Neither Fish Nor Fowl: New Strategies for Neither Fish Nor Fowl: New Strategies for Selective Regulation of Information ServicesSelective Regulation of Information Services

A Presentation at theA Presentation at the

3535thth Annual Telecommunications Policy Research Conference Annual Telecommunications Policy Research Conference George Mason University School of LawGeorge Mason University School of Law

Arlington, Virginia September 28-30, 2007 Arlington, Virginia September 28-30, 2007

Rob Frieden, Professor of TelecommunicationsRob Frieden, Professor of TelecommunicationsPenn State UniversityPenn State University

(814) 863-7996; email: rmf5@psu.edu(814) 863-7996; email: rmf5@psu.eduwebweb: : http://www.personal.psu.edu/faculty/r/m/rmf5/http://www.personal.psu.edu/faculty/r/m/rmf5/

blog:blog:telefrieden@blogspot.comtelefrieden@blogspot.com

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Goals of the PaperGoals of the Paper

Explain the rationale behind the telecommunications service/information Explain the rationale behind the telecommunications service/information service regulatory dichotomy. service regulatory dichotomy.

Identify instances where technological and marketplace convergence Identify instances where technological and marketplace convergence prevent sustainable compartmentalization of actual services such as Voice prevent sustainable compartmentalization of actual services such as Voice over the Internet Protocol (“VoIP”). over the Internet Protocol (“VoIP”).

Track instances where the FCC re-regulates information services using Track instances where the FCC re-regulates information services using clever or creative reading of statutory language, or a liberal interpretation clever or creative reading of statutory language, or a liberal interpretation of its “ancillary jurisdiction” under Title I of the Communications Act. of its “ancillary jurisdiction” under Title I of the Communications Act.

Use case studies to demonstrate how the FCC engages in questionable, Use case studies to demonstrate how the FCC engages in questionable, results-driven decision making that nevertheless does not trigger close results-driven decision making that nevertheless does not trigger close scrutiny by reviewing courts. scrutiny by reviewing courts.

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Explaining the Telecommunications Explaining the Telecommunications and Information Service Dichotomy and Information Service Dichotomy

Following models created by the FCC in the Following models created by the FCC in the Computer InquiriesComputer Inquiries and Judge Greene and Judge Greene in the AT&T divestiture, Congress legislated a dichotomy based on the expectation in the AT&T divestiture, Congress legislated a dichotomy based on the expectation that information services would qualify for a regulatory “safe harbor.” that information services would qualify for a regulatory “safe harbor.”

In seeking to expand the scope of information services and to safeguard the Internet In seeking to expand the scope of information services and to safeguard the Internet from regulation, the FCC has encountered countervailing motivations that promote from regulation, the FCC has encountered countervailing motivations that promote selective re-regulation, e.g., shoring up universal service funding, safeguarding selective re-regulation, e.g., shoring up universal service funding, safeguarding national security and satisfying consumers’ expectations about personal security national security and satisfying consumers’ expectations about personal security when making VoIP calls.when making VoIP calls.

Rather than treat some convergent services as containing both telecommunications Rather than treat some convergent services as containing both telecommunications and information services, the FCC makes an absolute either/or determination, even and information services, the FCC makes an absolute either/or determination, even though no law mandates this. though no law mandates this.

To sustain the dichotomy the Commission makes questionable distinctions between To sustain the dichotomy the Commission makes questionable distinctions between telecommunications and telecommunications services and between the offering and telecommunications and telecommunications services and between the offering and providing of telecommunications capabilities. providing of telecommunications capabilities.

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The Easy Part: Conferring the Gift of The Easy Part: Conferring the Gift of Deregulation or Unregulation Deregulation or Unregulation

The FCC applied the information service regulatory safe harbor to cable modem The FCC applied the information service regulatory safe harbor to cable modem service and the Supreme Court affirmed (in the service and the Supreme Court affirmed (in the Brand XBrand X case) on case) on ChevronChevron deference to agency expertise grounds. deference to agency expertise grounds.

The Commission subsequently re-classified Digital Subscriber Link (“DSL”) The Commission subsequently re-classified Digital Subscriber Link (“DSL”) service as an information service. service as an information service.

To achieve this result, the FCC created two new dichotomies: 1) what had been a To achieve this result, the FCC created two new dichotomies: 1) what had been a stand alone telecommunications service became a subordinate telecommunications stand alone telecommunications service became a subordinate telecommunications capability; and 2) what had been offered as a telecommunications service became a capability; and 2) what had been offered as a telecommunications service became a minor, inseparable and functionally integrated component provided in conjunction minor, inseparable and functionally integrated component provided in conjunction with the offered information service. with the offered information service.

The FCC expanded the information services safe harbor to two technologies that The FCC expanded the information services safe harbor to two technologies that the Commission itself acknowledges as providing over 96% of all broadband the Commission itself acknowledges as providing over 96% of all broadband access in the United States.access in the United States.

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The Hard Part: Selective Re-regulation The Hard Part: Selective Re-regulation of Information Servicesof Information Services

The FCC has belatedly recognized public policies and The FCC has belatedly recognized public policies and laws that provide the basis for regulation of laws that provide the basis for regulation of information services. information services.

Information service providers, including cable Information service providers, including cable modem and DSL carriers, required to provide modem and DSL carriers, required to provide wiretapping assistance.wiretapping assistance.

Interconnected VoIP operators, also required to Interconnected VoIP operators, also required to contribute to universal service funding, and to contribute to universal service funding, and to provide access to disabled users and E-911 capability.provide access to disabled users and E-911 capability.

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Re-regulation Requires Semantic Juggling and Re-regulation Requires Semantic Juggling and Aggressive Expansion of the FCC’s Regulatory Aggressive Expansion of the FCC’s Regulatory

WingspanWingspan

Even as the FCC avoids having to make the telecommunications Even as the FCC avoids having to make the telecommunications service/information service attribution for VoIP, the Commission has to emphasize service/information service attribution for VoIP, the Commission has to emphasize different dominant features in different proceedings: to justify a USF subsidy different dominant features in different proceedings: to justify a USF subsidy obligation, the Commission has to emphasize the even if VoIP does not obligation, the Commission has to emphasize the even if VoIP does not provideprovide telecommunications services, it does telecommunications services, it does offeroffer a telecommunications link. a telecommunications link.

However the Commission cannot overemphasize the importance of this offered However the Commission cannot overemphasize the importance of this offered telecommunications link, because of its subordination to the dominant provided telecommunications link, because of its subordination to the dominant provided information service is essential for applying the information service safe harbor.information service is essential for applying the information service safe harbor.

The FCC ought to explain how it can rationalize exempting providers of broadband The FCC ought to explain how it can rationalize exempting providers of broadband access to the Internet, i.e., information service providing cable modem and DSL, access to the Internet, i.e., information service providing cable modem and DSL, but require USF contributions from providers of software enhancements to but require USF contributions from providers of software enhancements to established information service links.established information service links.

How do software enhancements convert information services into a How do software enhancements convert information services into a telecommunications capability, but not into a telecommunications service? telecommunications capability, but not into a telecommunications service?

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Finding a Way to Make VoIP Operators Finding a Way to Make VoIP Operators Pay USF Support Pay USF Support

Universal service funding accrues as a function of long distance minutes of use.Universal service funding accrues as a function of long distance minutes of use.

Consumer migration to wireless and Internet-based options has reduced attributable Consumer migration to wireless and Internet-based options has reduced attributable minutes of use and forced the FCC to increase the “contribution rate” of remaining minutes of use and forced the FCC to increase the “contribution rate” of remaining minutes and to seek new compulsory contributors. minutes and to seek new compulsory contributors.

VoIP qualifies regardless of which regulatory classification the FCC eventually VoIP qualifies regardless of which regulatory classification the FCC eventually decides, because Section 254 of the Communications Act authorizes the FCC to decides, because Section 254 of the Communications Act authorizes the FCC to require USF support from any provider of telecommunications, even if it does not require USF support from any provider of telecommunications, even if it does not offer telecommunications services. offer telecommunications services.

So arguably a provider of information services that otherwise qualifies for the So arguably a provider of information services that otherwise qualifies for the regulatory safe harbor also can offer telecommunications for purposes of triggering regulatory safe harbor also can offer telecommunications for purposes of triggering USF liability.USF liability.

Shouldn’t the FCC require cable modem and DSL carriers to make USF Shouldn’t the FCC require cable modem and DSL carriers to make USF contributions? contributions?

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Answering CALEA’s CallAnswering CALEA’s Call

The Communications Assistance for Law Enforcement Act (“CALEA”) requires telecommunications The Communications Assistance for Law Enforcement Act (“CALEA”) requires telecommunications carriers to help support national security missions through wiretapping.carriers to help support national security missions through wiretapping.

CALEA expressly exempts information service providers, but the FCC has interpreted CALEA’s CALEA expressly exempts information service providers, but the FCC has interpreted CALEA’s definition of telecommunications carrier as more inclusive.definition of telecommunications carrier as more inclusive.

The FCC requires cable modem, DSL and VoIP operators to comply with wiretapping requests, based The FCC requires cable modem, DSL and VoIP operators to comply with wiretapping requests, based on their satisfying a 3 part test: 1) whether the candidate service provider offers wire or electronic on their satisfying a 3 part test: 1) whether the candidate service provider offers wire or electronic communication switching or transmission service; 2) offers a replacement for a substantial portion of communication switching or transmission service; 2) offers a replacement for a substantial portion of the local exchange service and 3) warrants regulation on public interest grounds.the local exchange service and 3) warrants regulation on public interest grounds.

The D.C. Circuit affirmed the FCC’s statutory interpretation using the The D.C. Circuit affirmed the FCC’s statutory interpretation using the ChevronChevron test: if CALEA is silent test: if CALEA is silent or ambiguous and the agency’s interpretation is permissible, then the court only applies a or ambiguous and the agency’s interpretation is permissible, then the court only applies a reasonableness standard.reasonableness standard.

Curiously in many instances courts eagerly second-guess the FCC’s statutory construction, e.g., scope Curiously in many instances courts eagerly second-guess the FCC’s statutory construction, e.g., scope of ILEC unbundling requirements, rationale for liberalizing media cross-ownership restrictions. of ILEC unbundling requirements, rationale for liberalizing media cross-ownership restrictions.

Does national security concerns supersede any serious examination of what, if any, information service Does national security concerns supersede any serious examination of what, if any, information service might qualify for exemption from CALEA requirements? might qualify for exemption from CALEA requirements?

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ConclusionsConclusions

Whether intentionally or not the FCC has eroded the competitive attractiveness of VoIP Whether intentionally or not the FCC has eroded the competitive attractiveness of VoIP by saddling it with USF, E-911 and disabled user access.by saddling it with USF, E-911 and disabled user access.

The FCC has forced VoIP services to become more like telecommunications services The FCC has forced VoIP services to become more like telecommunications services than VoIP operators may have desired. than VoIP operators may have desired.

There is no consistency in appellate courts’ deferral to FCC expertise and statutory There is no consistency in appellate courts’ deferral to FCC expertise and statutory construction. construction.

Title I ancillary jurisdiction has become a powerful regulatory alternative on Title I ancillary jurisdiction has become a powerful regulatory alternative on questionable public interest grounds.questionable public interest grounds.

Countervailing public policy objectives appear to trump the consistent and transparent Countervailing public policy objectives appear to trump the consistent and transparent application of statutory definitions.application of statutory definitions.

Justice Scalia predicted this mischief in his dissent in Justice Scalia predicted this mischief in his dissent in Brand XBrand X..