Verizon Driving for Interstate VoIP Regulation

Verizon Communications Inc. has asked the FCC to regulate all VoIP services and providers — not just “over-the-top” companies such as Vonage Holdings Corp. — on an interstate basis. Such a move would override state authority. It also could impact the rules governing how competitors interconnect with incumbents’ networks.

Verizon’s proposal comes as part of its continued quest for deregulation. The nation’s second-largest phone company famously won freedom from certain broadband rules in March 2006 and is on track to gain more federal relief in six of its largest markets. However, the company has kept its pursuit of interstate regulation off the front page by inserting its request into an older, ongoing FCC docket that addresses various aspects of IP-enabled services, such as consumer privacy requirements. In its Aug. 6, 2007, letter, Verizon cites the FCC’s 2004 Vonage Order and the Supreme Court’s 2005 Brand X decision as precedents for declaring VoIP services as interstate-only. What’s most notable is that Verizon didn’t ask the FCC to seek public comment on the matter — in fact, it did just the opposite. Verizon wants the commission to “confirm,” what it calls a “natural next step,” that broadband deregulation policies “also apply equally to all VoIP services and providers.” State advocates disagree with Verizon’s analysis and are calling on the FCC to impose a comment period.

Whatever the FCC decides, Verizon’s request raises serious questions about the present and future of telecom policy in America. What happens if regulators keep applying different requirements to different technologies? Will that lend clarity for operators or make it harder for those that offer IP, wireless and TDM services to conduct business? What effect will that have on consumers and regulatory agencies? Will incumbents be allowed to deny competitors access to their networks? To what extent should states cede power to the federal government? These are just some of the implications CLECs and state advocates want to weigh in on but, at press time, did not know if they would be able to do so. The FCC tells xchange it has no comment on whether it will seek public input on Verizon’s filing.

There’s a lot at stake for states and CLECs. States largely fear losing control over who operates in their regions, how much those providers charge consumers, and which funds operators must support. However, some states are open to discussing which services should fall under joint and separate federal/state auspices, because it’s clear that IP services aren’t as easily tracked as TDM traffic. Still others have passed laws barring their utilities commissions from regulating VoIP altogether. Competitive service providers, meanwhile, say they could be stripped of interconnection rules that give them access to incumbents’ networks, defeating the purpose of the 1996 Telecommunications Act.

Verizon says its plea for the elimination of state supervision would accomplish two ends — and the reasoning relies on the same rationale the incumbents have used over the past four years to convince the FCC to deregulate broadband services. Verizon says getting rid of state authority would create that oft-cited “level playing field” among providers and ensure none is saddled with regulations designed for “different services in a different era.” That would, in turn, result in higher-speed services at lower prices, the provider says. Qwest Communications International Inc. agrees. The company hasn’t responded officially to Verizon’s letter, but tells xchange, “VoIP is an interstate information service that should be regulated only at the federal level.”

But the Voice on the Net (VON) Coalition says there’s no need for a comments process. “I think the FCC’s Vonage decision already makes clear that there’s exclusive federal jurisdiction for voice over IP,” says Jim Kohlenberger, VON’s executive director. The Vonage decision, handed down three years ago, determined that services offered by non-facilities-based companies such as Vonage are nomadic and therefore interstate. Those operators don’t have to pay state tariffs or obtain state certification. Verizon’s twist is that fixed VoIP providers such as itself let customers choose phone numbers not associated with their actual locations, making those services nomadic. The VON Coalition concurs and also rebuts NARUC’s position about social obligations. VoIP carriers, Kohlenberger says, already adhere to E911, CALEA, USF and disabilities access rules through the FCC.

However, there’s the matter of interconnection. This is so touchy that regulatory representatives for CLECs and even some associations wouldn’t go on the record. That’s because many CLECs have interconnection agreements with Verizon and don’t want to jeopardize that relationship by having their names in print; at the same time, several associations have members who agree with Verizon and others who side with the states. Besides all of that, if Verizon were to play nice with competitors, those CLECs would benefit from reporting only to the FCC as well.

That’s a big “if,” as incumbents haven’t exactly endeared themselves to competitors in the wake of broadband and UNE-P deregulation. “I don’t think that a market dominated by a Bell and a cable company is going to be the kindest to small competitors looking to interconnect,” says one telecom lawyer on condition of anonymity.

Another lawyer who represents a CLEC and also asked not to be identified, says it looks like Verizon’s trying to “minimize state involvement in Section 251/252 rights of competitors to interconnect networks, thus driving the market to their products and services.”

For its part, Verizon maintains it just wants to keep building broadband infrastructure and reaching consumers; obtaining further regulatory relief would help accomplish that.

Indeed, incumbents prefer to operate under as few rules as they can. Over the past several years, the FCC has favored deregulation over the competitive policies championed by the 1996 Telecommunications Act. However, that doesn’t automatically mean the agency will side with Verizon on its VoIP request. Commissioners late this summer were unable to agree on a Qwest forbearance petition and the Washington, D.C., rumor mill at press time speculated the Bells wouldn’t be handed sweeping special access relief. Still, however the FCC responds, Verizon’s take on VoIP stands to influence the future of federal and state telecom regulation. That’s because, sources say, it’s becoming too hard to separate technologies and the boundaries they cross. One industry insider, who asked not to be named, went so far as to say this Verizon debate will define, not just affect, future oversight.

Former FCC Chief of Staff Blair Levin says if the agency goes too far with VoIP jurisdiction, it can expect a 'counter-revolt' from states.

Other experts say that’s a broad statement, but they do acknowledge that Verizon’s filing could have far-reaching effects. Whether it’s wireless, VoIP or even TDM, “it’s getting very difficult to cram things into an interstate and intrastate bucket,” says Clark. He adds that NARUC has been working with the feds on the very question of how to handle telecom governance as the world moves to IP and mobility. NARUC wants to pin down which services need to be regulated so policymakers can craft laws in as technology-neutral a manner as possible. “The concern is where this becomes an ad hoc thing,” Clark says. When spur-of-the-moment decisions become legislation, disparities crop up, he explains. For example, there’s now a gap in the percentage of revenue VoIP providers pay into the USF — they shell out double what wireline carriers contribute. That sort of imbalance “furthers the morass that we’re already in,” says Clark.

But Kohlenberger says Verizon’s document reaffirms federal jurisdiction over VoIP; in essence, he contends the future is now. “I think the FCC has already decided, and Congress has decided, that when it comes to the Internet, you don’t need 30,000 separate jurisdictions over the Internet.” He adds that VoIP must be regulated differently — as opposed to NARUC’s stance that laws should be technology-neutral — because it’s not like other technologies. So the question of the future of federal/state regulation only is whether the FCC officially will be dubbed the sole overseer of VoIP providers. If that happens, then America can expect continued broadband uptake, investment and innovation, Kohlenberger says.

If the FCC gets that power, it will have to be careful about overstepping its bounds, says Blair Levin, who served as chief of staff for former FCC Chairman Reed Hundt. “If it goes too far and there are problems the states don’t have the power to deal with, that would probably lead to a counter-revolt.”

Remember the Titans

First came Vonage Holdings Corp., then came Brand X. Verizon Communications Inc. is using both cases as precedent for its argument that all VoIP services be federally regulated.

In 2004, the FCC, responding to Vonage, said states can’t regulate interconnected VoIP services because they aren’t tied to readily identifiable geographic locations. That makes it “impracticable” to separate interstate and intrastate traffic, the commission said. The Eight Circuit Appeals Court upheld that finding earlier this year, giving Verizon what it hopes is more traction for its argument.

In 2005, the Supreme Court upheld the FCC’s ruling on a suit brought by Brand X Internet Service. The FCC had said cable services are not telecommunications services and, therefore, shouldn’t be regulated as such. After much back-and-forth arguments, the case went to the nation’s highest court, where judges sided with the FCC. That sent a message that providers could keep rival ISPs off their networks. Telcos took the decision as affirmation that they’d soon be able to do the same, which is when the net neutrality debate began to erupt. Later, the FCC did deregulate DSL, deeming it an information service. Fewer rules apply to information services, and the FCC could find that to include preemption of state oversight.

ADDED INSIGHT

For more on VoIP and CLEC interconnection concerns, see xchange Editor in Chief Paula Bernier’s letter in the October issue of xchange and Joseph Gillan’s guest column “Next-Gen Interconnection” in our October issue.

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