As telecom Goliaths, cable companies, and feisty start-ups all ante up for the VOIP sweepstakes, the Federal Communications Commission in Washington has taken notice. In February the Commission commenced a rule-making process to determine how this new tech industry, its services and providers will be regulated. Any business or consumer interested in using or developing VOIP services and applications should closely monitor the developments at the FCC this spring.
Above all, it’s a debate over taxes and access fees (i.e., who pays and how much) and the quality of services. Will VOIP providers and services be subjected to the same state and federal regulations and taxes that analog phone services are? Will the FCC force VOIP companies to contribute to the Universal Access Fund or provide 911 services according to government standards? And what about the FBI and Justice Department, which worry that terrorists and criminals could rely on VOIP phone calls to escape detection by law enforcement?
Answering these questions is complicated by the nature of the emerging technology. It can be argued that VOIP is an information service, like the internet (which is largely unregulated); it can also be said that it’s a telecom service, like a payphone (which is heavily regulated).
In truth, VOIP has features in common with both examples. Internet telephony parses a person’s voice into fragments, or packets, and then transmits them via digital lines. As the telecom industry has rolled out broadband access, VOIP providers have overcome previous shortcomings that made the technology impractical. Promising quality phone calls at cheaper rates, broadband voice solutions now threaten the long-term viability of traditional analog lines. Still, to become widely used today, digital telephony has to rely on those same analog lines it may one day make obsolete. As few can make computer-to-computer calls, the bulk of VOIP calls must be routed through copper wires at some point during its journey through cyberspace.
In the regulatory battle, at least three factions have emerged. Companies developing applications and services for the emerging VOIP industry constitute the first of these groups. They argue that states and the FCC should take a hand-off approach to VOIP, as they have with the internet.
Applying to VOIP the traditional statutory structure would hamper the industry and discourage it from pursing the most efficient, cheapest services, VOIP providers claim. These participants want the access fees, emergency services and universal service taxes to be managed and developed by the industry rather than imposed by government. One industry leader went so far as to claim that VOIP regulation could lead to the “the destruction of the delicate ecosystem of the Internet itself.”
By contrast, traditional carriers want VOIP services to be regulated. Internet telephony essentially is a telecommunications service, the carriers insist, and should fall under the traditional statutory structure or one similar to it. The argument is driven by the fear that regulation-free VOIP providers would have an unfair competitive advantage. These companies and others would be able to provide more robust and cheaper telecom solutions than can analog carriers, which are subject to regulations.
In part, the carriers are aligned with the FBI and Justice Department, which have raised concerns over how VOIP providers would comply with the Communications for the Assistance for Law Enforcement Act (CALEA). The law authorizes these agencies to execute wiretaps and perform other surveillance activities. Federal law enforcement agencies want to make sure that VOIP services fall under CALEA so voice communications of suspect users can be monitored if deemed necessary.
A hybrid solution to this debate is likely to prove most practical. Those seeking compromise between carriers and VOIP start-ups are urging the FCC to exclude VOIP service providers and services from traditional telecom regulation. For example, the government could allow the VOIP industry to self-regulate 911 services. Ingenuity and competition drive innovation far better than D.C. bureaucrats, and the VOIP industry would probably produce higher standards for itself than could the FCC. On the other hand, to facilitate the aims of law enforcement officials, VOIP providers could reasonably be forced to comply with CALEA.
Similarly, the FCC could free VOIP providers and services from the access fees that carriers charge one another for using each other’s analog lines to complete a call. On this matter, the VOIP companies are right to argue that access fee regulations are arcane and burdensome. Such fees result in customers sometime paying more for local calls than interstate ones. The internet has made the notion “long distance” obsolete. Ultimately, so should digital telephony. A more efficient VOIP world could allow service providers, cable companies and carriers (whose lines and services are necessitated to place VOIP calls to analog phones) to negotiate access fees between themselves that would lead to greater efficiency and reduced costs.
A hybrid solution would also address the Universal Service charge debate with sensible compromise. One of the most contested issues in the VOIP debate, the Universal Service tax is assessed on all carriers based on their number of telephone lines. Funds received through the tax are used to subsidize the expansion of the carrier systems. Without an analogous charge applied to the VOIP service providers and services, such parties will have an unfair competitive advantage over their carrier competitors; VOIP providers will not charge purchasers with Universal Service fees. Many agree that a similar fee should be applied to VOIP services, but the difficulty is who will pay for it. Is it the VOIP service provider or the internet service provider (Comcast, Cox, and AT&T, for example) who provides the callers with broadband access?
The battle rages in DC over this hot potato and others. For the time being, it seems that the FCC has ears for the VOIP providers. In December, Chairman Michael Powell declared that VOIP should "evolve in a regulation-free zone."
Then, in a February split-decision, the FCC ruled that a telephony service that relies only on the internet to deliver VOIP services is not subject to the traditional, nearly century-old telecom regulations. That decision left in limbo how the FCC will treat VOIP services that use both digital and analog lines to complete calls under the existing statutes. While the FCC will be tackling how to integrate existing regulations with the VOIP service providers that are navigating between the analog and digital world, the purely internet-based telephony services will likely be subject to new regulations adopted to address VOIP technology.
Where and how the regulations fall will impact how VOIP services are delivered in the future. Any company developing applications and services for this emerging industry should follow the events in D.C because the outcome may determine how VOIP service providers should proceed with research and development, programming and services.