Embracing VoIP amid a regulatory minefield

Does it truly fit under Title I, or is it just another voice service?
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VoIP regulatory issuesA bevy of regulatory issues is confounding the burgeoning IP-telephony space, amid longstanding disputes related to Voice over Internet Protocol (VoIP) technology, which uses broadband Internet connections to make voice and video calls.

Such regulatory uncertainties could hinder the market for VoIP services to businesses. Enterprises typically prefer to rely on technologies that are established and free from overhangs. Though, to be clear, VoIP has nonetheless been embraced by a wide swath of corporate America due to its low cost and wide array of features--indeed, according to a survey commissioned by Sonus Networks, around two-thirds of businesses report either "Significant Use" or "Extensive Use" of VoIP technology.

While there remains, among carriers and service providers, disagreement over marketplace and technological issues, most stakeholders fault the Federal Communications Commission (FCC) for refusing to define IP-enabled services, including interconnected VoIP.

"It creates a huge regulatory uncertainty," said Karen Reidy, vice president of regulatory affairs at COMPTEL, the Washington-based trade association of competitive communications service providers.

Regulatory questions related to VoIP--an application that uses packet switching technology to transmit voice and video calls over the Internet rather than the traditional public switched telephone network (PSTN) to make calls--have raged before the FCC for more than a decade.  That's largely because the independent federal commission has yet to issue a final determination on whether VoIP is a telecommunications service or an information service, despite repeated industry-filed petitions to do so.

For their part, VoIP providers largely favor an information-services designation under Title I of the federal Communications Act. Such a designation would exempt VoIP from FCC regulation except where the commission has so-called ancillary jurisdiction. E911 rules for interconnected VoIP providers, for example, were implemented under the commission's Title I jurisdiction to promote public safety.

Meanwhile, competitive local exchange carriers (CLECs) widely argue that at least managed VoIP ought to given common-carrier classification under Title II of the Communications Act.

"Managed VoIP should be treated just as other voice service," Reidy said.  "The commission needs to clarify that Section 251 applies."

The result of the FCC's refusal to classify VoIP: incumbent local exchange carriers (ILECs) claim to have "an argument" for not coming to the table to negotiate IP interconnection agreements, for instance, Reidy added.

The five-member FCC has largely taken a hands-off approach to Voice over IP regulation, holding that VoIP and IP-enabled service providers offer an information service, and as such are not subject to utility-type common-carrier regulation.

Aside from consumer-protection and public-safety requirements, the FCC has declined to apply traditional telephone regulation to Internet-based services that involve data processing following a congressional directive in the Telecommunications Act of 1996 to "preserve the vibrant and competitive free market that presently exists for the Internet."

The FCC first considered VoIP technology services in a 1998 report to Congress.  In its findings, commissioners said the regulatory body would classify VoIP in future proceedings. Those rule-making proceedings are ongoing. In 2004, in what is known as the Vonage Preemption Order, the FCC declined to decide whether VoIP is a telecommunications service or an information service.  Instead, the commissioners said the FCC--not individual states--has the discretion to decide whether regulations apply to VoIP and other IP-enabled services.

Numbering Issues

Much to the chagrin of COMPTEL, Vonage (NYSE: VG), the nation's largest Internet-based telephony company, and other VoIP providers have sought an FCC waiver to give them direct access to numbering resources for IP-enabled services.

To obtain numbering resources directly from the North American Numbering Plan Administrator (NANPA) for use in deploying IP-enabled telephony, companies have filed with the FCC a petition for a limited waiver of the Commission's Rules Regarding Access to Numbering Resources.

COMPTEL has warned that granting Vonage--or other companies--a so-called Section 52.15(g)(2(i) waiver would result in "amplified regulatory confusion" and accelerated number exhaustion.

For its part, Vonage has argued to the FCC that direct access to NANP telephone numbers would eliminate a "significant barrier" to IP interconnection, and additionally ease the transition to bill-and-keep arrangements for intercarrier compensation.

"With direct access to numbers, Vonage hopes to reduce the number of hand-offs involved in a Vonage call, thereby improving call quality, reducing delay, and eliminating opportunities for routing errors," Brita Strandberg, counsel to Vonage Holdings Corp., told the commission, according to a regulatory filing.

State Regulations

Amid the dearth of FCC regulation over the VoIP space, state legislatures have sought to exercise jurisdiction--most notably by preempting their respective state regulators from regulating the VoIP space in an aim at encouraging technological innovation by offering some degree of regulatory certainty.

At least 24 states and the District of Columbia have enacted statutes that bar utility-type regulation of VoIP service.  California, the most populous state in the nation could soon join the ranks of Florida, Illinois and Texas in restricting state regulation of IP-enabled services, including VoIP.

In the Golden State this year, industry has rallied around Senate Bill 1161, which seeks to block the California Public Utilities Commission (CPUC) and other state entities from expanding regulations over VoIP-enabled voice and data transmissions.

The bill's author, state Sen. Alex Padilla (D-Los Angeles), chairman of the Senate Committee on Energy, Utilities and Communications, has sought to convince critics that his proposals would not eliminate consumer protections or negatively affect CPUC oversight of  landline or fiber-optic phone services.

Rather, S.B. 1161 proponents argue the bill would help provide regulatory certainty in the state, thereby encouraging investment and innovation in the state's technology sector.

"No state has benefited more from the Internet economy than California. As we work to emerge from an era of double-digit unemployment and sluggish economic growth, the technology sector continues to light the way," Padilla wrote in a recent op-ed in the San Jose Mercury News. "Senate Bill 1161 will send the right signals and help foster continued investment and job creation for decades to come."

TechAmerica, TechNet and the Silicon Valley Leadership Group are the official cosponsors of S.B. 1161. The legislation has garnered the support of AT&T (NYSE:T), Cisco Systems (Nasdaq: CSCO), Microsoft Corp. (Nasdaq: MSFT), Qualcomm (Nasdaq: QCOM) and Verizon Communications (NYSE: VZ).

Tariff Disputes

Pending tariff disputes have also created a level of regulatory uncertainly in the VoIP space, stakeholders say.

Perhaps most closely watched is Sprint's (NYSE: S) legal battle with CenturyLink (NYSE: CTL). Sprint is asking the FCC to decide whether it should pay CenturyLink tariffed switched access charges on VoIP-originated interstate long-distance traffic.

Sprint is seeking a declaratory ruling on the applicability of tariffed access rates to VoIP-originated calls, in 2009 litigation filed in U.S. District Court for the Western District of Louisiana. The court, in January of 2011, referred the question to the FCC.

In the underlying lawsuit, CenturyLink accused Sprint of failing to pay tariffed switched access charges on VoIP-originated interstate long-distance traffic that was delivered to Sprint in its capacity as a wholesale provider and then delivered to CenturyLink via Feature Group D facilities.

The matter goes back to the FCC's refusal to classify VoIP. In comments to the commission, Verizon urged the FCC to clarify the VoIP regulatory landscape "by reaffirming that VoIP is exclusively interstate for jurisdictional purposes and confirming once and for all that VoIP is an information service."

Noting that at least three federal district courts have found that VoIP services are "information services," Verizon attorneys wrote, "The Commission has had the question of VoIP's regulatory classification before it for many years, and it should confirm once and for all that VoIP is an information service."

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