February 2004

Regulators Intensify Focus On Voice Over Internet Services

BY WILLIAM B. WILHELM, JR., ESQ

What moves faster than a runaway locomotive, but is as difficult to understand as the solution to the Rubik�s Cube? If you answered �recent efforts to regulate VoIP� you would be right.

In fact, the recent clamor over VoIP regulation has been hard not to notice. Over the course of the last several months, State and Federal regulators have begun parallel initiatives to consider whether traditional telephone carrier regulations should apply to VoIP providers. The outcome of these proceedings will impact the market for broadband services and affect demand for IP telephony equipment. For companies interested in making immediate business and investment decisions, the myriad legal proceedings can be hard to follow and the specific impact difficult to understand. For those that don�t regularly socialize with regulatory attorneys, what follows is a snapshot of the most significant ongoing regulatory proceedings and an outlook ahead to the material developments likely to occur in 2004.

FCC
In response to developments in the industry as well as state regulatory activity, the FCC held a public forum on VoIP services in late December. The forum explored whether carrier regulation is appropriate for VoIP services, considered the impact of VoIP applications on existing Universal Service funds, explored issues related to provisioning of 911 services over VoIP, touched upon law enforcement intercept capabilities over packet networks, addressed whether VoIP services would be available to persons with disabilities, and considered the applicability of local telephone company access charge payments to VoIP. During the course of the public forum, VoIP providers made a strong case for finding that these issues can be addressed without the imposition of legacy telecommunications carrier regulation. The FCC is expected follow-up on the forum with the issuance of a Notice of Proposed Rulemaking (�NPRM�) on VoIP sometime in February or March of 2004. This proceeding is expected to touch upon virtually every aspect of VoIP services and will provide a focal point for much of the industry through 2004.

Also outstanding at the FCC are three Petitions for Declaratory Ruling -- one filed by AT&T, another filed by pulver.com, and a third filed by Vonage Holdings, Corp. Each of these proceedings could also have an impact on the regulatory treatment of different forms of VoIP.

The first petition, filed by AT&T, involves so-called phone-to-phone VoIP. This form of service utilizes traditional telephone equipment and originates and terminates calls on the PSTN. AT&T�s petition asks the FCC to find that originating and terminating local telephone company access charges are not payable on this form of VoIP. The pulver.com petition seeks an FCC finding that Pulver�s service, a form of computer-to-computer VoIP, is not a telecommunications service. Finally, the Vonage petition involves a hybrid of computer-to-computer and computer-to-phone VoIP. Vonage asked the FCC to preempt Minnesota state regulation and find that its service is an interstate information service. Because these proceedings are independent of the FCC�s VoIP NPRM, resolution of each of these specific matters could occur well before a ruling in the broader VoIP NPRM.

STATE ACTIVITY
Despite a Federal Court ruling earlier this year holding that the Minnesota Public Utilities Commission was preempted from regulating Vonage�s VoIP service, at least 10 other states continue to actively evaluate possible regulation of VoIP services. These states include Alabama, California, Missouri, North Dakota, New York, Ohio, Oregon, Pennsylvania, Washington and Wisconsin. At least one state, Florida, has passed legislation that protects VoIP providers from unnecessary telecommunications regulatory obligations. Similar legislative initiatives are underway in other states, including, most notably Pennsylvania. Because FCC Chairman Powell has been a strong advocate for a national regulatory framework that preserves business incentives to innovate and invest, many industry participants are hopeful that state PUCs will take a �wait and see� attitude toward state regulation. Notwithstanding the Chairman�s pronouncements, at least several VoIP providers have become the subject of individual lawsuits or PUC complaints in several states.

COURTS
Finally, at the time this article was being prepared, motions filed by Qwest, the Minnesota PUC and the Minnesota Department of Commerce were pending before the Minnesota Federal District Court seeking reconsideration of the permanent injunction issued against the state PUC. Separately, a Federal Court in the Ninth Circuit has held that cable modem services provided over cable facilities constitute both the provision of information services and an underlying telecommunications transport service. The FCC is seeking reconsideration of this decision. Although the case does not directly involve VoIP, the outcome of the proceeding could have some bearing on how the FCC characterizes services offered by facilities-based providers of VoIP.

While 2004 may not provide complete regulatory certainty for the Internet communications industry, readers should take heart that the attention the industry is now receiving is one of the unintended consequences of an increasing awareness that the technology will not only reshape the competitive landscape of the communications industry -- but also very possibly the current regulatory environment as well.

William B. Wilhelm 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 antitrust, corporate, litigation, telecommunications, and government affairs. 

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