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Feature Article
June 2004

A Leap Forward? A Closer Look At the FCC's Rulemaking on the Internet Communications Services


The Federal Communications Commission (FCC) is now accepting comments in its long-awaited Notice of Proposed Rulemaking (NPRM) concerning the regulatory treatment of IP-enabled services. While much of current policy debate revolves around the regulation of so-called Voice over Internet Protocol (VoIP) � the FCC proceeding is much broader in scope, potentially affecting regulation of all forms of communications services, including private IP networks, computer-to-PSTN services, and video over IP networks. There is little question that the FCC�s rulemaking is one of the most significant in its history. This article explores some of the fundamental questions the FCC is considering.


How Should IP-Enabled Services Be Regulated?
The most fundamental question before the FCC is how IP services should be categorized for regulatory purposes. Specifically, the FCC will examine whether certain categories of IP-enabled services meet the definition of �telecommunications service� or �information services� under the Act. In considering how to classify and regulate services, the FCC has suggested that services might be distinguished using any of the following approaches:

� Functional equivalence: Services can be categorized depending upon their functional equivalence. For example, some VoIP services (phone-to-phone or computer-to-phone) might function closely enough to PSTN services to regulate them in a similar fashion.
� Substitutability: The FCC seeks comment on whether regulation should be aimed at those services that are used in lieu of, rather than in addition to, traditional telephony. For example a service that is a substitute for phone services might be regulated as a phone service � a voice service used for interactive gaming would not be considered a substitute. The FCC seeks comment on how to define substitutability and whether it should matter if the service is provided to mass market or to enterprise customers.
� Interconnection with the PSTN: The NPRM suggests that another alternative way to distinguish services is to differentiate between those that utilize the PSTN and/or the North American Numbering Plan and those that do not.
� Facility Layer versus Application Layer: Under a layered approach, applications would be treated differently than regulated transport services. Regulation would apply to networks, but not applications.
� Peer-to-Peer Communications versus Network Services: Finally, the FCC suggests that it could differentiate based on whether a network architecture or an intermediary�s centralized servers are used as opposed to merely facilitating peer-to-peer communication without an intermediary.

Jurisdictional Issues: State Regulation?
The FCC requested comments on the jurisdictional nature of IP-enabled services. The FCC specifically asked for input on whether all IP enabled services are subject to exclusive federal jurisdiction or whether states have concurrent regulatory authority. While the separate statements of Chairman Powell and Commissioner Abernathy suggested that federal preemption may be necessary to avoid a labyrinth of state regulations and fees that apply to the Internet and Internet-based services, a majority of the Commissioners have not weighed in on this matter.

How Should Carrier Compensation Be Applied to IP-Enabled Services?
The FCC suggested that any service provider that sends traffic to the PSTN should be subject to compensation obligations, regardless of whether the traffic originates on the PSTN, on an IP network, or on a cable network. However, the FCC requests comments on how such obligations may be computed and assessed and seeks comment on whether the FCC should forbear from applying access charges to VoIP services and under what authority can it impose a compensation mechanism for IP-enabled services.

How Can the FCC Advance Social Policy Goals Such as 911, Disability Access, Universal Service?
The FCC expressly states that certain public policy goals should continue to have relevance as communications move to IP-enabled services. Disability access, consumer protection, emergency 911 service, law enforcement access, and consumer privacy are all policies that the FCC�s believes should not be abandoned with the advent of IP-enabled service. The FCC seeks comment on how such goals should be weighed against the risk that regulation could slow development of VoIP and other services.

The FCC notes that it is possible that VoIP services may enhance the capabilities of emergency responders by providing them information that could not be transmitted on non-IP-enabled systems. The FCC seeks comment on whether regulation is necessary, or if arrangements between industry associations and public safety associations can adequately address emergency service issues. The FCC acknowledges that development of VoIP services is in its early stages, and is likely to evolve and change over time. The FCC questions how VoIP initiated 911 calls should be routed, and if there are multiple ways to route such calls.

The FCC also asks whether IP-enabled services might improve upon traditional services designed to ensure access by persons with disabilities, and how the FCC should apply the disability accessibility rules in the Act to VoIP providers.
The NPRM suggests that the FCC may need to fundamentally reexamine the universal service system. The FCC seeks comments on how the regulatory classification of IP-enabled services could affect the Universal Service Fund Program, and if both facilities-based and non-facilities-based providers of IP-enabled services should be assessed Universal Service Fund contributions. More broadly, the FCC seeks comments on how migration to IP-based systems will affect universal service generally.

The Road Ahead
While the FCC is to be commended for pushing forward its NPRM, considerably more needs to be done in the near term to provide regulatory certainty to the innovative companies developing new Internet communications applications, products, and services. In the upcoming months we�ll look at some of the recent legislative proposals. Companies interested in participating in the FCC proceeding and commenting on these issues should file their comments in FCC docket 04-36.


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. For more information, please visit www.swidlaw.comThe 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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