State regulatory approaches to VoIP: policy, implementation, and outcome.

• Author: Cannon, Robert

1. APPROACHING VOIP A. The Genesis of Approaches B. The Functional Approach 1. Legal Approach (Application of State Law) 2. The States a. Non Cases-in-Controversy i. Florida ii. NARUC iii. The Full Policy Circle: Missouri & California a. Missouri b. California c. The Full Circle b. Cases-in-Controversy i. Minnesota ii. Dial-Around Cases 3. The Functional Approach Observations a. Legal Precedent b. Function versus Under-the-Hood c. Circular Justification C. The Technical Approach 1. Florida D. The Layered Model of Regulation 1. Colorado 2. Guam 3. Layered Model Observations E. Market Principles 1. Colorado 2. Pennsylvania F. Hybrid Approaches 1. New York: Vonage II. OBSERVATIONS A. The Muddled Process: Goals First B. Approaches Are Articles Frameworks C. Market versus Social Concerns D. On-Off Switches E. Talking Past Each Other III. CONCLUSION I. APPROACHING VOIP

   The proposition is simple. Things that appear the same should be regulated the same. This would seem fair; the syllogism is sound. Phone services provide two-way, real-time voice communications. Phone services are regulated. Therefore things that provide two-way, real-time voice communications should be regulated.

   But modernists teach us that how a thing is perceived depends upon perspective. There may be many perspectives of a horse. If I am an equestrian, I might view the horse one way. If I am a hungry mountain lion, I might have a different view. If, however, I am a hockey player, I might have no regard for the horse at all. Which is the correct perspective?

   There are many perspectives on Voice over Internet Protocol ("VoIP") service. The Functional Approach concludes that the appropriate perspective is from a functional standpoint. If a device performs the same technical function as a telephone, then it should receive the same regulatory treatment as a telephone. But why? Is the technology the reason that the regulations exist? Is there some Platonic nature of telephones such that filing tariffs is simply a part of the form of being a phone? (1) If policy objectives concern markets, perhaps markets is the appropriate standpoint. If the policy objectives concern public safety or threats to revenue, perhaps those are the appropriate standpoints.

   But this Article disappoints. Pablo Picasso offered multiple perspectives of a horse, refusing to give us a desired definitive viewpoint. The notion of this Article is not to resolve the definitive approach to VoIP. Rather, this Article suggests that the process of the approach has itself become muddled. Individuals quibble, contrasting the superiority of one perspective over another, negating the reason why they were looking in the first place.

   To successfully view the horse, first, we must know why we are looking at the horse. Then we must decide how to look at the horse; we must define what "it" is that we are looking at. Finally, we need to consider whether what we looked at is consistent with why we were looking. If a dentist seeks to care for the horse's teeth, looking at a horse's rear end probably means the approach is a bit askew.

   Policy likewise involves process dynamic. The first question is (A) "why": what are the objectives, goals, and concerns--the policy's first principles. The next question is (B) "how". With what approach will the policy be implemented; what is (and is not) the target of the policy. Finally, (C) does the outcome comport with the policy goals.

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   The notion of this Article is that we have confused VoIP (B) implementation/approaches with (A) policy objectives. Instead of asking whether (C) outcome comports with (A) policy, we ask whether (C) outcome comports with (B) implementation/approaches--and receive a meaningless answer. So accustomed have we become to the environment of implementation that we have forgotten why policy exists. We have taken century-old frameworks, sought to apply them to novel situations, and cannot resolve outcomes that appear "artificial." We quibble about why one approach is superior to the other, without recognition of policy objectives and without comprehension that the approach itself provides no coherent rationale for its own outcome.

   Approaches are artificial frameworks used to facilitate efficient policy implementation. They are used to discern what falls within a regulatory program. They are lines drawn in sand that do not themselves inform the observer why the line was drawn at its particular location. The superiority of the Functional Approach, the Technical Approach, or the Layered Model cannot be resolved in and of themselves because we are contrasting implementations without discussing policy goals. To properly resolve VoIP policy, one must move beyond implementation and consider the whole horse.

   This Article is the second part of a project to survey and analyze state VoIP policy. The first part of the project surveyed state VoIP regulatory activity. (2) This part seeks to place that precedent in a centrifuge, segregating out different groupings of precedent. The object was to observe whether different patterns or lessons might emerge. The results were plentiful. This Article represents one set of the observations. (3)

   1. The Genesis of Approaches

      In 1998, the FCC released the Steven's Report to Congress. (4) In this report, the FCC articulated what would become known as the Functional Approach for discerning whether Internet telephony services should be considered telecommunications services. The Steven's Report did not, however, materialize out of the ether. It was a rearticulation of the policy that currently existed: the Computer Inquiries. (5)

      The Computer Inquiries were initiated in 1966 when the FCC began to ponder computers in the network. (6) There were computers which ran the networks, and there were computers with which people interacted over the networks. The FCC set to the task of studying these computer things and the appropriate regulatory response. After all, AT&T, pursuant to a judicial order, could only offer regulated telecommunications services. If these computers with which people interacted were not regulated "telecommunications services," AT&T could not offer those services. (7) In addition, computer services, which included "big iron" main frame computers that could be accessed remotely and promised economic expansion, were dependent upon the underlying telecommunications services. (8) Those computer services were also potentially (unregulated) substitute services for telecommunications services (unregulated e-mails were then substitute services for regulated Title II telegraph carders in much the same way that unregulated VoIP services today are substitute services for regulated Title II telephone services). Telephone carders, for their part, had the advantage of rate-payer paid for main frame computers running the networks, which could be offered up for data processing services during off-peak hours. (9) Telephone carders therefore positioned themselves as both supplier to and competitor of computer services.

      Devising an appropriate policy approach to these different computers would be an undertaking of wonder and it is no wonder that it took the FCC two tries to get it fight. The first principles of the policy were markets and competition. Computer services were exciting, competitive, and innovative players with promise of great wonder. The FCC perceived no reason to (10) regulate them. The telephone network was a vital resource necessary to the country and it was a monopoly. The FCC perceived that regulating those computers was necessary in order to assure an open network. (11) But was there a reasonable approach that could distinguish these computers from those?

      In Computer I, the FCC implemented its policy with a troubled approach. The implementation focused on technical computer processing, attempting to divine the difference between circuit or message switching, and data processing. (12) The framework that the FCC constructed distinguished between "pure communications" and "pure data processing." (13) Pure communications was content transmitted over the network transparently with no change in content or form to the message. (14) Pure data processing was, to put it simply, computer processing. (15) Unfortunately, this did not neatly divide the world; "communications" increasingly utilized "computer processing." This grey area became known as "hybrids." (16) The FCC would resolve the classification hybrids on an ad hoc, case-by-case basis. (17) But this approach was not viable as hybrids quickly subsumed the rule. The approach failed to efficiently distinguish these computers from those computers and placed the FCC in the position of conducting a full evaluation for each new scenario.

      The FCC recognized its predicament, disposed of the Computer 1 approach, and initiated Computer 1I. (18) The policy objectives remained the same but the FCC needed to construct a new implementation.

      Computer II divided the world into basic and enhanced services. (19) These services were defined in functional terms. The services lived in distinct markets. Network infrastructure service could be provided by one company. Computer network services could be provided by another company. The policy concerns for these different markets were different.

      Computer I's policy concern remained constant: there was no compelling justification to regulate competitive enhanced services. (20) However, basic service that was offered by monopolies (AT&T, GTE, and other incumbents in their respective markets) could discriminate and engage in anticompetitive behavior. The FCC, therefore, regulated basic services for the benefit of enhanced services, creating an open communications platform. (21)

      In the Computer Inquiries, the FCC first established its policy. It implemented that policy one way. That did not work. It implemented the policy another way. That approach has produced outcomes consistent with policy...