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Feature Article
August 2004


Full House

Congress Antes Up and Plays its Hand to Prevent a Torrent of State Regulation

BY WILLIAM B. WILHELM, JR.

If you needed proof that immediate Congressional action is necessary to preserve VoIP services from unwieldy state telephone regulations � that proof came on May 19, 2004, the day that the New York Public Service Commission, without holding even a single evidentiary hearing, summarily dismissed the reasoning of a Federal judge and held Vonage Holdings Corp. to be a telephone company subject to the PSC�s jurisdiction. As a result of the PSC�s order, Vonage was ordered to file a tariff covering �intrastate� transmissions � even though it is impossible to identify which calls are made on an intrastate basis. Applying the �Duck Test� � first popularized by the Minnesota PUC � New York also directed Vonage to comply with the same rules and regulations that govern facilities-based local exchange carriers, such as those imposed upon Verizon � the 100-billion-dollar market cap incumbent.

 

While the scope of the PSC�s order is technically limited to Vonage, the state�s findings will undoubtedly impact other VoIP services, both in New York and beyond. The matter is currently under appeal at the time this article is being prepared � Senator Sununu (R-NH) and Representative Pickering (R-MS) as well as others in Congress recognized that immediate Congressional action is probably necessary to halt the litigation and provide a stable environment for investment and growth in the U.S. market for this technology.


Senator Sununu�s bill, S. 2281 is entitled the �VoIP Regulatory Freedom Act of 2004� and it aims to prevent the imposition of a patchwork of multiple and discriminatory state regulations on providers of applications that utilize Internet protocol to offer two-way or multidirectional voice communications. Under S. 2281 the responsibility and authority to regulate VoIP would be limited and, where permitted, it would be reserved solely to the Federal Government. This prohibition would prevent states from imposing upon VoIP applications many taxes of general applicability. The bill also provides that the FCC would be required to immediately prohibit the imposition of inflated access charges on those VoIP services covered by the legislation. The bill further stipulates that although the FCC could exempt VoIP from Universal Service contributions, to the extent the agency determines VoIP should be required to contribute, it requires VoIP providers to pay using a uniform fee structure � such as a flat fee per telephone number. With regard to matters involving disability access, service reliability, and standards for system security the FCC will work with industry to develop guidelines through consensus. The bill applies the same industry standards process to 911 access except that VoIP applications would be required to provide clear and conspicuous notice of the limitations of their services 911 offering. Finally, the legislation makes clear that it does nothing to undermine the rights already afforded law enforcement under existing Federal statutes.


Representative Pickering�s companion legislation H.R. 4129 takes a slightly different approach on the matters of access charges, universal service, and law enforcement access. With regard to the first two issues, the Congressman�s bill would require the FCC to undertake a proceeding to establish a set of rules and standards defining the appropriate contribution and payment mechanisms. These proceedings would be required to be completed within 180 days. With regard to law enforcement access, HR 4129 would likely impose new obligations on certain VoIP applications, but only after the FCC determined that such obligations were technologically feasible. Specifically the legislation proposes that each provider of an IP to PSTN VoIP service ensure that its equipment, facilities, and services be capable of: (1) enabling the government to intercept communications and access call-identifying information, (2) delivering the intercepted information to the government. As drafted, the legislation would not impose any similar law enforcement access obligations on so-called �computer-to-computer� VoIP services.


While Sununu and Pickering are among the first to draft specific federal legislation concerning VoIP, they are not alone in arguing that that there is an urgent and immediate need for Congress and the FCC to take action. The migration of communications services to the geographically agnostic Internet requires that regulators disabuse themselves of the notion that it is in the public interest to shoehorn new technology into a regulatory framework that is irrelevant and inapplicable. The late President Reagan could not have been more clairvoyant on telecommunications policy matters when he observed that �Government�s view of the economy could be summed up in a few short phrases: if it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.� Fortunately the Sununu and Pickering bills offer up a much more rational, and welcome alternative for the treatment of VoIP applications.

 

William B. Wilhelm can be reached at wbwilhelm@swidlaw.com. He is a Partner in the firm of Swidler Berlin Shereff Friedman, LLP, a law firm with nearly 300 lawyers in offices in Washington D.C. and New York City. The firm has more than twenty different practice areas, including intellectual property, antitrust, corporate, litigation, telecommunications and government affairs. For more information, please visit www.swidlaw.com.  The preceding represents the views of the author only and does not necessarily represent the views of Swidler Berlin Shereff Friedman, LLP or its clients


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