Voice over Internet Protocol (VoIP)

Background: Technological progress and commercial success bring with them unforeseen obstacles. Established incumbents and government regulators often react negatively towards disruptive technologies that threaten to upset the status quo. Voice over Internet Protocol (VoIP) technology is an example of such "disruptive" technology. It stands poised to turn the traditional world of telecommunications on its head. Instead of embracing VoIP innovation, government regulators have sought to impose some of the outdated regulations governing legacy phone networks on new VoIP entrants. In doing so, they have burdened these new companies with increased costs and risk.

CCIA's Position: VoIP technology has proven to be more efficient and adaptable than traditional phone services. Currently, VoIP companies, such as Vonage and Skype, are becoming viable competitors to traditional wireline phone companies. Even though they function like other Internet applications, regulators are treating them increasingly like phone companies. In the past few years, regulators have imposed E911, wiretapping (CALEA), and USF obligations on VoIP companies that can connect to the public switched telephone network (PSTN). As VoIP technology becomes more sophisticated, ubiquitous, and ever more intertwined with other Internet applications, the legacy regulatory regime under which VoIP operates becomes increasingly oppressive.

CCIA believes that regulators must rethink the regulatory framework that governs telecommunications networks. Regulators must realize that VoIP is vastly different from "plain old telephone service" (POTS), and must not pigeonhole VoIP into the legacy regulations that have governed traditional telephone networks. In order to foster innovation and remain competitive in the global marketplace, the FCC must develop a regulatory framework that does not hinder innovative new technologies such as VoIP.

Issues:

Communications Assistance to Law Enforcement Act (CALEA): Despite vigorous industry opposition, the FCC in recent proceedings has required VoIP providers to comply with this controversial 1994 Act mandating that VoIP providers build back doors into their systems to facilitate government eavesdropping. Privacy concerns aside, this decision placed a significant burden on VoIP providers without providing technical guidance. The very same technology that makes VoIP more efficient also makes this requirement more burdensome on VoIP services than it is on traditional telephone systems. CCIA has opposed this FCC effort and believes that applying CALEA to VoIP does significantly more harm than good.

Emergency Service Support/E-911: Consistent with its long-term opposition to government-imposed technology mandates, CCIA has lobbied and filed testimony at the FCC regarding E-911, recognizing that it is an essential service but cautioning against a technology mandate for E-911. Rather, CCIA argued that regulators should allow the marketplace to devise the best solution for providing E-911 services.

Universal Service Fund: The concept of "Universal Service" dates back to the early 1900s and was designed to promote ubiquitous access to affordable and dependable telephone services for all Americans. Over the years, however, Universal Service has morphed into a series of overlapping subsidy programs characterized by inefficiency and ineffectiveness. Today, the cumulative effect of the various Universal Service funds requires payments by telecommunications carriers that amount to a de facto tax of 12% of gross retail revenues – and is projected to increase to 17% by 2007. Instead of streamlining or eliminating the fund, the FCC has imposed Universal Service taxes on VoIP in an attempt to secure additional monies for the fund's declining revenue base. In doing so, the FCC ignored the fact that VoIP has not been classified as a "telecommunications" service and, as a result, it is acting in defiance of the 1996 Telecommunications Act. CCIA has testified before Congress in support of sweeping Universal Service Fund reforms.

Interconnection: Interconnection is the actual linking of a carrier's network with equipment or facilities not belonging to that network. Like other IP service providers, VoIP providers must have guaranteed access (at reasonable rates) to the facilities of the established incumbent ILECs. Traditional telecom providers are seeking on both the state and federal levels to deny VoIP traffic interconnection rights. If successful, incumbent carriers could refuse to carry IP "packets" altogether or impose higher interconnection fees on VoIP traffic. Either of these could drive VoIP providers out of business. CCIA believes that guaranteeing access to the essential components of the telecommunications network at reasonable rates is imperative to maintain a market that encourages innovation and promotes competition. CCIA has fought and will continue to fight for interconnection requirements that foster competition and innovation.

Patents and Competition: As of late, the VoIP market has fallen victim to the broken U.S. patent system. Instead of helping competition by providing incentives for innovation, patents are being asserted by incumbents as a means of stifling competition from start-ups and new VoIP providers. Verizon's recent lawsuit against Vonage illustrates this dynamic. Verizon filed its suit in 2006, and in March of 2007 a jury found that Vonage infringed three of Verizon's patents. The patents in question are overly broad and several independent experts have concluded that they can likely be asserted against any VoIP company that interconnects with the traditional phone network. If this decision withstands appeal, it could seriously hamper efforts by VoIP providers to inject competition into the voice market.