Is The FCC's Regulation Of VoIP In Jeopardy After Comcast?

Short answer: Yes

According to Comcast v. FCC, the FCC came up short when it tried to show that it has the authority to regulate Comcast’s Internet access traffic management practices. To paraphrase the Vice President, this is a Big Deal – because the FCC’s ability to promulgate net neutrality rules is seriously threatened as a result. (Click here, here and here for analyses of Comcast’s impact on net neutrality.)

But the implications of Comcast go beyond that. They could, for example, gut the Commission’s regulation of Voice over Internet Protocol (VoIP) service.

The focus of Comcast was the scope of the FCC’s “ancillary jurisdiction”. (Check out my colleague Paul Feldman’s post for a cogent explanation of that concept.) The question boils down to this: if Congress hasn’t seen fit to expressly grant the FCC authority to regulate in a particular area, what regulatory actions, if any, can the FCC take in that area? In Comcast the court made clear that the regulation must be “reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.” Importantly, the court held that mere statements of federal policy in the Communications Act are not “statutorily mandated responsibilities.”

VoIP allows consumers to make and receive telephone calls over the Internet. From the user’s perspective, VoIP is functionally the same as “plain old telephone service” (POTS).  Both allow the user to make and receive calls to and from points otherwise reachable by regular telephone. But the two are technologically different: POTS uses time division multiple access or analog switching to create circuits while VoIP uses session initiated protocol to send and receive messages in packets via the Internet and Internet Protocol. VoIP is basically no more than a software application. So, like any other software application, it isn’t subject to FCC regulation, right?

Not according to the FCC.

Seeing the obvious functional similarity between VoIP and POTS, the FCC decided that VoIP should be regulated like POTS. But is VoIP an “information service” or a “telecommunications service?” Labels are important here: “telecommunications services” fall under the full-tilt Title II common carrier regulation imposed on POTS, while “information services” would not be subject to such regulation. Complicating matters, the FCC has expressly declined to attach either label to VoIP, although the Commission has imposed a whole host of POTS-like common carrier regulations on VoIP providers. 

The claimed basis for those regs? Our old friend, “ancillary jurisdiction”.

Claiming ancillary jurisdiction, the FCC has subjected interconnected VoIP providers to: the consumer privacy regime of Section 222 of the Communications Act; the service discontinuation requirements of Section 214; the telephone disability access rules (which include mandatory payments into the disability fund); number porting requirements; and 911 emergency calling regulations. (The FCC also requires interconnected VoIP providers to contribute to the Universal Service Fund, but that requirement is based on direct statutory authority – no need to invoke “ancillary” authority). 

In the wake of Comcast, the obvious question arises: are these requirements really lawful exercises of “ancillary jurisdiction"? We have no crystal ball that will tell us how the court might rule if/when it faces these issues, but it is our professional judgment that many of the FCC’s regulations of interconnected VoIP would not survive the Comcast analysis. 

Comcast says that, if the FCC does not have express statutory authority to act in a certain area, the FCC may regulate that area only if the regulation is “reasonably ancillary” to “statutorily mandated responsibilities”. In Comcast, the FCC argued that Sections 1 and 706 of the Act were sources of “ancillary jurisdiction" – and the court disagreed. As the Comcast court saw it, those sections are merely statements of Congressional policy, not specific statutory mandates sufficient to support ancillary jurisdiction.

The potential bad news for VoIP regs is that the FCC has repeatedly relied on – you guessed it – Sections 1 and 706 to assert jurisdiction over VoIP.  The FCC’s essential thinking is that VoIP looks so much like (indeed, is a substitute for) POTS that the Commission is justified in imposing POTS regulation on VoIP. 

That may seem rational, but rationality is not the issue. The issue is the limit of FCC authority. Mere similarity in functionality is immaterial if the FCC can’t demonstrate that its regulation of VoIP is in fact related to – ancillary to – some specific statutorily mandated responsibility. Regulations imposed under ancillary jurisdiction must have some discernible effect on areas which are subject to direct jurisdiction. Moreover, the Comcast court made it clear that the FCC must independently justify each aspect of any regulation based upon “ancillary jurisdiction". The Commission can’t generally assert ancillary jurisdiction over an area and then rely on that broad assertion to regulate the area any old way the FCC feels like.

Let’s examine each of the FCC’s VoIP regulations and see how they fare under the Comcast test:

Privacy RequirementsSection 222 of the Act requires “telecommunications carriers” to use efforts to safeguard “customer proprietary network information” (CPNI). But VoIP providers haven’t been pigeon-holed by the FCC as “telecommunications carriers”, so Section 222 does not specifically authorize the imposition of CPNI obligations on VoIP. To get around that problem, the FCC claimed “ancillary jurisdiction” flowing from Sections 1 and 706 of the Act. (Check it out in Paragraphs 54-59 of the FCC’s 2007 decision.) But we know from Comcast that Sections 1 and 706 are statements of policy, not “statutorily mandated responsibilities”, so there’s no ancillary authority there. That leaves the FCC with only Section 222 to justify the regulation – but where, to use the Comcast court’s lingo, is the “ancillariness”? Section 222 applies to a specific class of entities – “telecommunications carriers”, but the FCC has declined to assign interconnected VoIP providers to that class. Accordingly, the FCC can’t rely on Section 222 as a source of ancillary jurisdiction to subject interconnected VoIP providers to its requirements. Sure, safety and privacy are lofty values – but, support of lofty values does not create jurisdiction. Score: VoIP providers 1, FCC 0.

 Discontinuation of Service.  Making sure that a carrier doesn’t abandon a route is a big deal when the carrier is the only carrier serving that route.  So Section 214 requires, among other things, that carriers get certificates from the FCC before discontinuing service. VoIP providers are not “carriers”, but that didn’t stop the FCC from imposing identical discontinuation obligations on VoIP. As a result, VoIP folks must notify customers and governors in affected states and get a service discontinuation certificate from the FCC before discontinuing service. Jurisdiction or not? We say not. To justify the imposition of these obligations, the FCC relied on ancillary jurisdiction based on Sections 1, 214 and 706 of the Act. (Read all about it in Paragraphs 10-13 of the FCC’s 2009 decision.) We hate to sound like a broken record, but Sections 1 or 706 won’t do the trick, which leaves only Section 214. But again, Section 214 applies only to “carriers”, a classification to which the FCC has not assigned interconnected VoIP providers. Nor can discontinuance of a VoIP service really be said to affect in any material way the regulation of any “carriers”.  Ergo, the FCC has not shown a ground for the existence of ancillary authority to impose Section 214 obligations. Score: VoIP providers 2, FCC 0.

Disability Access RequirementsSection 255 of the Act requires that a “provider of telecommunications service make its service readily accessible to persons with disabilities.” The idea is to assist people with speech and hearing disabilities by assuring the availability of options such as TTY, “speech-to-speech”, captioned telephone service and 711 abbreviated dialing. Section 255 applies to providers of "telecommunications service”; it says nothing about providers of VoIP. Nonetheless, citing ancillary jurisdiction supposedly arising from Title I as well as Section 255, the FCC imposed Section 255 requirements on VoIP providers. (Check out paragraphs 21-24.) But (yawn) Section 1 doesn’t work for this purpose. And while the Commission also claimed that Section 255 might do the trick, that claim falls short because Section 255 applies solely to a “provider of telecommunications service”, and the FCC has declined to classify VoIP as a “telecommunications service”.  Score: VoIP providers 3, FCC 0.

Local Number Portability Requirements. The Act (Section 251(e), to be specific) gives the FCC jurisdiction over the assignment of telephone numbers. Section 251(b) requires “local exchange carriers” to allow customers to port their numbers from carrier to carrier.   Clearly, VoIP providers are not “local exchange carriers”, but that didn’t stop the FCC from imposing Section 251(b) number porting obligations on interconnected VoIP providers and their carrier intermediaries. The FCC claimed authority to do so through direct statutory authority and ancillary jurisdiction. The direct authority supposedly derived from Section 251(e)(1)’s grant of plenary telephone number administration authority. As the FCC sees it, if you get numbers for your customers, you have to play by the FCC’s rules. Additionally, the Section 251( b)(2) porting obligation was cited, even though that provision, by its own terms, applies only to “local exchange carriers”. And the FCC cited as well to Section 1 and Section 251(e) as sources of ancillary jurisdiction. 

Again, the notion of ancillary jurisdiction through Section 1 is a non-starter. As to the FCC’s claimed direct Secton 251(b) jurisdiction, this observer has a hard time reconciling Congress’s express imposition of porting requirements on “local exchange carriers” with the FCC’s extension of the requirement to entities that are not “local exchange carriers” and that cannot even obtain telephone numbers without going to carrier intermediaries. As for the FCC’s Section 251(e) authority over telephone numbers, that at least might provide some ancillary authority for laying some number-related burdens on VoIP providers, since there is just one system of telephone numbers available to all phone service providers. Still, this observer questions how that might be a legitimate basis for imposing the full range of porting obligations onto VoIP providers. The FCC is correct that VoIP providers will have a competitive advantage if they are not subject to porting requirements, but such concerns are not a ground for ancillary jurisdiction. Score: VoIP providers 4, FCC 0.

Emergency Dialing Requirements. The FCC imposed its 911 emergency calling regulations on interconnected VoIP. While the FCC invoked the now-discredited ancillary jurisdiction through Sections 1 and 706, it also relied on its authority over the assignment of numbers granted by Section 251(e) and Section 251(e)(3)’s specification of 911 as the emergency number for all “wireless and wireline telephone service.” This writer sees no nexus between imposing 911 access requirements and the FCC’s authority over the assignment of telephone numbers. But I can see some nexus between this access requirement and the mandate Section 251(e)(3).  Chalk one up for the FCC. Score: VoIP providers 4, FCC 1.

Does all of this mean that interconnected VoIP will be suddenly freed from the oppressive yoke with which the FCC has burdened it over the years? No. But it does mean that VoIP regulation may be vulnerable to effective attack, now that Comcast is on the books.

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