FCC Officials Discuss VOIP Regulation

September 29, 2004. The Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB) hosted an event at which senior officials in the WCB discussed issues before the FCC and WCB, including regulation of voice over internet protocol (VOIP) applications and services.

Jeffrey Carlisle, the Bureau Chief of the WCB, and Michelle Carey, the Division Chief of the WCB's Competition Policy Division, discussed voice over internet protocol (VOIP), jurisdiction over VOIP, intercarrier compensation and access charges.

VOIP Jurisdiction. Carey addressed VOIP jurisdiction and the Brand X and Vonage cases.

Carey stated that "There is 8th Circuit litigation going on, regarding Vonage. The Minnesota Commission tried to assert some jurisdiction over Vonage's voice over IP service. And the Commission filed an amicus in that proceeding asking the Court to defer to us on those issues. And, I think the Commission is arranged to not be in a BrandX situation where the courts get ahead of our rule making on these topics."

On October 6, 2003 the U.S. Court of Appeals (9thCir) issued its opinion [39 pages in PDF] in Brand X Internet Services v. FCC, vacating the FCC's declaratory ruling that cable modem service is an information service, and that there is no separate offering as a telecommunications service. 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. This opinion is also reported at 345 F.3d 1120.

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 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." See, story titled "District Court Holds that Vonage's VOIP is an Information Service" in TLJ Daily E-Mail Alert No. 760, October 17, 2004. See also, FCC's amicus brief [PDF] filed with the U.S. Court of Appeals (8thCir) on April 21, 2004.

Carey said that "this year" the WCB may "come up with an order on jurisdiction".

Intercarrier Compensation and VOIP. Carlisle offered a review of the debate over VOIP and intercarrier compensation. However, he took no position.

He said that "the main issue with VOIP and intercarrier compensation is, you know, on the one hand, you have a group of service or applications providers -- however you want to characterize people who are providing VOIP services that interface with the PSTN -- you have this group. And, if as part of what they are selling to the public, they are selling access to the PSTN, there is a strong argument that, OK, they should abide by the same rules and conditions that apply to everybody else who accesses the PSTN."

"On the other hand, you have another set of people with equally strong arguments, that says, look, everybody knows that the system is broken, that we should not be imposing this system which the FCC, you are trying to revise on a very general basis, to a nascent industry that is just getting off of the ground with maybe 500,000 subscribers. I think, you know, the more extreme versions of this argument say that, look, even it was a million or two million subscribers, shouldn't you keep up the pressure to reform intercarrier compensation by not applying the system to these providers? So, these are compelling policy arguments on both sides, and they are very difficult to actually sort out."

He added that the FCC "has a long history of ensuring that new technologies and new ways of providing voice services and other, sort of, communications services, that companies that want to come in and actually try to do that have some decent opportunity of doing that, coming into the market. You know, on the other hand, there are a lot of very strong reasons built into the system of why we have intercarrier compensation and access charges."

Enforceability of Any FCC VOIP Rules. Carlisle also said in the case of VOIP, the FCC must consider whether the rules that it might adopt would be enforceable. He cited the example of Skype.

He said that "One thing that I can be sure of is that during the next six months it may very well be that this debate is taking place on a totally different set of assumptions and grounds that it is taking place now. What we were talking about with respect to VOIP is not what we are talking about now. It is going to continue to change. The ground is going to continue to change underneath us, as new services come out, as new business models get placed forward."

"For example, there is Vonage, there is Pulver.com, there is SkypeOut now. SkypeOut is located in Estonia. Its owners, who owners live somewhere between the Baltic and Denmark, I am not entirely sure where they are at this point. I know they cannot come into the United States." [audience laughter]

He continued that "They have one employee. I was at a conference a couple of months ago, and I think it was Zennström, who programmed all of this stuff, and who is also responsible for Kazaa, participated by voice conference, because if he steps into the United States the RIAA will subpoena him. But, they have one employee who is in Phoenix, who is a very nice person, and I have met her, and we have talked, and I believe that she has actually made a couple of filings with the FCC. But that is the only person that they have in the United States."

Carlisle concluded that "one thing we have to keep in mind is as these business models change, we can say a lot of things about what we may or may not do to VOIP, but we always have to keep in mind the aspect of enforceability, and whether anything that we do will be enforceable."

Pulver.com Declaratory Ruling. Carlisle also addressed the Pulver.com ruling. He said that there has been some public misunderstanding of the ruling.

On February 12, 2004 the FCC adopted a Declaratory Ruling (DR) on Pulver.com's petition for declaratory ruling regarding the classification of its Free World Dialup (FWD) service. The DR found that FWD is not a telecommunications as defined by the Communications Act (CA), that FWD is not telecommunications service as defined by the CA, that FWDialup is an information service as defined by the Act, and that economic regulation of FWD would conflict with FCC policy that the internet and other interactive computer services remain unfettered by federal and state regulation.

Carlisle said that "one aspect of access charges that I think that has been kicked around back and forth was the impact of our Pulver.com order. I think it was seen in some quarters as being a decision that, ``well, access charges don't apply to internet only voice telephony´´. Well, that was really completely missing the point. I mean, leave aside the fact that the words access and charge do not, neither of them appear in the item, much less together. It wasn't about that. It was about a definitional issue."

Access Charges and VOIP. Finally, Carlisle discussed the difficulty of assessing access charges oo a service that never hits a switch.

He said that "you have got voice communications that are taking place entirely over the internet, and that don't hit a switch. So, how are you going to assess access charges on something like that, that is entirely over the internet."

"And separately", said Carlisle, "isn't the point really about how we pay for internet services and applications. You are going to say that, ``Well if it is internet only, and it is a voice service, and it is being provided over a broadband facility that we provide, we should be able to assess some type of charge for it?´´ Well, why not assess some kind of charge for eBay, or email or shopping at Amazon.com, or anything like that, at that point. They are just bits. And they are taking attention away from time that people could be spending on your phone, for example."

He concluded that "I think that there is a much larger policy debate that has to take place over this. And, simply saying that they are not giving us our charges, whether or not there is any way we could possibly rate for that, kind of misses the point that what we are really talking about is how are people going to pay for broadband ten years from now, fifteen years from now, twenty years from now. How are you going to ensure, or how do you meet the requirements of the Act, that Americans all across the county have access to reasonably comparable services, at affordable prices. That is the bigger issue that we are dealing with. And so, however these factors play out in the items of the moment, we also have to have an eye on that larger context as it moves forward."

VOIP Legislation. Carlisle also discussed what the FCC hears from the Congress on VOIP issues. He said that "even though I think there is a general sense on the Hill, that, look, this is a new technology, so at least, let's wait and see attitude. I think you do have a lot of shades of different policy approaches in there that the legislative assistants, and their member of Congress, are looking at."

"There are still, you know, we have got the Sununu legislation, the Stearns Boucher legislation in the House, and also the Pickering legislation is out there, and still forming the basis, perhaps, for future policy discussion on the Hill", said Carlisle.

On July 6, 2004, Rep. Cliff Stearns (R-FL) and Rep. Rick Boucher (D-VA) introduced HR 4757, the "Advanced Internet Communications Services Act of 2004". See, story titled "Rep. Stearns and Rep. Boucher Introduce VOIP and Internet Regulation Bill" in TLJ Daily E-Mail Alert No. 935, July 12, 2004.

On April 5, 2004, Sen. John Sununu (R-NH) introduced S 2281, the "VOIP Regulatory Freedom Act of 2004". On April 8, 2004, Rep. Chip Pickering (R-MS) introduced HR 4129, also titled the "VOIP Regulatory Freedom Act of 2004". See, story titled "Sununu and Pickering Introduce VOIP Regulatory Freedom Bills" and story titled "Summary of VOIP Regulatory Freedom Bills", both published in TLJ Daily E-Mail Alert No. 872, April 8, 2004.

The Senate Commerce Committee amended and approved S 2281 on July 22, 2004. See, story titled "Senate Commerce Committee Passes VOIP Regulation Bill" and story titled "Summary of VOIP Bills" in TLJ Daily E-Mail Alert No. 946, July 27, 2004.