Policy Forum: The Rules of Cable Telephony

Cable telephony is a bright spot in an otherwise gloomy landscape of the communications marketplace and is expected to become big business in the coming years. Lots of ink has been used to describe all the standards work and technology relating to its rollout. But another key deciding factor in its potential and the form it will take is how cable telephony will be regulated.

The two possible regulatory "buckets" for cable telephony are "telecommunications service" or "information service." This regulatory distinction is important because a telecommunications service is subject to a panoply of common carrier regulatory obligations, while an information service -- which is more than pure transmission, as it blends communications with the use of computer processing applications that act on the content, code or protocol of the information or allow subscriber interaction with a stored database -- is considered unregulated, subject only to the FCC's ancillary jurisdiction. The FCC has not yet formally looked at the regulatory status of cable telephony. However, there is a consensus that cable telephony provided over a circuit-switched network would be considered a telecommunications service, and therefore subject to the common carrier requirements of Title II of the Communications Act of 1934.

The issue is more complicated, however, when cable telephony is provided via a packet-switched, VoIP network. To the extent that VoIP enables real-time voice transmission using IP, one could argue that cable telephony service provided over a VoIP network is offering more than "pure" telecommunications -- that is, VoIP-provided cable telephony is an information service.

The FCC has not yet rendered an official decision as to whether VoIP or similar services are telecommunications services or information services. The closest the FCC has come to any discussion of the regulatory classification of VoIP services occurred in a 1998 Report to Congress, where the FCC was reporting on the implementation of Universal Service and the services that support the Universal Service program. The FCC declined to make any definitive pronouncements at that time on the regulatory status of VoIP, although it made statements to the effect that computer-to-computer Internet telephony looks more like an information service, while certain "phone-to-phone IP telephony" services may bear the characteristics of telecommunications services. However, given the lack of definitive guidance on this issue from the FCC, the industry generally has considered all VoIP services to be unregulated, information services. Indeed, during a recent speech at an annual industry association meeting, the chairman of the FCC indicated VoIP services would not be regulated.

However, a recent decision by the New York Public Service Commission calls this into question. In May, the New York Commission ruled that a certain long-distance IP telephony service provider in New York provides a telecommunications service, not an information service. The issue arose when the long-distance IP telephony service provider refused to pay access charges to the local exchange carrier on the grounds that it was providing an "information service," which is exempt from access charges. Using the statements made by the FCC in its Report to Congress, including the FCC's definition of "phone-to-phone" IP telephony, the New York Commission found that the IP telephony service had the following characteristics of a telecommunications service: (a) the service provider holds itself out as providing a voice, telephony service, not an enhanced service and does not provide enhanced functionality to its customers; (b) the service provider's customers are not required to use CPE (i.e., phones) different from the CPE used to place ordinary calls over the public switched network; (c) the service provider's use of Internet protocol is only incident to its own private network and does not result in any net protocol conversion to the end user; (d) a substantial portion of its traffic uses no IP conversion at all and is handled by interexchange carriers; (e) customers place phone calls to telephone numbers assigned in accordance with the North American Numbering Plan; and (f) the service uses the same circuit-switched access as obtained by interexchange carriers and im- poses the same burdens on the local exchange as do interexchange carriers. Where the FCC did not draw a conclusion on the regulatory classification of VoIP services, the New York Commission did.

Any VoIP provider in the state of New York, including cable telephony providers using a VoIP network, may be considered to be offering a "telecommunications service," not an "information service," particularly if the service results in no net protocol conversion or uses the same CPE as a regular telephone call over the public switched network. Moreover, although the New York Commission limited its ruling to the specific IP telephony service at issue, including the carrier's specific network configuration, the precedential impact of the ruling should not be taken lightly, particularly since in recent years the New York Commission has become a leader with respect to local telecommunications service policy and its decisions have been replicated or used as precedent in many states and at the FCC.

To the extent that VoIP services move into the mainstream, such as the primary line for basic local exchange service, or other states weigh in on the VoIP debate, the FCC may be pushed into looking at the regulatory status of such services. Those operators who have been waiting in the wings for reliable VoIP technology before rolling out cable telephony service should keep abreast of the VoIP regulatory front. The next few years may determine whether such operators are exempt from regulation or held to the same common carrier regulation imposed upon their circuit-switched brethren.

Randy Lowe is a partner, and Julie Corsig is a counsel, in the Washington D.C., office of Davis Wright Tremaine LLP. Jim Blitz, a partner with Davis Wright, also assisted in preparing this article. Davis Wright Tremaine is an international law firm of 400 attorneys with a long-standing practice serving the telecommunications and cable industries.

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