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FCC Decisions on VoIP Classification Will Affect the Future of the Service

Voice over Internet Protocol ("VoIP") is arguably one of the most important recent developments in telecommunications, yet is virtually ignored by current federal and state regulations applicable to traditional telephone service. However, the growing popularity of VoIP in both the private and business sectors (some analysts claim that VoIP will replace traditional telephone service for the majority of users by the end of this decade) makes it likely that VoIP will be subjected to at least some regulatory requirements in the future.

Indeed, last week the FCC adopted an order requiring that some offerings of VoIP providers include 911 capabilities. All potential users and suppliers of VoIP services as well as potential manufacturers of VoIP equipment should follow these regulatory issues.

In 2004, the FCC opened a rulemaking proceeding to consider the regulatory requirements applicable to VoIP. An important threshold issue is whether the FCC classifies VoIP as an "information service," a "telecommunications service" or both. Regardless of how the FCC defines VoIP, some public interest regulation such as the Communications Assistance for Law Enforcement Act ("CALEA"), disabled access, Universal Service Funding ("USF") and 911 emergency assistance is likely to survive in some fashion.

Many users and providers of VoIP believe a decision to classify VoIP as an "information service" will relieve VoIP from all regulatory shackles forever. However, in its notice of proposed rulemaking initiating its proceeding on the regulation of VoIP and other "IP-enabled" services, the FCC tentatively opined that the substantive regulations applicable to VoIP did not necessarily depend on the outcome of the classification issue.

If the FCC were to classify VoIP as a "telecommunications service," then VoIP will be subject to all the Title II regulations that apply to those services. However, the FCC has the authority to "forbear" applying (i.e., eliminate) even statutory requirements applicable to telecommunications services. There is at least a reasonable expectation that the FCC would forbear applying regulations to VoIP relating to market exit and entry and retail pricing. This forbearance could come quickly, perhaps even in the same order announcing the classification decision. Thus, even if the FCC classifies VoIP as a "telecommunications service," it could still implement a deregulatory approach by exercising its "forbearance" authority to eliminate or modify the application to VoIP of at least some regulations that apply to other telecommunications services. Conversely, if the FCC classifies VoIP as an "information service," the FCC, by exercising its "ancillary jurisdiction" under Title I of the Communications Act, could extend to VoIP at least some regulations that heretofore have applied only to telecommunications services. It seems likely that the FCC would allow regulations to apply to VoIP that concern a number of non-economic "public-interest" regulations, including CALEA, disability access and universal service, although the FCC might suspend or modify these regulations for some interim period to stimulate development of VoIP.

Title I of the Communications Act confers on the FCC so-called ancillary jurisdiction over matters not expressly within the scope of other provisions in the Act (such as the provisions in Title II applicable to telecommunications services), but necessary nevertheless to effect the Act's purposes and the FCC's prescribed functions. In its IP-Enabled NPRM, the FCC sought comment on whether it could lawfully, and should, exercise its ancillary jurisdiction to impose regulations if VoIP were classified as an information service. For example, the reference in Title I to the Act's objective of making service "available to all people" at "reasonable charges" might support adoption of requirements that VoIP providers contribute some portion of their revenues to federal (if not state) "universal service" funds. The "available to all people" language likewise might support requirements that VoIP providers (and manufacturers of equipment used with VoIP) accommodate persons with disabilities. Indeed, the FCC has previously used its ancillary jurisdiction to impose such requirements on providers of voice mail, which is an information service. Just last week, the FCC cited the reference to the promotion of "safety of life and property" to support the extension of 911/E911 requirements to VoIP offerings that may be used to place and receive calls to and from users of ordinary telephone service.

Similar considerations will likely result in imposing on VoIP requirements similar to CALEA. The post 9/11 homeland security environment probably requires that all services be made "wiretap" friendly. Likewise, not even VoIP providers have been willing to argue that consumers should have the right, in an effort to save money, to choose a service that does not offer 911.

We do not intend to suggest that if the FCC classifies VoIP as an information service, the FCC necessarily would immediately impose the same requirements on VoIP providers that it currently applies to telecommunications carriers. It is much more likely that the FCC would conduct additional proceedings prior to deciding which of these subjects and policy objectives should be addressed through regulation, and the specific content of the regulations that the FCC might adopt. The FCC may also provide specified transition periods to allow providers time to comply with the regulations it decides to extend to VoIP. However, eventually the FCC or Congress is likely to adopt some requirements in these areas even if VoIP is classified as an information service.

Many telecommunications companies and ISPs have viewed VoIP as an inexpensive, unregulated method of offering voice services to their customers. While regulation will probably not extend the same heavy hand to VoIP, the public climate and the historical inclination of regulators to regulate voice telephone service might well lead to some "public interest" type regulation. That is why we urge users as well as providers to stay abreast of regulatory developments.

Courtesy of Perkins Coie.

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