As I noted in my first post-Verizon v. FCC blog
post, the Net
Neutrality decision both dramatically expanded and dramatically limited the
FCC’s authority. This has a large number of immediate implications for the
FCC’s ability to conduct its work. While this ripples across just about every
area of FCC jurisdiction, it has its most immediate impact on the transition of
the phone system to all IP.
At a glance, the biggest losers are cable operators (except
Comcast), CLECs, and anyone else that wants mandatory interconnection or cares
about call completion. That means resolving the rural call completion problem
just became harder, since VOIP providers cannot, now, be subject to the duty to
complete calls. The most recent FCC Order, which imposes reporting
requirements is still OK. But the original declaratory ruling requiring
IP-based providers to actually complete calls is probably a dead letter.
On the other hand, the decision potentially empowers the state
Public Utility Commissions (“PUCs”), or gives the FCC power to delegate to
state PUCs, the ability to override the laws passed in 27 states that prohibit
any regulation of IP based services, and to override limits on municipal
Rural Call Completion, Service Blocking.
As the Court explained in the Net Neutrality decision, when
the FCC decides to put something in the “Title I” Information Services box, the
one thing the FCC can absolutely never do is make it work like the phone
Problem: What if it is the phone system?
As regular readers know, we have spent a lot of time here at
PK talking about [the transition of the phone system] to an all IP (Internet
protocol) system. In particular, we have highlighted the fact that the FCC has
declined to declare that “voice-over-IP” (VOIP) is a Title II telecom service. Instead,
the FCC has pretty much regulated it through ancillary authority and hoped no
So what happens now? In certain ways, like privacy and other
forms of consumer protection, the FCC has expanded authority. For example, the
FCC now has clear authority to extend slamming and cramming rules to IP-based
On the downside, however, the FCC can no longer require VOIP
providers to complete phone calls, can no longer prohibit VOIP carriers from
blocking calls, and can no longer impose “carrier of last resort” (COLR) on
IP-based service providers. I’m also
somewhat doubtful that the FCC can regulate the inter-carrier compensation rate
(ICC) of VOIP providers, so the ICC Reform Order of 2011 (especially its
decision to zero out ICC and force carriers to use “bill-and-keep”) probably
Since all of these have already come up as potential
problems, the inability of the FCC to solve them (other than by classifying
VOIP as Title II) is problematic (unless the FCC classifies VOIP as Title II).
Problems in Action
Lets give a few examples of why this matters. In 2007,
AT&T and several other carriers decided
to block calls to freeconferencecall.com over a dispute about the rates
paid under the rather arcane rules of telephone call compensation. The FCC issued
an Order saying that phone companies are not allowed to engage in such
self-help and absolutely, positively MUST put calls through to whoever
customers dial. Because—wait for it – they are Title II common carriers.
Post IP transition (and absent reclassification as Title
II), could the FCC issue such an Order? No. Because, according to the D.C.
Circuit, requiring a provider to complete a call (aka “no blocking”) is “the
essence of common carriage.”
The FCC issued a similar
order in 2012 to address the problem
of rural call completion. In fact, the FCC’s entire campaign to address the
problem of rural call completion is grounded in Title II common carrier
authority and the duty to serve everyone. As the Court explained in the Net
Neutrality decision, this is precisely
the kind of thing you CANNOT DO to a non-Title II common carrier service.
So, post-IP transition, absent reclassification, the FCC
would be unable to ensure that all calls go through when you dial your 10-digit
phone number. They would not be helpless. They could – as they can with net
neutrality – require companies to disclose if they are blocking calls or
otherwise “managing” traffic in a way that degrades rural traffic. As everyone
in rural America (and the folks at freeconferencecall.com) can tell you, this
has been highly effective at curbing the problem.
As always, I am struck by the number of people who insist
that such things would never happen when they already happen. The usual
response to evidence that the problem already does exist is to observe that it
doesn’t happen often (i.e., it
doesn’t bother me), and therefore we don’t need a rule – conveniently
overlooking the fact that the reason these things don’t rage out of control is
because we actually have a rule that deals with them effectively.
Finally, as the fact that phone companies blocked the
popular freeconferencecall.com service in 2007 and that VOIP providers continue
to use methods that degrade service to rural America, customer backlash is not
a particularly good safeguard against this sort of behavior. Heck, we are
talking about companies
with the lowest customer satisfaction rating in America. As demonstrated
this South Park episode, pissing off customers is practically their
No More Carrier of
Another casualty of the disappearance of Title II common
carriage is the idea of “carrier of last resort” (COLR). For 100 years, we have
considered phone system so basic that you have an absolute right to use it. As
we noted back a few years ago when the BART messed with the cell system, this
prevents anyone from just cutting you off because they don’t like you. More
importantly, even if you live in an area that is geographically hard to serve,
and therefore expensive to provide, the phone company has to bring you service.
Right now, the FCC requires a phone operator to serve an
entire area. As states eliminate their own COLR requirements (and about 15 have
already done so), the ability of the FCC to require carriers to serve everyone
whether or not they want to serve them becomes increasingly important.
But this doesn’t apply to Title I services. To the contrary,
the requirement to “serve the public indiscriminately” is one of the core
obligations of common carriage. So after the IP transition, the FCC will have
no authority to require carriers to provide COLR.
Again, lets consider a real life example. The FCC has before
it Verizon’s request to discontinue common carrier service in Mantoloking, NJ
and replace it with an unclassified service called “Voice Link.” Verizon points
to the presence of Comcast, which offers VOIP in Mantoloking, NJ, as a
reasonable wireline alternative.
But Comcast, as Title I provider, has no obligation to serve
everyone who asks. If Comcast kicks you off its network for being a bandwidth
hog, they have no obligation to give you phone service. If you build a new
house somewhere too expensive for Comcast to pull a line, they have no
obligation to build out to you just to give you phone service. If you cancel
your Comcast cable and/or broadband, they have no obligation to sell you voice.
And as a consequence of yesterday’s decision, the FCC cannot do anything about
Yes, cell services are still common carriers. But if you
don’t have good coverage in your home, that doesn’t help.
If the FCC grants Verizon’s request to discontinue phone
service in Mantoloking we would, for the first time in the United States for
100 years, have a place where you have no legal guarantee of getting wireline phone
service. This is, of course, only a problem if you happen to be the person
denied service. For most people, this probably won’t be an issue.
But to the extent the FCC takes seriously its responsibility
to provide phone service “to all Americans,” it needs to recognize it will no
longer have the authority to do that without reclassifying VOIP as Title II.
State Laws Barring
Regulation of IP-Based Services.
On the bright side, it appears that the army of lobbyists
pushing through laws actively preventing states from regulating IP-based
services or prohibiting them from offering municipal broadband (or voice)
wasted their money. As the decision explains, Section 706 delegates power both
to the FCC and “to each State commission with regulatory jurisdiction over
telephone service” the same broad powers to encourage broadband availability
and infrastructure build out.
Since Section 706 is a federal law, it preempts state law.
Since the law delegates this power to the “state commission with regulatory
jurisdiction over telephone service,” the delegation applies directly to the
PUC and the state legislature and cannot remove it. At the very least, the FCC
may delegate authority if it so chooses.
Certainly this has limits, as noted above. State PUCs could
not impose COLR obligations on IP-service providers or require IP-based service
providers to complete calls – as noted above. But they can use this authority
to impose quality of service requirements and other forms of consumer
protection. Such mandates could extend not merely to VOIP, but to broadband
access service as well.
Where Does This Leave
The Phone Transition?
First, let me note that classifying VOIP as Title II is not
the same as classifying broadband access as Title II. What the two have in
common is a court decision that says “you are either information service or
telecom service – choose.” In the case of VOIP, the FCC has hemmed and hawed
and generally delayed making a choice for the last 10 years. Barring an appeal
from someone that changes this opinion, the luxury of kicking this can down the
road has ended.