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

Verizons proposal comes as part of its continued quest for deregulation. The nations 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 FCCs 2004 Vonage Order and the Supreme Courts 2005 Brand X decision as precedents for declaring VoIP services as interstate-only. Whats most notable is that Verizon didnt 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 Verizons analysis and are calling on the FCC to impose a comment period.

Whatever the FCC decides, Verizons 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 PHONE+ it has no comment on whether it will seek public input on Verizons filing.

Theres 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 its clear that IP services arent 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. 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 hasnt responded officially to Verizons letter, but tells PHONE+, VoIP is an interstate information service that should be regulated only at the federal level.

Some states have responded to Verizons filing. Maine, Nebraska and New York, for example, have asked the FCC not to act without collecting public input. If the agency goes ahead without getting opinions, it will have done so without fully vetting the different implications, says Tony Clark, president of the Telecommunications Committee for the National Association of Regulatory Utility Commissioners (NARUC), and a member of North Dakotas Public Service Commission. For NARUC, those possible consequences include impacts on rate regulation, and Universal Service Fund and public safety responsibilities.

But the Voice on the Net (VON) Coalition says theres no need for a comments process. I think the FCCs Vonage decision already makes clear that theres exclusive federal jurisdiction for voice over IP, says Jim Kohlenberger, the VON Coalitions 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 dont have to pay state tariffs or obtain state certification. Verizons 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 NARUCs position about social obligations. VoIP carriers, Kohlenberger says, already adhere to E911, CALEA, USF and disabilities access rules through the FCC.

However, theres the matter of interconnection. This is so touchy that regulatory representatives for CLECs and even some associations wouldnt go on the record. Thats because many CLECs have interconnection agreements with Verizon and dont 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.

Thats a big if, as incumbents havent endeared themselves to competitors in the wake of broadband and UNE-P deregulation. I dont 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 Verizons 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 doesnt 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 wouldnt be handed sweeping special access relief. However, the FCC responds, Verizons take on VoIP stands to influence the future of federal and state telecom regulation. Thats because, sources say, its 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.

Other experts say thats too broad a statement, but they do acknowledge that Verizons filing could have far-reaching effects. Whether its wireless, VoIP or even TDM, its getting very difficult to cram things into an interstate and intrastate bucket, says NARUC’s 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, theres 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 were already in, he says.

But VON Coalition’s Kohlenberger says Verizons 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 dont need 30,000 separate jurisdictions over the Internet. He adds that VoIP must be regulated differently as opposed to NARUCs stance that laws should be technology-neutral because its not like other technologies. He also thinks that if the FCC officially is dubbed the sole overseer of VoIP providers, venture capitalists will be more open to investing in IP services. If there’s an absence of conflicting state rules, investors will put their money into next-gen technologies, he says.

Yet, if the FCC gets sole 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 dont have the power to deal with, that would probably lead to a counterrevolt.

Making the Case

First came Vonage, then came Brand X. Verizon 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 cant regulate interconnected VoIP services because they arent tied to readily identifiable geographic locations. That makes it impracticable to separate interstate and intrastate traffic, the commission said. The 8th U.S. Circuit Court of Appeals upheld that finding earlier this year, giving Verizon what it hopes is more traction for its argument.

In 2005, the Supreme Court upheld the FCCs ruling on a suit brought by Brand X Internet Service, which wanted network-sharing requirements imposed on cable providers. The FCC previously had said cable services are not telecommunications services and therefore shouldnt be regulated as such. After much back-and-forth, the case went to the nations 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 theyd soon be able to do the same, which is when the net neutrality debate began to erupt. The FCC later 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.

FCC www.fcc.gov

National Association of Regulatory Utility Commissioners www.naruc.org

Qwest Communications International Inc. www.qwest.com 

Verizon Communications Inc. www.verizon.com

VON Coalition www.von.org