Voice-over-IP Service: Is it Free from Regulation?
VoIP services currently exist in a generally deregulatory environment at both the federal and state level, which may account, in part, for its rise in popularity among service providers. As a result, VoIP service providers have generally been able to stay below the regulatory radar screen.
As VoIP services come more into the mainstream, however, regulatory bodies may feel inclined to exercise their regulatory powers over VoIP services in some manner. Indeed, a recent petition by AT&T has put this question squarely before the FCC.
AT&T has asked the FCC for a declaratory ruling that AT&T's phone-to-phone IP telephony services are exempt from access charges (TR, Nov. 1). How the FCC rules on AT&T's petition, and what regulators in general decide to do with these nascent technologies, should evolve over the next several years and will likely affect the development and future of packetized voice services.
The FCC: Hands Off of VoIP?
Federal regulation applies to interstate or international "telecommunications" or in situations when the FCC has pre-empted intrastate telecommunications. Under the Communications Act of 1934 and the FCC's rules and regulations, there is a significant distinction between "telecommunications" services and "enhanced" or "information" services.
In its simplest form, telecommunications services involve the pure transmission of information, whereas enhanced or information services change the transmission characteristics, provide changed information or allow the end user to interact with a stored database. While "telecommunications" services are subject to the FCC's Title II jurisdiction, "information" or "enhanced" services are generally not subject to FCC regulation (although the FCC does exercise ancillary, Title I jurisdiction, over enhanced and information services).
To the extent that VoIP technology enables real-time voice transmission using Internet protocols, one could argue that service provided over a VoIP network is offering more than "pure" telecommunications—that is, that VoIP services are an information service.
The FCC, however, has not yet rendered an official decision on whether VoIP or similar services are telecommunications services or information services. The closest that the FCC has come to any discussion of the regulatory classification of VoIP services occurred in a 1998 Report to Congress on the implementation of Universal Service program.
Although the FCC declined at that time to make any definitive pronouncements on the regulatory status of VoIP, it suggested that computer-to-computer Internet telephony looked more like an information service, while certain "phone-to-phone IP telephony" services may bear the characteristics of telecommunications services.
Given the lack of definitive guidance on this issue from the FCC, the industry has generally considered all VoIP services to be unregulated, information services. Indeed, during a speech earlier this year at an annual industry association meeting, FCC Chairman Michael K. Powell indicated that VoIP services would not be regulated.
It does seem clear, however, that to the extent that a VoIP service offering includes a computer on one end of the communication, it is more likely that the FCC would be more inclined to find that such an arrangement includes an enhanced or information service component sufficient to sustain the services as unregulated.
Of course, the issue of regulation of VoIP service has recently been put squarely before the FCC, which has been asked by AT&T to declare whether its phone-to-phone Internet telephony service should be subject to access charges. How the FCC addresses the issue of access charges for Internet telephony services may determine or give insight into how the FCC views such services for regulatory purposes.
The States: Pre-empted?
In a line of cases begun decades ago (referred to as the Computer Inquiry line of cases), the FCC imposed certain obligations and safeguards on the incumbent carriers' provision of enhanced services. At the same time, it also pre-empted state regulation of many aspects of enhanced or information services to the extent such regulation conflicted with or effectively negated FCC regulations.
Specifically, under the "impossibility" doctrine (i.e., state and federal regulation cannot coexist), the FCC pre-empted the states from imposing stringent state structural separation requirements, CPNI and network disclosure rules. The FCC had found that such requirements, if implemented at the state level, would conflict with the FCC's rules and thereby "negate valid FCC regulatory goals."
In addition, although the FCC has not specifically decided whether to pre-empt states from regulating VoIP services, the fact that the FCC has deemed Internet-bound traffic to be predominantly interstate lends greater support for pre-emption of state regulation.
Under the FCC's pre-emption policies, it would seem that state regulation of VoIP would negate the FCC's policy goals of deregulating information services (and the Internet). The problem with this position, of course, is that the FCC has no definitive rulings and regulations related to the regulation of VoIP services and, therefore, there is no regulation with which to conflict. In short, the rules and regulations—or lack thereof—are sufficiently undefined to potentially give rise to a state exercising jurisdiction.
Earlier this year for instance, the New York Public Service Commission ("NYPSC") found that a particular carrier's phone-to-phone Internet telephony service was a "telecommunications" service inasmuch as it did not entail net protocol conversion and, therefore, that the service was subject to intrastate access charges.
In its decision, the NYPSC relied on the FCC's statement in its 1998 Report to Congress that certain phone-to-phone IP telephony bear the characteristics of a telecommunications service. Although the NYPSC did not address pre-emption issues in its order, it is possible that pre-emption was not implicated to the extent that its decision did not conflict with FCC regulations.
What Does the Future Hold?
As VoIP or similar services become more pervasive or more closely resemble the uses associated with traditional telephone services, it will become increasingly likely that the FCC and, possibly, the states, will inquire into the regulatory nature of these services.
Given the reluctance of legislators and regulators to do anything that interferes or has the appearance of interfering with the Internet, federal and state regulatory agencies will likely be hesitant to regulate VoIP. More likely is adoption of limited regulation or a deregulatory approach towards such services. Only time will tell—time that has been significantly pushed forward by AT&T's access charge petition