Sunday, March 6, 2005 - The Progress & Freedom Foundation Blog

The VoIP Blocking Consent Decree

The home page for Madison River Communications claims that "What We Bring Together...Sets Us Apart." In light of the consent decree that the rural LEC entered into with the FCC earlier this week for blocking VoIP services, what now sets Madison River apart is that it is the first carrier found to have violated Chairman Powell's 'Net Freedoms. What it brings together is a series of issues and a consent decree which seemingly raises more questions than it answers:

The FCC's Enforcement Authority
The most interesting legal issue stemming from the consent decree is the nature of the FCC's jurisdiction and enforcement authority. The Commission cites section 201(b) as its statutory authority, thereby treating Madison River (a DSL provider) as a Title II common carrier, despite recent Commission efforts (through its Cable Modem Order and the Wireline Broadband NPRM) to bring these broadband providers under the deregulatory provisions of Title I.

Going-forward, there are several factors that could help decide whether or not the FCC could even use its enforcement authority in the VoIP blocking context. Assuming that the FCC does classify DSL providers under Title I, and likewise prevails in the Brand X case (keeping cable modems under Title I), it would need to use its Title I ancillary jurisdiction to enforce 'Net Freedoms. The Commission's ancillary jurisdiction is by no means clear, and is currently under assault in the broadcast flag case - so much so, in fact, that the DC Circuit was openly skeptical of the FCC's jurisdictional grab during oral argument. If the FCC were to lose in the broadcast flag case, it would be at least possible in this context that the FCC's enforcement authority would be proscribed, meaning no 'Net Freedoms. Nor is it clear that a VoIP provider would have a viable antitrust claim in the courts following the Supreme Court's Trinko decision.

Straightforward enough? I thought not.

Enforcing Chairman Powell's 'Net Freedoms
Leaving the jurisdictional issues aside, the second-most notable aspect of the FCC's action is Chairman Powell's call for ex post enforcement of his 'Net Freedoms. From his statement:

In my view, the surest way to preserve 'Net Freedom is to handle these issues in an enforcement context where hypothetical worriers give way to concrete and - as we have shown today - real solutions.

This approach attempts to steer the FCC in a direction that Phil Weiser has previously advocated, by "announcing a nondiscrimination standard [i.e., 'Net Freedoms] developed by after-the-fact judgments." To be sure, this "threat of regulation" needs a certain degree of regulatory modesty to be effective, but is far more preferable to an ex ante approach in addressing activities that may have a legitimate business purpose, such as consumer-beneficial price discrimination. On the other hand, one may point to the settlement here ($15,000) as raising the risk that such an approach may cause broadband providers to view ex post enforcement as a cost of doing business.


Undoubtedly, this unfortunate episode will provide a valuable anecdote for net neutrality advocates, as the extreme position of the "deregulationist" side - i.e., that VoIP blocking will not occur - has been exposed as sheer sophistry.

On the other hand, this is not a powerful enough example to settle what Professor Lessig called the "ICE vs. ICK" debate at Silicon Flatirons last month. ICE, or the "internalization of complementary externalities," holds that even a platform monopolist will have an incentive to allow access to its platform if it is profitable to do so. However, as Phil Weiser and Joseph Farrell have illustrated in this paper, the ICE principle is riddled with exceptions. One such exception, which could have applied in this case (as one can only guess about Madison River's motives), occurs where an "incompetent incumbent" does not behave as ICE predicts, because the management of that company simply does not understand ICE to begin with. In other words, Madison River acted stupidly, which seems self-evident here.

The Role of Legacy Regulation
That a rural LEC would elect to block VoIP services is less surprising - but no less forgivable - than if a major broadband provider had chosen to do so. Some rural LECs receive a substantial majority of their revenues through access charges, and VoIP presents a potential path to access avoidance. This is, then, another possible exception to ICE and another possible motive in this case. But in the absence of intercarrier compensation and universal service reform, it is an exception which threatens to swallow the rule.

In sum, the FCC must perform a high-wire routine in order to counter anticompetitive behavior in the broadband marketplace. The FCC's shaky jurisdiction is yet another condemnation of the '96 Act, while Madison River's condemnable actions may be more directly tied to regulatory procrastination. As for solutions, a new model to regulate anticompetitive behavior based on the FTC has a lot of appeal, but I'll leave further exploration of this and other options to the experts.

posted by @ 6:24 PM | Net Neutrality , The FCC , VoIP