Thursday, March 10, 2005 - The Progress & Freedom Foundation Blog

Broadband and Internet Voice: Lessons from a Mad River

The FCC's consent decree with rural telephone company Madison River Communications has re-fueled speculation about the best way to avoid unnecessary regulation of Internet voice and other broadband-related services. In explaining their decision to settle complaints that Mad River had blocked Internet voice calls on its network, agency officials reiterated the wisdom of avoiding regulation of this service according to the same formula the agency has employed to minimize regulation of broadband generally. Specifically, the FCC has attempted to assign these services to legal classifications under the Communications Act that are subject to relatively fewer requirements. One example of this formula is the FCC's decision to classify Vonage's offering as an "interstate service" that is not subject to state jurisdiction. Another is the FCC's classification of cable modem service as an "information service" that would remain largely unregulated under Title I of the Act (a case that is currently being reviewed by the Supreme Court in Brand X).

Previously, I have said that the FCC's approach is better-suited to avoiding regulation than first classifying broadband-related services as regulated common carrier services and then "forbearing" from such regulation. But reactions to Mad River reveal that, although the FCC's approach to regulating Internet voice and broadband-related services is the best alternative under the current Act, the industry nonetheless may experience substantial delay and uncertainty even under the FCC's approach, especially to the extent the agency succumbs to what might be termed "political pressures."

One such pressure is the desire, even among those who eschew burdensome economic regulation of these services, to impose at least a few requirements to promote "social" policies deemed especially important, such as access to emergency services (911) and access by persons with disabilities. To the extent the FCC satisfies those desires using its Title I authority, it will increase the likelihood of regulatory delay and uncertainty. Why? Title I suggests in places that the FCC has authority over virtually any communication over wire or radio. But the courts generally have limited that authority to situations in which the agency is pursuing a policy goal from a provision outside of Title I that otherwise would not apply to the service or company the FCC is trying to regulate under Title I. For example, before Congress enacted laws regulating the early cable industry, the FCC regulated it under Title I because this authority was deemed "ancillary" to ensuring the viability of free, over-the-air broadcasting.

The limitation on the FCC's Title I authority means that the more the agency tries to regulate things it has classified as "information services," the more likely parties will appeal those requirements and win reversals in court. The pressure that will lead to this risk-taking can be termed "political" in that many who favor such "social" regulation of broadband-related services leave little room for voluntary or other creative solutions to achieving the same policy goals. What appears more important to these policymakers is that they can point key constituents (e.g., consumers, law enforcement) to a government guarantee that demonstrates their "tough stance" in protecting certain social policies.

Another political pressure, ironically, is some companies' desire to be "saved" from not being regulated -- that is, from foregoing certain benefits of regulation. The Mad River case hints at this desire. As Adam Peters notes in his thoughtful blog entry, rural carriers like Mad River are especially concerned that Internet voice and other broadband technologies, by dint of technology or legal classification, will bypass regulatory mechanisms that provide revenue, reduce cost or otherwise provide advantages to the regulated company. Adam, for example, points out Mad River's likely incentive to block Internet voice traffic to protect its revenues from "access charges." These are inflated rates that local phone companies have been allowed to charge long distance companies so as to keep local phone rates below the cost of service. Access charges are especially important to the profits of rural phone companies, which typically face higher costs than the larger phone companies serving dense urban markets. But phone companies generally can impose access charges only on common carrier "telecommunications services," which are generally regulated under Title II of the Act rather than Title I. Thus, many rural carriers have broken ranks with the Bell Companies and other large carriers in asking to remain regulated under Title II, even with respect to their broadband offerings.

To the extent the FCC satisfies this desire of rural companies (and, presumably, rural legislators), it will be adding enormously to the risk of defending its overall plan to promote broadband-related services by sparing them intrusive Title II regulation. Certainly, there are theories for how the FCC could justify carving out rural carriers from the larger regulatory framework. For example, the agency could argue that courts have at times allowed it to impose Title II requirements on companies simply because they chose to offer the services in question on a "common carrier" basis (i.e., according to a commitment to serve all comers indiscriminately). According to this theory, rural phone companies could "opt out" of unregulated treatment simply by offering broadband like they would ordinary phone service. But many of these common carrier legal precedents date back to an era when the Internet would have been inconceivable and before the term "deregulation" had any meaning in concept or practice. Moreover, the logic of many of these cases is murky and incomplete. Thus, any reliance on them to keep rural carriers regulated while larger companies escape runs a serious risk that courts will conclude the agency has engaged in legal sophistry or acted arbitrarily, rather than establishing a defensible regulatory framework for broadband.

All that said, one cannot meaningfully evaluate the risks inherent in the FCC's current approach to Internet voice and other broadband-related services in a vacuum. Again, this approach still stands a greater chance of minimizing regulation -- and thereby promoting investment and innovation in broadband -- than a forbearance approach. And those, of course, are the agency's only two options for achieving this goal, bound as it is by the current statute. If promoters of broadband remain wedded to responding to political pressures like those described here, however, it may reduce the risk of delay and uncertainty if Congress were to codify those political judgments in a new Communications Act, rather than allowing the FCC to rely on either its Title I or its forbearance authority.

posted by Kyle Dixon @ 6:02 PM | Broadband , Communications , The FCC , VoIP