FCC Extends Service Discontinuance Rules to VoIP

On Wednesday, May 13, 2009, the Federal Communications Commission (FCC) issued its latest order imposing a regulatory obligation on interconnected voice over Internet protocol (I-VoIP) services.¹ I-VoIP service providers must now comply with the same Part 63 discontinuance rules as non-dominant domestic telecommunications carriers. The FCC issued the new rules without deciding whether I-VoIP is a telecommunications service or an information service—an issue that it once again put off for another day.

The rules require I-VoIP service providers to give customers at least 30 days' notice of any service discontinuance, reduction or impairment, impose a largely pro forma application requirement, and require that state regulators be notified of the discontinuance. Note: The rules do not apply to disconnecting an individual customer for nonpayment. (A detailed review of the new requirements is provided in the appendix included in this advisory.)

The Commission grounded its authority to issue the rules in Title I of the Communications Act, which has been the basis for most of the recent orders regulating I-VoIP services. Because the federal courts have previously affirmed the FCC's authority to impose other telecommunications regulations on I-VoIP, we do not expect that the VoIP Discontinuance Order will be subject to serious challenge in court.

Background

The VoIP Discontinuance Order is a product of the FCC’s IP Enabled Services docket. That proceeding began more than five years ago with a Notice of Inquiry that sought comment on more than 100 separate issues, including whether the FCC should “extend certain consumer protection obligations, such as the discontinuance obligations of section 214, to any class of IP-enabled service provider.” A few commenters addressed the discontinuance issue at the time, but the issue has been largely dormant since then. Interest revived in July 2007, when SunRocket abruptly closed down, leaving more than 200,000 VoIP customers stranded without service.² While many asked the FCC to do something then, it did not.

When viewed in the context of the FCC’s other orders regulating I-VoIP services,  extending the existing carrier discontinuance rules to I-VoIP service providers will probably not be very controversial. In 2005, the FCC required I-VoIP services to include emergency calling (E-911) capabilities. As the FCC explained in the VoIP Discontinuance Order, customers that rely on their I-VoIP service for 911 “would lose the ability” to place such calls if their provider abruptly terminated service without notice.³ Thus, according to the FCC, the new obligation “fosters ‘rapid, efficient, nation-wide, and world-wide wire and radio communication service’ by safeguarding the public interest in continuity of such services ... .”⁴ That judgment is not likely to be second-guessed by the courts.

Analysis

The VoIP Discontinuance Order is most noteworthy in that it serves as a reminder of the unsettled regulatory statusof I-VoIP services—in particular the question of whether they are properly classified as telecommunications or information services. The issue remains important to the industry because, while the FCC has imposed a variety of what it calls “consumer protection and public safety” requirements on I-VoIP services—including emergency calling, law enforcement, privacy, disability access and universal service fund contribution obligations—providers remain largely exempt from what the FCC alternatively characterizes as “public utility,” “economic” or “common carrier” regulation. The VoIP classification issue arises in debates over intercarrier compensation, as well.

The FCC has ruled that information services and telecommunications services are mutually exclusive categories under the Communications Act, and has issued literally dozens of orders over the years—some dating back to the early 1980s—classifying different services as one or the other. I-VoIP providers have argued that their offerings are “information services” under the Act.

The Act defines “telecommunications” as the “transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.”⁵ A “telecommunications service” is the offering of telecommunications to the public for a fee.⁶ An “information service,” by contrast, is “the offering” of a capability “for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.”⁷

Under this framework, I-VoIP services are information services for at least three reasons: First, transmission of an I-VoIP call requires a “net protocol conversion” between the Internet protocol (IP) format used on the provider’s IP network and the time-division multiplexing (TDM) format of the public switched telephone network (PSTN). Second, in many if not all cases, the I-VoIP offering is integrated with other advanced information service functionalities. Third, the transmission of I-VoIP calls inevitably requires the interaction with and processing of stored information in a manner that the FCC has ruled qualifies as an information service.

While current law would appear to preclude classifying I-VoIP as a telecommunications service, the Supreme Court has said that it is “improbable that the Communications Act unambiguously freezes in time the Computer II treatment of facilities-based information-service providers.”⁸

Thus, for more than a decade, the FCC has suggested in one order after the other that it might take a different approach to the classification of VoIP services in the future. The agency did so again in the VoIP Discontinuance Order, explaining that it “has not classified interconnected VoIP service as a telecommunications service or information service as those terms are defined in the Act, and we do not make that determination today.”⁹

Those who look to last week’s order for some indication as to how the FCC may rule in the future will find a mixed bag. The agency’s statement that “[f]rom the perspective of a customer making an ordinary telephone call, we believe that interconnected VoIP service is functionally indistinguishable from traditional telephone service,”¹⁰ will no doubt be cited by those who favor traditional regulation of VoIP services.

But this statement is not only of dubious factual accuracy, as services like the Verizon Hub Phone exemplify; there are indications in the text of the order which suggest that the FCC may be inclined to take a different approach.

For example, the agency specified that it did not view the new discontinuance rules as a form of “economic regulation” and noted that it had never imposed such regulations on I-VoIP services.¹¹ Likewise, in addition to Title I, the FCC grounded the order in Section 706 of the Communications Act, a statute that the agency has frequently linked to broadband, information service offerings.¹² The FCC also explained that it did not view the order as “inconsistent” with its Vonage ruling, which definitively pre-empted state regulation of certain I-VoIP services or the deregulatory policies underlying Section 230.¹³

Finally, the order represents the latest step in the “federalization” of the regulation of I-VoIP services. As the FCC imposes one federal regulatory obligation after another on I-VoIP, the rationale for a parallel state regulatory apparatus becomes less compelling. The FCC is increasingly “occupying the field,” leaving little room for the states to regulate, even if they wanted to.¹⁴ At the same time, it is possible that the new FCC administration will be more sympathetic to state regulators seeking authority to regulate VoIP. We will keep you apprised.

Appendix: summary of discontinuance requirements

The FCC Order amended the Part 63 domestic discontinuance rules to encompass I-VoIP service. Specifically, when used in Sections 63.60 through 63.90 of the Commission’s rules, the term “carrier” includes I-VoIP providers and the term “service,” when used to refer to a real-time, two-way voice telecommunications service, includes I-VoIP service.

Additionally, a discontinuance, reduction, or impairment of service includes when an I-VoIP service is converted to a service that permits users to receive calls that originate on the PSTN but not terminate calls to the PSTN, or the converse.

Accordingly, before an I-VoIP provider may discontinue, reduce, or impair service, it must provide all affected customers with written notice that includes the provider’s name and address; the date of the planned service discontinuance, reduction, or impairment; the geographic areas where service will be affected; a brief description of the affected service; and the statement found in Section 63.71(a)(5)(i) of the Commission’s rules.

Because of the nomadic nature of some I-VoIP services, the FCC stated that it may, upon request, authorize in advance another form of notice in lieu of notice at the customer’s billing address.

In addition to providing notice to their customers, I-VoIP providers must file with the FCC an application for authorization of the planned discontinuance. The application must include, in addition to the information set forth in the notice provided to affected customers, a brief description of the dates and methods of notice to all affected customers, and any other information the FCC may require.

Furthermore, an I-VoIP provider must serve a copy of the application on the public utility commission and to the governor(s) of the state(s) in which it proposes to discontinue, reduce or impair service (this includes states where the I-VoIP provider has no customers), as well as to the secretary of defense.

Applications will be automatically granted on the 31st day after the FCC releases public notice of the application unless the FCC notifies the applicant that the grant will not be automatically effective.

Some states also have their own discontinuance requirements. I-VoIP providers can continue to argue that such rules are pre-empted from applying to I-VoIP, and this new FCC order does not preclude that argument.

Furthermore, the new requirements do not extend to I-VoIP services that are “mobile services” as defined in 47 C.F.R. § 20.3.

Implementation period

The rule amendments will become effective 30 days after publication in the Federal Register; however, the requirements to provide notice to customers, to file an application with the Commission, and to provide information to other governmental entities will not become effective until receipt of Office of Management and Budget approval.

Davis Wright Tremaine counsels a wide variety of communications companies (including VoIP providers) on various FCC and state regulatory requirements and related competitive issues. Should you have any questions about the impact of this latest decision on your operations, please contact us.

FOOTNOTES

1 See IP Enabled Services, Report and Order, WC Dkt 04-36 (FCC 09-40 May 13, 2009) (“VoIP Discontinuance Order”), ¶ 14, n.46.

2 VoIP Discontinuance Order ¶ 14, n.46.

3 VoIP Discontinuance Order ¶ 11.

4 VoIP Discontinuance Order ¶ 11 (quoting 47 U.S.C. § 151).

5 47 U.S.C. § 153(43).

6 47 U.S.C. § 153(46).

7 47 U.S.C. § 153(20).

8 Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 996 (2005).

9 VoIP Discontinuance Order ¶ 8 n.21.

10 Id. ¶ 12.

11 Id. ¶ 3.

12 See, e.g., Cable Modem Declaratory Ruling, 17 FCC Rcd 4798, ¶ 3 (2002).

13 VoIP Discontinuance Order ¶ 15 & n.49.

14 Many states do not want to regulate VoIP. At least eleven states – including Missouri, Pennsylvania, Delaware, Maryland, New Jersey, Indiana, Kentucky, Georgia, Virginia, Florida and the District of Columbia – have enacted legislation that precludes their public utility commissions from regulating VoIP services.