FCC Opens Wide Ranging Internet Inquiry

Thursday, April 1, 2004 - 01:00

The U.S. Federal Communications Commission ("FCC" or the "Commission") has finally released its long-awaited rulemaking proceeding, addressing whether and how voice-over-the-Internet ("VoIP") and Internet Protocol ("IP") based services should be regulated. Given the depth and breadth of the document, far-ranging changes could occur in the regulatory treatment of VoIP and IP-based services in the United States. While the primary attention is on VoIP services, the document is drafted in such a way as to leave open the application of at least some of the inquiry's findings to other, non-voice IP-based services.

Possible Wholesale Regulatory Changes and Implications for Legacy Systems: The scope of the rulemaking proceeding implies that it has the potential to lead to wholesale changes in the regulatory structure for basic telecommunications and enhanced services, as well as services offered by cable television and commercial mobile wireless operators. Moreover, the inquiry is likely to take considerable time to conclude, and since it is beginning in an election year, could be concluded under a different party in control of Congress and the White House. Any such political changes would inevitably flow down to the composition of the FCC as well.

The Commission notes that the rise of IP-enabled services promises to bring a communications revolution that could spur the penetration and demand for broadband services, an FCC goal. Like many revolutions, however, the rise of such services could come at considerable expense to legacy systems, such as the public switched telecommunications network ("PSTN") and the dominant providers which have in the past controlled the PSTN.

Commission Jurisdiction: The threshold regulatory issue raised by VoIP and other IP-based services is whether the Commission has exclusive jurisdiction over these services. The Commission will consider whether it should assert exclusive federal jurisdiction over some or all IP-enabled services, or whether, particularly if certain services are found to be equivalent to conventional "common carrier" services, jurisdiction can be shared with state level governments. Discussion of this point, it notes, rests on interpretation of certain clauses of the United States Constitution, which specify the appropriate reach of state and federal powers, and when powers are to be shared.

Basic versus Enhanced Regulatory Classifications: Assuming the Commission claims jurisdiction, it must then decide whether it should forbear from imposing any regulatory requirements on such services. For over 30 years, the Commission has made a regulatory distinction between basic versus enhanced (or information) services. While it has claimed federal jurisdiction over both types, it has chosen to forebear from regulating enhanced (information) services, concentrating instead on regulation of dominant providers of basic voice and data services.

By claiming federal jurisdiction, the FCC preempted state regulatory commission jurisdiction over enhanced services. The present inquiry, ironically, has been partly provoked by various state commissions' efforts to begin regulating VoIP services, as well as various petitions by both traditional telecommunications services providers and small VoIP providers seeking to clarify their regulatory status.

Dominant Carrier Status: The Commission's inquiry also focuses on the appropriate classification of the various types of VoIP and IP-enabled services, as well as what national policy goals would be advanced by imposing regulation on specific classes of IP-enabled services. Further, since previous regulation of circuit-switched based networks and their providers has rested upon market dominance, the FCC asks whether its entire regulatory framework requires reconsideration.

Regulatory policies have been built upon these public policy goals on the assumption that they are provided by legacy circuit-switched networks operated by currently or previously dominant common carriers or their circuit switched-based competitors. To this end, the Commission will focus on those services which may be substitutes for traditional voice telephony, and thus raise social policy concerns related to public access to emergency services, access to telecommunications services by persons with disabilities, consumer protection, universal service (access by all Americans to telecommunications services) and related issues.

Criteria for Assessing Appropriate Regulatory Treatment: Among issues the FCC offers as potential factors for deciding whether and what kind of regulatory burdens to impose on IP-enabled services are the following: a) the functional equivalence of IP-enabled services to traditional telephone services; b) the substitutability of IP-enabled services for classic telephony services; c) whether such services interconnect to the PSTN and use the North American Numbering Plan; d) comparisons between network services and peer-to-peer services; e) whether the focus should be on the facility, protocol or application layers of IP-enabled services; and f) whether other issues should distinguish one type of service from another. The latter, the FCC notes, could include whether there is continuing utility to distinguishing between "phone-to-phone," "computer-to-computer" and "computer-to-phone" types of services, the FCC's initial method for looking at VoIP services.

Application to 911 and E911, and Access by the Disabled: The FCC's notice of Proposed Rulemaking ("NPRM") also asks which regulatory requirements and entitlements would flow from the service classification recommendations made by those commenting. Particular public policy issues noted here include whether public access to emergency services, either "basic 911" (which assures that an emergency call is routed to local public safety agencies) or "enhanced 911" (which applies to wireless operators) should be imposed on some types of IP-enabled services. The Commission asks whether IP-enabled services can improve the delivery of such emergency services and how capable such services are in their various configurations to provide such services.

The Commission also notes that it has already asserted its jurisdiction and imposed requirements on certain types of information services to assure that they are accessible to persons who are either hearing-impaired or speech-impaired. The Commission's Internet Policy Working Group (composed of senior staff across Commission bureaus) held hearings on March 18 concerning 911 and E911 issues, and will again hold hearings on May 7 concerning on the ability of persons with disabilities to access IP-enabled networks.

Access Charges: The NPRM similarly addresses whether access charges should be assessed on VoIP or IP based services. Access charges are paid by interexchange carriers to local telephone carriers to compensate for use of the local telephone network. However, enhanced services providers have traditionally been exempt from paying access charges. With more and more traffic moving on to IP-based networks, local telephone service providers face an erosion of their access charge revenues. As the FCC notes, this is especially important to rural telephone companies, which often rely on access charges for a majority of their revenue.

Universal Service Fund: How IP-enabled services are classified will also impact the universal service regime, which funds the extension of the telecommunications network to high cost and low income areas, for rural health care, and to schools and libraries. While already subject to inquiries related to broadband services and the methodology used to calculate contributions to the universal service fund ("USF"), the FCC will consider whether providers of facilities-based and non-facilities-based IP-enabled services should be obligated to make USF contributions and whether IP-enabled services should be included in the list of services supported by the USF.

Commercial Mobile Radio, Cable TV and International: Other issues addressed in the NPRM include the regulatory treatment of IP-enabled services offered by commercial mobile radio service providers and by cable television systems, and how various consumer protection and privacy issues should be viewed. The Commission also welcomes comments on the international implications of any decision made as a result of this inquiry, especially on its international settlements policy, and other international trade and foreign policy issues.

Public Comments: Comments on the many questions raised by the Commission in the NPRM will be due 60 days after the NPRM is published in the Federal Register, which probably means that comments will be due no earlier than late May and likely even later, given the usual time lag between release of FCC documents and their publication in the Federal Register. Reply comments will be due 30 days after the first round of public comments are due.

Tara Giunta and Janet Hernandez are Partners in the Washington, DC office of Coudert Brothers LLP.