CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

The NPRM and Order

Telephone numbers for the U.S. and 19 other North American countries are administered under the North American Numbering Plan (NANP). Under the FCC’s rules, telephone numbers in the U.S. can be obtained directly only from the numbering administrators by telecommunications carriers that are authorized to provide services in the geographic areas for which numbers are being requested. This authorization must be in the form of an FCC license or lease (e.g., for cellular service providers) or a state public utility commission certification to provide traditional local telephone services or competitive local exchange services.

Interconnected VoIP providers are currently not considered “telecommunications carriers” or “telecommunications service” providers by the FCC (we blogged about that distinction here) and are mostly unregulated at the state level. Consequently, interconnected VoIP providers typically do not meet the FCC’s requirements for obtaining direct access to telephone numbers. Instead, these VoIP providers (as well as many other non-traditional service providers) must obtain telephone numbers by partnering with carriers that do qualify for direct access.

No big deal, right? Well, according to Vonage and several other companies providing interconnected VoIP (and related) services, it is. Back in 2005 (and again in 2011), Vonage petitioned for a waiver of the FCC’s “must have an authorization” rule so that it could obtain direct access to telephone numbers. Vonage asserted, among other things, that not having direct access to telephone numbers served as a barrier to the efficient routing of calls to its customers. Vonage claimed that having direct access would improve network reliability, reduce costs (by cutting out the middle-man), and allow for deployment of innovative services and features.

Vonage’s petition was opposed by several parties, including a number of competitive local exchange carriers concerned about routing, interconnection, exhaustion of telephone numbers and other issues which could arise from allowing “non-carriers” direct access to telephone numbers. Indeed, these parties continued to lobby against even allowing Vonage a limited trial access to telephone numbers in the days leading up to the FCC’s NPRM/Order/NOI release.

Ultimately, the FCC decided to grant Vonage a limited waiver, subject to numerous conditions, so that the company could obtain direct access to telephone numbers as part of a trial run. Similar waiver requests previously filed by other interconnected VoIP providers were also granted on a limited trial basis as long as those providers agreed to the same conditions as Vonage and filed an approved proposal with the FCC. The FCC intends to use data gathered under these trials to help inform its decision on whether and how to permanently allow all interconnected VoIP providers to have direct access to telephone numbers.

The FCC will not be considering any new waiver requests to participate in this technical trial. Interconnected VoIP providers who did not already have a waiver request on file with the FCC will likely need to wait until the proposed rules become final.

Concurrent with the trials, the FCC seeks comment – through the NPRM – on issues associated with the proposal to permanently grant interconnected VoIP providers direct access to telephone numbers. The NPRM invites general comments on the proposal, as well as comments on more specific issues such as the type of documentation required to obtain numbers, utilization requirements, measures to prevent waste of numbering resources, enforcement actions for violations of numbering rules, call routing and termination concerns, local number portability, and intercarrier compensation.

The NPRM also seeks comment on the possibility of expanding direct access to telephone numbers to providers of other types of innovative communications services (for example, telematics, machine-to-machine and one-way VoIP) and allowing VoIP Positioning Center providers access to pseudo-ANI (automatic number identification) codes for purposes of providing 911 and E911 service.

The NOI

Historically, telephone numbers essentially served as addresses and were utilized to route calls to designated telephone switches serving only customers in specific geographic areas. Hence, you could readily determine where a telephone customer was physically located based upon the first three digits of the telephone number, the area code. The significance of geographic area codes can often be seen in popular culture, such as this TV sitcom episode about 212 versus 646 in New York, or this rap song about conquests in different area codes.

However, as we have all noticed, the association of area codes with geographic locations has diminished over the years as more and more telephone users transition away from fixed telephone lines and towards more portable services like cell phones or VoIP. A caller from a 212 number no longer has to be physically located in Manhattan, and calls to a 305 number might actually reach someone in Texas instead of Miami. With the advance of technology, geographic telephone numbers are no longer determinative for the routing of calls to their final destinations.

Accordingly, the FCC’s NOI seeks comment on a range of issues related to a possible transition to non-geographically distributed telephone numbers. Among other things, the NOI seeks comment on the practical and policy implications of such a transition, whether there are any benefits or limitations to simply retaining the current system, public safety issues such as routing of 911 calls, interconnection concerns, and how to administer a non-geographic distribution regime.

Here’s what we want to know – what will artists rap about in the future after geographic area codes become a thing of the past . . . IP addresses?

To see all of the issues on which the FCC is seeking comment, the NPRM, Order and NOI can be accessed here. Interested parties will have 30 days to submit comments after the FCC’s release is published in the Federal Register. Stay tuned for an update once the comment deadlines are announced.

The network solution was always less accurate and more problematic due to the need for at least three proximate towers to get a meaningful reading.   On the other hand, not all cell phones had GPS capability, so there had to be an alternative to the handset approach. But the FCC has determined that GPS capabilities have become so widespread – and are likely to become even more so – that exclusive reliance on the handset standard is appropriate.  Eight years, the Commission figures, should give the public plenty of time to wring the useful life out of their existing non-GPS-capable phones before those phones get turned in for something new. The FCC is, however, requiring CMRS systems coming on line after the effective date of the new rules to comply immediately with the more rigorous handset accuracy standard. (In any case carriers can continue to use whole or hybrid network- based location techniques – but they must nevertheless meet the stricter handset-based standard of accuracy.)

The new rules also mandate that carriers conduct periodic tests of their actual accuracy levels, with the results to be reported to local authorities and the Commission itself. The Commission feels, understandably, that if called upon to measure their performance regularly and be judged on the results, carriers will be more likely to make maintenance of accuracy a priority.   The exact nature of the tests to be conducted awaits recommendations from the Communications Security, Reliability and Interoperability Council.

Always looking for ways to further the reach of call location technology, the FCC is also seeking comment (in the NPRM portion of the R&O/NPRM) on whether it should extend the E-911 accuracy requirements to outbound-only interconnected voice services. (After much debate, the FCC a few years ago extended the location-identification rules to two-way, interconnected voice services provided over the Internet.  The problem was that a computer being used for VoIP doesn’t know where it is, nor does the network, so the customer has to affirmatively register his/her location so the system will know where he/she is. This is not a very good solution since it depends on the customer to vigilantly protect his/her own health and safety rather than making it the service provider’s responsibility.) 

So now the FCC is now asking: (a) if it should extend this requirement incrementally to include one-way VoIP calling (a “Skype-out” only situation); and also (b) whether there is some way technically to locate VoIP users that does not depend on registration by customers themselves.   No one yet has been able to figure out how over-the-top VoIP providers can possibly do the latter.  

The FCC is also seeking input on how indoor calling locations can be established more accurately. This capability will be increasingly helpful as more and more consumers use their mobile phones as their only phone. Locating a cell phone in a ten-story apartment building on a city block would be impossible even with the strictest outdoor standards adopted by the Commission. Finally, the FCC wants to see if WiFi hotspots can somehow be used to help locate callers.

Comments on this forward-looking part of the FCC's action are due 60 days after publication in the Federal Register, with replies 30 days later. (Check back here for updates on those deadlines.)

We cannot close without sounding a warning note on the civil liberties front. The FCC certainly means well in trying to compel carriers and VoIP providers to carefully, constantly and precisely track the location of their customers. But the potential for abuse is already apparent. Divorce lawyers have discovered that they can track an errant spouse's whereabouts by cell phone. Law enforcement now relies on cell phones to easily track not only fugitives from justice but also “persons of interest”. Merchants track people’s whereabouts so that coupons and promotional offerings can be sent to them when they are immediately next to the potential point of sale.  

Knowledge of a person’s location, it turns out, is a valuable commodity indeed.  

But we are being forced to give this knowledge away for free and without any opt-out choice. The Commission’s R&O/NPRM nods at the privacy concerns raised by the heightened location requirements, but also notes that consumers’ privacy rights are statutorily waived in connection with the delivery of emergency services.

Imagine if a chip were compulsorily implanted in each of us at birth that would permit a government computer to know where we are at all times. In some ways that would be very useful – no lost children, no missing persons, no wandering dementia victims – but the notion is an affront to the inviolability of our persons. Unfortunately, the cell phone, which has become a kind of externally-appended computer chip for many of us, will soon serve that exact function.   We are learning once again that “security” is too often purchased with a subtle loss of privacy, a loss of freedom, and a loss of that most  cherished right cited by Justice Brandeis in his dissent in Olmstead v. United States: the right to be let alone.

The FCC sees this move as necessary because of the increasing number of people who depend on VoIP for all voice service, including 911 calls.  According to the Commission, market forces and network design have not been enough to ensure network reliability or prevent significant outages.  Rather, the Commission figures that intervention by the Commission itself affords the most effective means of reducing outages – and mandatory outage reporting gives it essential information in that mission.

To support this theory, the Commission offers the following: “[T]he frequency of wireline outages, which had spiked in 2008, has dramatically decreased since the issue was identified through the Commission’s ongoing, systematic analyses of monthly wireline outages.” That observation, while arguably true, is not necessarily persuasive. The wireline reporting rule, after all, has been in effect since 1992 – so it’s not clear how a spike in outages in 2008 and subsequent decrease can be said to demonstrate the rule’s effectiveness.   Likewise, the Commission’s claim that, in 2010, Commission staff finally discerned that outages were being caused by a relatively small number of factors – each of which could be addressed by applying a known best practice – suggests that the FCC may have fallen victim to the correlation/causation fallacy. (Wiki refers to that as “cum hoc ergo propter hoc”, which may thrill Latin scholars everywhere – but we prefer the XKCD illustration of the same phenomenon.)

While the NPRM seeks input on many particulars, the proposed new rules would essentially require both facilities-based and non-facilities-based VoIP providers, as well as broadband Internet access service providers, to report outages of at least 30 minutes or more that also meet certain other criteria. In keeping with the current rules, the FCC proposes to include degrees of degradation based on latency, jitter, and the like in the definition of “outage.” Timing would track the existing rules: a first report within 120 minutes of discovering the outage, with follow-up reports at 72 hours and 30 days. Reports are to be made electronically, through the Commission’s “Network Outage Reporting System” (NORS).

Commissioner McDowell concurred with the NPRM generally, even though he disagreed with his colleagues on the fundamental issue of whether the Commission has authority to do what it’s trying to do. In McDowell’s view, the FCC simply doesn’t have the authority to impose outage reporting rules on broadband Internet service providers. The majority, on the other hand, point to the FCC’s direct statutory authority to “protect and promote the availability of 9-1-1 services for customers of interconnected VoIP service,” noting that unless the FCC can guarantee the reliability of the underlying networks carrying VoIP service, it cannot fulfill its statutory mandate of ensuring that VoIP 911 calls will get through.   Despite his misgivings on this issue, McDowell was willing to open the question up for discussion, which is all the NPRM does at this point. Whether the ensuing discussion will persuade him that Congressional authority really is there remains to be seen.

Comments are due by August 8, 2011 and reply comments are due by October 7, 2011.

TRS contributions.  Section 103(b) of the CVAA requires that all VoIP providers contribute to the Telecommunications Relay Service (TRS) Fund.  (The TRS Fund supports services that allow deaf people or people with speech disabilities to communicate by phone.)  Of course, interconnected VoIP providers are already contributing (as our readers should be aware).  One of the two NPRMs addresses the Section 103(b) mandate by proposing to expand that requirement to non-interconnected VoIP providers, that is, VoIP that doesn’t interconnect with the regular telephone network.  We’re looking at you, Skype et al.

While the CVAA requires all VoIP providers to contribute to TRS, it leaves the FCC some discretion as to details. Accordingly, the Commission asks for comment on specific issues such as:

• Should the VoIP safe harbor apply to non-interconnected VoIP? (The “safe harbor” allows carriers to report a specified fixed percentage of revenue as interstate if they are unable or unwilling to measure interstate and intrastate traffic separately.)
• What revenues should be included in calculating TRS contributions (just revenues from interstate end-user calls, or revenues from all sources?)
• Should providers of free services, that have no end-user revenues, be required to make any contributions to the TRS fund?

Clearly the FCC is focused on how to treat free, non-interconnected Internet voice services (again, that’s Skype-to-Skype et al.). Some such services are supported by advertising, and the FCC suggests that it might require TRS contributions based on those revenues, in place of or in addition to subscriber revenues. The answers to these questions will significantly affect contribution amounts; affected companies will want to express their viewpoints when the docket is open for comments. 

Accessibility. As required by Section 104 of the CVAA, the FCC proposes to make VoIP, electronic messaging (emails, IMs, etc), and video conferencing “accessible to and usable by” persons with disabilities. Naturally, a new rule needs a new acronym – we must learn to call these types of services “advanced communications services” (ACS).

ACS will be subject to a higher standard of achievement than “telecommunications services” under the existing Section 255 of the Communications Act. Section 255 requires telecommunications manufacturers and providers (including interconnected VoIP but not including non-interconnected VoIP) to provide accessibility if readily achievable. For ACS manufacturers and providers, on the other hand, the presumption is reversed; they must make their services and products accessible to people with disabilities, unless it is not achievable to do so. (According to the CVAA, “achievable” means “with reasonable effort or expense, as determined by the Commission” taking into account a list of certain factors.)

Further, ACS providers may not install network features, functions, or capabilities that impede accessibility or usability. Finally, all equipment and networks used to provide ACS services must allow information content that has already been made accessible to pass through in accessible form. The NPRM seeks comment on definitions of relevant terms (e.g., what is “achievable”?) as well as input regarding matters such as:

• the standards that would apply to requests for waivers for equipment designed for non-ACS purposes but having incidental ACS capability
• whether any exemption(s) for small entities might be warranted
• obligations for applications or services accessed over service provider networks rather than based on user hardware features
• recordkeeping and enforcement 

Mobile web access. The ACS NPRM also gets a head start on assuring that Internet browsers built into mobile phones will be accessible to those with visual impairments. As with ACS services, mobile Internet browsers must be “accessible to and usable by individuals who are blind or have a visual impairment, unless doing so is not achievable.” The statutory requirements do not take effect for three years, but the FCC seeks input now on how best to get everyone up to speed before then.

Some ramp-up time may be needed, because ACS and browser accessibility raise practical difficulties. Accessibility functions will work only if they are supported by each component or layer of the device: i.e.,the hardware, the operating system, the user interface, the application, and the network. This practical reality has at least two major consequences: (1) a broad array of entities will be affected, some of whom may not have previously fallen under FCC jurisdiction and may not be habituated to regulatory compliance matters; and (2) various entities will have to cooperate with each other on technical standards, without much market motivation to do so.

So the FCC will have to get in the business of compelling information-sharing: mandating industry standards, setting up industry forums and working groups, and so on. Yes, even Apple may have to share information about iPhone design, which is certainly not their custom. This process inevitably raises hard questions. For example: Who will develop and enforce compatibility standards? What is the appropriate balance between the necessary sharing and protecting proprietary, confidential technical information? Will components have to be compatible only with existing fellow components, or also with potential future components? At what stage of development should accessibility be considered?

The FCC has tackled tough inter-industry compatibility issues before, with some success. Doing so in this case, however, will certainly require the agency to delve into technical minutiae generally outside its usual expertise (such as software). It will also require constant calibration to keep things running smoothly in the future.

The bottom line here is that Congress, through the CVAA, is determined to impose new and substantial burdens on VoIP providers in order to ensure technological access for people who are deaf, blind or subject to other disabilities or impairments. That means that the FCC has little discretion going forward with these two NPRMs, at least with respect to the Big Picture aspects. Congress did, however, give the Commission some leeway in working out the operational details, and it’s there that affected parties (including, particularly, VoIP providers) may have their best chance to ease the ultimate burden. Given that, VoIP providers should give serious thought to submitting helpful comments in these proceedings.

While no one can argue with the goal of helping hearing-impaired folks get access to cell phones, a question certainly arises as to whether the market itself would address that problem more directly by simply meeting the needs of customers. The handset market is highly competitive, and in a well-functioning marketplace, the addition of HAC features should win consumers who need that capability. The heavy hand of Soviet-type market intervention may not necessarily deliver what the people need or want. 

We have seen situations, for example, where customers actually preferred not to buy an HAC phone, but rather to use an adapting device that works in conjunction with their hearing aid and their existing handset. Since that device promotes precisely the goal the FCC is targeting – i.e., affording the hearing-impaired easier access to mobile telecommunications – you might think that the Commission’s rules would encourage the development and marketing of such devices. Yet according to the FCC, such a device – standing alone or when used in connection with an otherwise non-HAC unit – doesn’t count for HAC compliance. So even though a carrier may be giving the consumer what he actually wants and needs in the way of HAC capability, it gets no credit under the FCC's rules.

Also questionable is the severity of the penalties imposed by the FCC. We have seen cases where carriers have been fined $15,000 dollars for each handset that they are short in meeting the requisite HAC percentages. By contrast, a carrier who fails to light and mark a tower structure properly – thus creating a direct hazard to human life – may be fined significantly less. Query whether, on our scale of penal values, a risk to human life should be rated as less reprehensible than a small diminution in the variety of cellular handsets available to consumers.  

So there appears to be merit to taking a step back at this juncture and taking a hard look at how the system is working.   Carriers and manufacturers who are subject to these rules may wish to weigh in to let the Commission know what’s good and bad about the current regulatory framework.

Here are some of the specific questions the FCC is posing:

• Are the FCC's HAC rules effectively and efficiently resulting in improved HAC handset availability with a wide range of features?
• Are the special compliance circumstances of smaller carriers being appropriately handled?
• Is the system effectively and efficiently gathering needed HAC information and disseminating it to those who need it?
• Are point of sale disclosure and testing requirements effective and useful?
• Do wireless headsets create any special problems?
• Are the Commission’s rules stimulating innovation and investment in HAC technology?

Comments in response to the Bureau’s inquiry are due by February 14, 2011; reply comments are due by March 1, 2011.

According to the Court, the fatal flaw in the video description regulations was lack of authority. The Commission, of course, is a creature of Congress and, as such, the Commission can do only what Congress has authorized it to do. The Court held that the 1996 Act fell short because that Act didn’t explicitly authorize the FCC to prescribe video description regulations; rather, it merely instructed the Commission to look into video description and provide a report to Congress. By contrast, the Act was very clear in authorizing the Commission to impose closed captioning requirements. The Court also observed that the legislative history indicated that the idea was considered and deliberately rejected.

And as far as the FCC’s general regulatory authority goes, the Court concluded that that authority stopped short of rules “that significantly implicate program content.”   The Court held that video description is “content” because, unlike closed captioning, it is not automatically generated and requires some artistic input. (In fact, some content providers have claimed that video description creates copyright issues as it creates a “derivative work” of the original—but that’s a story for another day).

The FCC, noted the Court, was not able to cite one case in which a content regulation based on the FCC’s general authority to regulate broadcasting survived court scrutiny – thanks mainly to the First Amendment. Specific instances where the FCC does regulate content, such as indecency and elections, have explicit statutory support. Without such support, the FCC is not at liberty to impose regulations on content.

Now, a decade later, the FCC has received the authority it lacked in 2000. It does not have carte blanche, however. After one year and a rulemaking, it must reinstate only its original rules, with certain modifications that appear designed to lighten the burden on broadcasters.  For example, the Act requires the FCC to consider extending the original “technical capability” exemption – which previously applied only to “pass though” stations – to all providers and owners of video programming. It also allows the FCC to exempt any provider (or category of provider) who shows that compliance would be “economically burdensome.” Given the potential controversy of such issues, this reinstatement may turn out to be more complicated than it looks.

The Act provides a mandate separate and apart – and in addition to – the Commission’s general regulatory authority over telecommunications common carriers, broadcasters, and cable services.  As a result, the FCC will now be able to regulate many different types of entities and activities, but only to the extent that they entail communications for the disabled. Could this trailblazing measure open the door for other types of broadband regulation not necessarily tied to disability? That remains to be seen, but the potential cannot be denied.

Don’t look for any changes to happen right away, though – even the changes specifically addressed in the Act. The statute lays out a number of timelines for the Commission, all of which expect the FCC to get started right away, but most of which do not contemplate final action for at least a year (and in many cases, several years).

Virtually every segment of the broadcasting and telecommunications industries that has anything to do with broadband or video programming will be affected. Key provisions include:

• Manufacturers and service providers of “advanced communications services and equipment” – that is, interconnected and non-interconnected VoIP, electronic messaging services (e-mail, text messaging), and video conferencing – must ensure that their equipment or service is accessible to individuals with disabilities. 
• Internet browsers provided by a manufacturer or provider of mobile phones must be usable by the blind or visually impaired, including the ability to launch the browser.
• TV programs that are re-broadcast over the Internet must retain closed captioning. This provision may be more feasible now that software is becoming available to automatically convert existing closed-captioning for webcast versions of television shows. Internet-only TV shows and user-generated content are not required to have closed captioning. As an aside, however, it is getting easier for users to voluntarily provide closed captioning. Google has just introduced a YouTube feature that will enable content creators to add voice-recognition closed-captioning (we note that viewers can also use this feature to translate captions into various languages – extending its usefulness well beyond the disabled community). Google closed-captioning and translation functions are fresh out of beta and amusingly glitchy, but are a glimpse of things to come.
• Hearing aid compatibility requirements are extended to anything that remotely resembles a telephone—that is, equipment “designed to provide 2-way voice communication via a built-in speaker intended to be held to the ear in a manner functionally equivalent to a telephone”.  (It will be interesting to see how the Commission squares this provision with its own proposed method of extending HAC to VoIP: i.e. defining a “telephone” as “anything that is commonly understood to be a telephone”.)
• The Commission is required to reinstate its video description regulations (which were struck down by the D.C. Circuit in 2002).  Video description is a service that provides a voice-over description of the visual components of a video program (“as Bambi stands alone in the forest, a light snow starts to fall.”). The Commission’s initial video description rules, adopted in 2000 and tossed by the Court in 2002, were ginned up by the FCC without Congressional authorization. The lack of such authorization was fatal, according to the Court. That should not be a problem this time around, as the 21CenComVidAcc expressly provides the FCC all the authority it should need.
• The Commission must require video programmers and distributors to convey emergency information to the blind and visually impaired. The FCC is also authorized to promulgate regulations to ensure access by individuals with disabilities to an IP emergency network.  
• Video display apparatus must be able to display closed captioning, video description, and emergency information.  Devices that record video must enable the pass-through of such information.
• Accessibility functions, including those on navigation devices such as converter boxes, must be easier to activate. Advocates of the legislation cited circumstances in which a blind user, for example, would have to navigate multiple (visual) menus before being able to activate a voice feature.
• Telecommunications Relay Service funding will be available to support programs to distribute equipment designed to make telecommunications service, Internet access service, and advanced communications services accessible by individuals who are deaf-blind.

An ambitious array of administrative errands, to be sure. But don’t worry – the FCC will have some help, because Congress has ordered it to establish a couple of “advisory committees” to assist in the development of the regulations mandated by the Act. The FCC’s first order of business will be to form the committees, dubbed (ruh roh – Potential Confusion Ahead!) the “Emergency Access Advisory Committee” and the separate and distinct “Video Programming and Emergency Access Advisory Committee”. Both must be established by December 8, 2010. They will then proceed to investigate and survey and do the kinds of things that advisory committees do, including especially making recommendations.

As far as substantive rule changes go, 21CenComVidAccAct specifies that the video description rules must be reinstated by October 8, 2011 (although compliance will be phased-in over a period of several years). The closed captioning decoding regs are due within six months of the Advisory Committee report on closed captioning (estimate somewhere between October, 2011 and April, 2012 for those rules). Additional rules will be developed in due course.

With all these irons in the fire, we can expect a slew of documents to come out of the FCC in the relatively near-term as it works its way through the honey-do list that Congress has thoughtfully passed along. Check back here for updates.

The new rules are widely seen as addressing the “iPhone exemption” from the HAC obligations.    The previous rules included a de minimis exemption from the HAC requirements for handset manufacturers who made only one or two handset models per air interface. This seemingly tiny loophole was intended to avoid overburdening small manufacturers. A major beneficiary of the exemption, however, turned out to be none other than Apple, which was able to manufacture millions and millions of iPhones without complying with the HAC standards. The reason? Apple made only one model and so fit comfortably under the exemption.

No longer.

The FCC has now plugged that loophole by jiggering with the eligibility requirements for the de minimis exemption. Among other changes, the exemption is now limited to “small” manufacturers, i.e., those with 750 or fewer employees. Non-exempt manufacturers must make at least one HAC phone using acoustic coupling and at least one inductive compliant device if it makes three or fewer devices. Apple had argued that the imposition of this requirement would stifle innovation of the type that produced the popular iPhone in the first place, but the FCC concluded that access for the hard of hearing was more important. The revised de minimis provisions go into place two years after the Order is published in the Federal Register.

The FCC has also adopted a forward-looking plan to facilitate the integration of multi-band phones – including even phones using frequency bands for which standards haven’t yet been developed – into the overall HAC regulatory scheme. It did so by delegating to its staff the authority to impose rules with respect to frequencies for which new standards are adopted in the future by the American National Standards Institute (ANSI). (ANSI will be adopting HAC standards for more frequencies regularly in the years ahead.)   Once a technical standard has been adopted, the staff is to make the requirement applicable on 12 months’ notice to Tier I carriers and 15 months’ notice to others.   Heretofore there had been some question about how to handle phones which worked on multiple frequencies only some of which were subject to ANSI standards.

In another future-oriented move, the FCC has clarified that its HAC rules apply only to “handsets operating in a normal voice mode and typically held to the ear.”   As smart phones converge more and more with computers, it could become difficult to distinguish a small laptop computer with a microphone and speakers from a large telephone handset, since both may have the capability to initiate and conduct voice calls. The FCC’s clarification relieves computer manufacturers of concern on this score.   

The FCC has also changed its rules to lasso in handset manufacturers who do not sell their products through cell phone service providers. Previously, the rule applied only to manufacturers whose equipment was sold through the normal carrier distribution channel (i.e., through service providers). Now, however, manufacturers who distribute through big box stores like Best Buy, online, at their own stores or even directly to businesses for distribution to their employees will be covered.  (Manufacturers will have 12 months from Federal Register publication of the Order to bring themselves into compliance.)

In the Order, the Commission tabled a few suggestions such as display screen and volume controls pending its next annual review of the field. At the same time, it has proposed several additional rule changes. 

First, the Commission has proposed extending the HAC rules to emerging technologies such as VoIP over WiFi.  Such Internet-based voice services are expected to grow rapidly as broadband becomes a substitute for voice telephony.   While it would be consistent to apply the HAC rules to devices serving functionally identical purposes, there is still some question about the permissible scope of the FCC’s authority. The Hearing Aid Compatibility Act (which compels the FCC to regulate in this area) directs the FCC to ensure access to “telephone service”. But does a voice communication which passes entirely outside the traditional phone network truly involve access to “telephone service”?

The Commission’s initial proposal is to write itself a blank check on that score: it would define the term “telephone” to “encompass anything that is commonly understood to be a telephone or to provide telephone service, as that understanding may evolve over time, regardless of regulatory classifications evoked elsewhere in the Communications Act”. Under that definition, obviously VoIP and its kin would clearly be subject to the FCC’s jurisdiction. Still, having been slapped down recently on its authority to regulate the Internet, the Commission may be feeling a little skittish about asserting jurisdiction without public input. Accordingly, it has asked for comment on this interpretation.

The Commission has further sought comment on whether it could extend its “in-store” testing requirement to non-service providers.  The current rules require stores operated by carriers to permit in-store testing of HAC devices. The FCC presumably has authority over common carriers to require such testing in connection with their licensed activities, but it is far from clear that such authority extends to independent stores that merely happen to sell telecom handsets. The Commission thinks that the Communications Act gives it authority to regulate “retail operations that have become enmeshed in the provision of wireless service.”  But the FCC gets to that result by relying on precisely the stretching kind of argument that was soundly rejected by the court when the FCC claimed jurisdiction over the Internet, so this particular proposal may need some re-thinking. Finally, the FCC has asked for comment on how to handle the special problem of GSM-based 1900 MHz band handsets which can be made compliant by operating at lower power levels. Comments on this phase of the inquiry will be due 45 days after the Commission’s order is published in the Federal Register.

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 Requirements. Section 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 Requirements. Section 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.

The FCC reassures us the job can be done. After all, it says, the country came through other transitions successfully. But the examples it offers are less reassuring: the shift from analog to digital cell phones, and from analog TV to digital TV. The first of these was mostly transparent to consumers. Most of us didn’t know when our cell phones went digital, nor did we care. The other example, the DTV transition, was the just opposite: a years-long, sometimes chaotic process that many viewers found to be confusing and disruptive.

Regulation played very different parts in these two events. The cell phone transition was managed by a small number of service providers and handset companies with little involvement from the FCC. In fact, the cell phone rules barely mention the distinction between analog vs. digital service. The DTV transition, in contrast, was the FCC’s show from the start. It could not have happened any other way. Broadcasters saw no point in launching digital broadcasts until viewers had digital TVs; but no one would buy digital TVs until there were digital broadcasts to watch. It took the FCC to cut the Gordian knot, first by requiring digital broadcasting and later on by limiting the sale of analog-only TVs.

The shift of the telephone system from circuit-switching to IP will not conform to either of these paradigms. The players here are far more numerous than in the cell phone analog-to-digital shift, and far less coordinated. But neither are those players waiting for the FCC to take the lead, as it did for digital TV. Different parts of the phone system have begun making the IP shift in piecemeal fashion. The FCC will step in to regulate a process that is already well underway.

The title of the public notice contemplates transition to an “all-IP network.” It will be many years, if ever, before the network is “all-IP.” Until then, the FCC will have to manage a phone system that is partly circuit-switched and partly IP. Today the center of the network, such as long-distance connections, is increasingly IP-based. But most people at home still get their service as they did a century ago: over a circuit-switched copper pair. There are exceptions. Some households rely only on cell phones; some use VoIP services like Vonage or Skype; and those who get phone service through the cable company also have VoIP, perhaps without knowing it. The numbers of these groups will grow. But especially in rural areas, where technology options arrive late, the old-fashioned switched copper loop will continue to be the mainstay.

Presently the FCC regulates the switched-circuit parts of the network and leaves the IP parts alone. (It subjects some VoIP to limited requirements.) As the switched-circuit portion shrinks, that separation will come to make less sense. But the way forward is not clear. On the one hand, to newly regulate IP services would undo 30-plus years of successful policy. On the other, abrupt deregulation of switched-circuit operations will not work, either. The parts of the phone system that will keep switched-circuit technology the longest are the most rural and least profitable. Without continued regulation, a phone company would have every incentive to walk away from just those users who have no other options.

We hope the public notice brings lots of good advice. The FCC is going to need it.

The Digital Revolution

Flash forward to the future.  All phone calls are digital. The telephone handset converts the voice signal to a series of 0s and 1s, compresses the bit stream, separates it into “packets,” and gives each packet an address corresponding to the phone at the other end of the call. Traveling through the Internet, re-routed on the fly, the phone-call packets share the wires with packets carrying other people’s phone calls, video, web pages, baby photos, and everything else we send to each other. Among the different “protocols” for setting up and addressing packets, the ones used on the Internet are collectively called “Internet protocol” or IP. The term VoIP refers to the combined technologies for carrying voice over IP – that is, over the Internet.

Most home and office phones are still tied to circuit-switched local telephone systems. But companies like Skype and Vonage offer VoIP service to end users. People who receive their telephone service through a cable company or FIOS also use VoIP, although that fact is often buried deep in the service agreement.

VoIP has important advantages over the circuit-switched phone system. Because voice packets make up only a tiny fraction of the data carried on the Internet, transport is cheap. Calls within the U.S. are usually free; calls to other countries cost just a few cents per minute. Phone numbers need not be tied to location, so a subscriber in Sydney, Australia can have a local New York City phone number, which further lowers costs for calling friends in New York (although a careless pizza order can be expensive).

In contrast to its historically tight regulation of the circuit-switched phone system, the FCC takes a mostly hands-off approach to data services. Its Computer II decision of 1976, well before the public Internet emerged, kept full common carrier regulation over phone lines, even if they also carry data, but forbore from regulating the data. The Internet is squarely in the data category; and true to its word, the FCC left the Internet alone. As broadband emerged, the FCC largely deregulated the facilities that carry it, which left only voice lines under traditional regulation.

The voice vs. data distinction worked well for thirty years. But then came VoIP, which straddles both categories. Early VoIP drew little attention from regulators, being just another novel Internet application that needed special equipment and skills. But the technology soon moved beyond the hobbyists and into the mainstream. A subscriber could place and receive calls using what looked like an ordinary phone, yet bypass most of the phone system. Passing the ultimate test for ease of use, VoIP became popular with many elderly people as an inexpensive way of keeping in touch with far-flung family members.

The FCC, which dislikes ontological questions, had to make a decision: Is VoIP a voice service or non-regulated data service? It depends, was the answer. VoIP that meets the “quacks-like-a-duck” test – that functions as a full substitute for traditional voice service, phone number and all – became subject to many of the same rules as traditional voice: 911 call location, access by disabled users, law enforcement wiretaps, privacy rules, and universal service payments. Yet even quacks-like-a-duck VoIP remains exempt from most common carrier regulation.

The result is two phone systems operating side by side. The old one is ubiquitous and regulated. The new one is used only by some people, though more every day, and is mostly outside FCC regulation. The two interconnect to the extent that VoIP users can place and receive calls to and from ordinary phones. But not to and from everywhere – a point that has now caught the attention of the FCC, and could portend major changes in phone service.

Google Voice Muddies the Waters

VoIP can do a lot more than just emulate a circuit-switched phone. A service called Google Voice shows some of the possibilities. We described GV in an earlier post: A subscriber receives a new phone number, local in a region of the subscriber’s choosing.  Calling that number rings all the customer’s phones, wherever they are:  office, home, cell, etc.  Different callers can be automatically routed to different phones, or forwarded selectively to still other phones, or fed different voice mail greetings, or given different rings, or blocked altogether.  All the voice mails from all the phones end up in one place, where they can be read in printed form, like emails, or listened to online from anywhere. There are provisions for setting up conference calls, and for recording phone conversations for online storage. And all of this is free.

Except for the final connection to a dialed or forwarded number, the whole thing runs over the Internet.

But although the Internet goes everywhere, Google Voice does not. Complaints from many quarters allege that GV refuses to place or forward calls to certain rural areas. Google has said why: it wants to avoid paying high access charges. Of course, a GV subscriber whose Aunt Mildred lives in South Succotash still has the option of reaching her with an ordinary call over the old system. But GV’s form of discrimination, if true, raises one of those awkward definitional problems that so trouble the FCC. A common carrier is not allowed to pick and choose among call destinations. It must connect wherever the customer dials. A non-common-carrier is not subject to that obligation.

In response to the complaints, the FCC sent a letter to Google that asks two kinds of questions. First is whether and how Google Voice restricts calls to certain phone numbers or groups of numbers. Translation: do you discriminate? Second and third are whether GV charges end users for its services (no), and whether use of GV is by invitation only, as Google claims (yes, although anyone can request an invitation.)

Why do those last two questions matter? The law defines a common carrier service as one that is (1) offered for a fee (2) directly to the public, or to enough people that they effectively constitute the public. If the FCC finds the GV service is “for a fee” and offered to the public (or most of it), then GV is a common carrier service and must connect to anywhere. But that is not a likely outcome. Google no doubt will make a case that the service is truly free of charge, and truly limited in availability. The FCC would then have to agree it is not a common carrier service. The non-discrimination rules would not apply, and GV could decline those South Succotash calls with impunity.

Rewriting the Rules

The problem is, if we care about the future of the phone system, then none of Google’s possible answers yields a good result. The incongruity of shoehorning an IP service into circuit-switched regulation suggests that technology may have outpaced the rules.

Suppose the FCC, against all odds, decides that GV is a common carrier service. It must then require GV to provide rural connections and pay rural access charges. Google’s business model collapses and, with it, any incentive to continue offering the service. The public loses out. 

On the other hand, if GV is held not to be common carriage, then companies like Google can skim off the cheap, easy-to-provide services, and leave the more expensive ones, like rural voice calls, to the traditional regulated phone companies. As urban and suburban customers abandon their old phone service for cheap VoIP, the regulated companies’ revenues will fall. Some of their costs, like system maintenance and universal service fees, will become an increasing percentage of revenues. Local phone rates will climb, driving more users to VoIP alternatives, in a self-reinforcing spiral. That is also a poor outcome.

Unfortunately, the only lasting solution entails an overhaul of the Communications Act. When we last did that, in 1996, it was not fun for anyone, and we’re sure not looking forward to it now. But with the engineers having gotten out ahead of the lawyers, the lawyers have little choice but to catch up.

The rough outlines of a reform are easy to foresee. In the past, Congress and the FCC have eased regulation of services that became subject to competition. In the long-distance market, for example, the AT&T divesture of 1984 and a pro-competitive FCC created dozens of players. (We know exactly how many, because they all used to phone us at dinnertime.) Cell phone service has always been at least minimally competitive, and has never been subject to traditional telephone regulation.

Sooner or later, Congress will have to find that IP-based services like cable-provided VoIP, Skype, and Google Voice are giving local phone companies enough competition to justify some easing of traditional regulation. Rates, including access charges, will become more responsive to market forces. That will make traffic pumping less profitable, but will also give companies like Google Voice less expensive access to more areas of the country. Traditional phone companies will also benefit, in some respects, as they will find it easier to offer innovative services of their own.

But across-the-board deregulation will not do the trick. We still need a “carrier of last resort” to serve the always-expensive rural customers. We still need ways to subsidize service to high-cost areas and low-income subscribers, and to assist hearing- and speech-impaired users. The states, too, have a large role in regulating local telephone service, and may rank various outcomes differently. A largely rural state with a widely-dispersed population may have priorities at odds with those of a more urban state having dense concentrations of sophisticated users.

In short, VoIP and its spin-offs promise better, more flexible, and less expensive phone service. For the time being, though, these benefits will not reach everyone. Circuit-switching, although technologically obsolete, is everywhere, and will remain part of the telephone system for decades to come. The goal is a regulatory system that lets each deliver what it does best, keeping the enormous efficiencies and flexibilities of VoIP without sacrificing the ubiquity of the circuit-switched system.

Getting all the moving parts to mesh correctly will be an enormous undertaking. But we think the tone of the FCC’s letter to Google signals an awareness that the present regulatory scheme will not hold up. Inequities and discrepancies of the kind now presented by Google Voice will only get worse. Occasional patches might keep the current regime working a little longer, but an overhaul is coming due.

The FCC’s letter may be the first important regulatory step in that process.

It will allow VoIP on the iPhone 3G channel after all. If you hear loud cheers from the general direction of Mountain View, CA, that’s the Google folks breaking out the Red Bull. Apple still has not formally approved the Google Voice app, but a big obstacle is now out of the way.

The coincidence? Exactly one day before AT&T’s about face, the FCC announced the date, two weeks from now, on which it will formally propose its network neutrality rules. One of the key factors that precipitated the current surge of interest in network neutrality was a 2007 request from Skype, a VoIP company, asking the FCC to prohibit wireless companies (like AT&T) from blocking VoIP service. So the rules that might eventually be adopted, a year or two from now, may require action along the lines that AT&T took today.

Down here in the bunker we are a little surprised at the news. The wireless carriers have been erecting a protective wall of press releases that say network neutrality rules will bring about the end of technical innovation, social progress, and cheap cell phones. And AT&T’s decision may fundamentally change the economics of wireless phone service. We can expect vigorous marketing of VoIP services to iPhone users. That will probably cause a significant drop in paid-for voice minutes. Will AT&T start charging more for its data plan? Will Apple abandon the subsidy on the iPhone and start charging customers what the phone actually costs? AT&T may have brought us a little closer to a system in which customers have free choice and pay only for what they choose.

Sometimes the FCC can get the results it wants without actually regulating. Sometimes just announcing the date on which it plans to begin to consider regulating is enough.

When the issue first surfaced at the FCC in 2008, the Enforcement Bureau “recommended” that the FCC find that Verizon’s retention marketing practices were permissible. Score one for Verizon.  But the FCC ultimately declined to follow that recommendation, holding instead that Verizon’s practices were prohibited. Score one for Verizon’s competitors, primarily cable operators providing VoIP services.  At that point, we described the state of the law as “a mess on top of a mess,” and suggested that if the case were to be appealed, the Court might just throw up its hands and defer to the FCC.

And that’s precisely what happened. The Court upheld the FCC’s finding that Verizon’s retention marketing procedures were prohibited, although the decision is far from a ringing endorsement of the FCC’s analysis.  But unless the Supreme Court reverses the D.C. Circuit’s decision – an unlikely prospect – carriers should avoid using retention marketing procedures similar to Verizon’s.

The core issue is whether Verizon’s retention marketing gambit constituted a use, for its own marketing, of proprietary information that it had received from another carrier "for purposes of providing any telecommunications service."   That last phrase, in particular, is the bugaboo. After all, in Verizon’s case, the customer information in question was technically not being provided to Verizon so that Verizon could provide any telecommunications service. Au contraire – it was being provided so that Verizon would stop being that customer’s service provider. According to Verizon, the Section 222(b) prohibition was never triggered because Verizon was not providing a telecommunications service in connection with processing the cable operator’s LSR.

The FCC didn’t buy that argument. It held instead that the statutory prohibition applies when proprietary information is given so that the new phone company (here, the cable folks) can perform a telecom service.  And, perhaps uncertain of the soundness of that reading, the Commission went further: even if Verizon’s interpretation were correct, Verizon's retention marketing practices would still violate the statute because Verizon’s provision of local number portability is itself a telecommunications service (a novel reading, since such “service” does not involve transmission and is not provided for a fee).

The Court chose not to get sucked into the details of this debate. Instead, it acknowledged that the language of Section 222(b) is ambiguous. That acknowledgment opened the way for the Court to defer to the FCC’s interpretation, in accordance with well-established precedent mandating judicial deference toward an agency’s interpretation of ambiguities in statutory language which the agency is charged with administering. So even though the Court recognized certain “oddities” in the FCC’s approach, it upheld the Commission’s holding.

(By the way, the Court held that the LSR constitutes proprietary information, even to the receiving carrier.)

The Court also rejected Verizon’s argument that the FCC’s Order restricts Verizon’s First Amendment speech rights.  Applying an intermediate scrutiny standard of review (because the speech at issue was, in the Court’s view, “commercial”), the Court concluded the FCC’s approach was permissible because it was designed to promote “neutrality” in the losing carrier’s execution of the number port.  

The Court also rejected Verizon’s argument that Section 222 should not apply because the entities sending the LSRs were not themselves telecommunications carriers. Those entities in this case were subsidiaries of the cable operators that served only the cable operators and did not hold themselves out to the public for service.  According to the Court, this was a “close” call; nevertheless, the FCC prevailed because the cable entities (1) self-certified that they operate as common carriers, (2) entered into interconnection agreements with carriers like Verizon, and (3) had obtained state certificates of public convenience and necessity.  The Court admitted that none of these facts in isolation was very compelling, but together were sufficient.  (This holding has potential for mischief in the future as the regulatory status of VoIP is established by the FCC and reviewed by courts.)

The bottom line is that Verizon’s retention marketing practices are prohibited until further notice.  Carriers should consult with communications counsel in revising or commencing any practices that could be seen as similar to Verizon’s.