Different routes to the same 'competitive' destination: VoIP regulation in the United States and Canada.

AuthorRodini, Stephen

Internet Telephony, also known as Voice over the Internet Protocol ("VoIP") has changed the way people communicate with one another. Not only is it cheap, but it also offers many features previously unavailable with telephones. This innovation, however, comes at a price for regulators, as the nature of the technology creates unique (and previously unheard of) regulatory obstacles. As such, VoIP presents an interesting scenario for both the U.S. and Canadian governments. In response, both have attempted to address the issue via their own methods. However, for the technology to be truly viable, these governments need to pay close attention to the consumer uptake of VoIP, as well as the potential for anti-competitive harm by providers. In doing so, they must apply the appropriate regulation where necessary and leave certain portions of the market unregulated. If properly executed, regulators stand to have a great chance of ensuring VoIP's viability for the near future.

  1. What is VoIP anyway?

    VoIP allows users to make phone calls over an Internet broadband connection. (1) This use of Internet technology is a dramatic shift from "traditional" telephony (which is based over phone lines). By using the Internet, VoIP allows users to access many more features than with traditional telephony. (2) For instance, industry analysts invite us to "imagine a phone call with your mother, she instantly messages you her meatloaf recipe, which appears on your computer screen while the phone call takes place through your computer system." (3) VoIP also allows users to clean the "spam" from their voicemail, pager, and email with "a single click of a computer mouse." (4) What makes VoIP most attractive, however, is its low price. (5) Since the majority of the connection takes place in cyberspace, VoIP consumers avoid most of the expensive surcharges that telecommunications companies levy for use of their networks, which also allows VoIP consumers to avoid state and federal taxes associated with the use of such networks. (6)

    Another selling point is that many features, which would cost extra under normal telephony, are free with VoIP. (7) In fact, VoIP users can even have their voicemail sent directly to their email inboxes! (8) An additional appealing feature is VoIP's "portability." This allows users "to create a 'Virtual Presence' to provide friends and family with a local number to reach you and thereby avoid long distance toll charges." (9)

    VoIP has many features that make it very attractive for business users as well. Like consumers, businesses also enjoy VoIP's low prices. (10) In fact, over 80% of the companies planning to deploy VoIP expect a payback on their investment within three years of implementation. (11) In reality, however, many companies using VoIP have experienced a complete return within the first year. (12)

    Another attractive feature is that VoIP allows businesses to have multiple inbound numbers going to the same phone, which can save a large amount of money on "call centers." (13) VoIP also permits companies to provide individual phone lines for employees without having to install and maintain the expensive "private branch exchanges" associated with traditional telephony. (14) This distinction is important because under traditional telephony, a business's phone system only had a limited number of telephone ports. (15) VoIP systems, on the other hand, allow a business to run a number of "virtual users" through each network socket, thereby increasing scalability. (16) Moreover, since VoIP is rooted in software rather than hardware, it is easier to maintain (thus dramatically reducing operating costs). (17)

    However, VoIP's greatest benefit is, perhaps, its increase in worker productivity. (18) VoIP technology treats voice data as if it were any other kind of data, allowing users to attach documents to voice messages and to participate in virtual meetings using shared data. (19) As such, VoIP is compatible with Blackberrys and other personal digital assistants ("PDA"), creating a seamless connection between an employee and his or her company's network. (20) "It's not just having the information, it's how you use it," said Ingrid Tremblay, Nortel's senior manager of product marketing for multimedia. (21) She continued:

    In the past, I would have called a colleague and gone to voice mail if that person was on the phone. Now I can look on my dashboard, check my friend's [sic] list and see if that person is on the phone, and if they are, I'll use an IM to invoke a response. It makes better use of everyone's time. (22) By using VoIP, businesses can cut costs, produce more, earn more, and deliver better services to their customers. For consumers, VoIP allows more features at a much-reduced cost. Therefore, VoIP represents a potential goldmine for both sectors of the market.

  2. How does VoIP work and how is it different from traditional telephony?

    While traditional telephony and VoIP are essentially the same product, the underlying technologies behind their operations differ dramatically. For example, traditional telephony uses a process known as "circuit switching" to connect phone calls, while VoIP uses "packet switching." (23) Circuit switching is more complicated and more expensive than packet switching. (24)

    When a person makes a phone call via traditional telephony, the call is routed through a "switch" (a piece of phone call relaying equipment) at the telephone carrier's "local exchange." (25) Depending on the type of call, the routing is either terminated within the local exchange's calling area (typically a city and its adjacent suburbs, although larger cities often have multiple local exchanges) or routed through to another network. (26) Local calls terminate within the local exchange area. (27) Long distance calls, on the other hand, are a little more complicated. (28)

    While similar to local calls, long distance calls go through an additional step in their execution. Instead of terminating within a local exchange area, these calls are routed to a long distance network (usually run by a separate carrier), which transports the data to another local exchange (usually run by another carrier) where it is connected to the other party. (29) It is important to note that this process can involve three or more carriers, especially those calling internationally. (30) In addition, each step involves "access charges" by local exchange owners for the connecting carrier's use of its facilities. (31) These access charges are passed directly to consumers. (32)

    VoIP calls use a different process called "packet switching." (33) Packet switching is how data is transmitted over the Internet. (34) Vint Cerf, the "Father of the Internet," described this process using the following analogy:

    [T]hink of a packet as postcards sent via postal mail. A postcard contains just a limited amount of information. To deliver a very long message, one must send a lot of postcards. Of course, the post office might lose one or more postcards. One also has to assemble the received postcards in order, so some kind of mechanism must be used to properly order [the] postcards, such as placing a sequence number on the bottom right corner. One can think of data packets in an IP network as postcards. (35) While this may seem a bit abstract, packet switching has many advantages over circuit switching. First, packet switched data takes up less space over a network than circuit switched data. (36) This extra space allows VoIP providers to make three or four calls (instead of a single call) on a circuit. (37) This makes VoIP calls cheaper. (38)

    VoIP comes in three varieties. (39) Analog Telephone Adaptor, also known as "Hybrid

    VoIP," is the most common. (40) This technology involves hooking up a regular telephone to a computer with an Internet connection. (41) A second variety is one that uses a specialized Internet Protocol ("IP") Phone. (42) This device looks just like a regular telephone except that it has an Ethernet adapter plugged into an Internet router. (43) IP Phones allow users to circumvent their computers, thereby eliminating the need to install software. (44) In practice, it operates just like a traditional phone, yet it bypasses the traditional phone network entirely. (45) A final variety involves a personal computer headset or microphone plugged into an Internet-enabled computer. (46) These latter two types are collectively known as "Pure VoIP." (47)

    Since it is subject to certain access charges, Hybrid VoIP is the most expensive form of VoIP. (48) However, because most of the call still travels across the Internet, Hybrid VoIP's prices are significantly less than traditional telephony. (49) As one would expect then, Pure VoIP is the least expensive since it never connects to the telephone network. (50)

    VoIP is a dynamic technology that will change the way people communicate. Because it is so new, special care must be given in attempting to regulate this technology. These issues are examined below.

  3. VoIP Regulation in the U.S.

    1. A Brief History of U.S. Telecommunications Regulation

      VoIP's characteristics as both a "telephone" and a "data" service have presented an interesting quandary for American telecommunications regulators. As such, this has led to much litigation as well as multiple rulemaking proceedings. Yet, in order to appreciate VoIP's place in American regulation, one must first understand the history of the Federal Communications Commission ("FCC") (the American telecommunications regulator).

      Congress created the FCC in the Telecommunications Regulation Act of 1934 ("'34 Act"). (51) The most relevant portion of the '34 Act is its classification of telecommunications companies as "common carriers." (52) Under this definition, telecommunications companies are common carriers that hold themselves out to the public for hire to provide communications transmission services. (53) In doing so, Congress laid the foundation for...

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