FCC Tightens Leash on VoIP

ON JUNE 27, THE FCC released the text of its Universal Service Contribution Methodology Report and Order and Notice of Proposed Rulemaking, which, for the first time, extends Universal Service Fund contribution requirements to interconnected VoIP providers. The ruling additionally requires interconnected VoIP providers to register with the FCC as providers of domestic, interstate services. Having already extended Communications Assistance for Law Enforcement Act (CALEA) obligations and E911 requirements to VoIP providers, the FCCs recent action represents yet another extension of regulatory control over VoIP service offerings.

Interconnected VoIP services are those VoIP services that enable real-time, two-way voice communications; require a broadband connection; require IP-compatible customer equipment; and permit subscribers to receive calls from and initiate calls over the PSTN. Without determining whether VoIP services are telecommunications services or information services, the FCCs order concludes that interconnected VoIP providers are providers of interstate telecommunications for purposes of the universal service requirements of the Telecommunications Act of 1996 and that the public interest requires they contribute to USF.

Like wireless providers, interconnected VoIP providers can contribute by using a safe harbor, actual revenue or a traffic study to estimate interstate revenue. Due to the difficulties associated with allocating interstate versus in-state calling by VoIP customers, the FCC will permit interconnected VoIP providers to assume only 64.9 percent of their telecommunications revenue are interstate. The FCC set this safe harbor level after determining interconnected VoIP service is predominantly used for interstate and international calling like wireline toll service. Since the percentage of interstate revenue reported to the FCC by wireline toll providers is 64.9 percent, the FCC established the same percentage for interconnected VoIP providers.

Interconnected VoIP providers that offer customers a bundled package of services including equipment and enhanced services may have difficulty identifying revenue from interconnected VoIP services. In such circumstances, the FCC determined that interconnected VoIP providers may use the two safe harbors from the FCCs 2001 CPE Bundling Order, so they can elect to either 1) report revenue from bundled interconnected VoIP services and equipment/enhanced services based on the unbundled service offering prices, with no discount allocated to the interconnected VoIP services; or 2) treat all revenue from the bundled services as interconnected VoIP service revenue. For example, if an interconnected VoIP provider provides a bundled service offering combining voice mail (an enhanced service offering that is $6 on a standalone basis) and interconnected VoIP service ($20 on a standalone basis) for a bundled price of $22, the interconnected VoIP provider can either report $20 in interconnected VoIP service revenue (allocating no part of the $4 discount to the interconnected VoIP service) or report the $22 bundled price (by electing to treat all bundled revenue as interconnected VoIP service revenue).

Interconnected VoIP providers that choose to report actual interstate revenue for USF purposes should be aware that the FCC has indicated that such providers would no longer qualify for the preemptive effects of the Vonage Order and would, therefore, be subject to state regulation. The FCC preempted state regulation of Vonage in the Vonage Order because it was impossible for the company to separate its traffic (interstate versus intrastate) on a jurisdictional basis. Therefore, if an interconnected VoIP provider were able to separate interstate revenue from intrastate for purposes of USF, it would be able to do the same for purposes of state regulation.

Interconnected VoIP providers also are permitted to report interstate revenue based on a traffic study estimate. However, to do so, they must first submit the proposed traffic study to the FCC for approval.

The USF order requires interconnected VoIP providers file FCC Forms 499-Q, starting with the Aug. 1, 2006, form, reporting revenue for the second quarter of 2006 and projecting revenue for the fourth quarter. Such providers are also required to submit annual FCC Forms 499-A, starting with the April 1, 2007, form, as well as an FCC Form 499-A registration due Aug. 1.

Wholesale carriers supplying telecommunications services to interconnected VoIP services must continue to include the revenue derived from those services in their contribution bases for two quarters after the effective date of the USF order. This likely will result in both the wholesale provider and the interconnected VoIP provider contributing to USF on the same transmission and facilities, which the FCC recognizes.

The FCCs USF order also seeks industry comment on a number of issues applicable to VoIP providers. Specifically, the FCC seeks comment on whether to reconsider the USF obligation imposed on interconnected VoIP providers and whether such providers can identify the amount of interstate and international (as opposed to intrastate) services they provide.

While the FCC has yet to decide whether interconnected VoIP services constitute telecommunications services or not, the reality is that the agency has already regulated such services in a variety of ways. The FCCs recent USF order extends such regulation by imposing the burdens of the USF program upon interconnected VoIP providers. The months and years ahead will almost certainly bring further federal regulation.

Thomas K. Crowe, Esq., and Joshua Guyan, Esq., are Washington, D.C.-based attorneys specializing in communications legal/regulatory matters. They can be reached at +1 202 263 3640, via e-mail at [email protected].