Thursday, October 28, 2004 - The Progress & Freedom Foundation Blog

And another thing . . .

The FCC intends to resolve an impressive number of pressing issues by year end. (See Comm Daily, Oct. 22 2004 [Lexis subcription required].) So it may seem too much to ask, like an urchin from the musical "Oliver!": Please, sir, may I have some more?" Yet, at least in the voice over Internet Protocol (VoIP) context, there are a few areas in which "some more" may mean a great deal to companies hungry for as much regulatory certainty as they can ingest before this season's porridge pot runs empty. In particular, the Commission should pay careful attention to the scope of its decisions and proceedings regarding VoIP.

First, the Commission should do as much as it can to decide jurisdiction in a manner that covers as many VoIP offerings as possible. Ideally, this would mean deciding that all VoIP should be subject to exclusive federal jurisdiction, whether or not a company provides the service using its own network. Without asserting federal jurisdiction over VoIP, the FCC cannot secure from state intrusion the "minimally regulated" environment that has served as the linchpin of its efforts to promote investment and innovation in broadband networks and related services and applications. These efforts have encompassed narrow requirements for leasing telephone company networks, attempts to establish a consistent regulatory framework for cable modem and DSL services, and even with respect to calls for broadband providers to maintain consumers' freedom to use the content, applications and devices of their choice voluntarily and without government mandate.

The jurisdictional determination should cover as many VoIP offerings as possible so as not to undermine the Commission's longstanding commitment to promote deployment of competing broadband networks. Deciding only that non-network-based VoIP providers offer interstate services runs the risk that parties will argue, future Commissions will decide or courts will conclude that network-based providers should be treated more onerously, notwithstanding their investment in the very wires and equipment that have spurred the emergence of these transformative services. This kind of "network versus no network" approach, of course, is the traditional method by which the FCC has regulated services related to data processing, and much of the criticism surrounding the agency's current treatment of broadband and advanced services centers around its wise divergence from that traditional method given the existing and prospective competition among networks that new digital technologies make possible. Leaving companies that have built or hope to build their own networks exposed to potential regulation could ultimately mean the Commission withstood all that criticism for nothing. More importantly, the regulatory uncertainty that such an approach would maintain or even exacerbate for those considering future investment in competing broadband networks leaves a critical flank of the agency's campaign to promote such deployment unprotected.

If time or other practical considerations prevent the FCC from deeming all VoIP services interstate, it should at a minimum avoid concluding or suggesting that these services somehow mutate into different jurisdictional form based simply on who owns "last mile" broadband networks. In particular, the agency in this case should state expressly that it is declining to determine the jurisdictional nature of services offered over a provider's own network. Further, in concluding that the other VoIP offerings are interstate, the Commission should avoid relying on any factors that, by implication, subject network-based VoIP providers to state jurisdiction. Given that all VoIP services rely on broadband networks whether or not they own them, it does not seem to follow that a provider's ownership or lack of a network is a logical jurisdictional distinction to make in any case.

Second, to the extent the Commission falls short of preempting state jurisdiction over VoIP entirely, it should be as clear as possible about the type of role state utility commissions will be allowed to play. The Telecommunications Act of 1996 maintains a framework of "cooperative federalism," in which the FCC shares regulatory authority with state utility commissions. Thus, states have been involved even with respect to issues the Act gives the FCC to address, such as states' successful attempts in the context of telephone numbering to obtain authority to help establish new area codes.

Although there are likely problems associated with state regulation of services like VoIP that inherently defy state and even network boundaries, those problems will be compounded if the FCC fails to preclude state involvement and then leaves ambiguous what role states can play. About half of state commissions have taken some action on VoIP, and that activity seems likely to continue even to the extent the Commission deems VoIP interstate. Rather than allowing states to fill this perceived gap "piecemeal," the agency should identify as clearly (and narrowly) as possible the areas in which it does not reject state involvement, relying heavily on some survey of where states' actions suggest they may intervene next. In addition to promoting regulatory certainty, detailing a role for states might discourage any court that is skeptical about the FCC's authority to eclipse states on VoIP from overruling the agency's decision that VoIP is interstate. Such a court might deem semantic the "difference" between allowing states to participate in regulating an "interstate" service and treating the service as though it were both interstate and intrastate.

Third, the agency should state affirmatively that it has no intention of regulating the overwhelming majority of services and applications that fall under its impossibly broad IP-Enabled Services proceeding. That proceeding sweeps in, not only voice, but any service or application (existing, emerging or as yet unborn) that relies on the Internet Protocol - a vast universe that will continue expanding rapidly in the foreseeable future. The Commission's instinct in asserting authority over computer applications that it has not traditionally regulated was not without some base; the agency might have predicted greater success in maintaining its commitment to "minimal regulation" if it lumped new offerings that (to some) quack like the "duck" of traditional phone service with other services few have considered subjecting to FCC regulation. (Do we really want the FCC to regulate online interactive video games?) But predictably, the record supporting -- or even mentioning -- regulation of most non-voice services covered by the proceeding is scant and diffuse.

Given the almost limitless possibilities that the Internet Protocol offers applications developers, this near silence is understandable; there are simply too many existing or emerging applications for participants in the proceeding to focus on any of them constructively without the kind of policy imperative that VoIP faces. This silence, however, is not golden - it has a dark side. As common sense and a recent report suggest, the uncertainty caused by such a cloud of potential future regulation strikes at the heart of the Commission's overall plan to promote investment and in innovation in digital technologies. In any event, the Commission does not need to assert authority over services it has never intended to regulate simply to acknowledge that VoIP is technologically similar or identical to those unregulated services. Thus, the Commission should rope off as broad a category of services as possible from regulation in the proceeding, beginning with primarily non-voice applications that do not rely heavily on the traditional public telephone network. In doing so, the Commission should underscore that, much like it has in decades past, it is promoting the development of data processing applications by expressly exempting them from regulation at the federal and (hopefully) state levels.

Again, it may seem somewhat gratuitous to ask more of an agency that already has too much on its plate. But if the FCC gives this kind of attention to the scope of its decisions and proceedings on VoIP, its care will be more than rewarded by making its actions more effective in promoting these innovative services and, ironically, by saving the Commission some work and headaches in the long run.

posted by Kyle Dixon @ 4:00 PM | The FCC , VoIP