FCC: 'Pure' VoIP not a phone service

Regulators approve a petition from a provider of phone service carried over the Internet but leave some larger questions unresolved.

Declan McCullagh
Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
5 min read
Handing a partial victory to Internet phone providers, federal regulators said Thursday that voice communications flowing entirely over the Internet are not subject to traditional government regulations.

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The Federal Communications Commission, in a split decision, approved a request from voice over Internet Protocol (VoIP) provider Pulver.com to be immune from the hefty stack of government rules, taxes and requirements that applied to 20th-century telephone networks.

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"This is in no way different than e-mail and other peer-to-peer applications blossoming on the Internet," FCC Chairman Michael Powell said. "Such services have never been held to be telecom services." Commissioner Michael Copps opposed the decision, and Jonathan Adelstein said he partially dissented.

In a significant limitation, the decision does not address whether traditional phone regulations might apply to VoIP services that interconnect with the traditional telephone system. As a result, the FCC's vote for now only applies to developers of VoIP applications similar to Pulver.com's Free World Dialup (FWD)--software that allows voice conversations to take place between computers, but not between computers and ordinary telephones.

Other applications covered by the decision include Skype and instant-messaging programs from Microsoft, Yahoo and America Online. But the ruling appears to leave in limbo VoIP services from Vonage Holdings, cable giants and others that allow calls to be placed from a computer over a broadband connection to any phone number in the world, and vice versa.

In a second, unanimous vote Thursday, the FCC said it would begin a public comment period to decide what to do about other VoIP services. Commissioners cautioned that they might take a different approach to variants that more closely resemble traditional phone service.

"Where these applications become more complicated, or more traditional, or they touch public-switched networks, they present even more complications," Powell said.

The FCC also Thursday began a rulemaking proceeding to address the problems that VoIP creates for police wiretaps and other law enforcement activities sanctioned by the Communications Assistance for Law Enforcement act.

Industry views
The outcome of the pending comment period is likely to dictate the future of state-by-state efforts to regulate VoIP providers, highlighted by a federal court decision issued last year that found that VoIP provider Vonage was not a telephone service and was thus not subject to phone rules crafted by the Minnesota Public Utilities Commission.

Still, VoIP providers said the FCC's action was a boon to their industry.

"This is a watershed event for the future of IP communications in the U.S.," Pulver.com's CEO Jeff Pulver said after the vote. "I think this is a day to celebrate if you're involved in the IP communications industry in the U.S. This should have a ripple effect around the world."

Pulver said that "state regulators should be put on notice that...they should wait for the FCC to take action before they act, and they should follow the leadership of the chairman along the way."

"It's all very good news," said Brooke Schulz, spokeswoman for Vonage, one of the most recognized VoIP providers in the United States.

The Computer and Communications Industry Association, whose members include Nokia, Time Warner and Yahoo, said it applauded the FCC's "decision not to regulate voice communications made with personal computers running peer-to-peer software." The Telecommunications Industry Association, representing hardware makers and related firms, said the vote "brings a sense of confidence that neither the federal nor state governments are going to be in the business of regulating the dynamic Internet application space."

By ruling on these issues, the FCC puts even more pressure on states like Minnesota and California to stop drafting their own separate Net telephony rules, said Vonage's Schulz. VoIP service providers fear that if unchecked, states will create a patchwork of different rules that will slow the technology's spread.

"It sends a very loud message to the states," she said.

Schulz added that the FCC's vote has an immediate impact on Vonage: Some 4 percent of its calls never use traditional phone networks, and will remain unregulated.

The view from the states
Brad Ramsey, the general counsel of the National Association of Regulatory Utility Commissioners, said he was "concerned" that a majority of FCC commissioners seem to believe that VoIP services, like the Internet, are off limits to state rules.

But for now, the FCC has left room for state utility regulators to serve a "consumer protection" role for the growing number of VoIP subscribers, he said. "None of the state commissions are interested in applying a heavy-handed treatment to VoIP providers."

California is the most influential of 25 states that are drafting Internet phone rules. These states are worried that as more conversation flows onto the Internet, there will be less funding for state public services raised from taxes on traditional telephone companies.

California's Public Utilities Commission began its own "investigation" into VoIP regulations on Wednesday. A spokesman for the commission said Thursday's FCC ruling agrees with the state's "go-slow approach" to regulating Internet telephony.

"The (FCC's) message to state regulators was clear: We should not rush to regulate this new technology under the old rules," said Susan Kennedy, a commissioner of the California commission whose antiregulatory opinion is in the minority on the board.

"It is my hope that the FCC will make further determinations on pre-emption."

A representative from the Minnesota PUC declined to comment on the decision.

Eavesdropping establishment
In fact, the decision leaves unresolved numerous policy issues relating to VoIP and has not quelled simmering dissent within the FCC.

Probably the most bitter controversy at Thursday's FCC meeting centered on concerns at the Justice Department and FBI that federal law enforcement agencies may find it too difficult to wiretap VoIP calls.

Although Thursday's decision was limited, it drew heated opposition from commissioner Copps, who objected that the ruling left unanswered how VoIP would comply with wiretap laws, among other things.

Copps said that the FCC's vote in favor of Pulver.com creates unreasonable "challenges for law enforcement and has implications for universal service and public safety." After meeting with the FBI and the Justice Department, Copps said he concluded it is "highly unwise to proceed, and I cannot and will not support this proceeding."

In correspondence made public earlier this week, the Justice Department said it is "currently drafting a request" that would ask the FCC to rule that a weighty set of wiretapping regulations applies to VoIP providers. Until the bureau backed down earlier this month, the FBI had tried to block the FCC from considering the Pulver.com request until its wiretap concerns were resolved.

Powell noted that the FBI is currently able to conduct VoIP wiretaps even without the FCC doing anything and said "we have worked exhaustively, on almost a daily basis with law enforcement authorities" before Thursday's meeting.