Regulating VoIP

The regulation of Voice over IP (VoIP) has been disputed since the late 1990s when Vonage and other VoIP providers burst onto the scenes. In the latest action, the Eighth Circuit Court of Appeals ruled that the Minnesota Public Utilities Commission cannot regulate the VoIP service offered by Charter Communications.

Before looking at that ruling, let me review the history of VoIP regulation. When Vonage and others first offered VoIP a number of states immediately sought to regulate the VoIP companies using what I would call the ‘quack like a duck’ argument that the function of VoIP was to complete telephone calls and that changing the underlying technology didn’t change the nature of the service.

After various regulatory rulings and the subsequent legal challenges it was finally determined that the VoIP offered by Vonage was not the same as regulated voice service because it wasn’t ‘interconnected’ voice. Interconnection is a term defined by the FCC meaning that a telephone call must be originated and terminated using the public switched telephone network (PSTN) established to trade calls between different phone companies. Vonage originated calls using the open Internet and only used the PSTN to terminate calls. This loophole, based upon the FCC definition of a phone call, eventually freed Vonage from most telco regulation, although VoIP providers were required to offer access to 911.

When cable companies started to offer telephone service they adopted the strategy of trying to get their telephone service also classified as VoIP to avoid regulation. They talked about offering VoIP before their voice product even hit the street. However, telephone service on a cable network is not the same as Vonage. Where Vonage customers bypass the PSTN on the originating side of the call, cable companies have always used the PSTN to originate and terminate calls, and from a functional perspective their networks and telco networks look identical.

Cable companies argued that they are VoIP because a customer called is converted to an IP format at the customer location and transmitted digitally across their networks. Their argument relied entirely on the fact that their technology used the ‘IP’ part of VoIP and that preempted them from regulation. Surprisingly, a lot of state regulators agreed with the cable companies and freed them from voice regulation, in what I would classify as regulatory rulings as a result of heavy lobbying. Cable company voice has never, to this day, passed the ‘quack like a duck’ test and they still use the PSTN in the same manner as telephone companies.

We ended up with a patchwork of VoIP regulation as different states took different positions on the issue. Cable companies eventually changed tactics and shot for a different regulatory loophole. They began to argue that VoIP is an information service and not a telecommunications service. They wanted this classification since the FCC had several rulings in other areas, not related to VoIP, that the agency isn’t authorized by Congress to regulate information services. I literally laughed out loud the first time I read this argument and I didn’t expect any regulator to ever accept it, because if making a telephone call isn’t a telecommunications service, then nothing is.

However, in the Minnesota case the cable companies finally talked a court into accepting the argument. The Minnesota case arose when Charter moved their VoIP product to a different subsidiary in an attempt to avoid the assessment of regulatory taxes and fees. The Minnesota PUC sought to impose the same taxes and fees on the new subsidiary, which prompted the lawsuit.

Charter still made the same technology argument that cable companies have used for years. They argued that their product isn’t a telecom service because telephone traffic on their network undergoes a ‘protocol conversion’ as the signal is transformed from analog to digital (for telephone folks, from TDM to IP). This is the decade-old argument that it’s VoIP if some portion of the call uses IP technology.

However, in this case Charter bolstered this argument by claiming that they offer features that prove that their VoIP is an information service. Charter cites as proof the use of features like offering a web portal to listen to voice mails, converting voice mails to text, and providing caller ID on a connected TV.

Technically, these are all ancillary services that have nothing to do with the direct delivery of a telephone call. Most telcos and cellular companies today offer these same features – and they all happen outside of the direct voice path. Recording a call to play back later doesn’t change the fact that a telephone call was made.

Surprisingly the courts agreed with Charter and declared that their VoIP product is an informational service. That exempts Charter from state regulation and the case is going to be used elsewhere by cable companies hoping to avoid regulation. You might want to read the ruling, but I’ll warn you that the circular logic will hurt your head. Apparently, if something now quacks like a duck it might really be a turkey.

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