Hello, Congress? The phone's for you: facilitating the IP transition while moving toward a layers-based regulatory model.

• Author: Gasparini, John
• Position: Internet providers

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. Circuits to Packets: The IP Transition's Technology Change, and the Reasons It Is Needed B. Telecommunications Regulation: A Brief History C. Growing Pains: The Joint Jurisdictional Model Conflicts with Modern Network Designs, Leading To Absurdity D. State Regulatory Issues and Remaining Interests E. The IP Transition Thus Far F. Government and the IP Transition III. ANALYSIS A. The Old Ways are Failing: Federalism and Packet-Switched Networks B. Change Is Needed, but What Should It Look Like? C. What Should the Next Act Look Like? D. Congress Is On the Job, but Can We Afford to Wait? E. The FCC Can Lead the Way IV. CONCLUSION I. INTRODUCTION

We tend to take technology for granted these days. We expect the power to be on by default, we expect water to come out of the faucet when we want it, and we expect to hear a dial tone when we pick up a phone. Little thought is given to the intricate systems that support these services, and that's not unreasonable--one of the chief benefits of such services is that we can focus our energies on other things, instead of having to provide water, heat, or communications services for ourselves. At times, however, these systems do require attention. Now is one of those times, as the technology which underlies our wireline communications system must be replaced. This process is referred to as the IP Transition, and it is already well underway. (1)

Technology transitions have happened before, and bring with them many benefits. (2) As noted by FCC Chairman Tom Wheeler, "[H]istory has shown that new networks catalyze innovation, investment, ideas, and ingenuity." (3) This transition will bring many such benefits--these new networks will provide increased functionality and capacity, for both wired and wireless users. (4) This transition will not be simple, however--the wired phone system has not seen change of this magnitude in decades, and the regulatory framework which governs these systems are in some cases nearly 80 years old. While many of these regulations continue to serve necessary functions, they were created in a world in which network and service were inseparable. Today's technology works differently, and it is a constant struggle for regulators and service providers to adapt these new networks to the existing regulatory models. Packet-based networks, which support Voice over Internet Protocol (VoIP) services, also support services of other types, and are not regulated in the same manner as circuit-switched systems.

In accordance with deregulatory policies intended to permit the free growth and development of new technologies and services, the FCC has largely refrained from substantially regulating VoIP providers, and has to an extent preempted state regulators from managing these services, as well. Separately, a majority of states have partially or completely prevented their Public Utility Commissions (PUCs) from regulating these services. (5) On their own, these deregulatory actions pose no major issues for the phone system as a whole, as the system remains built around legacy, circuit-switched infrastructure. They act as intended, giving new technologies and new businesses the freedom they need to innovate and evolve, to provide new services to consumers, and to increase competition in the marketplace. One of the major challenges presented by the IP transition will be reconciling new technology and service models (specifically, an environment in which services are divorced from the network that carries them, rather than intertwined, as has traditionally been the case) with the rigid, legacy-network-based regulatory framework currently in effect. (6) In particular, the transition presents a strong challenge to the joint jurisdiction over voice communications shared by state and federal regulators. The FCC has acted to keep its hands off VoIP in most ways, (7) while a majority of states have similarly prohibited their PUCs from regulating VoIP. (8)

Unlike past transitions, the IP transition reflects a fundamental shift in the means by which the bulk of our telecommunications services are delivered. We are moving away from packet-switched systems whose attributes shaped the Communications Act of 1934, and which continue to define the regulatory framework applied to these services. New networks treat all traffic equally, regardless of whether it is voice, data, or video traffic. Services can be defined independently from the networks consumers use to reach those services. As technology continues to evolve, criticism of the latest major update, the 1996 Telecommunications Act, continues to mount, and the time has arrived to move forward with a revision of the regulatory framework that governs telecommunications generally. The FCC, the telecommunications sector, and even Congress have come to recognize the need for reform. (9)

The IP transition will not wait, however. Technology moves faster than policy, and the transition is already well underway. The FCC has the opportunity to act with an eye toward a new regulatory model which eliminates the vertical silos which dominate the current law, and which identifies for Congress, as it has in the past, the FCC's preferred regulatory direction. Given the need for action to address the grossly outdated framework, which is being distorted to fit new technologies, the FCC should use its preemptive powers to move toward a horizontal regulatory model. Action of this type can, as it has in the past, serve as guidance for Congress to craft, in the near future, a complete overhaul of the Telecommunications Act.

In order to explain why such sweeping action is necessary, this note first examines the history of telecommunication regulation, including the technology behind the PSTN and the federalism analysis that led in part to the framework that remains in place today. It also examines the transition already underway, and identifies the need for regulatory revision that modern technology has created. It then addresses the means by which changing network technology, coupled with existing regulatory actions, will effectively deprive the states of their long-held ability to regulate voice service. After identifying the need for a regulatory overhaul due to outdated applications of federalism analysis, technological shifts, and changing state interests, the note turns to a study of preferable, horizontal regulatory models and the reasons the FCC cannot simply shift to such a model on its own. Finally, the note examines the FCC's history of telegraphing its wishes to Congress through strong regulatory action, and Congress' history of responding positively to such FCC action. The FCC should move to preempt state regulation of the services aspects of telecommunications, while removing some connectivity-related common carrier obligations, to develop a model that is as "horizontal" as possible under current law and provides a starting point for Congressional action.

2. BACKGROUND

   1. Circuits to Packets: The IP Transition's Technology Change, and the Reasons It Is Needed

      When a person picks up a phone, their conversation takes place over the public switched telephone network, or PSTN. (10) On the whole, the PSTN today bears little resemblance to the phone networks originally built following the 1876 invention of the telephone. Today's PSTN provides not only voice service, but also data and video services, through physical wires and over the air. (11) When a user places a call, that signal is passed first to a local switch, then to a regional switch, and then to a different regional switch, down to a local switch, and then to its recipient. (12) The network is arranged in tiers--a call only goes as high as it needs to. (13) A call to a neighbor, for example, will only move to the local switch before being routed to its destination, while a long-distance call will be routed through several switches, across a trunk connection, and then back down through several more switches to its destination. (14)

      The need for this direct-path routing model arises because wireline phone calls are "circuit-switched"--that is, a direct physical circuit between endpoints must be established for a call to go through. (15) This circuit-switched nature, paired with the reliance on time-division multiplexing technology, combine to characterize the fundamental architecture of the PSTN. It is this architecture that the IP transition will change. The current system has its advantages, to be sure. Circuit-switched networks are centrally powered and thus largely resilient in the face of power outages, and the past century's worth of infrastructure expansion ensures that circuit switching (which primarily runs on copper loops) enjoys market penetration that cable and fiber cannot yet match. (16) Furthermore, consumers enjoy a certain degree of familiarity with the aging elements of the PSTN.

      Circuit switching is not without its downsides, however. While circuit-switched networks can provide video and data services, they are primarily designed around voice services, and the provision of these services is heavily bound up in the design of the network. (17) Furthermore, the number of available circuits limits providers' ability to efficiently route traffic, manage their networks, or accommodate ever-increasing demands for video and data connectivity. (18) Packet-switched networks address this last issue particularly well, as they treat all data equally, breaking it down into packets, which can be sent over one or more routes simultaneously, only to be reassembled at the endpoint. (19) Packet switching eliminates the need for direct, persistent circuits, and allows networks to dynamically adjust service quality to meet demand. (20) Furthermore, packet-switched networks separate the physical network layer from the data being carried over the network--in other words, voice, because it is simply another service riding...