Debate Over VoIP Enters New Phase: FCC Issues a Notice of Proposed Rulemaking

The debate over the regulation of Voice Over Internet Protocol (VoIP) technology entered a new chapter since this column regarding VoIP last appeared. The Federal Communications Commission (FCC) on February 12, 2004 issued a Notice of Proposed Rulemaking Re: IP Enabled Services ( the "Notice of Proposed Rulemaking"). [i] Under this procedure, the FCC will take comments [ii] on its stated intentions to minimally regulate Voice Over Internet Protocol ("VoIP") [iii] , while seeking to balance and "implement important social objectives, such as public safety, emergency 911, law enforcement access, consumer protections and disability access." [iv]

VoIP is a relatively new Internet technology that allows people to make phone calls through their computers over the Internet. This technology is far more efficient and cost effective where the real time transmission of voice and data takes place in one technological device. [v] With VoIP technology, data of all kinds-voice, fax, email, web browsing, or other content- is broken into small chunks called "packets", with each packet containing 1000 to 1,500 bytes of data. [vi] The data is transmitted over the Internet and reassembled into its analog form when it reaches its intended destination. The technology allows simultaneous transmission in both directions of data and pursuant to the software protocol, re-routes the data through less "busy" lines for quick delivery. [vii]

With the "public switching telephone network" ("PSTN") [or if you prefer "Plain Old Telephone Service" ("POTS")] data transmission is unidirectional rather than bi-directional or multi-directional. [viii] This means while someone is sending, the other side is "locked up" and cannot transmit resulting in slower data transmission or no transmission since data re-routing is not automatically available. [ix]

VoIP technology has improved to the point where companies like Vonage, AT&T, Time-Warner, Net2Phone, and SBC IP Communications are all offering the VoIP service to both business and residential users in select regions of the country, with unlimited local and long distance plans that are 20-30% less expensive than calls made using PSTN/POTS, because VoIP technology uses the Internet, which has been left largely unregulated and untaxed to help spur growth. [x] VoIP companies do not have to pay the taxes and tariffs that provide for government mandated services such as 911 calling, universal access, and access for the handicapped. Only the PSTN/POTS companies are required to provide these services and thus pass on the costs of the government mandated services to their customers. [xi]

Some experts predict that VoIP consumer use could increase from its current level of 10% to 40% of the U.S. market by 2009. [xii] That kind of growth is bound to adversely impact the $20 Billion state public utility commissions annually collect as people switch from PSTN to VoIP services. [xiii] This reduction in revenues will not decrease the need for services such as 911, universal access and access for the handicapped, all of which is funded by the states. [xiv]

Meanwhile, VOIP service providers such as AT&T, Vonage, and Free World Dialup have all filed petitions over the past 18 months seeking forbearance from paying access charges to local PSTN's for the privilege of initiating or terminating their Internet calls using the local PSTN's. [xv] These access fees are mandated pursuant to the Federal Telecommunications Act of 1996. [xvi] If these VoIP providers are deemed "telecommunications services" or "telecommunications" then under the Act, these companies would have to pay access fees to the local PSTN's for use of their copper wire networks for initiating or terminating phone calls/data transmissions. [xvii] If these companies are declared to be merely "informational services" under the Act, then they are free from paying the access fees and other tariffs that could be imposed by federal and state authorities. [xviii]

The Telecommunications Act of 1996 (the "Act") defines telecommunications as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received. [xix] Then the Act defines telecommunications service as "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used." [xx]

On the other hand, information service, under the Act is defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service." [xxi]

Thus, on February 12, 2004, the FCC issued its Notice of Proposed Rulemaking regarding VoIP. [xxii] Commissioners Powell and Abernathy made it clear that a minimalist approach was their predisposition in order to facilitate competition and investment in this nascent industry. [xxiii] In addition, both Commissioners expressed a desire to shift most forms of Internet Protocol (IP) regulation away from the states and make this regulatory framework "predominantly federal" owing to the fact that "most forms of IP communications appear to transcend jurisdictional boundaries, rendering obsolete the traditional separation of services into interstate and intrastate buckets." [xxiv]

The FCC's decision to issue the Notice of Proposed Rulemaking does not necessarily mean that VoIP regulation will achieve the talismanic certainty that government law enforcement agencies, industry officials and consumer groups have been seeking. [xxv]

The vast majority of VoIP transmissions originates on the Internet and then moves through the PSTN/POTS. [xxvi] This is the VoIP service now being offered by Vonage, Net2Phone, and AT&T, as well as numerous cable companies. [xxvii] Thus a major goal of the FCC's Notice proceedings regarding VoIP is how the FCC "makes clear that functionally equivalent services . . . be subject to similar obligations and that the cost of the PSTN should be born equitably among those that use it in similar ways." [xxviii] Moreover, all of the Commissioners recognized the need for law enforcement agencies to have some reasonable access to intercept these transmissions. [xxix]

Therefore, most of the Commissioners expressed a concern for a possible overhaul of the current rules governing IP providers. [xxx] However, that kind of authority ultimately rests with Congress, not with the FCC. [xxxi]

Indeed, without Congressional modifications to the Act, the federal courts are currently split on how to interpret the Act when applied to VoIP providers. In October 2003 the Federal District Court in Minnesota declared VoIP service provider Vonage to be free from state regulation based on Judge Michael J. Davis's reading of the Act. [xxxii] The Ninth Circuit conversely declared in that same month, in Brand X Internet Services v. FCC, that to the extent a cable operator provides its subscribers Internet transmission over its cable broadband facility, it is providingtelecommunications services as defined in the Act, which are subject to the various state and federal tariffs imposed on PSTN/POTS companies. [xxxiii]

Judge O'Scannlain, in writing his concurring opinion in the Brand X case noted with great trepidation that "it cannot be denied that our holding today effectively stops a vitally important policy debate in its tracks, at least until the Supreme Court reverses us [the Ninth Circuit] or Congress decides to act." [xxxiv]

If consumers and providers alike want the courts to provide consistent decisions, then Congress may need to approach a complete overhaul of the Communications Act, with the same kind of debate and hearings that were held with respect to the overhaul of the welfare system that occurred during the Clinton Administration. The courts, and the FCC, at the moment, are "stuck" with applying potentially outdated definitions, codified in the Act, to rapidly changing technological paradigms.

Endnotes:


[i]   Federal Communications Commission, NEWS, FCC MOVES TO ALLOW MORE OPPORTUNITIES FOR CONSUMERS THROUGH VOICE SERVICES OVER THE INTERNET , February 12, 2004.

[ii]Id.

[iii] See Federal Communications Commission, SEPARATE STATEMENT OF CHAIRMAN MICHAEL K. POWELL Re: IP-Enables Services Notice of Proposed Rulemaking , February 12, 2004; SEPARATE STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY, Re: IP-Enables Services Notice of Proposed Rulemaking, adopted February 12, 2004.

[iv] Federal Communications Commission, NEWS, FCC MOVES TO ALLOW MORE OPPORTUNITIES FOR CONSUMERS THROUGH VOICE SERVICES OVER THE INTERNET, February 12, 2004.

[v] David P. McClure, The Policy Dilemma of IP Networking: A Summary of Critical Policy Issues in VoIP at page 1, published in THE FUTURE OF INTERNET PHONE CALLING: Regulatory Imperatives to Protect the Promise of VoIP for Industry and Consumers, New Millennium Research Council, Washington, D.C. 2003; Jeff Tyson, How IP Telephony Works, howstuffworks.com, at http://computer.howstuffwork.com/ip-telephony1.htm, telephony2.htm, telephony3.thm and telephony4.htm, (last visited on December 4, 2003; Voice Over Internet Protocol, International Engineering Consortium Online tutorial, at http://222.iec.org/online/tutorials/int_tele/ , (last visited on November 16, 2003).

[vi] David P. McClure, The Policy Dilemma of IP Networking: A Summary of Critical Policy Issues in VoIP at page 1, published in THE FUTURE OF INTERNET PHONE CALLING: Regulatory Imperatives to Protect the Promise of VoIP for Industry and Consumers, New Millennium Research Council, Washington, D.C. 2003; Jeff Tyson, How IP Telephony Works, howstuffworks.com, at http://computer.howstuffwork.com/ip-telephony1.htm, telephony2.htm, telephony3.htm and telephony4.htm, (last visited on December 4, 2003; Voice Over Internet Protocol, International Engineering Consortium Online tutorial, at http://222.iec.org/online/tutorials/int_tele/, (last visited on November 16, 2003).

[vii] David P. McClure, The Policy Dilemma of IP Networking: A Summary of Critical Policy Issues in VoIP at page 1, published in THE FUTURE OF INTERNET PHONE CALLING: Regulatory Imperatives to Protect the Promise of VoIP for Industry and Consumers, New Millennium Research Council, Washington, D.C. 2003.

[viii] Id.

[ix] Id.

[x] Michael Powell, Chairman Federal Communications Commission,   The Age of Person Communications: Power to the People" , January 14, 2004 Speech to the National Press Club, Washington, D.C.; Charles M. Davidson, Florida Public Service Commission, VoIP, FCC Forum December 1, 2003 at http://www.fcc.gov/voip/presentations/davidson.ppt; [email protected], Behind VoIP's renaissance, Wharton School of the University of Pennsylvania, January 17, 2004; Todd Wallack,, Internet phone service blossoms But it still may not be ready for the masses , February 9, 2004, San Francisco Chronicle found at http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle//BUGMD4R8I81.DTL&type=tec (last checked on February 10, 2004); Ben Charny and Jim Hu, Time Warner Cable leans more heavily on voice, CNET News.com, January 28, 2004 found at http://news.comcom/2100-7352_3-5149564.html last checked on January 29, 2004.

[xi] Michael Powell, Chairman Federal Communications Commission, The Age of Person Communications: Power to the People" , January 14, 2004 Speech to the National Press Club, Washington, D.C.; Charles M. Davidson, Florida Public Service Commission, VoIP, FCC Forum December 1, 2003 at http://www.fcc.gov/voip/presentations/davidson.ppt; [email protected], Behind VoIP's renaissance, Wharton School of the University of Pennsylvania, January 17, 2004; Todd Wallack,, Internet phone service blossoms But it still may not be ready for the masses , February 9, 2004, San Francisco Chronicle found at http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle//BUGMD4R8I81.DTL&type=tec (last checked on February 10, 2004); Ben Charny and Jim Hu, Time Warner Cable leans more heavily on voice, CNET News.com, January 28, 2004 found at http://news.comcom/2100-7352_3-5149564.html last checked on January 29, 2004.

[xii] Jeff Pulver, President and Chief Executive Officer, Pulver.com, Communications Daily audio conference on VoIP, November 13, 2003; Frost & Sullivan, March 2002; Get Up to Speed on VoIP , CNET News.com, February 17, 2004 found at http://news.com.com/2001-7352_3-0.html?tag=nefd_guts (last visited on February 28, 2004)

[xiii] Testimony of The Honorable Lamar Alexander, U.S. Senator, (R-TN) , given at Voice Over Internet Protocol (VOIP) Hearing before the U.S. Senate Committee on Commerce, Science & Transportation, February 24, 2004; Testimony of The Honorable Stan Wise, President, National Association of Regulatory Utility Commissioners , given at Voice Over Internet Protocol (VOIP) Hearing before the U.S. Senate Committee on Commerce, Science & Transportation, February 24, 2004.

[xiv] See id.

[xv] See Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, WC Docket No. 03-21,; filed with Federal Communications Commission on September 22, 2003; Pleading Cycle Established for Comments on pulver.com Petition for Declaratory Ruling, WC Docket No. 03-45, Public Notice, DA 03-439 released by Federal Communications Commission on February 14, 2003; Roy Mark, Tauzin Presses FCC for VoIP Decision , internetnews.com, January 30, 2004 found at http://internetnews.com/xSP/article.php/3305951 (last visited February 29, 2004)

[xvi] See generally 47 U.S.C. 201 et seq.

[xvii] See generally 47 U.S.C. 153, 201et seq.; Roy Mark, Tauzin Presses FCC for VoIP Decision , internetnews.com, January 30, 2004 found at http://internetnews.com/xSP/article.php/3305951 (last visited February 29, 2004)

[xviii]See Memorandum Opinion and Order In the Matter of Petition for Declaratory Ruling that pulver.com's Free World Dialup is Neither Telecommunications Nor a Telecommunications Service , WC Docket No. 03-45 , Federal Communications Commission, adopted February 12, 2004, released February 19, 2004.

[xix] 47 U.S.C. 153(43)

[xx] 47 U.S.C. 153(44)

[xxi] 47 U.S.C. 153(20)

[xxii] Federal Communications Commission, NEWS, FCC MOVES TO ALLOW MORE OPPORTUNITIE FOR CONSUMERS THROUGH VOICE SERVICES OVER THE INTERNET , February 12, 2004.

[xxiii] See Federal Communications Commission, SEPARATE STATEMENT OF CHAIRMAN MICHAEL K. POWELL Re: IP-Enables Services Notice of Proposed Rulemaking , February 12, 2004; SEPARATE STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY, Re: IP-Enables Services Notice of Proposed Rulemaking, adopted February 12, 2004.

[xxiv] Id.

[xxv] See Sprint Statement on FCC's Notice of proposed Rulemaking on Voice Over Internet Protocol , February 12, 2004, Overland Park, Kansas found at http://144.226.116.29/PR/CDA/PR_CDA_Press_Releases_Detail/1,3681,1111957.html (last visited on February 28, 2004); Mark Wigfield, FCC Makes First Ruling On Internet Telephony, The Wall Street Journal, Page A5, February 13, 2004.

[xxvi] Alex Salkever, These Phone Calls Aren't Phone Calls , BusinessWeek online, February 13, 2004, found at http://businessweek.com/technology/content/feb2004/tc20040213_1268_tc024.htm (last visited on 2/29/04).

[xxvii] Id.

[xxviii] Statement of Commissioner Kevin J. Martin Re: In the Matter of IP-Enabled Services, Federal Communications Commission Open Meeting of February 12, 2004, adopted February 12, 2004.

[xxix] Statement of Commissioner Kevin J. Martin Re: In the Matter of IP-Enabled Services, Federal Communications Commission Open Meeting, adopted February 12, 2004; Federal Communications Commission, SEPARATE STATEMENT OF CHAIRMAN MICHAEL K. POWELL Re: IP-Enables Services Notice of Proposed Rulemaking , February 12, 2004; SEPARATE STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY, Re: IP-Enables Services Notice of Proposed Rulemaking, adopted February 12, 2004; Statement of Jonathan S. Adelstein Re: IP-Enabled Services, Notice of Proposed Rulemaking (2004) (Approving in Part, Concurring in Part) , Federal Communications Commission Open Meeting of February 12, 2004; Statement of Commissioner Michael J. Copps, Concurring, Re: IP-Enabled Services, Notice of Proposed Rulemaking (WC Docket No. 04-28) , Federal Communications Commission Open Meeting, February 12, 2004.

[xxx] Id.

[xxxi] Statement of Commissioner Michael J. Copps, Concurring, Re: IP-Enabled Services, Notice of Proposed Rulemaking (WC Docket No. 04-28) , Federal Communications Commission Open Meeting, February 12, 2004.

[xxxii] Vonage Holdings Corp. v. Minnesota Public Utilities Commission , 290 F.Supp.2d 993 (D. Minn. October 16, 2003).

[xxxiii] Brand X Internet Services v. Federal Communications Commission , 345 F3d 1120 (9th Cir. October 6, 2003).

[xxxiv] Id. at 1133.

Courtesy of Konrad Trope.