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What a Long Strange Trip Its Been

By William B. Wilhelm, Jr., Esq. and Ronald W. Del Sesto, Jr.


What a difference a year makes! In November, 2004, the FCC released its Order preempting state regulation of computer-to-phone VoIP services. At the time, many providers mistakenly presumed they would avoid regulation entirely. While many in the industry rightly believed it was important to aggressively address so-called social obligations on a voluntary basis, others wondered if voluntary initiatives would suffice.

Fast forward to the present VoIP providers are now required to offer enhanced 911 services throughout the entire United States according to an aggressive timeframe and must comply with the Communications Assistance for Law Enforcement Act (CALEA).

What the next year holds for VoIP services is anyones guess. A number of VoIP providers have asked the United States Court of Appeals for the District of Columbia Circuit to partially stay the FCCs VoIP enhanced 911 Order. These VoIP providers highlight that while new technologies, such as wireless services, have had more than a decade to deploy enhanced 911 systems, VoIP providers are subject to a 120-day implementation timeframe for the entire United States. Separately the U.S. Senate is considering legislation that would provide VoIP providers with more time to implement enhanced 911 services, would allow for waiver of enhanced 911 obligations for a limited period time, and would require incumbent providers of telecommunications services to make the emergency services network available to VoIP providers in order to ease enhanced 911 deployment by VoIP providers.

Likewise, the FCCs order extending CALEA requirements to VoIP providers, including one-way VoIP services that are connected to the public telephone network, like Skype, has been appealed by a coalition of associations and companies. While no substantive filings have been made, these parties are likely to argue that CALEA was never intended to apply to VoIP services when it was passed by Congress.

Aside from the ongoing litigation, there are still a number of FCC proceedings that could dramatically impact VoIP service providers. In March, 2004, the FCC opened a broad rulemaking proceeding to consider all aspects of VoIP services. Among the issues it is still considering are the appropriate classification of VoIP services under federal law, the appropriate compensation mechanism for VoIP traffic, and whether VoIP providers should directly contribute to the Universal Service Fund.

The classification of VoIP services as either telecommunications or information impacts programs like the Universal Service Fund. The Universal Service Fund is system designed to support network operators in high-cost areas. The Fund has been under increasing pressure for years due to decreasing revenue from interstate long-distance services. The classification of VoIP services as either a telecommunications or information service under federal law has not been formally resolved by the FCC. While VoIP providers contribute on an indirect basis as purchasers of telecommunications services, they are not formally subject to direct contribution and reporting requirements. Depending on the outcome of the FCCs pending rulemaking, this may change.

Similarly, the FCC has been grappling with the issue of what the appropriate methodology is to preserve the complex system of payments between carriers for use of local networks. Currently, telecommunications carriers exchange payments for the origination and termination of local traffic based on a number of variables. One critical element in determining the appropriate payment is the jurisdictional nature of the call determining whether it is local, intrastate long distance, or interstate. Traditionally, carriers relied on telephone numbers as a geographic proxy. Because VoIP services are mobile and can utilize virtual numbers, they are essentially separated from the traditional geographic proxies. In this regard, VoIP and other mobile technologies are creating unique challenges to the anachronistic intercarrier compensation system.

Network neutrality the idea that consumers should be able to access the content of their choice and use any device they desire in connection with their broadband Internet connection will continue to be a hot topic in 2006. In September, 2005, the FCC released a policy statement reaffirming that consumers should continue to reap the benefits of competition among network, content, and application providers. At the time of its release, it was important, but unenforceable. In announcing the approval of the mergers of SBC with AT&T and Verzion with MCI, the FCC turned the network neutrality policy statement into an enforceable merger condition. With the advent of new IP-enabled services, like video over the Internet, and the continued growth of VoIP services, network neutrality promises to gain ever increasing relevance in world where all communications are migrating to data networks.

The VoIP enhanced 911 Order also included a notice of proposed rulemaking seeking comment on a number of issues. Perhaps most importantly, the FCC is seeking comment on whether it should require VoIP providers to implement a system that would allow for the automatic provision of location data. Under the existing rules, VoIP providers are allowed to rely on customers to provide location information. Next year may be the year that the FCC mandates that VoIP providers develop systems to generate location information automatically.

In short, there is no scarcity of interesting and significant issues in the year that lies ahead. VoIP services are predicted to continue their impressive growth and the VoIP industry could mature a great deal in 2006 both in terms of in total subscribers and regulatory obligations. IT

William B. Wilhelm is a partner and Ronald W. Del Sesto, Jr. is a Senior Associate at the law firm of Swidler Berlin LLP in Washington, D.C. and New York City. The preceding represents the views of the authors only and does not necessarily represent the views of Swidler Berlin or its clients.

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