FCC's Vonage Ruling Leaves Many Questions Unanswered

The Federal Communications Commission (FCC) reached broad consensus Tuesday (Nov. 9) on the nature of voice-over-IP (VoIP) as an inter-state service, cutting short the state of Minnesota's efforts to impose intra-state regulations on Vonage Holdings Corp. However, Commissioners Jonathan Adelstein and Michael Copps cautioned not to read too much into this finding, as fundamental issues of universal service under a VoIP environment have yet to be addressed.

Nevertheless, FCC Chairman Michael Powell made clear that the ability to personalize service and get far cheaper voice service in a VoIP environment will be a revolutionary advance in voice telephony. The FCC made explicit in its ruling that "this Commission, not the state commissions, has the responsibility and obligation to decide whether certain regulations apply to IP-enabled services. The Commission has the power to preempt state regulations that thwart or impede federal authority over interstate commissions."

Many state public utilities commissions have expressed concern that VoIP's ability to obsolete the distance- and LATA-border-related charges of circuit-switched telephony could wreak havoc with the fundamental profitability of both local exchange carriers and inter-exchange carriers (IXCs). The popularity of services from IP specialists such as Vonage and Skype already have led to radical changes in the financial outlook of LECs and IXCs, leading to such actions as AT&T's recent decision to abandon new residential-service marketing.

The commission's joint decision recognized such pitfalls, but basically concluded that this is to be expected as technology changes from circuit- to packet-switching. Powell said that IP telephony has "cracked the 19th century mold" of nailed-up circuit connections between two voice customers, changing the technology and profitability paradigm irrevocably.

In his statement, Powell was first to admit that this does not mean there is no governmental interest in VoIP, and that in questions on emergency services, fraud, and fair-cost reporting, "it is not true that states are or should be complete bystanders with regard to these issues." Powell specifically mentioned mobile E911 services, as well as the work of several Internet voice providers in conjunction with the National Emergency Number Association to extend 911 to fixed-line VoIP phones.Commissioner Kathleen Abernathy said that she understood the concern of petitioners who insisted that all VoIP services issues should be decided by the Commission, but stressed that this did not take place with the Vonage decision. Instead, this decision was a narrow one, and one that could not be arrived at lightly, since it preempted state regulatory authority.

This concern formed the basis of the statements from Copps and Adelstein. Adelstein said that the VoIP-specific rulemaking inquiry which the FCC opened in February would try to hammer out issues of universal service and law enforcement in conjunction with Congressional mandates on these subjects. Adelstein expressed concern that the Vonage ruling "may have dramatic implications for these Congressional objectives, yet we afford them no meaningful or comprehensive consideration here." Opening the floodgates to IP services could have a profound impact on the availability of any phone service in rural regions, Adelstein warned.

Similarly, Copps said that the ruling could free up the ability of Vonage to offer DigitalVoice service, which is "fine as far as it goes " but it doesn't go very far. Proclaiming the service 'interstate' does not mean that everything magically falls into place." Reaching a narrow decision on Vonage today makes it all the more imperative that the FCC hasten to adopt a "clear and comprehensive framework" on VoIP services covering homeland security, public safety, and 911, Copps said, or the commission may indeed find the Vonage ruling to be the "camel's nose under the tent" that disrupts all existing circuit-based infrastructure nationwide.