FCC CHOOSES TO WATCH AND WAIT AS VOIP SLOWLY MOVES FORWARD

Some in industry and regulatory circles already are asking questions such as: (1) Should VoIP be subject to universal service obligations? (2) What about E-911 and CALEA? (3) What is cable VoIP exactly? Is it cable service, information service because it involves Internet data, or telecom service because it involves phone? (4) Should it be subject to Title II or Title VI of Communications Act or fall under neither rubric? (5) Would Comcast have right as telecom carrier to seek interconnections with incumbents?

FCC sources said Commission was taking “wait-and-see” approach, declining to classify VoIP in any way until marketplace has chance to develop and technological glitches associated with VoIP are overcome. “The key decision has not been made yet as to whether IP telephony provided over any platform fits the definition of a telecommunications service, but it’s a decision that has to be made by regulators at both the state and federal level,” source said, “because the categories have consequences.” Despite FCC’s reluctance, other factors could force it into issue, such as decision by local CLEC to file grievance at state PUC level or at federal level if Comcast chooses not to file for status as CLEC in state of Pa., instead seeing itself as strictly cable company. “A filing could be made by a competitor… trying to prevent the service from being rolled out because they [Comcast] haven’t registered as a CLEC,” source said. “I'm sure there are some rules in Pennsylvania for what happens if you are providing a telecommunications service and you have not yet received permission to do so.”

Comcast spokesman was circumspect about how company viewed service, declining to say whether MSO intended to file with state of Pa. as CLEC. “We will comply with whatever regulations are appropriate to this new service when it is introduced and will be conferring with regulatory agencies about its status before filing,” he said. He declined to comment further. In June announcement, Comcast said service would be rolled out in 2nd quarter. Service will use digital technology, hybrid fiber-coaxial networks and packet switching to deliver wireline service, it said. Company didn’t announce rates it would charge customers. NCTA spokesman said because VoIP was service that hadn’t been launched yet, “we feel it’s premature to make a declaration or to offer an opinion about how it should be regulated.” NCTA Pres. Robert Sachs, commenting on Comr. Abernathy’s recent remarks, suggested FCC “adopt some version of Kathleen’s nascent services doctrine” (CD Aug 20 p3) to deal with VoIP. Although no other cable companies are as far along as Comcast, Time Warner Cable, Cox and Charter have tested VoIP.

Most that Commission has said officially about VoIP issue was in 1998 Stevens Report to Congress that said FCC’s manner of addressing such issues at that time was to take functional view of what was provided to end user. In other words, if from end user’s perspective, company had marketed what appeared to be phone service and consumers were using their telephone handsets to place calls and those calls went to other telephone handsets, then Commission probably would view it as telecom service. “It’s the duck test,” FCC source said. “If it looks like a duck, walks like a duck, quacks like a duck, then you probably have a duck.”

But some analysts said it would be wise for FCC to delay. Analyst Daniel Berninger of telecom research group Pulver.com said it would be difficult for Commission to apply old telephone regulations to new service when Commission and others still were “tinkering with the old model. It’s a moving target. It would really hamper progress if you try to overlay all the old rules on this new, innovative service when everyone is trying to change the old rules.” Also, he said, FCC should wait until VoIP reached certain “critical mass” of 15% of total market before intervening. He predicted that earliest that would come would be 2005-2006 or beyond because service quality issues were likely to relegate VoIP to 2nd-line status in beginning, before service gained wide acceptance. “But by that time, the regulatory environment will look totally different,” Berninger said. Regulators also shouldn’t necessarily look to impose same regulations on cable as on Bells because, he said, Bells were regulated for different reason -- they had acted in anticompetitive manner.

That notion didn’t sit well with Bells. “Parity is paramount,” said Robert Blau, BellSouth vp-regulatory affairs. “I think there’s going to have to be some fundamental debate over this, and not just cable telephone but also cable modem. It’s going to be increasingly difficult for the cable guys to say the telephony is something else, because the same technology and the same pipes will be used for both.” Blau urged FCC to make declaration of VoIP’s status from get-go: “If they duck the issue, then they're probably going to have to return to the issue sooner, and from our perspective it would probably be better to make that call.” If Commission doesn’t jump in, senators from states where universal service is critical will, he warned. USTA spokeswoman agreed: “Functionally equivalent services should be treated the same and all providers should contribute to universal service.” Interestingly, Verizon Senior Vp-Public Policy Tom Tauke, speaking at same event as Abernathy and Sachs, agreed regulators shouldn’t put obligations on new service immediately. Verizon spokeswoman added, though, that once there was regulatory treatment, it should be equal.

In any case, former FCC Cable Bureau Chief Deborah Lathen said Commission was unlikely to take action until companies had ironed out technical issues associated with VoIP and until service became something more vital than additional 2nd line. “I think for a while, it’s going to have to be a ‘no man’s land,'” Lathen said. But when VoIP does become critical to people’s lives and there is large migration to that service, “you are really looking at a major, major restructuring of telecom,” she said. Former chief of Telecom Div. of International Bureau, Rebecca Arbogast, now analyst with Legg Mason, said she believed FCC had employed “a very deliberate policy of benign neglect” on VoIP because, at moment, it wasn’t considered true substitute for telephony. She pointed to European example of not answering regulatory questions “until we really have to,” and “at some point down the road you start treating VoIP like any other telephone service” because differences between 2 would narrow on their own.