Should You Be Concerned With CALEA? Probably

While new economic realities force telecommunications carriers and service providers to cut personnel and drastically reduce operating expenses, these companies are bearing ever increasing costs to meet new mandates from law enforcement agencies. These legal demands often force an increase in personnel and operating costs associated with servicing legal orders for customers records and lawful interception of customers communications.

The need to spend more resources on such a noncore and nonrevenue generating function could not come at a worse time for the industry. And, it is unlikely any providers or even resellers are immune. The increased focus on anti-terrorism and drug enforcement amplified by the expanded authority granted to Federal Law Enforcement under the USA Patriot Act of 2001, and the Homeland Security Act of 2002 has fueled a significant increase in subpoenas, court orders and search warrants for access to customer records and communications.

Demand for customers records issued to carriers in 2003 are estimated at more than 1.2 million. Further, carriers reported increases in subpoenas of as much as 30 percent in 2004. That trend is continuing in 2005.

The Administrative Office of U.S. Courts tracks statistics on wiretaps, and reports the overall number rose more than 19 percent in 2004. Federal and state judges approved 1,710 wiretaps in 2004, none of which were related to terrorism investigations, for which an additional 1,754 orders were issued last year according to a separate report put out by the Department of Justice. That makes last years total number of wiretaps 3,464 for both criminal investigations and Foreign Intelligence Surveillance Act wiretaps.

WHERE DOES CALEA COME IN?

The Communications Assistance for Law Enforcement Act (CALEA) was adopted in 1994, and sought to maintain law enforcements ability to conduct wiretaps in the face of advancing communications technologies. The act tries to balance several factors: meeting law enforcements needs by cost-effective means, protecting privacy and security of communications not authorized to be intercepted, and minimizing cost of compliance on residential ratepayers. And to make the burden more palatable, the act allows reasonable time and conditions for compliance with an industry adopted technical standard.

The issue of what constitutes by costeffective means seems to be the sticking point, along with the fact that service providers do not want to openly pass on any CALEA related costs to their ratepayers. Somehow the idea of a tap tax does not resonate well with service providers or their ratepayers. Its hard enough to get ratepayers to agree to 911 fees.

Although many would like to recover their capital costs for developing and deploying CALEA-compliant technology, they are prohibited from doing so by the statute unless their switches were installed prior to Jan. 1, 1995. So, for new CLECs, VoIP providers and MVNOs the burden appears to rest solely on the backs of those providing the services they resell. Well, here we are more than 10 years after passage of CALEA and the industry and law enforcement still are arguing over who has to comply and who is going to pay.

ARE NONFACILITIES-BASED CARRIERS OBLIGATED?

As a general rule, CALEA applies to the facilities-based carrier in the first instance. This is the provider that has the technical capability to provide access to the communications that are carried over the network. This does not mean, in our view, that a nonfacilities-based carrier has no responsibility under CALEA. Additionally, a nonfacilities-based carrier would want to ensure the service provider from whom the switching equipment is leased to provide access to the network is CALEA-compliant. If the facilities-based provider is in the new and rapidly growing broadband or VoIP area, this assurance may have to await the FCCs final rules and the inevitable appeals. Of course, Congress could change all of this in legislation, including the consideration of the USA PATRIOT Act provisions that will sunset unless Congress extends them.

Since, in most instances, the nonfacilities-based provider owns the enduser customer, this provider can expect to receive subpoenas, court orders and search warrants for production of records, etc. This is not a CALEA obligation but an obligation of doing business generally in the communications field. Compliance with these forms of legal process can be challenging and create potential legal risks for improper handling.

BUT WHO PAYS?

The FCCs Notice of Proposed Rulemaking tentatively concluded carriers are responsible for CALEA development and implementation costs after Jan. 1, 1995. Well, isnt that what the CALEA statute says? And the FCC asked for more information from service providers so they can assess costs. So, it looks like the burden of proof is on the service providers. They will have to submit cost calculations and supporting analysis to justify their claims CALEA costs are prohibitive and may create a competitive disadvantage in the marketplace.

Of course, as usual, law enforcement and industry have opposite views on wiretap charges. The industrys view is provisioning and delivery costs (clearly allowed by the electronic surveillance statutes) and CALEA capital costs are reimbursable. Law enforcement, as one would expect, has a narrower view especially, as it relates to CALEA capital costs. In fact, some law enforcement agencies have gone so far as to prohibit service providers from including their CALEA capital costs, specifically by including language to that effect in their wiretap court orders.

In light of the events of Sept. 11, 2001, and the resulting war on terrorism, my money is on law enforcement! Its hard to believe the FCC, and the courts for that matter, will permit law enforcement to lose one of its most critical investigative techniques. So, the new VoIP, CLEC and MVNO service providers likely will have to pay for CALEA after all. With that in mind, it may just be time to think about outsourcing that noncore, nonrevenue generating function.

Mike Warren is vice president of fiduciary services at NeuStar Inc., and former chief of the FBIs CALEA Unit.