Sometimes one or two bad policy decisions comes back to haunt you.  This may have been the bitter pill swallowed by the FCC’s Genachowski Commission this past week when it released its statement on how the regulation of broadband services will be approached by the Commission.  At odds with the FCC was its precise legal authority to regulate “Broadband” pitted against recent Congressional pressure to implement a fundable “Broadband Plan” with regulatory control and certainty.  The problem faced by the FCC arises from two significant court cases that, in a negative and positive counter-reaction, have effectively cancelled out a clear regulatory path for the FCC in the treatment of broadband, and VoIP.  These cases being the June 2005 Supreme Court Decision in Brand X v. FCC (BrandX) and the April 2010 DC Circuit Court Decision in Comcast v. FCC.

The BrandX case is a well traveled decision by many of those operating in the telecom, VoIP and ISP sectors.  It largely de-regulated cable provisioned internet services by finding definition that it was an information services, a service outside the FCC’s Title II regulation of telecommunications. A part of this finding was largely due to the FCC itself and stipulation that the service was intertwined with information services.  The political tenor of the FCC’s then Martin-era Commission was to keep the Broadband within the scope of unregulated data services, and allow time for the services to grow in the market.  The Court, in a 6-3 decision, overturned an FCC regulatory proposition of jurisdiction that would have forced cable companies to open up their networks to Internet service providers.  The majority opinion was written by Justice Clarence Thomas and among the dissenting justices was Justice Antonin Scalia, who opined that the more logical proposition would be to bifurcate (or unbundle if you prefer) the regulation of the service between elements of transport and elements of content.  This all was well before “Broadband” became better defined under stimulus money and well before access charges and content access became pawns pieces battled between cable providers and other market players by 2007.

The April 2010 DC Circuit Court Decision in Comcast v. FCC is a more recent thorn in the side of the FCC to be able to set a clear policy direction for Broadband.  Post BrandX, the FCC’s Martin-era Commission attempted to find regulatory continuity under Title I by introducing regulatory principles of Net Neutrality, a lose set of principles not specifically founded in statutory authority but reinforced in the broadest sense by “ancillary jurisdiction” under Ssection 4(i) of the Communications Act of 1934 codified in 47 U.S.C. § 154(i).  Since then, much talk, and debate has centered on the FCC’s ability to actually enforce Net Neutrality Principles in real disputes between content providers and internet access networks under this expansive interpretation of ancillary jurisdiction.  Leading among the controversies pushing clarification of Net Neutrality has been the ISP/Cable Company’s network management practices to block select content or data on its network and access charges associated with data pushed to Interconnected VoIP telephony.  The Comcast v. FCC placed this question on the table, and the FCC’s expansive interpretation of 47 U.S.C. § 154(i) on the chopping block.   The DC Circuit Court’s Decision is well-thought and inclusive of the practices and issues at hand (worth reading), however, in the end the court determined that as series of existing decisions in cases such as Southwestern Cable, Midwest Video I, Midwest Video II, and NARUC II bar this expansive theory of ancillary authority.  With this ruling, the continued development of Net Neutrality Rules as first undertaken by the FCC’s Martin-era Commission have effectively been stymied, leaving the Genachowski Commission vacillating whether to re-work Net Neutrality – or let Net Neutrality pass away much like President Woodrow Wilson’s “League of Nations” and choose another course.

In the statement made Thursday May 6, 2010, the Genachowski Commission has clearly chosen the other course, albeit a hybrid and fuzzy one at this juncture.  Chairman Genachowski, the Commissioners, and along with the legal opinion support of FCC General Counsel Austin C. Schlick (who by the way had argued the FCC’s position in the recent Comcast Case) outlined the proposition of defining broadband within the confines of Title II, as related to transport of such services, and not, content.  In essence adopting Justice Scalia’s bifurcated view of broadband Internet access service in the BrandX case dissent as the under pinning for forward going regulation.  The FCC will begin to take comment and begin rulemaking to regulate Broadband under a qualified telecommunications regulatory category pursuant to Title II of the Federal Communications Act of 1934, as amended.  Regulatory pundits have already coined this policy move as regulation light or “REG-LITE” among others.  In the Thursday Statements¸ FCC General Counsel Austin C. Schlick underscored some key point, not only to regulation, but to its relationship to VoIP:

“…the Commission’s legal approach with its policy of (i) keeping the Internet unregulated while (ii) exercising some supervision of access connections.  The provisions of Title II would apply solely to the transmission component of broadband access service, while the information component would be subject to, at most, whatever ancillary jurisdiction may exist under Title I.” (emphasis added)

He further opined on the legal approach:

“The upshot is that the Commission is able to tailor the requirements of Title II so that they conform precisely to the policy consensus for broadband transmission services.  Specifically, the Commission could implement the consensus policy approach—and maintain substantively the same legal framework as under Title I—by forbearing from applying the vast majority of Title II’s 48 provisions to broadband access services, making the classification change effective upon the completion of forbearance, and enforcing a small handful of remaining statutory requirements.” (emphasis added)

I encourage all regulatory pundits in the VoIP and telecom arena to read FCC General Counsel Austin C. Schlick’s advisory opinion to the Chairman as the logic of the FCC’s legal position is quite clear – down to its own authority to define anew Broadband under Title II in accord with the BrandX majority’s opinion.

The relevance and impact of this change to VoIP resellers and Interconnected VoIP Providers.

Not surprisingly, the first 9:00am EST Friday morning call to my office was from a VoIP Toll Provider with the questions: do I need to apply for the FCC 214 today or not?   Fortunately, things do not happen that fast with the FCC.  However, there are a few things VoIP Toll Resellers and Interconnected VoIP Providers should be thinking about and preparing for in the near future.  The current focus of the “Broadband” regulatory definition now contemplates transport distinct from content when regulating between Title I (information services) and Title II (telecom).  This stands to impact the current regulatory classification of Interconnected VoIP, and definitely more clearly define VoIP Toll Resellers beyond the FCC’s IP In-the-Middle Order and USAC treatment on the 499-A filing.

First, think about the underpinning of Interconnected VoIP from the regulatory standpoint.  Within the FCC, the term is first used to implement E-911 requirements on providers of VoIP Phones and Phone systems in the FCC’s E-911 Order.  Therein, Interconnected VoIP Providers are determined based upon meeting four technical features – one of which is Broadband connection. VoIP Toll Resellers are referred to in the 2005 FCC IP In-the-Middle Order and the 499-A Instructions as to regulatory treatment of other VoIP Toll traffic.  However, aside from placing additional requirements on that definition for CPNI Compliance (in the EPIC CPNI Order), Biannual Form 477 Reports, and 499-A Reporting and Regulatory Fee Contribution requirements under the IP In-The-Middle Order, the term Interconnected VoIP and VoIP Resellers have been loosely placed into a hybrid treatment like Title II of the Communications Act without any formal Decision or Order stating that VoIP will or must be treated under Title II.  The FCC’s legal authority is not clear in this area.  This “Titlesk II” treatment of VoIP accounts for considerable revenues collected by the FCC through USAC and other regulatory fee contribution.  This will not change or have forbearance as the FCC needs the funds to further implement its Broadband Plan. The question that remains in a post “broadband” regulatory definition is whether the existing treatment of VoIP is enough for the FCC.  I have my doubts.  Broadband integration into Title II under “REG-LITE” naturally implicates VoIP as a transport medium, and not, an information medium. This may require the FCC to require Section 214 Authority of such VoIP providers, even if only to be able to issues forbearance on reporting requirements.  Alternatively, it may simply just require the International and Wireline Bureaus to simply recognize a new class of Section 214 Authority for IP Broadband transport services that includes Interconnected VoIP and VoIP Toll Resellers.  Clear from the recent FCC statement is that Broadband regulation going forward will definitely change the existing regulatory framework of VoIP – the question is how much, and when.

Another factor to be considered is the present treatment of Interconnected VoIP and VoIP Toll Providers by the FCC and more specifically USAC.  USAC has become as great a machine to the FCC funding itself as the Roman Legion was to the great infrastructure works Ancient Rome.  Those VoIP providers filing 499-Q to either pay contributions or exempt themselves from contributions know this well.  However, forgotten by the FCC is that VoIP Providers, in fact all carriers, are their customers in this role and should be treated as such, not like subjects of an empire.  Numerous VoIP providers have had to seek USAC appeals and formal Appeals to the Wireline Bureau for scribers errors and confusion as to how to properly record pass through of VoIP USAC obligations to downstream providers – this will not likely change in the REG-LITE process of “Broadband.”  It is my opinion that any FCC Broadband Plan must be tied to USF Reform and contribution reform for small businesses in that sector.   This must be taken Congress directly by VoIP Providers.  It is simply not the “stuff” of protracted comment processes and debates within the agency itself; the FCC needs a clear mandate from Congress.

I welcome comment and substantive feedback on these thoughts from the industry.

Edward A. Maldonado, Esq.

Telecom Attorney & FCC Advocate

© Edward A. Maldonado, Esq. 2010