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Industry Imperatives
January 2001


IP Regulation -- How Will Your Business Be Affected?


Many people believe that their business models depend on whether or not the Internet will be regulated in the same way that public networks traditionally have been. The issue is unlikely to be decided using such broad brush strokes, as Internet protocol (IP) regulations necessarily must be analyzed on an individual basis. Regulators face a serious dilemma when confronting the fast-growing use of IP-based telecommunications services. Should they automatically apply the same regulations to IP services as to traditional telephone services using circuit-switched technology? Or should they be cautious about applying regulations designed for a different network environment, in order to avoid unnecessarily stifling an emerging technology?

This debate is being played out in a number of jurisdictions and forums today, with varying results. While the "mainstream" tendency has been to ease regulatory burdens for IP services, at least until the technology "grows up," providers and users of IP services cannot assume they are always "exempt:" They need to analyze the fine print of the various state and federal regulations applicable to telecommunications service to determine whether and how each regulation applies to IP. This article looks at telecommunications regulation in three areas -- access charges (both domestic and international), accessibility, and emergency services.

The opposing schools of thought can be summarized very generally as follows. One view says that IP services should be subject to the same regulations that apply to traditional circuit-switched service -- otherwise, the argument goes, providers and users of traditional services will bear an unfair burden and suffer a competitive handicap. The other view says that (1) there are significant differences between the services using IP and circuit-switched technology, which justify differences in regulation, and (2) in order to foster emerging technologies, IP services should not be forced into the mold of regulations applicable to circuit-switched telecommunications services, especially since some of those regulations may be obsolescent or in flux.

Domestic Services
The perennial IP regulatory issue concerns access charges -- the per-minute charges that local exchange carriers (LECs) assess on interexchange carriers for originating and terminating long-distance calls on local exchange carrier networks. In the distant past (1984 to be exact), when the FCC adopted the initial access charge regulations, it decided to exempt providers of "enhanced services" from the per-minute access charges applied to each end of an interstate circuit-switched telephone call. "Enhanced services," a term that today is essentially synonymous with the Telecommunications Act term "information service," were defined as services that involved the provision of information content, information storage and retrieval, or services that involved a net change in the form of the information as sent and received. From the beginning, the FCC ruled that a variety of services using packet switching qualified as "enhanced services." For the last sixteen years, the FCC has retained the access charge exemption for enhanced services, and confirmed it as recently as its 1998 Report to Congress on universal service issues. The Report to Congress also appeared to confirm what was generally believed -- that the enhanced services exemption applied to providers of computer-to-computer telecommunications service over the Internet or other IP networks.

But with the emergence of "IP telephony," the access charge issue has been clouded over. However one chooses to define IP telephony -- as voice-only communications using IP or as telephone-to-telephone communications using IP -- it certainly looks like more of a competitive substitute for the traditional circuit-switched voice services that have been subject to access charges. And if it competes with circuit-switched voice services, shouldn't it be subject to the same access charges as traditional circuit-switched long-distance voice services? So say some traditional long-distance carriers, who see their competitors avoiding payment of charges the carriers must pay, and so say the incumbent local exchange carriers (ILECs), who see their networks being used to originate communications that they believe could and should be charged per-minute access fees. A few years ago, at least one ILEC (US WEST) began to file complaints with state and federal regulators that Internet telephony service providers were violating access charges by evading payment. One of the targets of US WEST's complaints was an up-and-coming carrier named Qwest -- needless to say, with their merger, the case was eventually settled.

While the idea that access charges should apply neutrally to circuit-switched and Internet telephone calls does have a certain appeal, significant arguments exist on the other side. For example, long-distance carriers have long argued that access charges are higher than fair cost. If so, it is dubious policy to burden emerging IP services with above-cost charges. Second, applying access charges to IP telephony -- while maintaining the traditional exemption for data services -- would be quite complicated in practice. ILECs would have to separately "meter" voice and data traffic heading for IP networks. And how would regulators classify communications that mix voice with data, for example, in sophisticated Web telemarketing applications, or multimedia conferencing?

Although millions of dollars are potentially at stake, the FCC has so far quietly avoided taking up the issue of whether IP telephony fits the access charge "exemption" for "enhanced services." However, the issue repeatedly has emerged in various state commission proceedings, and as IP services continue to grow, pressure may yet develop to force a clear decision. One possible factor mitigating the need for a decision is that access charges themselves are being dramatically reduced and as access charges head in the general direction of zero, the need to "spread the burden" even-handedly diminishes in importance.

International Services
There is an international counterpart to disputes over access charges in the United States. International telecommunications traffic historically has been treated by telecommunications regulators as a source of subsidies for domestic telecommunications services. Rates for services between two countries are significantly affected by a negotiated rate factor known as the "accounting rate," that counteracts market pressures to lower rates. As a result, international rates for voice telecommunications services tend to be well above cost. With the development of competition in international service, there have been a variety of disputes over the years regarding whether various service configurations are subject to the accounting mechanism. As with domestic U.S. access charges, packet-switched data services, including IP services, have been treated as a special case, not subject to the accounting rates. With the emergence of "IP telephony" services, which seem to be close substitutes for circuit-switched voice service, regulators in other countries are increasingly under pressure to address alleged circumvention of the accounting rate mechanism by providers of such services. The legal status of international IP telephony service in any given case will depend on a variety of factors, including the service configuration, applicable international regulations, and the laws of the particular countries affected.

A second area where application of telecommunications regulations to IP traffic has been debated concerns accessibility of services and equipment to people with disabilities. Accessibility entails a variety of modifications to services and equipment to enable them to be used by people with impaired hearing, speech, sight, motor functions, or other disabilities. The numerous modifications involved include adding volume control, changing the user interface of voice mail, interconnecting systems with TTYs (text telephones used by the deaf) and making a variety of changes to system software, as well as keypads, keyboards, and other terminal devices to enable them to be used by people with impaired sight or motor functions. Under Section 255 of the Telecommunications Act, carriers and manufacturers must make telecommunications services and equipment accessible if "readily achievable." In 1999, the FCC adopted regulations to implement this requirement. The Telecommunications Industry Association (TIA) and the MultiMedia Telecommunications Association (MMTA) actively participated in this proceeding with other industry groups urging a moderate approach to implementation of the Act. With respect to IP services, the FCC recognized that those services were traditionally defined as "enhanced" or "information" services as opposed to "telecommunications." Emphasizing that it did not want to unduly burden emerging IP services, the FCC concluded that it should not immediately apply accessibility requirements to IP services.

However, the story does not end with the FCC's regulations. In a related piece of legislation, the 1998 amendments to the Rehabilitation Act, Congress required federal government agencies to ensure that when they procure electronic and information technology -- including computer as well as telecommunications equipment and services -- the federal systems are accessible to people with disabilities. These requirements, adopted as Section 508 of the Rehabilitation Act, make no distinctions between "information" and "telecommunications" functions -- both are covered. In addition, the legislation applies a more rigid standard than the "readily achievable" standard applied to the private sector under Section 255 of the Telecommunications Act. Agencies must be able to show that they would incur an "undue burden" in order to waive compliance with accessibility requirements. Regulations to implement the Section 508 federal procurement requirements are being developed by the U.S. Access Board, and are expected to be published by the end of the year. These requirements are unlikely to exempt IP-based systems and services. MMTA has been active in this proceeding as well, urging a moderate approach that encourages continued participation by diverse manufacturers and vendors in federal telecommunications procurement.

Emergency Services
Yet another area where regulators are trying to decide how to treat IP services involves emergency 911 service. Public safety agencies rely on the billing address or other information associated with the telephone number transmitted with a 911 call as a way to pinpoint the location of the emergency caller, who is not always able to tell the 911 operator where he or she is. When 911 calls are made from behind PBXs or other multistation premises systems, the billing address does not always provide an accurate or precise enough indication of the caller's location. Therefore, the FCC has had pending for several years a rulemaking to determine whether additional requirements should be imposed on PBX manufacturers and service providers. In several states, legislatures have already enacted laws requiring some PBX owners to ensure transmission of more specific location information with 911 calls. In addition, the National Emergency Number Association (NENA) has developed a model state law on this subject.

Implementing such new state-law requirements is complicated. It poses particular challenges for systems using IP technology, due to the unique configurations used by those systems. In the NENA-sponsored deliberations on a model law, representatives of telecommunications manufacturers, including MMTA, have pushed for IP-based systems to be temporarily exempt from new 911 number-requirements.

According to Mary Bradshaw, president of MMTA, "business system suppliers are at risk of forfeiting government contracting options and having millions of dollars in inventory and embedded base declared obsolete. The risk stems from letting policy makers go uninformed about the distinctions between business systems and residential consumer products and absent vigilance in working closely with public officials to define policies that implement emerging consumer protection statutes." The NENA model would provide an exemption for IP-based systems until relevant industry technical standards for those systems have been completed.

In a variety of forums, there are continuing debates over the application of telecommunications regulations to IP-based systems and services. Providers and users of IP technology should avoid generalized assumptions about the applicability of the regulations and must analyze the regulations individually. Stay tuned, because regulators and legislators will continue to grapple with those issues for the foreseeable future. 

Robert Aldrich, of Dickstein, Shapiro, Morin and Oshinsky, is legal counsel for MMTA. For more information on IP regulatory issues, and other activities of the MMTA Government Relations Committee call 703-907-7472.

Effective January 1, 2001, MMTA becomes fully integrated into TIA (Telecommunications Industry Association). 

[ Return To The January 2001 Table Of Contents ]

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