12/1. The Federal
Communications Commission (FCC) held a forum on Voice over Internet
Protocol (VOIP) issues. All five Commissioners sat through both the morning
and afternoon sessions.
Chairman Michael Powell
again stated that the FCC will issue a Notice of Public Rulemaking
(NPRM) "to inquire about the migration of voice services to IP-based
networks and gather public comment on the appropriate regulatory environment for
these services". See, FCC
release of November 6, 2003. However, at the VOIP forum, he declined to offer a prediction
about when the FCC will release this NPRM.
The Commissioners generally called for a light regulatory touch, and focused on five
regulatory issues: E-911 mandates, wiretapping and surveillance under the CALEA, access
by disabled people, universal service subsidies, and access charges. No Commissioners
spoke in support of price regulation of VOIP services.
The FCC often hosts forums, roundtables and other gatherings.
Frequently, one or more Commissioners attend the beginning of the program, make
brief remarks, and then leave. This forum was atypical in that all five
Commissioners attended, remained for the entire program, and participated in
questioning the other participants.
The FCC also announced the formation of Internet Policy Working Group. See,
The FCC will keep the record open for two weeks. Written comments must be 1,000 words
Opening Statements by Commissioners. FCC Chairman
Michael Powell read a
[PDF] at the beginning of the program. He said that
"As one who believes unflinchingly in maintaining an Internet free from government
regulation, I believe that IP-based services such as VOIP should evolve in a
regulation-free zone. No regulator, either federal or state, should tread into
this area without an absolutely compelling justification for doing so.
Innovation and capital investment depend on this premise. The entrepreneurs
seated before us depend upon this premise. In my view, we should come to this
forum with a sense of regulatory humility - mindful that it is entrepreneurs,
not governments, who came up with the idea of making high-quality, inexpensive
phone calls over the Internet."
Powell (at right)
continued that "In my view, that policy environment must begin with the
recognition that the Internet is inherently a global network that does not
acknowledge narrow, artificial boundaries." But, he added, "This is not to say
that states don’t have important roles in the areas of their traditional police
Powell also stated that "To be sure, health, safety and welfare
concerns may give rise to uniquely state interests and it might be proper for
them to play a role in these areas. Economic regulation, however, is entirely
another matter and we should approach that area of regulation with significant
stated that the rapid pace of technological development and state regulatory
actions require that the FCC now take a lead role in setting federal policy in
this area. She advocated a "predominantly federal regulatory scheme" with "a
light regulatory touch". She also said that the FCC must address "core social
policy objectives" including universal service, 911, CALEA, and disabled access.
Copps also read an
opening statement [PDF]. He said that "While none of us knows where this
will all come out, we need to pull back and think anew. It’s incumbent on us to
identify good policy going forward and not just shoehorn VoIP into statutory
terms or regulatory pigeonholes without adequate justification. It’s no
slam-dunk that the old rules even apply. But we do need to discuss the
consequences of the proliferation of VoIP services on our important statutory
objectives—universal service, homeland security, 911 services, accessibility by
people with disabilities, and encouraging the build-out of advanced
telecommunications services. We need to craft a space in which this technology
succeeds because of its inherent ability, not due to regulatory arbitrage or
exception. Indeed, tackling VoIP may force us to come to terms with other
pending proceedings that also cry out for solution.
said in his opening
that the FCC must provide for FBI surveillance of VOIP communications, E911, and
other existing programs.
(at left) stated that "we must understand the concerns raised by DOJ and FBI
that classifying Vonage’s VoIP as an information service severely undercuts
CALEA. They say that call content and caller identification could evade lawful
electronic surveillance, and that VoIP jeopardizes the ability of federal,
state, and local governments to protect public safety and national security
against domestic and foreign threats. Public safety is not negotiable."
He also stated that "emergency services are not negotiable."
He also said that "We must protect the underpinnings of universal service.
Congress clearly stated that all Americans, whether urban or rural, should have access to
high quality services at reasonable rates. If VoIP providers are not required to
contribute, it creates an opportunity for regulatory arbitrage and further
undermines the already troubled funding mechanism. So if VoIP is the future,
then the steps we take must protect universal access to the best services
Finally, Adelstein addressed access charges. He said that "We also need
to determine how underlying carriers are compensated for carrying third parties' traffic.
Some VoIP providers pay no access fees even though in many instances they are using local
phone lines to route their traffic. We cannot afford to let the rise of VoIP to
undercut the very networks that carry it."
FCC Staff Presentations. Jennifer McKee and Russell Hanser gave presentations
on the current regulatory framework, and pending FCC proceedings, respectively.
McKee reviewed the FCC's Second Computer Inquiry, with its definitions of basic and
enhanced services, the Telecommunications Act of 1996, with its definitions of
telecommunications and information services, and the FCC's 1998 Stevens report,
which addressed VOIP.
The FCC defined "basic service" as a pure transmission capability offered on
a common carrier basis for the movement of information. Basic services are
subject to common carrier regulation under the Communications Act, including
interconnection, privacy, CALEA, universal service, and disability access. The
Computer II decision stated that "enhanced service" involves computer
processing, interaction with customer supplied information, and interaction with
stored information. And, it stated that enhanced services are not subject to
Title II regulation.
The 1996 Act defined "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."
It defined "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 to the public, regardless of facilities used."
The 1996 then defined "information service" as the "offering of a capability
for generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications." The 1996 Act
provided that telecommunications services are generally subject to Title II
regulation, while "information services" are not subject to Title II regulation.
Finally, in April of 1998, the FCC wrote a report to the Congress, as required by
of a CJS Appropriations Act, in which it made some tentative conclusions
about VOIP. It concluded that computer to computer VOIP is not a
telecommunications service. However, phone to phone VOIP may be treated as a
telecommunications service, if the provider holds itself out as providing voice
telephony services, and meets certain other criteria. The primary concern of
Sen. Ted Stevens (R-AK), and others,
was universal service contributions. See also, TLJ
"FCC Claims Authority to Tax Internet Telephony", April 13, 1998.
Russell Hanser then reviewed the three proceedings currently pending at the
FCC regarding VOIP: an AT&T petition, a Pulver.com petition, and a Vonage
[PDF] of these two FCC staff presentations.
Panel Presentations. The Commission then heard from two panels. The
first panel was assigned the task of presenting technical and market issues. The second
panel was assigned the task of addressing policy issues. However, both panels discussed
both technical and policy issues.
The first panel was comprised of Kevin Werbach
Giancarlo (SVP/GM of Cisco Systems), Jeff Pulver (Pulver.com), John
Hodulik (UBS), and John Billock (COO of Time Warner Cable).
The second panel was made up of
Michael Gallagher (National
Telecommunications and Information Administration), Carl Wood
(Commissioner of the California Public
Davidson (Commissioner of the, Florida
Public Services Commission), James Crowe (CEO of
Level3), Tom Evslin
(CEO of ITXC),
(CEO of Vonage), and
Vanderheiden (University of Wisconsin).
Kevin Werbach, who worked at the FCC when the 1998 VOIP report was written,
gave an overview of devices and applications that have VOIP capabilities. He also
argued that the greatest threat to VOIP is not regulatory action, but regulatory
inaction. The risk, said Werbach, is that legacy regulations would be applied to VOIP. See,
Jeff Pulver, discussed his Free World
Dialup service. See,
John Billock of
Time Warner Cable (TWC) discussed the deployment of VOIP by cable operators. He
also stated that TWC "is committed to supporting important public policies
associated with its delivery of IP voice services. As I mentioned earlier,
Digital Phone supports and offers access to Enhanced 911 services. In addition,
Time Warner Cable will support the goals of Universal Service by contributing to
both state and federal Universal Service Funds in connection with the Digital
Phone service. Finally, the IP voice solution deployed by Time Warner Cable
supports the capability to assist law enforcement agencies by permitting the
capture, where necessary, of both call identifying information and call
prepared testimony [MS Word].
Cisco's Charles Giancarlo
discussed Cisco's IP phones and services. He made the points, as did other
presenters, that VOIP is tied to broadband access, and that is is just one of
many services that may be provided with broadband service. He also said that
while currently telephone charges may be based upon time, the basis for charging
for broadband service will be bandwidth and the services to which one subscribes.
John Hodulik, the Wireline
Telecommunications Analyst at UBS Securities, gave an investment community
viewpoint. He wrote in his
[MS Word] said that "Ironically, the existing regulatory framework is promoting the
adoption of VoIP as well as any focused strategy could reasonably be expected to
do. When VoIP providers say they worry that regulators could slow the acceptance
of the technology and their growth, they are acknowledging the underlying
regulatory benefits they have relative to the traditional telcos."
regulatory imbalance remains, the incentive for incumbent carriers to shift
traffic to IP-based platforms will remain strong. The Bells have made it clear
with recent announcements regarding VoIP that they will follow the path
of least resistance. Over time, this will put undue stress on the existing
regulatory framework, making the existing intercarrier compensation regime and
Universal Service funding mechanisms untenable."
Hodulik continued that "From a network standpoint, voice
and IP services can be commingled relatively easily. However, this marriage pits
the micro-managed regulatory world of voice, where returns are almost
guaranteed, with the hands-off, market driven world of IP where companies are
left to sink or swim on their own. From a capital market’s standpoint, much of
the uncertainty is because there appears to be a regulatory void when it comes
to VoIP. The FCC needs to take a leadership position, creating one set of rules
that distinguish between the different types of VOIP Until this is completed,
investors will remain wary about funding new ventures that provide the service."
He called for "a regulatory framework that will stand the
test of time, allowing investors to anticipate the winners and losers based on
strategy and execution rather than unforeseeable changes in Washington." He also
called for a "national standard". He wrote that "A patchwork of differing state
regulations does nothing to provide clarity and, frankly, makes no sense
considering the lack of geographic distinction on the Internet where there are
no LATAs or state boundaries."
He concluded that "VoIP has created not just the need but
also the opportunity for regulators to rethink the traditional framework that
governs telephony in the United States. I believe this forum should be as much
about creating parity as it is about fostering the growth of VoIP. Regulating
VoIP similar to the traditional telephone network is not the answer. The answer
is to fundamentally reassess regulation of the traditional telephone network
before the value-creating portion of that infrastructure and the regulatory
framework that governs it, becomes obsolete."
The second panel included two state regulators with different views. Carl Wood
is a Commissioner of the California PUC who
was appointed by former Gov. Gray Davis. Wood stated that the CPUC is currently in
the process of starting regulation of VOIP providers.
Davidson is a Commissioner of the Florida
PSC who was appointed by Gov. Jeb Bush. He argued for a "hands off
approach". He argued that wireline telephony regulations derive from an era of
monopoly providers and geographically based providers, while VOIP has no market
leader, and is not tied to any locality.
Davidson argued that VOIP is interstate. Wood argued that "there are issues
of interest to states" such as consumer protection. Davidson argued that for
nascent, emerging technologies, the market can protect consumers.
Davidson also argued that VOIP should be free from economic regulation, but
not other regulation, such as 911 and universal service. He also stated that a
VOIP service should be subject to access charges if it meets a "but for" test.
That is, if a call cannot be made or completed, but for reliance on the PSTN,
then it should be subject to access charges.
Vanderheiden of the University of Wisconsin argued that regulation is
necessary to provide access to disabled people. He said that market incentives
do not lead companies to provide for disabled access.
James Crowe (Level3), Tom Evslin (ITXC), and Jeffrey Citron (Vonage) all
stated in their various ways that the current system of access charges is a
hopeless, nonsustainable, broken system, and that VOIP should not be subject to
access charges. Crowe argued that VOIP should be subject to 911 regulation and
the CALEA, and contribute to universal service. Evslin too said that VOIP should
contribute to universal service.
Citron argued that law enforcement entities should go to the Congress for CALEA
authority. He also said that progress is being made on emergency services absent
Evslin cautioned that regulation could drive VOIP providers offshore
or to peer to peer technologies.
Court Opinions. No one from the FCC's Office of General Counsel gave a
presentation at the VOIP forum. However, there are two major recent court
opinions that are pertinent to FCC regulation of VOIP.
First, on October 6, 2003, the U.S.
Court of Appeals (9thCir) issued its
[39 pages in PDF] in Brand X Internet Services v. FCC, vacating the FCC
declaratory ruling that cable modem service is an information service, and that
there is no separate offering as a telecommunications service. The FCC adopted a
Declaratory Ruling and Notice of Proposed Rulemaking [75 pages in PDF] at
its March 14, 2002 meeting. This is FCC 02-77 in Docket No. 00-185 and Docket
The Declaratory Ruling (DR) component of this item states that "we conclude
that cable modem service, as it is currently offered, is properly classified as
an interstate information service, not as a cable service, and that there is no
separate offering of telecommunications service." The opinion of the Court of
Appeals vacates this DR.
See also, story titled "9th Circuit Vacates FCC Declaratory Ruling That Cable
Modem Service is an Information Service Without a Separate Offering of a
Telecommunications Service" in
TLJ Daily E-Mail
Alert No. 754, October 7, 2003; and story titled "Reaction to 9th Circuit
Opinion in Brand X Internet Services v. FCC" in
TLJ Daily E-Mail
Alert No. 756, October 9, 2003.
Second, October 16, 2003, the
U.S. District Court (DMinn) issued its
Memorandum and Order [PDF] in Vonage v. Minnesota Public Utilities
Commission, holding that Vonage is an
information service provider, and that the Minnesota Public Utilities Commission
(MPUC) cannot apply state laws that regulate telecommunications carriers to
Vonage. The Court wrote that "State regulation would effectively decimate
Congress's mandate that the Internet remain unfettered by regulation." The
District Court in Minnesota ignored the 9th Circuit.
See also, story titled "District Court Holds that Vonage's VOIP is an
Information Service" in
TLJ Daily E-Mail
Alert No. 760, October 17, 2003.
These opinions could affect the FCC's ability to use definitions to
accomplish its regulatory goals.
Congressional Comments. No Senators or Representatives participated in
the forum. However, several Senators wrote letters regarding the issue.
Sen. Ron Wyden (D-OR), a member of the
Senate Commerce Committee, and
its Communications Subcommittee, wrote that "As a
strong supporter of the Universal Service and E-911 programs, I am concerned
that the way in which VOIP is regulated may affect support for these vital
programs, and I urge that this be thoroughly explored. However, it would be a
tragedy if misunderstanding and fear were to prevent VOIP from reaching its full
He also wrote that "the inherently interstate and international nature of the
internet argue for caution in imposing regulations" and that "uniform treatment
of VOIP would help the technology serve customers".
Sen. John Sununu (R-NH), another
member of the Senate Commerce Committee, wrote that "I share your interest in
ensuring that this platform is not saddled with undue regulatory burdens at
either the federal or state level." He continued that "There is concern that if
states approach VoIP in the same manner they regulate the current local phone
systems, the external benefits of the technology, including increased levels of
connectivity and significant network efficiencies, could be lost, which would
hurt individual companies and more importantly consumers. Further, there is a
risk that this kind of action may lead to obligations that are wholly
inappropriate for this platform and might undermine the ability of this new
technology to develop and succeed."
Sen. John McCain (R-AZ), the Chairman
of the Senate Commerce Committee,
wrote that "The existing regulatory uncertainty over the treatment of these
services, however, threatens to quickly create an unhealthy environment for
continued investment and development of competition in this area."
Options Available to the FCC. Powell and Martin both discussed with
panel participants, in broad strokes, some of the options open to the FCC if it
seeks a "light regulatory touch". One approach would be definitional. However,
Martin noted that the 9th Circuit opinion presents an obstacle. Another approach
would be forbearance. However, Powell noted that the FCC cannot forbear on
behalf of the states.