Internet telephony or Voice over Internet Protocol (VoIP) is a product that is quickly changing the telecom industry and how people communicate. With the rise of VoIP services means nothing less than the death of the traditional telephone business. VoIP is an emerging technology that utilizes the Internet infrastructure to make phone calls as opposed to the traditional public switched telephone network (PSTN) that has been in place for more than a century. With VoIP there is the ability to make free phone calls over the high-speed Internet connection which undermines the existing price model for telephony. Since VoIP functions like a traditional telephone system but travels through a broadband Internet connection, the Federal Communications Commission (FCC) has questioned how to classify VoIP. Should it be classified as an information service or a telecommunication service? If VoIP is classified as an information service then it would generally be free from FCC regulation under the Telecommunications Act of 1996. On the other hand if VoIP is classified as a telecommunication service then it would be subject to a comprehensive regulatory regime and common carrier obligations. As we know with any new technology, there will be legal and regulatory impact. VoIP will challenge the current regulatory framework and rules. Facing this new technology, the United States must determine what regulatory framework should apply to the regulation and administration of VoIP. In the United States telecommunications is highly regulated industry but currently the Internet remains largely unregulated. This research paper has four main objectives. Part one will discuss the regulatory issue and the classification of VoIP as either a ‘telecommunications service’ or an ‘information service.’ Part two will address how the Federal Communications Commission (FCC) classifies VoIP services. Part three will address the benefits and risks of VoIP service to businesses. Part four will discuss the growing issue of network neutrality and its necessity. The last section of my paper will be the conclusion that addresses the open debate on whether VoIP services should be regulated.
PART I: REGULATION ISSUES
This section of my research paper will discuss the regulation issues between Public Switched Telephone Network (PTSN) and VoIP. Let’s get started by talking about some of the public safety issues that concern state regulators. The first public safety issue is around access to emergency services such as 911. What is important to note here is that the technology consumer’s use should not matter. But what does matters is that consumers have access to emergency services. When using a traditional PSTN line, people in trouble dial 911 on their phone and the police department can quickly determine their location. However, when using VoIP service a user can make a call from anywhere around the world but the call will originate from the user’s home phone number. The Federal Communications Commission (FCC) requires that providers of ‘interconnected’ VoIP services that use the Public Switched Telephone Network (PSTN) meet Enhanced 911 (E911) obligations. The FCC imposed many requirements. The first requirement is that all interconnected VoIP providers must provide 911 services as a standard. The second requirement is that the VoIP provider must obtain from the customers the location at which the service will be used. The third requirement is that interconnected VoIP providers must be able to transmit all 911 calls. The fourth requirement is for interconnected VoIP providers to clearly articulate to their customers the possible limitations of their 911 service and receive acknowledgement from them. The last requirement involves the Public Safety Answering Point (PSAP). PSAP will be used when emergency service providers are not capable of receiving or processing the location information of the call received. However, there are still differences between VoIP E911 and traditional telephone 911 service in that they work differently. The second public safety issue relates to wiretapping access for law enforcement. The telephone system plays a critical role in law enforcement. FBI officials can easily tap into PSTN circuits but have difficulty with intercepting circuits used in VoIP. FBI supports its beliefs that VoIP service providers must allow wiretapping under the Communications Assistance for Law Enforcement Act (CALEA). According to the FCC website, ‘CALEA requires a “telecommunications carrier,” as defined by the Act, to ensure that equipment, facilities, or services that allow a customer or subscriber to “originate, terminate, or direct communications,” enable law enforcement officials to conduct electronic surveillance pursuant to court order or other lawful authorization. CALEA was intended to preserve the ability of law enforcement agencies to conduct electronic surveillance by requiring that telecommunications carriers and manufacturers of telecommunications equipment modify and design their equipment, facilities, and services to ensure that they have the necessary surveillance capabilities as communications network technologies evolve.’ FCC Encyclopedia Print Email. (n.d.). Communications Assistance for Law Enforcement Act. Retrieved February 15, 2014, from http://www.fcc.gov/encyclopedia/communications-assistance-law-enforcement-act. Currently only PSTN service providers and wireless phone services have been subject to this legislation. The issue is VoIP is not defined as a telecommunications carrier and if it was it would then be subject to CALEA. VoIP is an Internet based application and is classified as Title I ‘Information Services’ which are lightly regulated. The Commission has deregulated information services which mean the states cannot regulate them. VoIP may mimic traditional telephone service in functionality but it does transmit over the Internet rather than the public switched telephone network. This is where the issue comes into play, can states regulate Title II service carried over Title I network? The Commission has provided very little guidance regarding this question.
Now let’s move on to talk about the tax dilemma. Should VoIP be taxed in the same way as traditional telephone? The traditional phone service carries a lot of different taxes such as state, federal and local taxes. Depending on where you live, some areas charge a county tax. Should these same taxes apply to VoIP? Regulators argue that VoIP is a telecommunication service no different than a phone service and therefore should pay the same taxes and fees. Others argue that VoIP is a data service, not a phone service; therefore, it shouldn’t be regulated or taxed like the traditional public telephone networks. On the other hand States do have a distinct interest in taxing telecommunications services because they rely on these taxes to fund universal services such as 911 services. Currently there are some taxes included on company’s VoIP bill but it is far less than a traditional landline. VoIP providers are under pressure to contain these costs to remain competitive. I believe that hands off approach to VoIP should be considered to allow the technology to mature to encourage our economy to be competitive and to wait and see what direction it will take to encourage more investment and uptake. If you take the advances of the technology you may inhibit its adoption. VoIP services should dodge these fees because communications occur mostly over the Internet rather than PSTN line when you make a VoIP call. Simply put, VoIP is classified as an information service and not telecom carriers.
PART II: HOW DOES THE FCC CLASSIFY VoIP SERVICES
This is a Federal Regulation issue and regulators are trying to determine and/or define what VoIP is and where it falls in the context of existing framework. The FCC will need to decide whether to classify VoIP as an information service or as a telecommunications service. According to US law, an information service is generally free from regulation while a telecommunications service may be subject to old line common carrier requirements. The Telecommunications Act of 1996 sets forth the differences in definition and regulation of these services. Per page 991 of our textbook, ‘The definitions of the terms ‘telecommunications service’ and ‘information service’ established by the 1996 Act are similar to the Computer II basic- and enhanced-service classifications. ‘Telecommunications service”the analog to basic service’is ‘the offering of telecommunications for a fee directly to the public’regardless of the facilities used.’ 47 U.S.C. ??153(46). ‘Telecommunications’ is ‘the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.’ ??153(43). ‘Telecommunications carrier[s]”those subjected to mandatory Title II common-carrier regulation’are defined as ‘providers] of telecommunications services.’ ??153(44). And ‘information service”the analog to enhanced service’is ‘the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.’ Benjamin, S. M., Lichtman, D. G., Shelanski, H., & Weiser, P. J. (2006). Telecommunications Law and Policy, Second Edition. Durham, NC: Carolina Academic Press. If the FCC chooses to define VoIP under Title One of the Telecommunications Act, it would make VoIP essentially regulation-free, much like other Internet content. But if the FCC chooses the latter and defines VoIP under Title Two, the government will regulate VoIP under the myriad of regulations that has been developed for the telephone industry. The application of this classification to different types of VOIP services is based on two FCC rulings in 2004.
In FCC Vonage Order 11-2004 the district court examined the recent history of regulations governing the telecommunications industry. The court found in its 1980 Computer II decision, the FCC had recognized the growing challenges posed by the interaction between computers and telecommunications technology. ‘The premier legacy of Computer II is the establishment of the basic versus enhanced dichotomy. This layered approach to regulation becomes the bedrock of the computer inquiries success, and distinguishes it from other international schemes. It established a bright-line test and amplified the separation of the communications facility from the enhancement.’ Cybertelecom: Computer II. (n.d.). Cybertelecom: Computer II. Retrieved February 14, 2014, from http://www.cybertelecom.org/ci/cii.htm. At that time, the FCC distinguished between ‘basic services’ like telephone service and ‘enhanced services’ like computer-processing service offered over telephone lines noting that ‘basic services’ would continue to be regulated by Title Two while ‘enhanced services’ would go unregulated. The FCC further stated that the absence of regulation of ‘enhanced services’ offers the greatest potential for efficient utilization and full exploitation of the interstate telecommunications network. Vonage’s VoIP service offers an enhanced service not a telecommunications service under the Commission’s rules. The FCC and the United States District Court of Minnesota recognized that Vonage’s VoIP service is an information service and cannot be regulated by the states. Based on this federal policy, current federal regulators continue to keep VoIP free from regulation.
The FCC concluded in February 2004 that Pulver.com’s Free World Dialup , a service that facilitated voice communication between computer users over the Internet, was an unregulated information service, in part because the company did not provide transmission and did not charge for its services. The FCC explained that traditional telephone rules do not necessarily apply to all voice services and that state-by-state regulation of a wholly Internet-based service is inconsistent with the controlling federal role over interstate commerce required by the Constitution. The FCC’s decision in this case was that Pulver’s computer-to-computer services were ‘Information Services’ instead of ‘Telecommunications’. Pulver’s services were under the deregulatory framework of Title I of the Communications Act instead of the highly regulated common carrier telephone regime of Title II of the Act. Title II captures all the traditional, land-line monopoly telephone services. Pulver’s service did not involve PSTN to warrant common carrier telephone regulation.
PART III: THE BENEFITS AND RISKS TO SOCIETY
Many businesses are cancelling their traditional land lines in favor of the new technology VoIP due to the reaping benefits of cost savings, data integration, productivity, efficiency and system portability. While VoIP services can be less expensive than standard telephone network services, call quality can be a factor in one’s decision to switch to VoIP. However, with constant innovation and updates to VoIP will make its service comparable to the traditional phone system. Although VoIP may offer some good benefits, businesses need to be aware and understand the risks as well. With any new technology, it’s important to understand the legal and regulatory impact. As VoIP continues to grow there is a risk of government regulation. Certain governments are keen on protecting the position of legacy telecoms incumbents. There is no common regulatory standard. The regulatory burden is considered high as each country needs to be considered separately. Businesses may need to obtain telecom license from the local regulator and be required to provide emergency call access number portability between traditional public switched telephone networks (“PSTN”) and VoIP services, and net neutrality. If there is federal regulation this would create more competitive interconnections and will reshape how VoIP is managed. The FCC would enter into the Internet circuit as an official regulator. It’s all about striking the right balance between regulation for consumer protection and freedom for service providers. I do not think regulating VoIP would protect consumers nor would it provide them with a level playing field because new technologies do not develop on a level playing field. Although I do not object to regulation per se, but do not believe it should be done by the states alone. Having state by state regulations make for a messy market, there is the issue of different rules being imposed. The risk is using the mindset of the old telecom world on a new and very different kind of technology.’
PART IV: NETWORK NEUTRALITY
Network neutrality is a growing issue. The basic principle behind network neutrality is that the Internet should remain free of any discrimination or barriers among classes of users or of information stored and transmitted on the Internet. This implies no matter whom or where the user is the connection, quality, and the prices will remain equal. Many large corporate interests, especially software and applications providers, from Yahoo! and Amazon to eBay and Microsoft have been urging the FCC, Congress and even state legislatures to adopt laws that codify network neutrality on the Internet. So why would Internet Service Providers (ISP) like VoIP want to change it? These and other companies want to change the terms of network neutrality to increase large corporate profits and possibly push out smaller competitors. ISP view is that running a network is expensive and that you should be charged by the amount of data you use in the same way that your electrical company charges you.
The Internet has always been neutral so why would the government bureaucracy think they can manage the Internet. If the Internet were regulated by government bureaucracy it would be far less advanced and not as useful as it is today. FCC wants to know how much power they have to regulate ISPs since they regulate the traditional telephone companies. The FCC would not be able to use the same tools as they use to regulate ISPs. FCC tried to regulate ISPs and the court found that the FCC was trying to apply Title II obligations to companies that are regulated under Title I of the Telecommunications Act which is the law that created the FCC and gives it its power. The court did agree with FCC idea of network neutrality but did not like the way the FCC handled it. At this point, the FCC has the option to appeal. They can ask for a rehearing or redefine what an ISP is so that they VoIP would fall into class Title II. This process is known as reclassification.
The basic questions that have been faced by regulators all over the world are about the necessity and the scope of VoIP regulation. The open question remains whether VoIP services should be regulated? Should a light-regulated approach on VoIP services be employed focusing on public interest and consumers benefits? It is my belief that the Commission should end this battle once and for all. Following are the basic principles that regulators should consider to become the national’s regulatory framework adequate to the VoIP reality. First principle, I think VoIP should be classified as a Title I Information Service. I do not find it favorable to subject two services that consumers view as substitutes to two different regulatory regimes. This doesn’t make much sense to me. Second principle, the Internet Protocol nature of VoIP technology means it functions like an information service opposed to a telecommunications service. Third principle, the regulatory burdens of Title II carry government control in lieu of oversight, mandates, and compliance. Title II of the Communications Act is highly regulated. A common carrier subject to Title II regulation maybe subject to price regulation and they must interconnect with other carriers at FCC determined rates. The common carrier must also contribute to the universal service fund and be in compliance with public safety obligations. Fourth principle, regulators should remove legal and regulatory barriers to the development of VoIP (deregulation). Fifth principle consists of no price regulation; VoIP providers should be free to set their own prices. Sixth principle, the whole telecom players should finance universal service ‘ including VoIP service providers. Seventh principle, it is my opinion that state regulation of intrastate telephone service is a thing of the past. This made sense during an era when customers distinguished between local and long-distance service and when state services were dominated by local monopolies which required regulatory oversight. If states are permitted to regulate new emerging services like they did the old telephone monopoly it would hinder the growth of this new technology, create barriers to entry, and it would delay the benefits of competition in voice service. In summary, I feel they should postpone regulating the Internet. Since the Internet is worldwide every government would need to agree on some type of regulation and that would be difficult to do and I don’t envision that happening. It is impossible to get several countries to agree on anything. Lastly, I would like to make a comment on the article ‘Who Killed the VoIP Revolution’. In my opinion, the VoIP to PSTN is not dead, it’s alive and kicking, and still being defined. People need phone services but they do not want to pay Plain Old Telephone Service (POTS) prices.