IP Telephony: A Regulatory Jump Ball

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A few years back, when cable operators began to offer high-speed data, the industry assumed the offering was a cable service — a regulatory classification with which both MSOs and local regulators were comfortable.

After years of litigation, though, it turned out that both the cable industry and local governments had made the wrong assumption. In March, the Federal Communications Commission declared cable-modem service an information service, and launched a rulemaking to decide what types of regulations should apply to it.

History might be about to repeat itself.

Two weeks ago, Comcast Corp. said it would install the technology to deliver local phone service via the Internet for likely commercial rollout in portions of Philadelphia during the second quarter of next year.

As the joke goes, IP telephony has been one of those services that has been two years away from hitting the market for the last five years. But Comcast's announcement — which included a specific rollout date — likely means the era of promises is over.

UNCLASSIFIED

Comcast is pushing ahead with IP telephony (also called voice-over-Internet protocol, or VoIP) even though the FCC has yet to classify it. Time Warner Cable, Charter Communications Inc. and Cox Communications Inc. are other large operators now engaged in IP telephony trials.

Federal law has three major classifications, and VoIP perhaps falls into one or more of them. IP telephony could be an information service, a telecommunications service or a cable service.

Information services are lightly regulated, telecommunications services typically include common-carrier requirements and cable services face myriad local requirements, including franchising and franchise fees.

The FCC deliberately let the cable-modem classification debate rage for years. According to agency and industry sources, it addressed the IP-telephony issue in a 1998 report to Congress, noting that the service might be difficult to classify.

Sources said the agency has no immediate plans to classify IP telephony.

As a result of the FCC inactivity, the industry might be about to experience a reprise of the cable-modem battle.

RISKY BUSINESS

Without the certainty of FCC rules, MSOs will face a regulatory state of nature. They'll apparently need to engage in self-selection for IP telephony — at least for a while.

Judging from the battles over Internet service, such a move is unlikely to be risk-free.

If an MSO says IP telephony is an information service, in keeping with the FCC's March decision, a state public-utility commission that regulates common carriers might sue the company.

If an MSO says it is an information service or a telecommunications service, a local franchising authority might sue to seek franchise-fee payments, claiming IP telephony is a cable service.

Asked for comment, a Comcast spokeswoman would not say whether IP telephony is an information service, a telecommunications service or a cable service.

"Our immediate focus is on the technical and operational issues that need to be solved to give consumers a choice of IP phone service," the spokeswoman said. "We will meet the regulatory requirements appropriate to the service we actually offer a year from now."

A source at another top MSO said the company believed that IP telephony should be regulated like circuit-switched telephony — namely, as a telecommunications service.

IP telephony shoots bits of data from the modem to a telephone. That prompts at least one question: If the FCC considers cable-modem service an information service for PC users, why wouldn't it call VoIP an information service for telephone users?

MUDDY WATERS

Washington attorney Nick Miller, who represents numerous local governments, said the FCC decision to classify cable-modem service as an information service invited the debate that is going to occur over IP telephony.

He said the FCC's policy is incoherent because the agency opted to slap a classification on only one service that arrives via cable modem — high-speed data.

"Nobody knows what they are doing here," said Miller. "The commission has failed to define what constitutes cable-modem service."

Comcast's IP telephony is a phone-to-phone service, like traditional phone service. But the day could come when IP telephony is a phone-to-computer service or a computer-to-computer service that provides dial-tone access with the click of a mouse.

Because markets haven't yet developed and regulators are still struggling to craft definitions, the National Cable & Telecommunications Association declined to take a position on the legal classification of IP telephony.

"IP telephony presents novel regulatory questions that will be addressed in due course," said NCTA spokesman Marc Osgoode Smith.

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