IP Regulation -- How Will Your Business Be
Affected?
BY ROBERT ALDRICH
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.
ACCESS CHARGES
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.
Accessibility
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.
Conclusion
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).
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