation over time. The term may apply to separate, but related, recent state Public Utility Boards decisions to regulate “fixed” voice over-Internet-protocol (VoIP).

This far The FCC and Congress, with confirmation from the courts, have largely preempted substantial state jurisdiction. The FCC classified broadband cable modem service as an “interstate information service, placing it under the unregulated statutory Title One category.”VoIP uses broadband Internet connections to offer customers the ability to place their calls, and therefore, under the FCC ruling, VoIP should remain unregulated. Large incumbent telcos in the telecom industry advocate against this federal position of little or no regulation as new service providers bring competition and dilute their market share. Service Providers, however, insist upon the Title One classification—the less regulation over VoIP, the less barriers to entry for start-ups and other new service providers. The current position of the FCC encourages innovation and ubiquitous availability of broadband services to all Americans.

The states’ strongest argument for regulating VoIP under Title Two of the Telecommunications Act is that if VoIP “looks like a phone, acts like a phone, and sounds like a phone, then it is a phone.” State regulators, who under the current law lack significant legal jurisdiction, support the Title Two classification over broadband transmission because they would retain some jurisdiction over broadband services. Among other concerns for the regulators are the role telephony plays in the law enforcement, emergency services and difficulties in wiretapping VoIP.

In the U.S. – the FBI supports the requirement for all VoIP service providers be subject to controversial law called the Communications Assistance for Law Enforcement Act (CALEA) which allows wiretapping. But CALEA only applies to Telecommunications Services and not the Information Services. A Statement of Concern about Expansion of CALEA has been issued with the support of a wide range of industry groups and public-interest advocates. The Joint Statement points out, the Administration apparently wants Congress to extend CALEA to communications technologies that are not now required to be designed in a way that facilitates governmental surveillance of their users.

Another major concern for state regulators is the Universal Service Fund (USF), a federal program funded through contributions based on a percentage of revenues received from interstate and international telecommunications services.

The program subsidizes rural telephone service to low income individuals, and internet access for schools, libraries, and rural health care. Like other government subsidy programs USF is running out of money due to eroding long distance revenues.

In July 2004, the Senate Sub-Committee approved Senator Sununu’s bill, but added amendments which allow states to collect certain access charges and collect universal service fund charges on VoIP service providers. The bill is still undergoing revisions to satisfy state and local governments, while continuing to meet the congressional mandate to leave the Internet free from regulation.

As technological and legal issues have begun to overlap, it is increasingly apparent that the “hands off”regulatory approach towards Internet technologies is unable to both address state concerns of regulation and tax revenues and maintain a market-based, pro-competition, and pro emerging technology environment. The United States should either adopt a regulatory framework that falls between the Panamanian approach (In an apparent attempt to stem telephone company revenue losses due to Internet telephony, the government of Panama decreed in November 2002 that twenty-four User Datagram Protocol (UDP) server ports be blocked by all Internet service providers. The ports included those that were commonly used for VoIP services, as well as other purposes, presumably with the idea that these too could be used to circumvent the national telephone network in making telephone calls.) and completely unregulated VoIP services or adopt a completely new regulatory structure with Internet applications at its center. It has become increasingly apparent that the distinction between “telecommunication services” and “information services” may no longer be a viable paradigm.

One of the biggest challenges facing the FCC is to ensure that cable services providers do not discriminate against third-party VoIP providers. In 2005, FCC created a definition of an “Interconnected VoIP Service”:

“An interconnected Voice over Internet protocol (VoIP) service is a service that: (1) enables real-time, two-way voice communications; (2) requires a broadband connection from the user’s location; (3) requires Internet protocol-compatible customer premises equipment (CPE); and (4) permits users generally to receive calls that originate on the public switched telephone network and to terminate calls to the public switched telephone network.”

Today’s state of regulatory requirements between traditional telecom carriers, Interconnected VoIP and Non-Interconnected VoIP (i.e. Skype) is well documented by Kelley Drye and Warren Telecommunications Practice Group. Here’s a link to where the chart can be found.