# Presentation: 134397

## VoIP FCC Forum – December 1, 2003

**Charles M. Davidson**
**Florida Public Service Commission**

**Notes:**
Mr. Chairman...members of the Commission...it is an honor to be with you today.

But for your leadership, Chairman Powell, and that of the entire FCC...this nation’s communications sector would not be as strong as it is.

Regarding VoIP, we are at a cross-roads....and the fate of this industry rests squarely in the palm of your hands.	[Click] 

## Regulatory Uncertainty

- Country is at a crossroads–policymakers must choose: either let the market work for the benefit of consumers or subject vibrant new technologies to legacy regulation.
- Florida has taken a “hands-off” approach to VoIP. New legislation mandates that VoIP be free of “*unnecessary regulation ... regardless of the provider.*”
- Other states, like Minnesota and California (at least pre-Schwarzenegger) appear willing to regulate VoIP.

**Notes:**
[Click] [Click]  As a nation, we can either embrace the hands-off approach endorsed by Florida under the leadership of Governor Bush & the Legislature [Click]....or the hands-on approach suggested by others. 

## VoIP – Contextual Issues   

*The environment surrounding today’s emerging IP network is ****completely dissimilar**** to the environment in which the wireline telephony market developed.*  In that world:
*Networks were built at the local level*...then connected across localities...then across states...the circuit-switched network could be understood on a state-by-state basis.
- In the nascent telephony market (this time last century) connecting competing phone cos. in cities across the U.S. was impossible absent a company with the resources and economies of scale/scope to “connect the dots.”

**Notes:**
 [Click]  When the call for regulating VoIP is made,....it is important to remember that the environment of VoIP is very...VERY different from the environment of nascent wireline telephony.

 [Click]  In that market,...networks were built at the local level...then connected across cities...and then states.

 [Click]  Connecting the local networks required...a market leader with the resources to connect the dots.

## Contextual Issues (cont.)

- American Telegraph & Telephone had the ability to provide long distance connections between local networks.
*The quid pro quo*...AT&T was given a regulated monopoly over most of the local and LD network in return for economic regulation of the monopoly.
*A strong state role *based on...physical nature of circuit-switched network, presence of local monopolies, and overall intrastate nature of local telephony.

**Notes:**
The quid pro quo  was...[1] a monopoly for AT&T...[2] economic regulation of that monopoly ...[3] a necessarily strong state role in the process. 

## Key Facts re VoIP

*VoIP is a nascent technology*....
*VoIP is a “borderless” technology*...unlike the circuit-switched network, the IP network is “connectionless”...traffic is *global* and no longer defined within the limited jurisdiction of states.
- VoIP is part of an IP network that is being built-out and *interconnected by robust intermodal competition*...there is no one dominant player.
*VoIP is spurring price competition and new service offerings*...(e.g., Cablevision offering unlimited enhanced VoIP service and e911 for $34.95/mo...3⁄4 of broadband customers taking).

**Notes:**
[Click]  VoIP like wireline telephony a century ago is...admittedly...a nascent technology

[Click]  VoIP, however, is a borderless technology that is not tied to state & local jurisdictions...

[Click]  VoIP also does not depend on “A” market leader – or a regulatory quid pro quo with a market leader – to be built out

[Click]  Competition is building out the network...and competition is bringing new offerings to consumers 

## Guiding Principles

*Salute Capitalism.  *In a competitive market, economic regulation is a disincentive to the investment that will be required to build-out the IP networks of the future.
*Competition Benefits Consumers.*  Policy should recognize & respect that intermodal competition (i.e., phone vs. cable vs. VoIP vs. wireless) benefits consumers.
*Emerging Technology.  As *VoIP is an emerging, competitive technology, VoIP providers should *not* be subject to rules designed to forge competition in established, monopoly markets.

**Notes:**
A regulatory response to VoIP (or any emerging technology) should be grounded in basic guiding principles

[Click]  The most basic principle holds that in a Capitalistic society where there is a competitive market, economic regulation is a disincentive to investment

[Click]  Related, free-market competition benefits consumers

[Click]  As an emerging competitive technology, VoIP should not be subject to rules designed to forge competition in established, monopoly markets  [Click] 

## Guiding Principles (cont.)

*No Economic Regulation.  *Where VoIP is provided purely as an application over a broadband network (pure VoIP), there should be no economic regulation (*i.e.,* regulation of prices, service quality, etc.).
*Regulatory Parity.*  VoIP providers – whether new firms, IXCs, or LECs – should be subject to the same (de)regulatory regime.
*Interstate in Nature.  *Because VoIP technology is borderless, VoIP services should be presumed to be inherently interstate in nature (at least absent clear evidence to the contrary in a particular case).

**Notes:**
[Click]  [Click]

[Click]  A VoIP regime should also reflect this competitive landscape by subjecting all VoIP providers to the same deregulatory rules.

Finally, on a more technical note, the borderless nature of VoIP suggests pretty clearly that it ought to be deemed interstate in nature  [Click] 

## Guiding Principles (cont.)

*There’s VoIP and Then There’s VoIP.*  Distinctions between pure VoIP providers and POTS providers that use VoIP merely as means of transport may call for policy differences.
*Limited “Necessary” Regulation.*  VoIP providers do not have to be classified as CLECs, and VoIP need not be subjected to full range of telecom regulation in order to address public safety and welfare issues (e.g., E911 and USF).

**Notes:**
First, differences between pure VoIP and VoIP as transport may call for different policy responses

Second, VoIP does not have to be subjected to full range of telecom regulation in order to address some of the public issues on the table.

## Devil is in the Details

- Access Charges
- E911
- Service Quality
- USF Issues

- Consumer Protection
- Numbering
- TDD Compatibility
- VoIP as Transport

**Notes:**
VoIP Raises a Number of Issues Beyond the Philosphic Issues and I will touch briefly on three – Access, e911 and Universal Service. 

## Access Charges

-  **VoIP Scenarios:**** **
**Pure VoIP:**  VoIP Phone/Computer to VoIP Phone/Computer without touching the PSTN.
**POTS:** Plain old telephone to telephone with IXC using VoIP for transport in the IXC’s enterprise.
**VoIP Phone to Plain Old Telephone:**  VoIP is used to transport portion of the call, but the PSTN is relied upon for delivery of the call.

**Notes:**
As has been discussed, there are a number of scenarios in which discussions of VoIP relate to access.

## Access Charges (cont.)

**VoIP to VoIP**

- Broadband Network

- VoIP

- VoIP

## Access Charges (cont.)

**POTS to POTS (VoIP as Transport)**

- IXC’s Network

- Call Direction

- PSTN

- IXC POP

- IXC POP

- PSTN

- LATA

**Miami, FL**

**Washington, DC**

## Access Charges (cont.)

**VoIP to POTS with Internet**

- Internet/Broadband

- PSTN

- Server/Gateway Miami

**New York, NY**

**Miami, FL**

- VoIP

## Access Charges (cont.)

**VoIP to POTS without Internet**

- PSTN

- Server/Gateway

- CO

- Miami

**New York, NY**

**Miami, FL**

- LATA

- VoIP

## Access Charges (cont.)

- The entry of new providers & new types of providers is an opportunity for reform of rules, but in the meantime...
*Access Charges Should Only Apply to VoIP Where PSTN is Accessed (and Only to Extent Accessed)...*Intercarrier compensation/access rules would apply to that portion of a VoIP call that relies upon the switched network.
*Simple “But For” Test Could Apply.***  **If a VoIP call could *not* be made *but for* access to the PSTN, then the VoIP provider would be subject to access charges under this approach.

**Notes:**
On the access issue, industry & regulators agree that the rules are increasingly difficult to apply and probably need changing.

Until then, a simple but-for test, if applied, would hold that if a VoIP call cannot originate, terminate or be delivered but for reliance on the PSTN....then access charges apply.

From my vantage, this is a matter of fundamental fairness...and it also reflects a notion of regulatory parity with wireless providers...who typically pay access. 

## Access Charges (cont.)

*Regulatory Parity Argues for Treating Wireless and VoIP Providers Similarly.  *Wireless LD calls that touch the PSTN pay access charges (for originating/terminating access) to the appropriate LEC whose PSTN facilities were used to route the call to and from the IXC POPs.  *Does a compelling reason exist to treat VoIP differently than wireless providers.*

## E911 

*Guiding Principle # 1 – Public Safety Argues for a Ubiquitous 911 System.*  Consumers want 911 services.  At the time of need, callers may forget they are using a VoIP phone.  A child in danger should not be deemed outside the 911 system because her parent opted for a VoIP system.
*Guiding Principle # 2 – Those Utilizing the 911 System Should Support the 911 System***.**  A VoIP provider that transfers calls to the 911 system should bear its “fair share” of maintaining the 911 system.  Regulatory parity argues that those who use the system should, regardless of the platform used, support the system.

**Notes:**
E911 presents, probably, the most challenging issue from a technical vantage...

As a matter of public safety & welfare, a ubiquitous 911 system is essential.

Because of how the system is funded, regulatory neutrality and basic fairness hold that if you use the system, you help pay for the system. 

## E911 (cont.)

*Guiding Principle # 3 – Afford a Reasonable Opportunity for Industry to Develop Standards.*** **Public safety regulation ultimately applied to VoIP should allow a reasonable opportunity for providers to develop & implement solutions (*e.g., *for syncing VoIP with the circuit-switched e911 system).
*Guiding Principle # 4 – Shared Responsibility. *Industry has responsibility to fully inform consumers.  Consumers have a duty to educate themselves and understand that their use of a competitive, emerging communications service may have a different 911 functionality than their plain old telephone.

**Notes:**
The last two principles are somewhat related.  The industry ought to be afforded some reasonable amount of time to arrive at some technical solutions ......and consumers need to understand that the functionality of this new technology may differ from the plain old telephone they are used to. 

## Universal Service

*The Debate:  *Nascent technologies should not be burdened with old taxes, _but_ the country has  established universal service policies that require funding.
*The Problem:  *As consumers increasingly turn to  substitutes for a taxed service, not subjecting those substitutes to universal service fund obligations picks winners and losers.  Some competitors but not others would bear the brunt of funding the program.
*The Need:*  Reassess how competitive market should impact universal service business plan.

**Notes:**
Mr. Chairman & Commissioners, as you all are aware, US presents a hosts of issues...a key one being the scope and funding of the program as new technologies enter the market. 

## Universal Service (cont.)

*Guiding Principle # 1 – Expansive Regulation is Not Required.*** **VoIP (like wireless) does *not* have to be subjected to the full range of common carrier/telecom regulation in order to require VoIP providers to contribute to the USF.
*Guiding Principle #2 – ****Revenue Neutrality.*** Any extension of USF obligations to VoIP providers (or others) should *not* constitute new/additional revenue or a new/additional tax.  Rather, it should reflect a reallocation of a burden amongst some group of similarly-situated competitors.
*Guiding Principle #3 – Regulatory Parity.*  Those who make contributions ought to be considered for distributions.

**Notes:**
My wish list on this issue has three components:

First, [Click] recognition that wide-open regulation is not required to address USF issues.

Second, [Click] that any extension of USF obligations to new providers be done in a revenue neutral manner...not a new revenue but rather a reallocation of an existing burden

Third, [Click] that those who pay in are at least in the running to withdraw. 

## Universal Service (cont.)

-  *Reform of USF – Select Issues*
- What is the role of the Universal Service Fund in the 21st Century?  To ensure service until competition arrives?  To promote competition?
- How can policy-makers ensure revenue neutrality as new firms enter the market?  Presumably, the goal is not an ever-increasing fund but, rather, a reallocation of costs across the changing pool of participants.
- What is the relationship between an increasingly competitive communications market and the USF?  Should it decline in size as competition increases and new providers enter the market?

## Universal Service (cont.)

-  *Reform of USF – Select Issues*
- If a firm could serve a rural area without a subsidy, is a subsidy needed?  Where competing platforms exist, and some can price compete without a subsidy, what is the role of a subsidy?
- When would a new platform be subject to USF obligations?  A nascent technology with a 5% share might be less able than a technology with a 25% share to withstand the USF burden.
- Should a consumer with: (i) a wireline phone; (ii) a wireless phone; (iii) a VoIP phone; (iv) an eFax number; and (v) device of your choice have to contribute 5X the amount of someone with one device?

## Challenges for Regulators

- Understand that the rules addressing the combination of established networks & regional monopolies are *not* suited to (and not intended to govern) emerging technologies.
- Where a competitively available service may substitute for basic local exchange service, resist the urge to regulate the new service like the old and consider deregulating the old.
- Resist the notion that regulators can “create” competition and innovation between market participants if they just keep tweaking the model.
- In short...*let the market work.** *

**Notes:**
Mr Chairman, I would like to conclude with one statement, really a plea [click] ...and that is a plea to other state regulators to recognize that we are no longer in the world of the regulated monopoly...and to let the market work.

Thank you.