VoIP regulation: A plea for procedural modesty

In an earlier column, I predicted that much of the substance of the debate over whether and how VoIP should be regulated would be metaphysical. By this, I meant that it will be argued that important regulatory consequences should turn on such abstruse matters as the name of the service, the way it is marketed, the shape of the premises equipment used and the parentage of the company offering the service.

I suggested that regulators cut through these metaphysical arguments and focus on the observable fact that, for most VoIP customers,

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"the service not only seems substitutable for (plain old telephone service), but is, in fact, substitutable in terms of the trade-offs involving price and service quality."

It's easy to understand how such a misdirected substantive focus--relying on arcane, outdated regulatory constructs--makes it more difficult for policy-makers to just say 'no' to regulation. But there is another looming roadblock to regulatory rationality, this one having to do with process.

The Federal Communications Commission already has at least four separate petitions pending that ask it to rule on various aspects of VoIP regulation. At one end of the regulatory continuum is a petition filed by Pulver.com that asks for a ruling that its Free World Dialup service is not a regulated communications service but rather an unregulated information service. Pulver's free computer-to-computer service operates with a broadband connection and special premises equipment at both ends that is different from the ordinary telephones used to place calls over the public switched network.

At the other end of the continuum, AT&T has asked the commission to declare that calls made using ordinary phones connected to the public network over local circuit-switched lines are exempt from the above-cost access charges normally paid to local telephone companies, if AT&T's calls traverse, even in part, long-haul facilities that use IP technology.

Somewhere in between is Vonage's petition, which seeks a ruling that its broadband-based VoIP service, which requires callers to use special premises equipment at one end, is an interstate information service not subject to federal or state regulation.

The FCC already has at least four separate petitions pending that ask it to rule on various aspects of VoIP regulation.

And the latest petition, filed by Level 3 Communications, is similar to AT&T's in asking that access charges not be applied to what it calls voice-embedded IP communications that originate or terminate on the public network.

Even with the individual petitions pending, however, the FCC has announced that it intends very soon to open a comprehensive new rule-making proceeding with the idea of developing an overall regulatory framework for VoIP. In theory, this may sound good: Rather than make decisions about various VoIP issues in an ad hoc fashion, think globally!

Here's the rub: While broad, generic rules often make sense for establishing new policies applicable to an entire industry, in this instance, this approach probably won't work well.

Consistent with its recent practice, commission officials have indicated that the rule-making notice, soliciting public comment, will be framed in a very open-ended fashion, covering the entire range of potential issues. Among them are VoIP's regulatory status; whether access charges, universal service contributions and taxes apply; whether 911 services should be mandated; and whether VoIP phones can be tapped by law enforcement officials. But history has shown that open-ended comment invitations encourage parties to toss everything but the kitchen sink into the rule-making stew.

The likely result will be to create a lengthy period of uncertainty. Opposing interests will have a ready-made forum for continually offering up new facts--and arguing fresh issues--in an effort to keep the agency from reaching definitive conclusions that regard all the potential issues identified as open for resolution.

There is no need to subject VoIP services to the economic regulation applied to traditional telephone services.

A fast-changing technology environment does not lend itself to bringing unfocused regulatory proceedings to a timely conclusion.

Moreover, an open-ended proceeding fosters a more regulatory outcome than desirable. With a potpourri of issues up for grabs simultaneously, the agency's five commissioners, egged on by the various competing interests, are more likely to engage in horse-trading compromises that ratchet up the level of regulation.

In early December, FCC Chairman Michael Powell stated, regarding VoIP, that the FCC's first mandate must be to "do no harm," emphasizing that, "no regulator, either federal or state, should tread into this area without an absolutely compelling justification for doing so." This claim for regulatory modesty is welcome. One practical way to proceed would be for the FCC to create a VoIP policy framework simply by deciding on the individual petitions brought before it in the least regulatory way. By deciding each one narrowly on its merits, the agency is more likely to avoid regulatory overreaching.

Failing this, if the commission is intent on a establishing a generic rule, it should frame the notice not in an open-ended fashion but rather in a much more focused way, offering specific proposals that point in a decidedly deregulatory direction. While there may be a need for certain mandates, say, relating to providing 911 services and the availability of digital wiretaps, there is no need to subject VoIP services to the economic regulation applied to traditional telephone services.

Yes, the substance of the VoIP regulatory debate should proceed with as few hide-the-ball metaphysical arguments as possible. As importantly, the process employed should promote regulatory modesty and timely decision making. Then, we'll have the best chance of doing "no harm."