The following Advisory Memorandum examines recent actions by the Federal Communications Commission and the potential short and long-term implications of these actions on providers of Interconnected VoIP services (including Two-Way and One-Way service variations).
Is the past prologue?
FCC regulation of “One-Way Interconnected VoIP Services” appears to be trending down the same path traveled by Two-Way Interconnected VoIP Services beginning 15 Years Ago.
And at the end of the yellow brick road isn’t Oz, but rather USF Fees!
The Federal Communications Commission (“FCC”) opened two proceedings in the month of December 2019 which should grab the attention of any company offering VoIP services or competing in the Cloud Communications marketplace. Providers of so-called “One-Way” VoIP services (which is either a subset or a substitute for what the FCC previously defined as “Non-Interconnected VoIP”) should be particularly concerned about the recent FCC activity, as all signs point to a future of increased regulatory scrutiny and financial burdens. Dare we even mention the three most-dreaded letters in the entire Telecom Universe?
U S F !
Yes, the Universal Service Fund. Take a deep breath, we’re not quite there yet, but as this Advisory Memorandum postulates, if the recent trend continues unabated and unchallenged, it looks like it will only be a matter of time until the FCC closes the so-called “Skype Loophole,” thereby resulting in regulatory parity among Two-Way and One-Way Interconnected VoIP services – including the extension of direct USF contribution obligations to One-Way services.
Long-time beneficiaries of a perceived “loophole” in the FCC’s 2005 definition of “Interconnected VoIP service,” providers offering Internet-based, VoIP calling as a one-directional service (outbound only or inbound only) have largely escaped the heavy hand of regulation by the FCC (not to mention state utility commissions, but we’ll save that for a future “past is prologue” evaluation!).
The FCC has long been interested in closing the “One-Way VoIP” exemption, noting in its 2012 Further Notice of Proposed Rulemaking soliciting comments on USF contribution reform:
“In particular, we seek comment on whether competitive neutrality concerns now support the inclusion of one-way VoIP services within the contribution base. Some parties argue that the one-way VoIP exemption is “an enormous loophole” that creates competitive disparities. USTelecom has argued that the current system “unfairly penalizes traditional voice providers (and ultimately their customers) and artificially skews the market.” One-way VoIP providers, on one hand, and providers of traditional telephone and interconnected VoIP services, on the other hand, have acknowledged that they compete against each other. XO, for example, argues that the exemption provides “a significant artificial cost advantage” for non-assessable services that provides “a powerful incentive for consumers to replace [assessable services] with less costly non-assessable services.” We seek comment on the extent of competition between one-way VoIP and other services that are subject to assessment, and how that should affect our analysis.”
See, In the Matter of Universal Service Contribution Methodology, Further Notice of Proposed Rulemaking, WC Docket No. 06-122 at ¶61 (April 30, 2012)
With the adoption of rules implementing Kari’s Law in August 2019 (tackling 911 service challenges associated with Multi-Line Telephone Systems) and cascading with two new actions this month, the FCC is sending clear signals that it may have its sights set on eventually closing the nearly 15-year old One-Way VoIP exemption from USF contributions. The fact that the quarterly USF contribution factor has now eclipsed the 25% mark, it should not come as a surprise if the FCC heads down a path it believes will add contribution-eligible revenue to the contribution base.
Eliminating the exemption would lead to increased regulatory parity between providers of Two-Way and One-Way I-VoIP services. And while the FCC is unlikely to impose the full panoply of regulations on One-Way I-VoIP that currently apply to Two-Way services straight out of the gates, the recent signals coming from the FCC do forecast the beginning of what is likely to be a period of regulatory creep.
As our firm informed its clients in August, the FCC got the ball rolling downhill back in August 2019, by extending 911 obligations to One-Way VoIP services. Where might the regulatory creep go and when might it end? These questions cannot be answered with confidence. However, if the past is prologue and we revisit the FCC’s history of regulatory creep vis-à-vis Two-Way Interconnected VoIP services, it would not be unreasonable to expect the FCC to extend obligations, such as USF contributions, within a matter of two, possibly three years from today (unless, of course, there is pushback and legal challenges). How it all might end is entirely unclear at the moment, but how the FCC’s creep into regulation of One-Way I-VoIP started is stark as day.
In the first of two notable actions this month, the FCC issued a Public Notice about whether its “Truth-in-Billing” regulations should be extended to I-VoIP providers. In a second act, the FCC opened a rulemaking proceeding to consider the implementation of 3-digit dialing to reach the National Suicide Hotline. In both of these pronouncements, the FCC talks openly about the possibility of imposing the regulatory obligations associated with each matter on providers of One-Way Interconnected VoIP services.
To those who have closely observed or experienced the FCC’s approach to extending a variety of Title II common carrier regulations to Two-Way I-VoIP services over the past 15 years, the recent maneuvers are telling. When VoIP telephony services first entered the scene in the late 1990s, and until the mid-2000s, these new “over the Internet” voice calling services were treated as “information services” by the FCC, free of regulatory obligations. Gradually, however, the FCC began to extend certain Title II regulatory obligations to Two-Way Interconnected VoIP providers. Just as it is happening now, the slow creep of regulation began with 911 regulatory obligations. Additional regulatory requirements followed, including Universal Service Fund (“USF”) contributions, disability access, customer privacy, CALEA, and regulatory fees.
This Advisory Memorandum examines the history of regulatory creep with respect to Two-Way I-VoIP services over the past 15 years to establish the context for the FCC’s recent actions towards One-Way I-VoIP – moves that appear very reminiscent of the slow, yet steady march towards the application of nearly all meaningful Title II common carrier regulations on Two-Way I-VoIP services.
THE PATH OF CREEPING REGULATION FOR I-VOIP, A TWO-WAY SERVICE
The Communications Act sets forth definitions for “telecommunications” as “a transmission of information without change in form or content”, and for “information service” as the “generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available [of] information via telecommunications.” Telecommunications may include IP-enabled communications. Over the years, the line between telecommunications and information services has required some interpretation at the margin. For example, the FCC has ruled that certain services that otherwise might meet the literal definition of an information service are nevertheless treated as regulated “adjunct-to-basic” services, if they are “incidental” to underlying basic communications services and do not “alter [….their] fundamental character.” Services that qualify as adjunct-to-basic services are regulated in the same manner as the underlying basic telecommunications service; thus, they are subject to USF fees and other FCC regulatory obligations. The FCC has struggled with the appropriate framework for a variety of IP-enabled services that do not fall neatly into the categories of either telecommunications or information services, resulting in the creation of “hybrid” categories of services through FCC rulemakings and adjudications.
On June 3, 2005, the FCC started a piecemeal process to regulate VoIP services when it created a unique service category called “interconnected VoIP” (“I-VoIP”) service. The FCC defined I-VoIP as a service that:
- Enables real-time, two-way voice communications;
- Requires a broadband connection from the user’s location;
- Requires Internet protocol-compatible CPE; and
- Permits users generally to receive calls that originate on the public switched telephone network (“PSTN”) and to terminate calls to the PSTN.
Notably, the above definition contained the conjunctive “and” in the fourth prong – to fit the definition, the “service” offered to consumers had to bundle outbound and inbound calling into a single service. Breaking apart the conjunctive “and” by offering outbound and inbound calling as separate and distinct services avoids the application of the legal definition of I-VoIP. Thus, the creation of what would become known as the “Skype loophole,” as Skype came to market with its SkypeIn and SkypeOut services. By creating outbound and inbound services and selling them separately, Skype’s services did not qualify as I-VoIP and remained information services, exempt from the Title II regulations that, over the course of several years, were extended to I-VoIP services.
The FCC’s regulation of I-VoIP stems partially from its functionality as a substitute for traditional telephony. In other words, its interconnection with the PSTN justifies the FCC’s assertion of regulatory authority over such services. To date, the FCC has not affirmatively classified “interconnected VoIP” services as “telecommunications services” subject to the full panoply of Title II regulations. Instead, the FCC has extended specific Title II requirements on a regulation-by-regulation basis. Those that have been applied to I-VoIP services include: Universal Service, disability access, customer privacy/CPNI, E911, law enforcement/CALEA, and regulatory fees.
On October 7, 2011, the FCC released an Order adopting rules to implement Section 103(b) of the Twenty-First Century Communications and Video Accessibility Act of 2010 (“CVAA”). Congress authorized the FCC to implement rules and regulations applicable to providers of “advanced communications services.” Under CVAA, “advanced communications services” include both I-VoIP, and “non-interconnected VoIP service,” which is defined as a service that “(i) enables real-time voice communications that originate from or terminate to the user’s location using Internet protocol or any successor protocol; and (ii) requires Internet protocol compatible customer premises equipment; and does not include any service that is interconnected VoIP.” The Telecommunications Relay Service (“TRS”) contribution to which this new service category was required to contribute included previously unregulated VoIP services with “One-Way” connectivity to the PSTN or purely computer-to computer communications.
ONE-WAY VoIP BEGINS ON THE PATHWAY OF CREEPING REGULATION
If the creeping regulation of Two-Way I-VoIP is now de facto complete, the creeping regulation of One-Way VoIP is just at its beginning stages. Until earlier this year, the most significant regulatory classification among VoIP services was between I-VoIP and non-interconnected VoIP. I-VoIP was by definition Two-Way, because of the requirement that its users are able “to receive calls that originate on and to terminate calls to the PSTN.” As touched upon above, the wording of the original definition exempted SkypeIn/SkypeOut-type services that either originated on or terminated to the PSTN. These One-Way services were later captured under the FCC’s definition of “non-interconnected VoIP.” And while subjected to TRS contributions by virtue of the CVAA, the other creeping regulations on Two-Way I-VoIP did not apply to these One-Way services because they were categorized as “non-interconnected.”
That changed with the FCC’s multi-line telephone systems (“MLTS”) order released on August 2, 2019. Legislation passed by Congress in 2017 and 2018 required the FCC to “consider adopting rules to ensure that the dispatchable location is conveyed with a 911 call, regardless of the technological platform used and including with calls from MLTS.” In implementing these laws, the FCC modified its definition of I-VoIP, but only for the purpose of 911 compliance. The new regulatory definition of I-VoIP retains all four of the above-stated prongs, but now reads:
Notwithstanding the foregoing, solely for purposes of compliance with the Commission’s 911 obligations, an interconnected VoIP service includes a service that fulfills each of subsections (1)-(3) above and permits users generally to terminate calls to the public switched telephone network.
Presto! One-Way non-interconnected VoIP suddenly became One-Way interconnected-VoIP, at least for 911 compliance purposes. The question now is whether One-Way VoIP will follow the same march toward the expansive regulatory creep experienced over the past 15 years by the providers of I-VoIP, a Two-Way service.
The August 2, 2019, MLTS Order does distinguish between “fixed” I-VoIP and “non-fixed” I-VoIP, the latter category to which “Outbound-Only” I-VoIP is also denominated. This latter category of nomadic or mobile I-VoIP services are given two years instead of one year to comply with the FCC’s location-specific 911 requirements.
More recently, the FCC has put forth two trial balloons that would, if adopted, greatly expand the obligations associated with One-Way VoIP. In the case of the Truth in Billing Rules, the FCC says that it seeks “to refresh the record on the Commission’s authority to extend the truth-in-billing rules to interconnected VoIP service providers, including both two-way and one-way interconnected VoIP services.” In the case of the 988 Suicide Hotline, the NPRM states that the FCC proposes “requiring that all telecommunications carriers and interconnected VoIP providers implement 988 by transmitting all calls initiated by an end user dialing 988 to the current toll free access number for the [Suicide Hotline]. We specifically seek comment on including one-way interconnected VoIP providers as well.”
WINNERS AND LOSERS
Once creeping regulation takes hold of a particular service, it is hard to move out of that regulatory box. In the case of VoIP, the entire service started off in an unregulated position vis-à-vis telecommunications services, which were subject to Title II regulations. Telecommunications service providers complained about the regulatory disparity. Then the FCC distinguished between interconnected and non-interconnected VoIP, with the bulk of the regulations applying only to I-VoIP services. This was justified on the grounds that such services relied upon the PSTN. Now “One-Way VoIP,” nee “non-interconnected VoIP,” appears headed for the same journey of creeping regulation.
VoIP providers that have already fully adapted to the battery of regulations imposed upon I-VoIP may view encompassing One-Way VoIP within the regulatory ambit as the next logical step. After all, One-Way VoIP services make use of PSTN resources on at least one step of a two-step interconnection. These Two-Way I-VoIP providers may secretly (or not so secretly) wish competitors such as Skype, Google, Twilio and others were obligated to contribute to the USF and otherwise complying with I-VoIP regulations on the same terms they have been required to follow. On the other hand, many technology companies offer IP-based communications distinct from the current definition of I-VoIP. They rigorously distinguish between the I-VoIP services they offer, and services that do not meet the four-prong definition of I-VoIP. These entities do not see a reason for every form of IP-based communication to fall under a single form of regulation.
Where it ends for providers of One-Way I-VoIP services is not yet certain. Much ink has yet to spill in the recently opened proceeding by the universe of parties impacted by the pending extensions of Title II regulatory obligations, where the early fate of One-Way I-VoIP will be debated and decided. But what is inescapable is that once the regulatory expansion train leaves the station, it is difficult to slow down. And where the train ultimately ends up can be informed by the path the train traveled in the past. Past is prologue.
The newly opened proceedings involving Truth in Billing and the 988 Suicide Hotline should be seen as harbingers of what the future holds for One-Way VoIP. Indeed, it appears as though the FCC is following the same path for One-Way VoIP that it has already trod with Two-Way VoIP. Whether your company provides One-Way VoIP, Two-Way VoIP, both, or indeed any VoIP services at all, the proceedings bear monitoring and possible participation. The potential changes in regulatory regimes applicable to One-Way VoIP will likely impact the marketplace, particularly if the FCC’s ultimate objective ends up being regulatory parity among different flavors of VoIP telephony services.
If you have questions about how your company’s services are likely to be impacted by the proposed changes in the classification of VoIP services, both in the short-term and long, please contact Jonathan S. Marashlian at email@example.com or 703-714-1313 or the attorney assigned to your account.
 As explained herein, the term One-Way Interconnected VoIP appears to be largely interchangeable with the FCC’s earlier definition of “Non-Interconnected VoIP”)
 Here are couple of hints: (1) Vonage Sues Nebraska PSC over State USF Fees; (2) Nebraska Lawfully Extends USF to Nomadic VoIP Following FCC Declaratory Ruling.
 Consumer and Governmental Affairs Bureau Seeks to Refresh the Record on Truth-in-Billing Rules to Ensure Protections for All Consumers of Voice Services, CC Docket No. 98-170, WC Docket No. 04-36, Public Notice, Released December 13, 2019 (“Truth in Billing PN”).
 Implementation of the National Suicide Hotline Improvement Act of 2018, WC Docket No. 18-336, Notice of Public Rulemaking, Released December 16, 2019 (“988 Suicide Hotline NPRM”).
 47 U.S.C. § 153(50).
 47 U.S.C. § 153(24).
See AT&T Corp. Petition for Declaratory Ruling Regarding Enhanced Prepaid Calling Card Services, Regulation of Prepaid Calling Card Services, WC Docket No. 03-133, 05-68, Order and Notice of Proposed Rulemaking, 20 FCC Rcd. 4826 at ¶ 16 (2005) (“Enhanced PPCC Order”), aff’d sub nom. American Tel. & Tel. Co. v. FCC, 454 F.3d 329 (D.C. Cir. 2006).
 IP-Enabled Services and E911 Requirements for IP-Enabled Service Providers, First Report and Order and Notice of Proposed Rulemaking, FCC 05-116, 20 FCC Rcd. 10245 (2005) at ¶ 24 (“VoIP E911 Order”). See also 47 C.F.R. § 9.5(e).
 Id., aff’d sub nom. Nuvio Corp. v. FCC, 473 F.3d 302 (D.C. Cir. 2006); 47 C.F.R. § 9.3.
 In the Matter of Contributions to the Telecommunications Relay Services Fund, CG Docket No. 11-47, Report and Order, FCC 11-150 (Rel. Oct. 7, 2011) (“TRS Order”). The FCC’s Order became effective on November 25, 2011. See F.R. Vol. 76, No. 206 (Oct. 25, 2011).
 124 Stat. 2752, § 101; 47 U.S.C. § 153(36).
 The FCC subsequently clarified that the contribution obligation only applies generally if non-interconnected VoIP providers offer non-interconnected VoIP services for a fee.
 47 C.F.R. § 9.3 (emphasis added).
 Implementing Kari’s Law and Section 506 of RAY BAUM’S Act, 911 Access, Routing, and Location in Enterprise Communications Systems, Amending the Definition of Interconnected VoIP Service in Section 9.3 of the Commission’s Rules, PS Docket 18-261, PS Docket 17-239, GN Docket 11-117, 34 FCC Rcd. 6607 (Rel. August 2, 2019) (“MLTS Order”). Kari’s Law was named for a nine-year-old crime victim who attempted to dial “911” four times from a hotel’s multi-line telephone system; the call did not go through because the hotel’s phone system requiring dialing “9” for an outbound line.
 Section 506 of the Repack Airwaves Yielding Better Access for Users of Modern Services Act of 2018 (RAY BAUM’s Act), Pub. L. No. 115-141, 132 Stat. 348, 1095 (codified at 47 U.S.C. Section 615 note).
 New definition of 47 C.F.R. § 9.3, MLTS Order at 102.
 The MLTS Order primarily uses the term “outbound-only” in discussing the new category of “I-VoIP” services to which 911 regulations have been applied. The 988 Suicide Hotline NPRM and Truth-in-Billing Public Notice drop that terminology, and instead only refer to “One-Way VoIP”: “‘One-way’ VoIP services enable users either to terminate calls to the PSTN but not receive calls that originate on the PSTN; or receive calls from the PSTN but not make calls terminating to the PSTN.” Truth-in-Billing PN, footnote 16, at page 4.
 Id., at page 3 (emphasis added). It bears repetition that, as a technical matter, there is no such thing as a defined “one-way interconnected VoIP service,” at least when it comes to regulatory definitions beyond 911 compliance. “One-Way interconnected VoIP,” contradicts the fourth prong of the definition of I-VoIP.
 988 Suicide Hotline NPRM, at paragraph 33 (emphasis supplied). Again, by referring to “one-way interconnected VoIP providers,” the FCC is presuming what the NPRM is specifically seeking comment on: Whether One-Way VoIP should now – for purposes beyond 911 compliance – be considered Interconnected VoIP.