FCC Releases Pulver.com VoIP Declaratory Ruling
Late today the FCC released its formal “Memorandum Opinion and Order” declaring pulver.com’s free computer-to-computer Free World Dialup (“FWD”) voice-over-Internet- protocol (“VoIP”) service to be an unregulated, jurisdictionally interstate “information service.” The FCC voted to take this action at its open meeting last Thursday, Feb. 12, 2004 (see update from Feb. 12, 2004).
The formal order confirms the analysis orally discussed at last week’s meeting. As noted in our earlier Update, the ruling is based on a precise technical understanding of how FWD works. Specifically, FWD offers membership in a directory look-up service that permits members to engage in peer-to-peer communication, similar to instant messaging and email, by means of a separately obtained broadband connection, and with specialized hardware and/or software as well. Given this technical understanding, the Memorandum Opinion and Order finds:
- FWD is not “telecommunications” as defined by the Act. pulver.com does not provide transmission functionality to its members; instead, it uses transmission independently provided by others. It provides information—addressing information regarding which other members are on line, which is new information.
- FWD is also not a telecommunications service as defined by the Act. In order to be a telecommunications “service,” the service must, at a minimum, be offered for a fee. FWD not only is not “telecommunications,” it’s free.
- FWD is an information service as defined by the Act. The addressing information that identifies who is actually on line and available for peer-to-peer communication is new information, not merely information embodied in a preexisting communications network.
- The FCC alone occupies this field. States may not impose economic regulation on FWD. The FCC’s fact-intensive analysis of FWD means that this ruling will not necessarily be extended to other types of VoIP. However, two aspects of the FCC’s discussion of why states may not impose traditional “utility”-type economic regulation (such as price regulation, entry/exit regulation, tariffing requirements, minimum service standards, etc.) on FWD are suggestive of how it might approach other VoIP-related issues.
First, the FCC relied heavily on the fact that the pulver.com service works by means of IP addresses, which do not contain meaningful information about the physical location of the parties communicating. Because it is impossible to tell where either party to the communication might be, it is impossible for the FCC to apply its traditional “end-to-end” test used to determine whether it or a state has regulatory authority over a normal circuit-switched telephonic communication. The FCC therefore relied on other information (mainly the fact that pulver.com’s subscribers are located all over the country and the world) to declare that the service necessarily included a significant amount of interstate communication. This rationale for exclusive federal jurisdiction would appear to apply not just to FWD, but to any communications service where the locations of the communicating parties are indeterminate.
Second, to confirm that states may not impose economic regulation on FWD, the FCC invoked a legal test under the Constitution’s “Commerce Clause” on which it does not normally rely. Specifically, it found that there would be no “legitimate public policy purpose” served by state imposition of traditional economic regulation on FWD. This supported the FCC’s conclusion that the burdens of such regulation on “interstate commerce” would be “clearly excessive in relation to the putative local benefits.”
This legal rationale differs from the typical FCC preemption analysis (which the FCC also articulated), where the question is whether permitting state regulation would frustrate the accomplishment of specific federal regulatory goals. The subtle—but significant—difference is that by invoking the Commerce Clause, the FCC is claiming the authority to pass judgment on the legitimacy of state efforts to regulate certain communications activities services, including the right to declare that any “local benefits” states might assert to protect their regulatory authority are simply not good enough to justify interference with interstate activity. This rationale—assuming the FCC’s authority to rely on it is ultimately sustained by the courts—is a powerful tool the FCC can use to dictate the regulatory treatment of services and activities with mixed interstate-intrastate aspects.
If you have any questions about the significance of the pulver.com order to your actual or potential operations, please do not hesitate to call us.