The regulation of Voice-Over-Internet-Protocol in the United States, the European Union, and the United Kingdom.

• Author: Blythe, Stephen E.
• Position: Essay

ABSTRACT

The objectives of this study are to: (1) define Voice-Over-Internet-Protocol ("VoIP"), its typology, and switching characteristics; (2) present, in some detail, U.S. VoIP law and policy and the major issues surrounding it; (3) briefly cover the highpoints of E.U. and U.K. VoIP regulation and compare it to that of the U.S.; and (4) draw conclusions pertaining to the future development of VoIP law and policy.

VoIP is a technology allowing the user to make telephone calls over the Internet. In the U.S., the Federal Communications Commission ("FCC") is presently engaged in rulemaking pertaining to many VoIP-related issues: jurisdiction, regulatory criteria, whether to maintain a bias toward non-regulation, rate of substitution, degree of divergence in rules for different classes of firms, recent innovations, disability access, provision of "911" services, access charges, universal service charges, consumer protection, economic regulation, wireless-based service, cable-based service, rural service, and law enforcement surveillance. On November 9, 2004, the FCC ruled that it has jurisdiction to regulate VoIP, not state public utility commissions.

After VoIP-regulation in the European Union and in the United Kingdom is concisely covered, a comparison is made among the U.S., E.U., and U.K. In all three, VoIP has enjoyed the luxury of being virtually unregulated; this deliberate bias by the respective regulatory bodies in favor of non-regulation has been made in order to foster its growth. Looking to the future, however, the three regulatory bodies agree on this point: As VoIP service continues to improve and becomes a viable substitute for traditional telephone service, the greater the likelihood that VoIP regulation will increase.

TABLE OF CONTENTS I. OBJECTIVES OF THE STUDY 164 II. WHAT IS VoIP? 64 Four Types of VoIP Calling 165 Computer-to-Computer Computer-to-Telephone Telephone-to-Computer Telephone-to-Telephone Circuit-Switching vs. Packet-Switching 165 III. VoIP LAW AND POLICY: THE UNITED STATES 166 VoIP: An "Information Service" 166 VoIP: Doesn't Contribute to Universal Service Fund 167 VoIP: Doesn't Pay Access Charges 168 The Unsuccessful "VoIP Regulatory Freedom Act of 2004" 169 The FCC's Present Rulemaking on VoIP 169 Regulatory Criteria Bias Toward Non-Regulation While Keeping it as an Option Different Rules for Different Classes of Firms? Recent Innovations Disability Access "911" Services Access Charges Universal Service Consumer Protection Economic Regulation Wireless-based VoIP Cable-based VoIP Rural VoIP Services Law Enforcement Surveillance F. The FCC Decisions of November 9, 2004 174 IV. VoIP LAW AND POLICY: THE EUROPEAN UNION 176 The Draft Notice 176 The Status Notice: Four Regulatory Criteria 176 The EU Directive: Services vs. Networks 178 Future Regulation? 178 V. VoIP LAW AND POLICY: THE UNITED KINGDOM 179 Before 25 June 2003 179 After 25 June 2003 179 Current Rulemaking 180 VI. TOWARDS AN INTERNATIONAL REGULATORY SCHEME FOR VoIP 180 VII. CONCLUSIONS 181 I. OBJECTIVES OF THE STUDY

The objectives of this study are to: (1) define Voice-Over-Internet-Protocol ("VoIP"), its typology, and its switching characteristics; (2) present, in some detail, U.S. VoIP law and policy and the major issues surrounding it; (3) briefly cover the highpoints of E.U. and U.K. VoIP regulation and compare them to that of the U.S.; and (4) draw conclusions pertaining to the future development of VoIP law and policy.

2. WHAT IS VOIP?

   VoIP is a technology allowing the user "to make telephone calls using a broadband Internet connection instead of a regular (or analog) phone line." (1) Some VoIP services allow the user to only call those using the same service, while others allow the user "to call anyone having a telephone number--including local, long distance, mobile, and international numbers." (2) Some services only work through the user's computer or a special VoIP telephone, but other services allow the user to use the traditional Public Switched Telephone Network ("PSTN") with an adaptor. (3) VoIP's popularity is booming; business usage is increasing at an annual rate of 71 percent, and Vonage (a leading VoIP provider) reports it is adding 20,000 new customers each month. (4)

   1. Four Types of VoIP Calling

      There are four means of talking to another person using VoIP:

      1. Computer-to-Computer: Calling from one computer to another is the easiest method to use. All that is needed is some software (typically free), a microphone, speakers, a sound card and a broadband connection to the Internet. Ordinarily, computer-to-computer calls are free regardless of the distance. (5)

      2. Computer-to-Telephone: Anyone having a telephone can be called from a computer. Software (typically free) is required, just as in computer-to-computer calling. However, the calls often have a small per-minute charge. (6)

      3. Telephone-to-Computer: Some telephone companies provide special numbers or calling cards which enable a telephone customer to call someone with a computer. The disadvantage is that this will not work unless the recipient's computer has installed the telephone company's software. However, this type of long-distance call is much cheaper than a traditional long-distance call. (7)

      4. Telephone-to-Telephone: Using "gateways," any telephone in the world can connect with any other telephone. The user must first dial into a service provider's gateway, which in turn connects the user through its Internet network. The extra step of having to dial into the service provider's gateway is a disadvantage but the long distance rates are usually much cheaper than traditional long distance service. (8)

   2. Circuit Switching vs. Packet Switching

      The traditional type of technology used in transmitting telephone calls is circuit switching. When two parties converse in a traditional telephone call, the circuit is maintained for the duration of the call. This process is inefficient because the circuit is in effect even when the two persons are not talking and the line is not being used. In other words, the line is wasted whenever it is not being used, i.e., when the persons are not talking. (9)

      A technology superior to circuit switching exists; it is known as packet switching. VoIP employs this technology. Packet switching keeps the circuit active just long enough for the communiques to be transmitted. How is this accomplished? "The sending computer chops data into ... small packets, with an address on each one telling the network where to send them. When the receiving computer gets the packets, it reassembles them into the original data." (10) The advantages of packet switching over circuit switching are numerous: reduced time of maintaining the circuit, a computer can accept information from numerous other computers simultaneously, and reduced cost of transmission of the message. Because of these advantages, packet switching is expected to eventually replace circuit switching entirely. (11)

3. VOIP LAW AND POLICY: THE UNITED STATES

   1. VoIP: An "Information Service"

      The Telecommunications Act of 1996 (12) distinguished "telecommunication service" from "information service." This is a critical distinction because telecommunication services are burdened with more regulation than information services.

      The Act defined "Telecommunication service" as "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used." (13) In contrast, "information service" was defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control or operation of a telecommunications system or the management of a telecommunications service." (14)

      The FCC interpreted these definitions to mean that PSTN firms provide "telecommunications service," but Internet service providers and VoIP are an "information service" and are not subject to regulation. (15) Hence, to date, VoIP has been allowed to develop largely unburdened with regulation. However, it is important to note that the FCC observed that telephone-to-telephone VoIP closely resembles a "telecommunications service" and may be subject to future regulation. (16)

   2. VoIP: Doesn't Contribute to Universal Service Fund Pursuant to a directive of Congress, the FCC administers the Universal Service Fund ("USF"). (17) The purpose of the USF is to generally promote access to reasonably-priced telecommunications services on a nationwide basis. Specifically, the USF is designed to collect funds from telecommunications service providers and use them to finance the following types of activities:

      1. Providing discounted telephone service to low-income persons;

      2. Subsidizing telecommunications firms which provide telephone service in areas where the cost of providing such service is high;

      3. Giving financial aid to schools and libraries so they can access educational resources available via the telecommunications network; and

      4. Helping health-care organizations in rural areas access advanced diagnostic and medical services which are ordinarily employed in urban areas. (18)

      Long distance telephone firms, local telephone firms, wireless telephone companies, paging companies and even payphone providers are required to make USF "donations" if their service crosses state lines. (19) The USF charges may be passed on to the consumer in the form of higher charges for services. To date, VoIP providers have not been required to pay USF charges. PSTN firms contend that this gives VoIP providers an unfair advantage in the pricing of their services. (20)

   3. VoIP: Doesn't Pay Access Charges

      Access charges provide additional financing for the universal service program. Access charges are...