[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
VOIP SERVICES: WILL THE TECHNOLOGY DISRUPT THE INDUSTRY OR WILL
REGULATION DISRUPT THE TECHNOLOGY?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JULY 7, 2004
__________
Serial No. 108-104
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
95-448 WASHINGTON : 2004
____________________________________________________________________________
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Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas Ranking Member
MICHAEL BILIRAKIS, Florida HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California SHERROD BROWN, Ohio
NATHAN DEAL, Georgia BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi, Vice Chairman TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma
Bud Albright, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications and the Internet
FRED UPTON, Michigan, Chairman
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida Ranking Member
Vice Chairman ALBERT R. WYNN, Maryland
PAUL E. GILLMOR, Ohio KAREN McCARTHY, Missouri
CHRISTOPHER COX, California MICHAEL F. DOYLE, Pennsylvania
NATHAN DEAL, Georgia JIM DAVIS, Florida
ED WHITFIELD, Kentucky CHARLES A. GONZALEZ, Texas
BARBARA CUBIN, Wyoming RICK BOUCHER, Virginia
JOHN SHIMKUS, Illinois EDOLPHUS TOWNS, New York
HEATHER WILSON, New Mexico BART GORDON, Tennessee
CHARLES W. ``CHIP'' PICKERING, PETER DEUTSCH, Florida
Mississippi BOBBY L. RUSH, Illinois
VITO FOSSELLA, New York ANNA G. ESHOO, California
STEVE BUYER, Indiana BART STUPAK, Michigan
CHARLES F. BASS, New Hampshire ELIOT L. ENGEL, New York
MARY BONO, California JOHN D. DINGELL, Michigan,
GREG WALDEN, Oregon (Ex Officio)
LEE TERRY, Nebraska
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Carlisle, Jeffrey J., Senior Deputy Bureau Chief, Wireline
Competition Bureau, Federal Communications Commission...... 40
Citron, Jeffrey, Co-founder, Chairman and Chief Executive
Officer, Vonage Holdings Corp.............................. 50
Greene, Margaret H., President, Regulatory and External
Affairs, BellSouth Corporation............................. 59
Jensen, S. Michael, CEO, Great Plains Communications......... 65
Kirkland, James, General Counsel and Senior Vice President,
Covad Communications....................................... 69
Martine, Cathy, Senior Vice President, AT&T Corporation...... 73
Nelson, Hon. Robert B., Michigan Public Service Commission,
Chairman, Committee on Telecommunications, National
Association of Regulatory Utility Commissioners............ 83
Rutledge, Thomas M., Chief Operating Officer, Cablevision.... 88
Vidal, Ronald, Group Vice President, Emerging Opportunities
from Level 3............................................... 91
Material submitted for the record by:
Dingell, Hon. John D., a Representative in Congress from the
State of Michigan:
Letter dated July 19, 2004, to Jeffrey Carlisle, Senior
Deputy Bureau Chief, Wireline Competition Bureau,
Federal Communications Commission, enclosing additional
questions for the record, and responses to same........ 123
Letter dated July 19, 2004, to Jeffrey Citron, Co-
founder, Chairman and Chief Executive Officer, Vonage
Holdings Corp., enclosing additional questions for the
record, and responses to same.......................... 127
Letter dated July 19, 2004, to Margaret H. Greene,
President, Regulatory and External Affairs, BellSouth
Corporation, enclosing additional questions for the
record, and responses to same.......................... 132
Letter dated July 19, 2004, to S. Michael Jensen, CEO,
Great Plains Communications, enclosing additional
questions for the record, and responses to same........ 135
Letter dated July 19, 2004, to James Kirkland, General
Counsel and Senior Vice President, Covad
Communications, enclosing additional questions for the
record, and responses to same.......................... 137
Letter dated July 19, 2004, to Cathy Martine, Senior Vice
President, AT&T Corporation, enclosing additional
questions for the record, and responses to same........ 142
Letter dated July 19, 2004, to Robert B. Nelson, Michigan
Public Service Commission, Chairman, Committee on
Telecommunications, National Association of Regulatory
Utility Commissioners, enclosing additional questions
for the record, and responses to same.................. 148
Letter dated July 19, 2004, to Thomas M. Rutledge, Chief
Operating Officer, Cablevision, enclosing additional
questions for the record, and responses to same........ 155
Letter dated July 19, 2004, to Ronald J. Vidal, Group
Vice President, Emerging Opportunities from Level 3,
enclosing additional questions for the record, and
responses to same...................................... 159
(iii)
VOIP SERVICES: WILL THE TECHNOLOGY DISRUPT THE INDUSTRY OR WILL
REGULATION DISRUPT THE TECHNOLOGY?
----------
WEDNESDAY, JULY 7, 2004
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Telecommunications
and the Internet,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
room 2123, Rayburn House Office Building, Hon. Fred Upton
(chairman) presiding.
Members present: Representatives Upton, Stearns, Gillmor,
Cox, Deal, Whitfield, Shimkus, Wilson, Pickering, Fossella,
Buyer, Bass, Walden, Terry, Barton (ex officio), Markey, Wynn,
McCarthy, Doyle, Davis, Gonzalez, Boucher, Towns, Gordon, Rush,
Eshoo, Stupak, Engel, and Dingell (ex officio).
Staff present: Will Nordwind, majority counsel and policy
coordinator; Howard Waltzman, majority counsel; Will Carty,
legislative clerk; Peter Filon, minority counsel; and Gregg
Rothschild, minority counsel.
Mr. Upton. Good morning, everyone.
Today's hearing is entitled ``Voice Over Internet Protocol
Services: Will the Technology Disrupt the Industry or Will
Regulations Disrupt the Technology?''
Voice over Internet protocol or VOIP is a tremendous
technological advancement in the telecommunications
marketplace. Quite simply, VOIP takes voice signals, turns them
into data packets of ones and zeros and sends them over the
Internet. This is much more efficient than sending the voice
signal over the public switch telephone network. This
efficiency is bringing lower prices to the consumer and VOIP
represents yet another competitor in the telecommunications
marketplace.
And we are in an exciting place in the development of VOIP.
The companies represented at today's witness table offering
varying flavors of VOIP. On the one hand, it is being deployed
to consumers at an impressive pace for nascent technology. On
the other hand, it is still just that, a nascent technology but
one with tremendous potential, to be sure.
But we will never realize VOIP's tremendous potential if we
saddle it with unwarranted government regulation. For instance,
given VOIP's reliance on the Internet which respects no State
or local boundaries, VOIP is truly interstate in nature. As
such, we must have a single Federal regulatory regime, not a
patchwork of 51 different State regulations. But that single
Federal regulatory regime must tread as lightly as possible.
While we need to make sure that the law enforcement officials
when authorized have adequate tools to track criminals and
terrorists who might use VOIP services and that consumers have
access to E911 services, VOIP providers should not be regulated
like common carriers.
Today's hearing title poses two questions. The first
question is will the technology disrupt the industry? My answer
to that is that it likely will, but the benefits to the
consumer will be tremendous.
The second question is: Will regulation disrupt the
technology? My answer to that question is not unless we let it,
and we should not.
I want to thank all of today's witnesses for being with us
today. Look forward to your testimony. Appreciate it being sent
up in advance.
I want to particularly thank Jack Carlisle who was born on
Saturday for letting us borrowing his dad for today's hearing.
Congratulations, Jeff, and your wife Rebecca.
With that, I yield for an opening from my friend and
ranking member of the subcommittee, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much. And I want
to comment you for calling this hearing today on Voice over
Internet Protocol.
Internet protocol based telecommunications and services
continue to make inroads into markets traditionally served
through older technologies. IP technology can put any content;
voice, video, data or a combination into packets of zeros and
ones. These digital packets can be delivered over any
telecommunications infrastructure. This is the kind of
destructive technology that Joseph Shumpeter spoke about in his
book published 60 years ago entitled ``Capitalism, Socialism
and Democracy.''
In that book he spoke of a process of industrial mutation
that incessantly revolutionizes the economic structure from
within incessantly destroying the old one, incessantly creating
the new one. This process of creative destruction is the
essential fact about capitalism, he said.
Now Internet based technologies are buffeting many of the
incumbent marketplace participants across many industries. In
the telephone market consumers stand to benefit from advances
in technologies such as VOIP which possess the ability to bring
additional features and services to what we once called plain
old telephone service.
In addition to challenging industry participants, it also
challenges regulators to not be timid about embracing change,
ensuring that innovative creatively destructive technologies
and service providers are not thwarted from reaching consumers
by established incumbents, and that was a key goal of the
Telecommunications Act of 1996.
The FCC has struggled with adopting many of the future
oriented regulatory definitions in the Telecom Act of 1996 in
the last several years. Indeed, the Commission has been
reversed in key court decisions that supported a more
competitive interpretation of the blueprint that Congress
established in the Telecommunications Act for the digital free-
for-all that we hope to unleash across all markets. We had
hearing after hearing after hearing in this committee room in
1994, in 1995, in 1996 about this digital free-for-all about
the fact that any company would be able to provide any service
within time as long as a vigorous paranoia-inducing competition
was unleased in the telecommunications marketplace.
So all of this is now coming to pass, although belatedly in
some areas because of the Federal Communications Commission.
But nonetheless, we have been making great progress.
Consumers deserve access to new Internet-base services.
Consumers also deserve to receive those services from multiple
providers so that they benefit not only from access to new
technology, but also from improved service quality and lower
prices.
Consumers must also retain the important consumer
protections developed over the years for these services. Just
because the technology used to deliver a service utilizes a new
technology doesn't mean that the service itself changes from a
consumer standpoint. The need for ensuring consumers of
affordable service, consumer privacy rules, billing
protections, fraud protection, emergency service and law
enforcement access do not disappear simply because a voice call
travels in packets rather than dedicated circuits.
Today's hearing will provide us with an excellent
opportunity to hear how both the industry and regulators are
confronting the rise of Internet telephony and allow us over
the coming months to gage whether any changes are necessary to
existing telecommunications statutes or whether any adjustments
need to be made to regulatory interpretations of those laws.
Again, Mr. Chairman, this is an incredibly important
hearing and I think you for conducting it.
Mr. Upton. Thank you.
Mr. Cox?
Mr. Cox. Thank you, Mr. Chairman.
And I just want to pay homage to my colleague from
Massachusetts for his tribute to Schumpeter's creative
destruction. I mean there is very little more that can amaze me
now when Massachusetts liberals are honoring Schumpeter. And
it's fair then, I think, to say we are all capitalists now.
Mr. Markey. I wish the Federal Communications Commission
believed it, but that is the problem.
Mr. Cox. It is actually a sign of the times that we find
ourselves making common cause in this way, as in fact we've
done on many other issues.
I want to thank you, Mr. Chairman, for holding this
important hearing for that very reason.
And I, too, would like to offer a special thanks to Mr.
Carlisle of the FCC. And I hope that you'll share my thanks and
congratulations with the entire Commission for your outstanding
decision to approve the Pulver petition. This wise decision
will ensure that consumers of voice software applications on
the Internet which never use the public switched telephone
network won't suffer the burden of old line telecom regulation.
Consumers now have the freedom to talk to friends, family,
customers and colleagues all over the world without ever
needing the services of a regulator, which makes one wonder not
only whether traditional regulation has anything to offer VOIP
customers, but also whether it has anything to offer customers
period.
While VOIP service remains a small segment of the telephone
market, still far less than 1 percent, it is clear that every
week thousands of Americans are moving to this new technology.
It is important to listen to these consumers. They are sending
us a very clear message: They do not want to stay in the
heavily regulated, heavily taxed traditional telephone market.
So it is important for those who are considering regulation of
this market to recognize that applying the old regs to VOIP is
by definition anti-consumer, at least for those consumers who
have freely chosen to reject the traditional network.
We must also recognize that just as the technology has
destroyed the ability of companies to exercise monopoly power
over voice communications, it also undermines the ability of
governments to exercise monopoly power over the design and cost
of these services. The government, of course, can still make
demands on U.S.-based providers of voice applications, but if
an American broadband customer can simply access a website
overseas to use a foreign provider of such services, then we
have only succeeded in outsourcing jobs and capital to more
Internet-friendly jurisdictions. And as the inventor of the
Internet, the United States should be the natural home for this
exciting technology.
We can also chase this business offshore with heavy
taxation. Yesterday Declan McCullagh of news.com reported that
the IRS is considering applying the Spanish-American War tax on
telephone services to new applications such as VOIP. I urge the
IRS to abandon this effort even though this hearing is not
about them.
Thank you, Mr. Chairman.
Mr. Upton. Thank you.
I would recognize Mr. Dingell for an opening statement.
Mr. Dingell. Mr. Chairman, thank you. This is a very
important hearing and I commend you for calling it.
We are looking at some very significant changes, great
advantages, great opportunities and great potential for
unfortunate consequences if we do not handle these matters
well.
Voice-Over-Internet-Protocol telephone services holds
tremendous promise for bringing greater competition, lower
prices, and exciting new applications to the telecommunications
marketplace. We do not yet know who the winners and losers will
be in that marketplace, but we know that America's consumers
stand to benefit tremendously from this wonderful technology.
For this reason it is incumbent upon the Congress, the Federal
Communications Commission and the States to move cautiously in
regulating. We do not want to over overregulate at the risk of
stifling or unduly slowing down the emergence of VOIP
offerings. We also do not wish to pick the winners and losers.
Those choices are much better left to consumers.
The FCC is presently embarked on several proceedings to
determine how VOIP, which over the next several years is likely
to become the dominant method of voice communications, will be
regulated. I've reviewed some of the chairman's pronouncements
in this field. Some I agree with, including the notion that it
is not necessary to subject VOIP to all the common carrier
regulations which currently exist in the Telecommunications
Act. Other pronouncements, however, particularly the notion
that VOIP may be deemed an unregulated information service, I
find troubling.
I would like to take this opportunity to remind the FCC
that it is a creature of Congress and that Congress never
intended that voice services should be deregulated at the whim
of the FCC. There is nothing in either the 1996 Act nor its
legislative history which suggests that Congress ever intended
the dominant voice service to be classified as an ``information
service'' and, thus, essentially deregulated under Title I.
Rather, it is to be regulated as a ``telecommunications
service'' under Title II, subject to section 10 forbearance
where less regulation is appropriate. And I note, section 10
affords broad discretion for the FCC to act in the broad public
interest.
Of course I agree with those who argue that it would be
foolish to impose title II regulation, in its entirety, on VOIP
service offerings. Congress anticipated that advances in
technology might render existing regulations either unnecessary
or even harmful. The law provides the FCC, therefore, with
section 10 forbearance authority so that it can refrain from
wholesale regulation in such instances.
While VOIP providers need not be subject to legacy economic
regulations such as tariff requirements, other core regulations
remain critical--including those which pertain to universal
service, access, emergency services, law enforcement and
individuals with disabilities. It is also critical that neither
the Congress nor the FCC take any action which would disrupt
the ability of the States to perform their responsibility in
the area of core consumer protection functions which protect
consumers from the rascally acts of certain less scrupulous
companies, of which we seem to have a fine number in this
business.
I will be watching the FCC closely as it moves forward. I
hope that it remains within the bounds of the statute and
congressional intent. I would note that the FCC recently lost
an important appellate decision largely because it ignored
statutory directions from the Congress and clear congressional
intent. Likewise, with respect to VOIP, an end-run around the
Telecommunications Act in order to achieve quicker deregulation
is not what Congress intended or what the public interest
requires. It is less likely to be upheld in court and is a
disservice to consumers as it will only slow VOIP roll-out by
prolonging the uncertainty which presently exists in the
marketplace.
Finally, we in Congress must recognize that with the rapid
emergence of VOIP, it is our responsibility to ensure that the
law keeps pace and provides appropriate boundaries and
guidance.
Thank you, Mr. Chairman.
Mr. Upton. Thank you, Mr. Whitfield?
Mr. Whitfield. Mr. Chairman, I also would like to thank you
for having this hearing on a very important subject matter. All
of us are looking forward to the testimony of our nine experts
in this field, and we look forward to trying to determine the
real difference in information services and communications
services, and the segments of this industry that are regulated
versus the other segments that are not regulated. And we have
many challenging issues facing us. I know that all of us look
forward to the testimony, and for that reason I will waive back
the balance of my time.
Mr. Upton. Ms. McCarthy?
Ms. McCarthy. I'll waive back.
Mr. Upton. Mr. Gonzalez?
Mr. Gonzalez. Thank you very much, Mr. Chairman. And I will
be really brief.
I thought you would commence the proceeding day with maybe
the proclamation ``let the games begin,'' because I know this
really is laying the foundation for what will be a very
interesting debate, and we get all the information gathering
done this year, of course.
It is has often said that the future of any technology will
be determined by regulation. And I think we can all agree
regardless of ideology, party affiliation or even region. The
question is to what degree and extent.
For the bottom line for all of us is, of course, to
encourage healthy competition which is really the cornerstone
of our great democracy. And to that end I hope that this will
be a real healthy, healthy debate.
And when I say ``competition,'' it should be for all
players, all actors, all entities old and new.
And with that, I yield back. Thank you, Mr. Chairman.
Mr. Upton. Mr. Shimkus?
Mr. Shimkus. Thank you, Mr. Chairman.
First I would like to ask unanimous consent that a
statement by the National Emergency Number Association be
inserted into the record.
Mr. Upton. Without objection.
[The prepared statement of the National Emergency Number
Association follows:]
Prepared Statement of the National Emergency Number Association
In the last 15 years modem communications services advancements
have put a spotlight on the need for a more appropriate E9-1-1 system.
Specifically, a 9-1-1 system that is able to adapt rapidly to new
technology and the resulting new devices supporting communications.
Today, over 50 million Americans are using some form of broadband
services. A growing number of that subset is migrating to Voice over
Internet Protocol (VoIP), for competitive voice telephony. Truly we are
at the dawn of a new era, in which voice, data and computer integration
are converging to offer consumers, commerce and others new
communications choices in our digital age.
Yet with all the excitement for VoIP comes concern. If the past is
any indication, public safety services and access may be overlooked
unless we pursue early technical review and service planning.
Since its inception, the 9-1-1 system has been THE first responder
in times of individual and mass emergencies. Every day, Americans call
9-1-1 at the time of their greatest need. For the caller and the
public, the successful completion of a 9-1-1 call can mean the
difference between danger and security, injury and recovery, or life
and death. Simply, the ability to call for help in times of an
emergency is not ``voluntary''--it's mandatory.
In regards to Voice over Internet Protocol, NENA respectfully
offers the following recommendations to improve the public policy
leadership for 9-1-1 and Voice over Internet Protocol planning with our
nation's emergency communications.
Guiding NENA leadership is our adopted technical, operational and
policy ``Future Path Plan'' by which new services, technologies and
devices capable of dialing or signaling 9-1-1 can and should be able to
provide their users with access to emergency assistance.
For well over two years, we have used the ``Future Path Plan'' to
convene stakeholders discuss solutions and form interim/transitional
and long-term solutions to define full requirements for our nation's 9-
1-1 system.
As the United States Congress, grapples with Voice over Internet
Public Policy issues, NENA offers the following observations and
actions for consideration and review of nation's communications system.
NATIONAL PLAN FOR 9-1-1 AND VOIP POLICY
We need a national 9-1-1 VoIP policy. We recognize that to be
effective and meaningful the 9-1-1 system must work with a wide range
of VoIP and IP-enabled products and services. VoIP technologies, and
those well into the future, will need 9-1-1 orientation and long-term
solutions to accommodate all the variances. It's about building
solutions.
CONSUMER EXPECTATIONS
9-1-1 is national, consumers are increasingly global. We must
retain consumer service quality expectations. Technical development of
9-1-1 must be convergent with its policy direction. 9-1-1 needs to be
treated as an integrated public safety service, part of a larger whole
for our safety and national security. In over 35 years of 9-1-1
service, we've learned some important and valuable lessons in
implementing new technologies: 9-1-1 must be treated as an inter-
dependent overall system; coordination is very important; federal
leadership is necessary for national implementation and resolution of
issues.
OPEN SYSTEMS AND OPEN STANDARDS
We as a nation must develop policies for 9-1-1 compatible with the
commercial environment for IP communications. We cannot support the
further fragmentation of 9-1-1. We recognize that consumer expectations
for 9-1-1 are national and therefore require jurisdictional leadership
and resources from the Federal Government. We have called for a
national coordinating office as offered by recent legislation in the
House of Representatives H.R. 2898 and United States Senate (S. 1250).
REGULATORY LEADERSHIP AND SUPPORT
Finally, we support the need for targeted federal regulation for 9-
1-1 and VoIP, believing further that this is most appropriately handled
by the FCC, through our present collaborative approach. With our
support, we look to the Commission to maintain a directive influence in
the needed processes for industry and public safety collaboration.
We seek a ``light touch'' regulatory approach for 9-1-1 that
enables full 9-1-1 capabilities for the consumer while minimally
affecting, and actually improving the advancement of overall consumer
services. In our experience, voluntary consensus provides better, more
accurate results. Improved 9-1-1 project management is better than
legal debate. Real 9-1-1 solutions are better than arbitrary
requirements.
In August, 2003 we began aggressive IP development efforts. The
NENA-VON Coalition agreement is a result of those efforts, and is an
important first step toward consensus development; to both guide the
initial efforts of Voice over Internet providers in handling 9-1-1
calls, and to gain agreement in an active role in the development of
migratory and longer term IP and VoIP solutions for 9-1-1. Our schedule
for completion of technical and operational elements of this agreement
is before the end of First Quarter 2005. And in our consensus, we
strongly believe that customer disclaimers do little to support the
public's safety.
To this end the nation's 9-1-1 system needs reliable and dependable
funding. In the VoIP environment, funding could prove evermore
complicated, given the traditional policy framework reliance on state
and local funding for 9-1-1 services and upgrades. Until a clear
solution is identified for this immediate public safety funding
problem, attention to the need for technological change and evolution
of the E9-1-1 system itself is difficult to achieve.
9-1-1 service should not be an ``afterthought'' for communications
providers, but rather an active part of service design and development.
As the consumer changes communications capabilities, the 9-1-1
system should be dynamic in design and operation to adjust to and match
new technologies and old expectations.
We thank the Subcommittee for allowing us to share our concerns and
leadership in improving our nation's 9-1-1 system.
Mr. Shimkus. Thank you.
And, Mr. Chairman, as you know, we deal with a whole bunch
of very high tech issues. And I find important for me to try to
specialized in some areas. I worked with my colleague Ann Eshoo
on 911 issues since I have been a member. That is kind of where
my focus will be. There are a lot of other issues that a lot of
other members will bring up.
We did pass the enhanced 911 bill through this committee,
through the floor and we are awaiting Senate action. But now we
have a completely a new technology of Voice over Internet
Protocol. What happens if a person uses VOIP needs to call 911?
Where does the call go?
If a customer can plug into their VOIP phone anywhere where
there is a broadband connection, how can a dispatcher determine
their location? In most cases a 911 call is how our first
responders are notified of an emergency. In fact, in this
environment that's even important. And in our enhanced 911 bill
we've also talked about the ability of emergency responders to
forward call in areas of downwind issues in case of biological
or terrorism to get a call to cell phones in the downwind
areas.
How an a dispatcher determine location under VOIP and 911
call? In most cases the 911 call is how, as I said, our first
responders are notified. If 20 percent of the market is
projected to be VOIP by 2014, we just really need to start
working on how to address this concern.
Now some will say allow the industry to move, and I would
like to believe that that is true. We all know that the
government will be involved. Now, the question is do we move
through legislations at the Federal level or do we allow the
FCC to move or to not move; and that's the crux of the debate.
There is a lot of other issues that VOIP has that are of
concerns with local rural telephone companies and Universal
Service Fund and how do you compensate. But I want to make sure
that I am on record and that those of you who are the panelists
and those who are joining us can help me work through this
issue on emergency 911. And I think that will be helpful, and I
think my colleague Anne will also be interested to see how we
can address this concern.
Thank you, Mr. Chairman. I yield back.
Ms. Eshoo. Would the gentleman just yield for a moment?
Mr. Shimkus. I will.
Ms. Eshoo. Are you going to place into the record the
statement of the National Emergency Number Association.
Mr. Shimkus. I did.
Ms. Eshoo. Good. Thank you.
Mr. Upton. Mr. Gordon?
Mr. Gordon. Thank you, Mr. Chairman.
I concur this is an important and timely hearing. And since
we have triple desk panel before us and the issues have already
been outlined, I will limit my comments to just welcoming my
friend Margaret Greene, who is back before us again. She
testified last year on the universal services and has just
completed her term as Chairman of the United States Telecom
Association.
So I welcome Ms. Greene and yield back my time.
Mr. Upton. Ms. Wilson?
Ms. Wilson. Mr. Chairman, I will waive my opening statement
in order to ask questions.
Mr. Upton. Mr. Walden?
Mr. Walden. I will waive my opening statement, sir.
Mr. Upton. Mr. Pickering?
Mr. Pickering. Thank you, Mr. Chairman.
Thank you, Mr. Chairman. I normally do not do this but
today I am going to use some props.
We have the choice before us today of the phones of our
youth versus a voice over the Internet phone, the phones of the
future. If we act and if we act in a timely way I believe that
we can achieve objectives that this committee has struggled
with ever since I arrived, and that is to achieve three policy
objectives simultaneously and without conflict.
Our contradiction of the three objectives:
1: Is to have a policy with that promote broadband
investment, capital investment;
2: To promote competition without putting those two in
conflict, and;
3: Protect consumers to give them more choices at lower
prices.
I think there's great common ground and consensus from the
FCC to members on this panel that there should be a Federal
policy, there should be a preemption of States that we do not
have 50 States with a patchwork of regulatory contradictions
and conflicts over this application. I think that if we act
quickly it will spur investment, spur competition and promote
the consumers' best interest.
We do need to act I think very quickly. There are a number
of States, New York, California and others that are beginning
to look at regulating Voice Over Internet. For that reason we
should act and considering acting this year. I know that our
time is short, but the Senate Commerce Committee has announced
that it will move to markup on Voice Over Internet legislation.
I do not think that this committee should be a place where the
Senate ever does something faster than the House.
It is a place where we can find common ground between all
of the industries, between the Bells, an AT&T and MCI and
cable, wireless. From a broad range of high technology and
telecommunication providers we do see Voice Over Internet being
a fundamental and critical aspect of their future business
plans. That is all the more reason why we need to act quickly
and to give certainty.
I realize that there are issues on social obligations, on
universal service, on CALEA and law enforcement. But I think
the targeted consensus of making this a Federal policy of
preempting the States that we can move pretty quickly while
leaving the other very important issues as something that we
can address in a broader comprehensive reform that we plan for
next year.
Let me just in conclusion read from Chairman Michael
Powell's letter in response to a letter I wrote him asking for
his counsel on whether the Congress or whether we should act on
Voice Over Internet regulations.
His response in a letter that is available, and I would
like to submit for the record, Mr. Chairman, states: ``The time
has come for the Congress and this Commission to confront the
legal and policy environment for IP-enabled services including
Voice Over Internet services. If we do not, the policy
environment for the Internet will develop in a piecemeal
fashion or by dangerous accident and potential consumer
benefits will go unrealized. Thus, it is important that we
establish a rational and consistent policy environment for IP-
based services so that they will continue to evolve.
I would like to thank you for taking a role in drafting
legislation to establish a sound policy environment in this
area, and I support congressional action to that end.'' And I
would like to submit this for the record.
And I look forward to hearing the testimony today and
working with you, Mr. Chairman, as we find a consensus and try
to move as quickly as possible to set a certain and rational
framework or Voice Over Internet for the phones of the future.
Mr. Upton. Ms. Eshoo?
Ms. Eshoo. Thank you, Mr. Chairman, for holding this very
important hearing.
I am going to submit my full statement for the record, but
I do want to welcome Jim Kirkland from Covad to this hearing.
Covad, of course, has testified many times in this hearing room
before, and we welcome you again.
My colleagues will remember that Covad is an innovative
Silicon Valley company that offers broadband services to
millions of residential and business customers across the
country. So welcome to you.
I share Mr. Shimkus' views relative to E911. These are
services that really need to be preserved and protected in
whatever we do. And I look forward to hearing from the
witnesses and engaging them in some questions.
So thank you, Mr. Chairman, for having a hearing on this
all important topic.
[The prepared statement of Hon. Anna G. Eshoo follows:]
Prepared Statement of Hon. Anna G. Eshoo, a Representative in Congress
from the State of California
Thank you Mr. Chairman for holding this important hearing.
I also want to welcome Mr. Jim Kirkland and his colleagues from
Covad to the hearing. Covad is an innovative Silicon Valley company
that offers broadband services to millions of residential and business
customers across the country. Covad--one of the fastest growing
companies in America--is an example of the competition that was
unleashed by the 1996 Telecom Act.
The Internet has obviously been the most significant development in
telecommunications, and in our society generally, in a generation or
more. It has made possible technologies, services, and innovations
unimaginable just a decade ago.
There's not really much debate that we are now moving toward a
single packet-switched network that carries voice, wireless, data, and
Internet services. It won't matter whether you buy your phone service
from a phone company, a cable company, or an Internet company--all of
the traffic from these services will be carried over the Internet,
along with a variety of other advanced services and content.
Along with the seemingly infinite possibilities created by the
Internet, there are also challenges. One of the most difficult
challenges we face as policymakers is how do we incorporate Internet-
based services into the existing regulatory scheme for telephony, cable
television, and satellite? None of the existing regulatory frameworks
is really appropriate to deal with IP services, and we should be wary
of subjecting these emerging technologies to overly burdensome
regulations.
However, it's clear that regardless of how a telecommunications
service is delivered, certain well-established obligations should be
maintained. We must ensure that we preserve universal service, access
to emergency services including 911, and other important public
policies as our telecommunications system evolves to take advantage of
advances in technology. We must also make certain that competition in
the telecommunications marketplace is vibrant and that a wide variety
of providers are available to consumers and businesses.
Let's be clear--a single cable provider competing against a single
phone company for Internet access services is not effective
competition, and innovations in technology have done nothing to change
that dynamic.
The 1996 Telecommunications Act was intended to provide competitive
access to local customers and real consumer choice for
telecommunications services. Because of the reforms enacted in the 1996
Act, competitive forces have been unleashed that have led to a race to
deploy broadband communications services. As a result, the latest FCC
statistics show that in my home state of California broadband is now
available in 97 percent of the zip codes, and nearly two million
digital subscriber lines (DSL) have been put into service.
This is real progress, and I think we can attribute much of this
growth to the pro-competition rules advanced by the FCC and the 1996
Act.
Obviously, the time has come to re-evaluate the entire regulatory
scheme as it applies to services delivered over the Internet, including
services that have traditionally been heavily regulated. But in the
meantime, we cannot afford to abandon the competitive forces that have
emerged in key sectors.
I look forward to working with my colleagues to address these
challenges, and I look forward to the witnesses' testimony.
Mr. Upton. Mr. Stearns?
Mr. Stearns. Thank you, Mr. Chairman.
This technology is a transformational technology. And I
think we all agree that it could create a whole new set of jobs
and industry.
Mr. Carlisle noted in his statement that VOIP represents a
fundamental change in voice communication that is radically
different from traditional telephony.
Now here we are 8 years after the Telecom Act and we are
facing a technology that does not really fit into a package
here under the framework. So regulators are at odds on how to
address VOIP. They perhaps think of it like it quacks like a
duck so it must be a duck and apply the same regulatory codes
to it. And, of course, I think if they did that they would
actually kill it. Because that is what Title II of the legacy
regulation will do, in my opinion. It will definitely hurt this
Nation's technology.
Mr. Chairman, even more important the government considers
now how to address VOIP, I feel they are missing a valuable
component in the whole equation.
My colleagues, VOIP is just one of a single application.
There are many new technologies we are seeing in today's market
such as VOIP, but they all have one thing in common, and that
is they deal with an Internet protocol address. These new
technologies using an Internet protocol addressing have the
ability to saturate the market with numerous offerings of high
tech services, not only just voice but video, high speed data.
And who knows what in the future we're going to have that still
uses the Internet protocol addressing. The provider could be
your phone, your cable, the wireless or even the electric
company that provides electricity to your home; we could have a
new technology over that.
What we are actually seeing with these different offerings
in a new type of service. And I would call this an advanced
Internet communication service. Toward that end, Mr. Chairman,
I introduced a bill yesterday, 4757 The Advanced Internet
communication Service Act which addresses the issues before us
today in a manner that allows for future advanced Internet
communication services like VOIP to develop without being
stifled at every step of the process. As we move forward in
debating changes to the Telecom Act we should be mindful that
we examine the provisions of services, not each individual
application. Our bill establishes advanced Internet
communication services as a unique form of services that
removes the debate that now exists in the State and in the
industry as to whether to classify AICS or the Advanced
Internet Communication Service as an information service or a
telecommunications service.
Further, by establishing the AICS or interstate services we
eliminate the regulatory uncertainty of a myriad of different
State regulatory approaches that would impede investment in
these new services.
So, I believe, Mr. Chairman, this is the approach to do, to
set up and then we have established for future generations what
we can do.
I'd also as a unanimous consent, Mr. Chairman, enter into
the Federation for Economically Rational Utility comments that
were filed by the FCC on VOIP NPRM. I believe that these
comments offer unique perspective from a number of individuals,
State commissioners on how a light regulatory hand should be
applied to this type of technology by unanimous consent.
Mr. Upton. Without objection.
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Mr. Stearns. And I thank you, Mr. Chairman.
Mr. Upton. Both Mr. Stupak and Mr. Buyer waive. Get an
additional 3 minutes.
Mr. Wynn?
Mr. Doyle?
Mr. Towns?
Mr. Towns. Thank you very much, Mr. Chairman. Let me begin
by first thinking you for holding this hearing.
The landscape of the telecommunications industry is
constantly changing and the ramifications due to the
development of Voice over Internet Protocol would be enormous.
While still in it's beginning stage, adoption of this new
technology is rapidly growing and widespread adoption is
expected within the next few years.
As we look upon the horizon and try to predict the
development of this new technology, I believe we should strive
for a regulatory framework that protects the consumers,
encourage investment and innovation and fosters competition;
all of this should occur at the same time.
In my district where many constituents still do not have a
dial up Internet connection, let alone broadband service, VOIP
is not an option for the foreseeable future. So I am concerned
about what happens to regular local phone service for these
consumers if the high paying profitable customer migrate to
VOIP. The migration of consumers to this new service and the
regulatory treatment of VOIP will have serious consequences for
universal service and the maintenance of the existing public
switch telephone network.
I am pleased that most companies considering VOIP recognize
that we must balance the need to promote the technology with
the need to protect certain consumers. The question is where is
that balance?
I hope hopeful today's witnesses might help bring some
clarity to this issue. To encourage investment companies must
be able to operate under a predictable national framework of
services, pricing and intercarrier compensation. The fact that
the service, like all Internet traffic operates without borders
makes VOIP more appropriate actually for the Federal Government
for the FCC to look into.
Finally, as we work toward the framework that levels the
playing field among all telecommunications competitors, I am
not convinced at this point that we can foster the most
competitive environment by just tackling VOIP or whether a
broader approach toward all Internet services is needed. I look
forward to hearing from all of the witnesses about these issues
and would like especially to welcome, of course, Cablevision
because they are from a New York company so you know I want to
welcome them especially.
And of course, Mr. Chairman, I yield back the balance of my
time.
Mr. Upton. Mr. Fossella?
Mr. Fossella. Thank you, Mr. Chairman.
By acknowledging the success of Voice Over IP it is clear
that competition can thrive if allowed and consumers would
benefit. And I speak primarily to welcome Mr. Tom Rutledge of
Cablevision for taking time to join us today.
Cablevision has been a leader in providing the New York
area including portions of Brooklyn with Voice Over IP. In
addition to being the first company to roll out their services
system wide, Cablevision has successfully worked with law
enforcement to include E911 and to meet all law enforcement
access and surveillance requests. This exemplifies the will
private industry has to do the right thing without government's
heavy regulatory hand.
While Voice Over IP remains a new interstate and
international service to consumers, it's clear that private
industry through their determination to provide competitive
services and to remain unregulated has been able to build a
competitive telecommunications venue that can address public
safety and full access concerns without government
intervention.
I believe the individuals within the industry should be
applauded for their accomplishments to invest capital to offer
consumers more choice and new innovative products and services.
And if anything comes out of this hearing today, Mr. Chairman,
I would hope we can bring the Pickering household up to speed.
As a New Yorker, we believe we are on cutting edge and I do not
get to Mississippi often, but I had no idea. Perhaps if
anything, we could take a little collection for Mr. Pickering.
I yield back.
Mr. Buyer. He might be able to give you some free minutes.
Mr. Davis?
Mr. Boucher?
Mr. Boucher. Well thank you very much, Mr. Chairman. I want
to compliment you this morning for focusing the committee's
attention on a matter of far reaching consequence for the
telecommunications marketplace.
The arrival of advanced communications offered over the
Internet, notably Voice over Internet Protocol service promises
a broad telecommunications transformation. VOIP with its packet
switched architecture offers a far more convenient and less
costly means of making telephone calls than currently used
circuit switched technology. Internet-based telephone calling
will bring digital clarity, greater flexibility and a wider
array of service offerings and substantial consumer savings
over the analog circuit switched technology that is now widely
in use.
New businesses will be formed to offer VOIP and existing
telephony providers will develop new business models around the
technology as well. As video based IP services are broadly
introduced in the future, even greater market transformations
will occur.
As the private sector both welcomes and accommodates these
dramatic changes, a new regulatory framework is required.
Yesterday our committee colleague, Mr. Stearns and I,
introduced a measure that is designed to provide that new
regulatory framework. Our goal is to treat all advanced IP
applications, including VOIP, with a lite regulatory touch.
Since every Internet user who is equipped for advanced services
will have a broad choice of service providers, the services
will be highly competitive. Accordingly, the regulations which
have governed monopoly telephone networks should not apply to
the new competitive Internet-based technologies. It's time for
an entirely new regulatory framework for Internet based
communications.
In introducing the Advanced Internet Communications
Services Act of 2004, Mr. Stearns and I are seeking to help
frame the debate on advanced Internet communications regulation
in anticipation of a broader telecommunications overhaul in the
Congress, which we believe will begin in 2005. By suggesting
basic ground rules today, we're hoping to make a substantial
contribution to the rewriting of the 1996 Telecommunications
Act. That law was an analog statute. It related to traditional
telephone service only. The Internet is only mentioned
collaterally in that section dealing with the Communications
Decency Act, which by the way was unceremoniously declared
unconstitutional by a nine to nothing vote of the Supreme
Court.
It is now time to have a bill that focuses on the Internet
solely, and the measure that we have put forth is one such
measure. Our bill would declare that all advanced Internet
communication services including VOIP, video and data
applications are interstate services subject to the exclusive
jurisdiction of the Federal Communications Commission. The
services in our bill will be specifically excluded from the
categories of either information service or telecommunication
service, the categories into which services are now placed.
As advanced Internet communication services, IP services
will have their own set of regulatory principles as embodied
within the text of the bill. Neither the FCC nor any State
would be permitted to regulate the rates, charges, terms or
conditions or entry into or exit from IP-based businesses.
Regarding VOIP specifically we would direct the FCC to
regulate lightly in order to assure a protection of the public
safety interest by having E911 capability, by assuring an
appropriate contribution to the Universal Service Fund, by
assuring access for persons with disabilities and providing
just and reasonable intercarrier compensation when a call that
originates as a VOIP called terminates on the public switched
network as a regular telephone call.
The bill requires parity and regulatory treatment among all
providers of advances services and would break from traditional
regulation by ceasing the regulation of specific industries in
different ways. So in the future all services would be
regulated in a similar manner by a common set of rules, whether
the platform be operated by a cable company, by a telephone
company or some other provider of broadband services.
Mr. Stearns and his staff have done an excellent job in
working with us as this measure was structured. And I want to
commend them for their outstanding effort.
It is my hope that today's witnesses will comment on some
of the principles that we have embodied in our bill as they
survey the landscape for VOIP regulation today and recommend to
us what it should look like in the future.
I want to welcome our witnesses. And thank you very much,
Mr. Chairman, for assembling this timely discussion.
I yield back.
Mr. Upton. Mr. Barton?
Chairman Barton. Thank you, Mr. Chairman. I have a formal
statement for the record. I assume that it's been allowed to be
entered into the record.
Mr. Upton. It will be without objection.
Chairman Barton. And I will just simply summarize, and I
welcome the panel. I think this is a very important hearing. I
think VOIP is going to be huge. It makes cell phone expansion,
you know, look like wagon trains when it gets going.
And I think we do need a Federal bill. I think we need to
do the absolute minimum in terms of regulation, and I applaud
the hearing that Mr. Upton is holding today.
[The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Mr. Chairman, thank you for calling this hearing today. The
Internet has dramatically changed the way we communicate, shop, learn,
and entertain ourselves. And now Internet Protocol (IP) technology is
changing the market for voice communications.
Voice Over Internet Protocol (VOIP) services use IP technology to
packetize voice signals and send such signals in packets over the
Internet. This is a much more efficient means of sending voice signals
than traditional circuit-switched technology. The increase in
efficiency enables VOIP providers to offer services at lower costs and
using less bandwidth. This should translate into lower prices for
consumers and innovate applications that can be provided in the
bandwidth previously reserved for circuit-switched phone calls.
VOIP services have great potential. And many companies, such as the
ones before us this morning, are turning that potential into reality
today. I applaud the efforts of companies using multiple technology
platforms to offer consumers IP-based services.
Congress and the FCC need to ensure that these companies are able
to operate free from stifling regulations. In particular, VOIP
providers should not have to battle with 51 different sets of rules
across the country. There should be only one, federal set of rules that
apply to VOIP.
And those rules should be absolutely minimal. VOIP should not
become the communications medium of choice for terrorists. And
consumers who subscribe to VOIP services should have access to E911
capabilities. But VOIP services should not be treated like plain old
telephone service and VOIP providers should not be treated like common
carriers.
VOIP services are likely to be a very disruptive force in the
communications industry, one that will benefit consumers substantially.
Let's make sure that government does not limit VOIP's growth.
Mr. Chairman, thank you for holding this hearing. I look forward to
the testimony of our witnesses.
Mr. Upton. Thank you.
Mr. Bass? A waive.
Mr. Terry?
Mr. Terry. Partially waive.
I just want to welcome my friend Mick Jensen. He is not a
constituent because he lives just a couple of miles outside of
my district. Nonetheless he has been a good family friend for
as long as I can remember and, frankly, one of the first people
I met with to discuss telecommunications policy before I was
even on this committee. I consider a Mick a mentor of mine in
this area, and welcome him today.
Mr. Upton. That concludes our opening statements.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Paul E. Gillmor, a Representative in
Congress from the State of Ohio
Thank you Mr. Chairman for this opportunity, not only to gauge the
state of competition in the communications sector, but to lay the
groundwork for addressing the insurgence of new technologies under
current telecommunications law.
With the enactment of the Telecommunications Act of 1996, we were
certainly not as dependent on email or our cell phones when conducting
business, and of course there wasn't a blackberry in sight. With the
recent explosion in email, wireless, broadband, and soon, voice over
Internet Protocol (VOIP) services, yesterday's advanced services such
as Internet dial-up and land-lines are losing steam.
I should also point out, that while telecommunications industry
investment remains weak, consumers have an array of new services to
choose from, reaching farther out to serve rural areas like my Ohio
district. Furthermore, as we have seen according to the recent trends,
as more people subscribe to broadband Internet access, more consumers
become aware of and are more likely to take advantage of innovative
VOIP services; and with it comes lower costs, spurring traditional
companies within the industry to provide these enhanced features,
creating more competition and most importantly, the ability to meet
customers' demands. In terms of regulation, we must continue to provide
a communications environment conducive to new investment,
manufacturing, competition, and lower prices for our constituents.
I welcome the well-balanced panel of witnesses and look forward to
learning more about the latest breakthroughs in VOIP technology and its
potential impact on the current telecommunications sector marketplace.
Again, I thank the Chairman and yield back the remainder of my time.
______
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman.
I look forward to our hearing today on what may be the phone
service of tomorrow, Voice Over Internet Protocol (VOIP). The concept
of telephone competition when we were crafting the Telecommunications
Act of 1996 was based on the principle of shared facilities. Now we are
nearing a world where consumers will benefit from competition, but
instead of it being just one platform shared by competitors, it will be
intermodal in nature. Consumers can choose what connection or ``pipe''
that provides broadband into their homes--be it copper, cable, wireless
or satellite--and expect a reasonably similar suite of services on each
platform.
This is a truly exciting time, and one where innovation is
rewarded. It does, however, require that we in Congress review the
overall assumptions upon which the Telecom Act is based. The lines
between voice and data communications has been blurred. The principles
behind the Universal Service Fund need to be addressed, and what
obligations one has under emergency services needs clarification. We
also need to ensure that those of us in rural America are not left
using 19th Century technology in a 21st Century world.
Who would have imagined just eight short years ago that one could
use their cable provider for voice services, or their phone company for
video? Well, now we are entering that world. That's why this is an
important hearing to tackle these matters in anticipation of a
redrafting of the Telecom Act for this next Century of communications.
I look forward to hearing from our distinguished panel on these
matters Today and want to continue our dialog as we tackle legislation
addressing these matters.
I yield back the balance of my time.
______
Prepared Statement of Hon. Eliot Engel, a Representative in Congress
from the State of New York
Mr. Chairman--thank you for recognizing me and calling this
hearing.
Once again, we--the members of this subcommittee and indeed all of
Congress--are presented with advances in technology that have passed
our nation's laws and regulations.
Voice over Internet Protocol is an exciting technology that turns
the home computer into a telephone.
So the question being asked today is a simple one--is this a phone
or computer program?
If only the answer were as easy. In fact, there seems to be an
inverse correlation to the ease of the question to the difficulty of
the answer.
Questions of intercarrier compensation, 911, CALEA, the USF program
and disabled accessibility are all on the table.
From my point of vantage point the easiest parts of the answer are
ALL VOIP systems must be completely integrated with the emergency 911
system and accessibility for the disabled. ANYTHING LESS IS
UNACCEPTABLE.
The systems must all be able to be accessible to law enforcement
when they have a proper court order.
Intercarrier compensation is a hearing unto itself--so I will skip
that for now!
That leaves USF--the program that provides subsidies for rural
telephone services and the E-Rate program that funds Internet access
for our schools and libraries.
As my colleagues know, USF and E-Rate are funded by a fee on long
distance usage. However, VOIP doesn't use long distance as a measure--
and as it becomes more popular one can only assume that revenues for
USF will decline.
Thus, due to this point I must withhold taking a position on how
best to classify VOIP until a much better proposal of how to fund the
USF and E-Rate emerges.
I am aware that Chairman Barton has concerns about the management
of the E-Rate program--and I join him with those concerns. There have
been terrible abuses and outright fraud in by vendors of the E-Rate
program. Let me be clear--that is stealing from kids. It is wrong. It
WILL end.
I look forward to working the Chairman and my colleagues on
improving the management of the E-Rate program.
As to VOIP, I know a number of my colleagues have introduced
legislation to deal specifically with its regulatory framework, however
I think that it would be best to address this in context of a larger
re-write of the 1996 Telecommunications Act. We should not try and keep
plugging holes in a law that was written for the analog age with
digital age band-aids.
Mr. Upton. At this point we are ready to hear the
statements from the witnesses. We are joined by a very good
panel led by Mr. Jeffrey Carlisle, Senior Deputy Bureau Chief
of the Wireline Competition Bureau from the FCC. Mr. Jeffrey
Citron, Co-Founder and Chairman and Chief Executive Officer of
Vonage Holdings Corp. in New Jersey. Ms. Margaret Greene,
President and regulatory External Affairs from BellSouth. Mr.
Michael Jensen, CEO of Great Plains Communications from
Nebraska. Mr. Jim Kirkland, General Counsel and Senior VP for
Covad Communications. Ms. Kathy Martine, senior VP from AT&T.
Mr. Robert Nelson, Michigan Public Service Commission, Chairman
of the Committee on Telecommunications, obviously from Lansing
and from the National Association of Regulatory Utility
Commissioners. Mr. Thomas Rutledge, Chief Operating Officer of
Cablevision Systems in New York and Mr. Ronald Vidal, Group VP,
Emerging Opportunities from Level 3 from Colorado.
Your statements are made a part of the record in their
entirety. We would like to limit your remarks to 5 minutes,
which the subcommittee will be able to ask questions.
Mr. Carlisle, we'll begin with you.
STATEMENTS JEFFREY J. CARLISLE, SENIOR DEPUTY BUREAU CHIEF,
THE WIRELINE COMPETITION BUREAU, FEDERAL COMMUNICATIONS
COMMISSION; JEFFREY CITRON, CO-FOUNDER, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, VONAGE HOLDINGS CORP.; MARGARET H. GREENE,
PRESIDENT, REGULATORY AND EXTERNAL AFFAIRS, BELLSOUTH
CORPORATION; S. MICHAEL JENSEN, CEO, GREAT PLAINS
COMMUNICATIONS; JAMES KIRKLAND, GENERAL COUNSEL AND SENIOR VICE
PRESIDENT, COVAD COMMUNICATIONS; CATHY MARTINE, SENIOR VICE
PRESIDENT, AT&T CORPORATION; HON. ROBERT B. NELSON, MICHIGAN
PUBLIC SERVICE COMMISSION, CHAIRMAN, COMMITTEE ON
TELECOMMUNICATIONS, THE NATIONAL ASSOCIATION OF REGULATORY
UTILITY COMMISSIONERS; THOMAS M. RUTLEDGE, CHIEF OPERATING
OFFICER, CABLEVISION; AND RONALD VIDAL, GROUP VICE PRESIDENT,
EMERGING OPPORTUNITIES FROM LEVEL 3
Mr. Carlisle. Good morning, Mr. Chairman, and distinguished
members of the subcommittee. It is my pleasure to come before
you today to discuss Voice over Internet Protocol also known as
VOIP.
On March 10, 2004 the Commission initiated its study of
VOIP by releasing its notice of proposed rulemaking in the IP-
enabled services proceeding. Before describing the status of
this proceeding, it is useful to first discuss how VOIP should
be viewed by regulators in light of the changes this technology
is bringing to the market for telecommunication services.
Saying that VOIP is just another way to make a phone call
is like saying Amazon.com was nothing more than another way to
sell books. This ignores the fact that ecommerce, whether it
was Amazon.com, eBay or any number of retail providers over the
Internet, changed the way we buy books and everything else.
The Internet changed fundamentally the way service
providers compete for and relate to their consumers. VOIP is
better understood as bringing this dynamic to voice
communications. How so?
The traditional voice network delivered its service over a
dedicated centrally managed network. Whoever the owned the pipe
into your home owns you as a customer. On the Internet the
voice application, in fact all applications, are separated from
the physical transmission network. They ride over it but are
agnostic as to who provides the network as long as the network
is capable of carrying Internet protocol. Thus, anyone who can
attach a server to the Internet can allow 2 people, or 3, or 4,
or 100 to talk to one another. Voice inevitably is becoming an
application just like any other; less like a stand alone
service that you pay a separate monthly bill for and more of a
free or almost free add on to something else you buy.
VOIP changes the market in two other ways. It accelerates
the adoption of broadband, and thus accelerates the migration
of various services from dedicated network to multi-use
broadband platforms. If you can get more with a broadband
connection, whether that connection is provided by DSL, cable
modem or any other technology, you're more likely to buy it as
a consumer; a dynamic that promotes competition and brings
significant consumer benefit.
VOIP also changes the market by internationalizing voice
communications. You can download VOIP software from a provider
in the U.S. or anywhere in the world.
These are fundamental changes to an industry that has been
regulated for 70 years on the assumption that all provides are
monopolies protected by an elaborate regulatory regime and all
providers use dedicated narrow band networks. I believe it
would irrational for regulators to ignore these changes and
apply legacy regulations reflexively without seriously
examining whether they are relevant.
History provides two very useful examples; cellular and the
Internet. These technologies were left free to develop outside
of common carrier regulation, notwithstanding long hard fought
battles to impose that regulation. Today the American consumer
and the American economy enjoy significant benefits because we
steered that course. These two industries grew from reaching a
handful of consumers to touching millions of lives everyday,
all in the absence of significant common carrier regulation.
The Commission's NPRM should be viewed in this light. The
FCC has begun to examine VOIP because development of this
promising technology might very well be hampered by
unjustified, conflicting regulatory requirements that will
result as different courts and State commissions begin to
address this area. In this environment the Commission cannot
simply assume that inaction will be sufficient to engender an
environment of innovation and competition.
The NPRM first asks whether the Commission can best serve
the public interest by continuing its policy of minimal
regulation of the Internet and applications provided over it.
It asks how the Commission should classify different types of
VOIP applications and what the nature of Federal State
jurisdiction is over these applications.
The NPRM asks how the Commission can best implement
regulations designed to advance specific societal goals such as
access to emergency services, access for people with
disabilities and universal service. And asks whether economic
common carrier regulation which protects against abuses by
monopoly providers continues to have relevance in the IP
environment.
In response to the NPRM the Commission has received over
150 initial comments from a wide variety of sources: VOIP
applications providers and existing wireline companies,
individual, State public utility commissions, public interest
advocacy groups, 911 administrators and high technology
companies such as Microsoft and Cisco. While these comments
provide a rich source of material, the Commission will receive
any more. Reply comments on due on July 14.
In conclusion, treatment of VOIP will very likely have some
of the farthest reaching consequences of anything the
Commission considers in the near future. Consumers, including
industries that rely on advanced communications, are counting
on policymakers to get it right.
The Commission will do its best. But while the Commission
has some discretion to fine tune treatment of new technologies,
it must act within the scope of its current congressional
directives, which divide the world into regulated
telecommunication services and unregulated information
services. If VOIP and other new technologies are changing the
telecommunications market such that new regulatory approaches
are necessary, it may be time to consider whether the tools the
Commission has today are sophisticated enough for the task. In
the meantime, we will move forward with our job. The guidance
and leadership of Congress is important to the success of our
process. Accordingly, we at the FCC would like to thank you,
Mr. Chairman, for calling this hearing and we look forward to
working with you and other members of the subcommittee on these
issues.
Thank you very much.
[The prepared statement of Jeffrey J. Carlisle follows:]
Prepared Statement of Jeffrey J. Carlisle, Senior Deputy Chief,
Wireline Competition Bureau, Federal Communications Commission
Good morning, Mr. Chairman and distinguished members of the
Subcommittee. It is my pleasure to come before you today to discuss
services and applications that use voice over Internet Protocol
(``VOIP''), and the status of our examination of them at the Federal
Communications Commission (the ``FCC'' or the ``Commission'').
I. THE IMPORTANCE OF VOIP
The Commission has pending before it a number of proceedings
initiated by petitioners about VOIP, and has initiated a broad
examination of issues related to it. As an introduction to the status
of these proceedings, it is helpful to discuss why the emergence of
VOIP raises important issues, why the Commission, as indicated in the
IP-Enabled Services Notice of Proposed Rulemaking (``IP-Enabled
Services Proceeding''), is examining the best way to establish a
minimally regulated environment for VOIP, and why prompt action to
clarify the regulatory regime applicable to VOIP is crucial to the
future of electronic communications and America's place as the leading
innovator in the field.
A. VOIP is Changing the Nature and Business of Voice Communication
VOIP is seen by some as simply an alternative technology for
transmitting a traditional voice telephone call. This purely functional
view, sometimes referred to as the ``if it quacks like a duck, it's a
duck'' argument, is short-sighted for two reasons.
VOIP Technology is Radically Different From Traditional Voice
Telephony. The functional view ignores the fact that VOIP technology is
merely an application that rides over the public Internet, or over
dedicated data networks, just like any other application. And on public
or private data networks the bitstream created by a VOIP application is
no different than any other bitstream on that data network--it can be
incorporated into other bitstreams, modified or enhanced by simply
changing server or client software. Thus, voice can now be easily
paired with data and video in ways that for all practical purposes
cannot be achieved over the traditional network. Adding enhancements to
voice, or voice to other applications, is no longer a question of a
common carrier spending millions of dollars to purchase and implement
modifications to highly complex circuit switches--it's a question of
adding a new feature in the next software release. Moreover, consumers
no longer need to pay rates well above cost for a la carte offerings of
voicemail, caller ID, and other enhanced features--these features may
be included in their VOIP package for free. Consumers can change their
service selections simply by logging on to their VOIP application
provider's website, or by choosing a new provider with more attractive
features.
VOIP is a Radically Different Way of Doing Business. The above
description of what VOIP is and can do still focuses on the function
the consumer is receiving, and one could say that, however amazing and
easy these functions are to provide, VOIP is still a way of making a
``phone call.'' But this raises the second reason why a purely
functional approach is short-sighted--VOIP is much more than an
alternative way of making a ``phone call''--it is an alternative way of
doing business. Saying VOIP is just another way to make a phone call is
very much like saying that Amazon.com is simply an alternative
technology for selling books, without any broader consequences for
markets or consumer behavior. As it turns out, e-commerce is much more
than that--it changed the way we shop for things. It changed the market
for books, and everything else, by opening a truly worldwide market to
any retailer who could attach a server to the Internet, or any
individual who could open an E-Bay account.
So how does VOIP change the business of telecommunications? By
allowing data networks to carry voice communications at comparable
levels of quality to the traditional circuit-switched network, and to
do so more flexibly and efficiently, VOIP changes the dynamics of the
market for telecommunications services in three ways.
The first way VOIP changes telecommunications markets is that it
changes voice from the primary service provided by common carriers into
nothing more than just another application on the network. Yesterday,
voice applications were delivered over a dedicated network that
required an enormous and well-capitalized service provider in order to
maintain basic infrastructure. And the provider demanded a protected
monopoly in return for doing so. Tomorrow, the voice application--in
fact, all applications--will be separated from the physical
transmission network. Anyone can attach a server to the Internet to
allow two people--or three, four, five or a hundred--to talk to one
another, just as anyone can connect a server to the Internet to provide
email, file sharing, or any other service. The implications for how
voice services are marketed and purchased are staggering. No longer is
innovation the sole province of the monopoly provider, who may face
little pressure to innovate. Rather, innovation in telecommunications
can come from any entrepreneur, small company or enterprise that can
connect to the network. This is the consequence of moving voice
communications to the Internet, where intelligence is on the edge of
the network instead of a tightly controlled core.
With these kinds of developments, saying that a VOIP application is
another way of making a phone call is like saying that an automobile is
just another way of going someplace in your horse and buggy. VOIP means
that voice will no longer be a dedicated service for which consumers
pay a separate monthly bill. VOIP may be part of your wireless phone
service, as it already is with many push-to-talk services; it may be
bundled together with video and data service that you buy from your
cable, telephone, satellite or power company; or you may buy it from
dozens of providers over the Internet; or you may simply have it as
part of a software package that you buy for some other purpose. Most
likely, you will buy it in all of these different ways. Accordingly,
when VOIP separates the voice application from the physical network,
the question is no longer whether consumers will benefit from
competition in the voice market. Clearly, they will. The question is,
how long it will be until voice competition is no longer an issue,
because voice has become an almost free add-on to something else you
buy from multiple sources.
In this respect it is useful to compare the evolution of the voice
market to that of the market for email. There, too, a different and
dynamic business model changed how we communicate, with significant
consumer benefit. Email appears to be ``free.'' But email application
providers thrive in a market where intense competition drives
innovation. Advances in email provided by Hotmail, Google and Yahoo
become headline news. Consumers can acquire email applications from
their ISP, select web-based mail from third parties supported by
advertisements, outsource mail services, or operate email servers on
their own networks. In the same way, consumers will benefit from a
market for voice applications thriving with competition, innovation and
choices suited to their needs at significantly reduced costs--but with
significant rewards for agile and smart companies capable of delivering
the best service.
The second way VOIP changes telecommunications markets is that it
accelerates the migration to all digital, multiuse infrastructures.
Whatever the benefits of removing the voice application from a
dedicated infrastructure, obviously we will still need companies
capable of maintaining the digital infrastructure that carries it. This
business, too, is changing. For many markets in the United States,
infrastructure will no longer be the monopoly environment of the
traditional network. Rather, an entire range of broadband technologies,
such as DSL, cable modem, broadband wireless, WIFI, Ultra Wide Band,
satellites and broadband over power lines will provide connectivity.
When networks simply provide transmission, and are not tied to a single
application like voice or cable television, networks become highly
substitutable for one another and competition increases dramatically,
again rendering significant benefits to the consumer. Furthermore, the
offering of demand-creating applications such as VOIP promotes
deployment of broadband facilities, and increases in deployment in turn
promote further development of VOIP and other Internet applications.
Thus, applications and broadband create a virtuous circle that promises
to confer significant benefits to American consumers and the American
economy as a whole.
The third way VOIP changes telecommunications markets is that it
internationalizes voice communications. Just like many other
applications provided over the Internet, it doesn't matter where the
provider is located--a server providing a VOIP application could be
down the street, or in the next state, or it could be in Britain,
Ukraine, India, or, as is currently the case with Skype, in Estonia. A
voice application provided through servers located in foreign
countries, with the customer in the U.S. using nothing more than
software downloaded from the Internet and purchasing a broadband
connection from a third party, looks very different from the service
provided by traditional phone companies. While I will discuss
regulatory issues in greater detail later in my testimony, allow me to
note here that this fundamental shift in how the voice application is
provided has obvious implications for regulation. Federal or state
regulators can apply any number of possible regulatory requirements to
VOIP technology, but if regulators decide to do so we must acknowledge
that it may be very difficult for us to enforce these requirements,
that we will place voice providers in this country at a competitive
disadvantage to voice providers located in relatively less regulated
countries, and that, as providers relocate abroad, we will cause the
loss of desirable jobs in the high technology sector.
Much of what I have described is a look into the reasonably
foreseeable future. But VOIP is already changing the market's dynamics,
even though it has not yet become ubiquitous. In 1998, VOIP carried
less than 0.2% of the world's international voice traffic. In 2002,
VOIP carried 10.4%, and, in 2003, is estimated to have carried 12.8%.
Recently, Cablevision announced that it would provide a bundled package
of digital cable, high speed Internet, and unlimited local and long
distance calling for $90. If you consider what consumers pay for
digital cable and broadband in the marketplace today, at this price,
the voice service is essentially free. This is exactly what one would
expect when voice, which uses relatively little bandwidth, is provided
over a high bandwidth connection.
There are other indications that VOIP, while only gradually making
its way into the public consciousness, is nevertheless growing at an
increasing pace. A report released June 27 by the Pew Internet &
American Life Project and the New Millennium Research Project estimates
that approximately 14 million Americans have already made some sort of
voice communication over the Internet. Skype, an Internet-based VOIP
service that allows its members to speak to one another with crystal
clarity for free over a peer-to-peer network connection, has been
downloaded over 15 million times by users around the world.
B. Why Take Action Now?
To be sure, the Commission has long relied on a policy of limiting
regulatory intrusion on the Internet and applications provided over it.
The Commission could have waited and raised the question of how VOIP is
regulated at some point in the future, after it matured. At the end of
2003, incumbent local exchange carriers (``ILECs'') and competitive
local exchange carriers (``CLECs'') served over 181 million access
lines in the United States, and even at astronomical growth rates it
will be some time before VOIP services and applications constitute a
significant portion of the U.S. voice market. But there are two factors
pressuring for Commission attention and, by implication, legislative
action.
First, industry actors are deploying these applications today, and
are bringing their questions to the Commission. VOIP only started to
become used more broadly in the domestic market within last two to
three years. Thus, the Commission has seen companies occupying niches
across the telecommunications industry--VOIP applications providers,
ILECs, data companies and interexchange carriers (``IXCs'')--file
petitions seeking clarification from the Commission regarding
regulatory treatment of VOIP beginning in September of
2002.1 The petitions filed over the last two years
demonstrate the need for a measure of certainty on important regulatory
questions, and, while the petitions are pending, create their own
measure of uncertainty as to how the FCC is going to apply its current
regulations in this very new environment.
---------------------------------------------------------------------------
\1\ The Commission did receive a petition regarding VOIP services
as early as 1996, and received another following the release of its
1998 report to Congress regarding universal service, often called the
``Stevens Report.'' There was not, however, any consequential activity
following these petitions.
---------------------------------------------------------------------------
Second, because of the historic and important role of state public
utility commissions in regulating intrastate telecommunications, states
have now begun to look at these questions, raising the possibility of
differences among state regulatory regimes, and between various state
and federal regulatory regimes. Some state commissions have decided to
wait until this service further develops or until the FCC acts. But
others have moved forward to examine VOIP, and some, such as Minnesota
and New York, have already taken steps to classify VOIP applications as
regulated telecommunications services. Federal courts in both states
have stayed the effectiveness of these rulings. Nevertheless, companies
offering VOIP are dealing today with multiple attempts to apply
potentially inconsistent regulatory regimes, with the imminent prospect
of more to come.
It is not surprising, then, that while there is investment capital
that would fuel even further innovation, there is hesitance to bring
this capital to market while the regulatory regime remains unclear.
While this might be said of any number of areas of telecommunications
law, it is particularly true of VOIP, given that much of the innovation
in the area is coming from small companies and entrepreneurs who are
most vulnerable to shortages of investment capital. Accordingly, the
FCC has begun to examine this area not because it is looking for
something to do, or because it is interested in any way in regulating
the Internet. The FCC has begun to examine this area because there is a
demonstrated need for clarity in the face of growing deployment of VOIP
and the very real possibility that this deployment will be hampered by
burdensome and conflicting regulatory requirements.
II. THE IP-ENABLED SERVICES PROCEEDING
Because of the need for the Commission to provide clarity to
consumers, industry and the investment community, on March 10, 2004,
the Commission released its Notice of Proposed Rulemaking (``NPRM'') on
IP-Enabled Services, docket number 04-36. This NPRM asked commenters to
tell the Commission how it could best craft a regime for VOIP that
would encourage innovation and ensure that the benefits of this
technology could reach consumers.
The NPRM discusses how VOIP will change how voice service is
delivered to business and residential customers, and then starts from
the question of whether the Commission can best serve the public
interest by continuing its policy of minimal regulation of the Internet
and applications provided over it. It asks for comment as to how the
Commission could determine whether a service using VOIP is a regulated
telecommunications service or an unregulated information service under
the 1996 Act. Should the Commission establish the line at the point
where VOIP technology interfaces with the public switched telephone
network? Should the Commission use a purely functional approach that
makes the distinction based on whether the given service is a
replacement for traditional telephony? Should the Commission use a test
that examines whether the service substitutes for traditional telephony
as determined by a traditional market analysis? Should the Commission
instead adopt a layered approach, view VOIP purely as an application
riding over a network, and thus regulate applications very lightly
while applying a more stringent regime to facilities? And what impact
should it have on the Commission's analysis that VOIP can be provided
via peer-to-peer services that simply connect two users, as opposed to
the centrally managed networks used by traditional service providers?
In the case of traditional service providers, there is an entity to
regulate that, presumably, has some control over and information about
the calls routed over its network. In the peer-to-peer case, consumers
communicate directly with one another, and aside from establishing the
link, the provider of the peer-to-peer application may have little or
no control over the call.
Related to the question of classification, the NPRM asks how the
Commission might best achieve a minimally regulated environment. If
classified as an information service, the service is nevertheless
subject to the Commission's general jurisdiction to regulate all
interstate and international communications by wire and radio.
Alternatively, even if a service is classified as a telecommunications
service, Congress has directed the Commission to forbear from enforcing
its own regulations or the requirements of the statute if enforcement
is not necessary to protect consumers, ensure against unjust,
unreasonable or unreasonably discriminatory practices, or protect the
public interest.
The NPRM goes on to solicit comment as to jurisdiction. It notes
the Commission's recent order in response to a petition for declaratory
ruling filed by Pulver.com regarding Free World Dialup--as described in
the petition, a free peer-to-peer application facilitating voice
communication between members of a closed group, which does not break
out to the public switched telephone network. The Commission's order
was released on February 19, 2004, and held that Free World Dialup was
an information service subject to federal jurisdiction. The Pulver.com
order further held that state regulation treating Free World Dialup
like a regulated telecommunication service would most likely be
preempted given the Commission's finding and an explicit Congressional
policy against burdening the Internet with unnecessary federal and
state regulation. The NPRM acknowledges that the Pulver.com Order only
addressed one type of VOIP, and asked about the extent to which the
reasoning in the case can be applied to other types, such as VOIP
applications that interface with the public switched telephone network.
Having solicited comment on how the Commission should classify
VOIP, and who should have jurisdiction as to whether to regulate VOIP,
the NPRM then asks what regulations, if any, should apply, and develops
an important distinction. The NPRM asks whether regulations that were
designed to protect against the power of a monopoly provider of
services, with control over the bottleneck facility of the wire into
the consumer's home, have any application in an environment where
consumers can choose any number of applications providers, and use
those applications over multiple networks. That is, why does it make
sense to require VOIP application providers to obtain prior permission
from the government to enter or leave the market, or to conduct
acquisitions, mergers or initial public offerings? Why should VOIP
application providers file tariffs or comply with regulatory accounting
requirements? These measures were designed to place the government in a
position to control the power of potentially abusive monopoly
providers. If technology has redressed the imbalance in power between
consumers and providers by lowering barriers to entry and allowing the
consumer to choose his or her service provider, and change that choice
easily, does this type of economic common carrier regulation continue
to have any relevance, at least as regards providers using VOIP?
Certainly, precedent indicates that where competitive choice is
possible, lower regulatory burdens are justified. This has been the
case with cellular providers, which are not subject to many of the
common carrier requirements that might otherwise apply to them. It has
also been the case with nondominant wireline providers. The NPRM
solicits comment on these issues.
This class of economic common carrier regulation is distinguished
from requirements that might be generally thought of as social
obligation regulation. These are the kinds of requirements that, as a
society, we have decided should apply to any provider of voice
services, as opposed to only those providers that have a dominant
market position. Thus, even if a provider of voice is not dominant, it
may nevertheless be a good idea to ensure that its customers can have
access to emergency services through that provider. Even if the market
for voice services is changing in fundamental ways, it is still a basic
goal of the Communications Act to ensure that all Americans have access
to reasonably comparable services at affordable prices. Certainly, one
might say that free voice service essentially achieves that goal. But
if it is necessary to purchase some form of broadband facility in order
to reach it (not to mention equipment and software), then it may be
necessary to examine how we understand universal service and support
for it may need to change over time. The social obligations raised in
the NPRM and related proceedings include emergency service via the 911/
E911 system, access to telecommunications by people with disabilities,
universal service, and authorized law enforcement access to electronic
communications--important societal goals that should not be compromised
as the market changes. But the NPRM recognizes that the method of
reaching those goals may very well change, and that the versatility of
VOIP might, for example, actually result in better 911 service and
superior access for individuals with disabilities. Accordingly, while
it makes clear these goals continue to be important, the NPRM also asks
how the Commission can best achieve them in the new environment,
acknowledging both the problems and opportunities presented by new
technology.
III. COMMENTS ON THE IP-ENABLED SERVICES PROCEEDING
I am pleased to report to you that the response by the public to
the NPRM has provided the Commission with a rich record, and features
original and thought-provoking analyses of the issues. By May 28, 2004,
the date for filing of initial comments, the Commission had received
over 150 sets of comments. These comments have come to the Commission
from a wide range of sources, indicating the broad interest this
proceeding engenders not only among industry actors, but across
American society as a whole. These sources include:
15 state public utility commissions, and two organizations
representing state commissioners, the Federation for
Economically Rational Utility Policy and the National
Association of Regulatory Utility Commissioners;
county 911 administrators;
the Department of Homeland Security and the Department of Justice;
groups involved in studying and advocating public policy as it
relates to high tech issues, such as the Electronic Frontier
Foundation;
public interest groups that represent specific groups of consumers,
such as AARP, the American Foundation for the Blind,
Communication Service for the Deaf, the National Consumer
League and the Ad Hoc Telecommunications Users Committee;
trade groups that represent the interests of industries, as well as
some industries related to but outside the world of traditional
wireline telephony providers, including the Telecommunications
Industry Association, CTIA, NCTA, the Information Technology
Association of America, and the High Tech Broadband Coalition;
Internet Service Providers;
many well-known high technology companies such as Microsoft and
Cisco;
local exchange carriers, both incumbent and competitive, as well as
the Association for Local Telecommunications Services, CompTel/
Ascent, and the United States Telecommunications Association;
rural telephone companies, as well as organizations relating to our
representing them, such as NECA, NTCA and OPASTCO; and
numerous VOIP application providers, such as 8X8, Pulver.com,
Callipso, Dialpad, Vonage, and the Voice on the Net Coalition.
In any proceeding, a record of this size and scope would provide a
significant resource for the Commission to draw upon, and it certainly
does so here. However, this is only half of the story--reply comments
are due on or before July 14, 2004, and the Commission reasonably
expects to receive significantly more material.
At the present time, the record can best be characterized as
follows. The parties have, by and large, acknowledged the significant
changes that VOIP technology will bring. They differ, however, as to
the specific regulatory implications of that change.
A number of commenters, largely state commissions and rural
incumbent local exchange carriers (``rural ILECs''), argue that if VOIP
provides the functional equivalent of a voice call, then it should be
regulated in the same way as traditional voice telephony. Others argue
for a multi-factor test to determine whether a service should be
regulated or not. For example, NCTA argues that a VOIP application
should be subject to the same regulation as telecommunications service
providers if the following applies: (1) it makes use of 10 digit
numbers under the North American Numbering Plan; (2) it is capable of
receiving calls from the public switched telephone network at one or
both ends of the call; and (3) it represents a possible replacement for
traditional telephone service. However, NCTA also argues that if a
service meeting all of these criteria also uses IP protocol between the
service provider and the consumer, including use of an IP terminal
adapter and/or IP-based telephone set, it should be subject to minimal
regulation. Still others, such as AT&T, SBC, many of the high
technology companies and software providers, and all VOIP application
providers, argue that functional approaches or factor approaches are
doomed to obsolescence as technology develops, and that the Commission
should instead broadly classify services using IP technology, or at
least those reaching or leaving the customer in IP format, as
information services.
Another strain of comments advocates a layered approach to
regulation. Commenters such as MCI and others argue that the primary
benefit of using IP to transmit voice is that it allows industry to
move from using networks that are optimized for and dedicated to a
single function, voice, to a network capable of delivering multiple
functions. Accordingly, regulation should reflect the fact that
services and applications are no longer tied to the physical
infrastructure. If dozens or hundreds of competing services and voice
applications are provided over the infrastructure layer, there is
little or no justification for continued common carrier regulation at
those levels. Rather, the focus of common carrier regulation should be
on underlying facilities, where issues of market power might still
exist.
Interestingly, differences on classification among commenters did
not necessarily translate to differences over jurisdiction. Some rural
ILECs, their trade organizations, many of the commenting state
commissions and NARUC argue that VOIP applications, if they are
classified as telecommunications services, can and should be regulated
at the state level. Some state commissions, such as the Maine Public
Utilities Commissioner, advocate for less for a strict delineation of
federal and state jurisdiction, as opposed to a partnership between
federal and state regulators, with the Commission responsible for
ensuring an effective overall regulatory scheme. Other rural ILECs, the
Federation for Economically Rational Utility Policy, and virtually all
companies interested in offering VOIP applications, whether ILEC, IXC,
CLEC, VOIP provider or other high tech company, have argued that VOIP
applications are inherently interstate--that it is impossible to
determine geographic end points for calls when customers can use VOIP
applications from anywhere in the world, that IP networks ignore
domestic and international boundaries when transporting bits, thus
rendering the intrastate/interstate distinction meaningless, and that
the Internet and services provided over it have always been considered
to be subject to federal jurisdiction only.
With regard to whether economic common carrier regulation should
apply, high tech companies and VOIP application providers
overwhelmingly also agreed that there is no need for it. Many
commenters that argued some VOIP applications should be classified as
telecommunication services, nevertheless, also argued that they should
be subject to federal jurisdiction only and that the Commission should
forbear from applying economic common carrier regulation. The Illinois
Commission, while arguing that state and federal regulation should
coexist, with preemption only applying to state requirements that are
inconsistent with federal requirements, nevertheless thought that
extension of traditional utility regulation to emerging IP-enabled
services was unwarranted. Some state commissions and many commenting
rural ILECs concluded that VOIP applications should be subject to the
same level of regulation as traditional voice providers, although
America's Rural Consortium pointed out that this parity could be
achieved through federal preemption of state regulation of voice
service and removal of regulations from both VOIP and traditional
providers.
As for social obligation regulation, there was general agreement
among the commenters that universal service, 911 and other issues of
this type will continue to be important in the new environment. There
was, however, disagreement as to how best to achieve these goals. VOIP
application providers and many of the technology-oriented trade groups
tended to argue that obligations like access to 911 should only be made
mandatory over time in response to a market failure, and that there has
already been significant progress through voluntary industry action.
They also argued that universal service and access charges should not
apply until broader reforms to these systems are completed, as
otherwise the Commission would impose unsustainable systems on a new
technology. Many others have argued for mandatory application of these
requirements, with most commenters focusing on specific areas: groups
involved with advocating for disabilities access argued that mandatory
disabilities access requirements should apply; some incumbent and rural
ILECs that receive support from the Universal Service Fund and access
charges argue that these obligations should apply pending changes in
the system.
The Commission has received a wealth of comments that truly
represent views across the spectrum. While I have made some initial
generalizations here, the Commission is waiting for the remainder of
the record to come in and looks forward to seeing these issues explored
in even further detail.
IV. RECENT ACTIONS
In addition to our work on the IP-Enabled Services Proceeding, the
Commission is also working on several petitions regarding VOIP. I'll
first describe two recent orders the Commission issued in this area,
and then summarize the remaining petitions.
The Commission recently resolved the following petitions:
Pulver.com. As I previously mentioned, on February 19, 2004, the
Commission released an order resolving a petition for
declaratory ruling filed by Pulver.com. In that order, the
Commission found that Pulver.com's Free World Dialup Service
was neither telecommunications nor a telecommunications
service, but was instead an information service subject to
federal jurisdiction, and that state regulation conflicting
with this classification would most likely be preempted. This
order was significant in terms of clearly establishing that
Internet-only voice applications would be treated very much
like any other applications traveling over the Internet: as
being unfettered by federal or state regulation.
AT&T. On April 21, 2004, the Commission released an order resolving a
petition for declaratory ruling filed by AT&T. In this order,
the Commission denied AT&T's request to exempt its use of VOIP
from access charges, when AT&T only used the technology to
transport calls that originated and terminated on the public
switched telephone network, and did not provide any enhanced
functionality, cost savings, or net protocol conversion for the
end user. This transport was carried out as part of AT&T's
conventional service offerings and was transparent to the
consumer. The Commission issued this decision to bring to an
end self-help AT&T was engaging in to avoid access charges that
would normally apply to its routing of long distance calls. The
Commission, by issuing this decision, did not prejudge the
application of access charges to other types of VOIP service,
which are still subject to consideration in both the IP-Enabled
Services Proceeding and the Intercarrier Compensation docket.
Thus, this decision was explicitly limited to the factual
circumstances described by AT&T.
Petitions pending before the Commission are as follows:
Vonage. On September 22, 2003, after the Minnesota Public Service
Commission ruled that Vonage's service was a regulated
telephone service under state law, Vonage filed a petition for
preemption of this decision. Subsequently, Vonage obtained a
reversal of this decision from a federal district court. An
appeal of that court decision to the United States Court of
Appeals for the Eighth Circuit is pending, while Vonage's
preemption petition is still pending before the Commission.
Level 3. On December 23, 2003, Level 3 filed a petition for
forbearance, requesting that the Commission forbear from
applying access charges to calls that originate or terminate as
Internet protocol calls on one end, with the other end
originating or terminating over the public switched telephone
network. Level 3 excluded from its petition those areas served
by rural ILECs as defined in section 251(f)(1) of the
Communications Act. The twelve month deadline for Commission
action in this proceeding is December 23, 2004, with a possible
extension of three months beyond that date.
SBC. On February 5, 2004, SBC filed a petition for forbearance asking
the Commission to find that services and applications provided
over Internet protocol platforms are information services
subject only to federal jurisdiction, and as such to forbear
entirely from applying Title II common carrier regulation to
such services. The twelve month deadline for Commission action
in this proceeding is February 5, 2005, with a possible
extension of three months beyond that date.
Inflexion. On February 27, 2004, Inflexion filed a petition for
declaratory ruling, asking the Commission to find that calls
made to or from Inflexion's VOIP service in areas that it
characterizes as underserved are exempt from access charges.
Inflexion's definition of underserved areas incorporates areas
served by rural ILECs that Level 3 explicitly declined to cover
in its petition.
Although the Commission hopes to focus its efforts on resolving the
questions posed by the NPRM, these petitions also provide possible
areas of resolution for specific questions related to VOIP. Please also
note that many of the issues that relate to universal service and
intercarrier compensation are being considered in other dockets by the
Commission. Moreover, the Commission expects to release in the near
term a Notice of Proposed Rulemaking addressing issues regarding VOIP
and the Communications Assistance for Law Enforcement Act (``CALEA'')
raised by the Department of Justice, the Federal Bureau of
Investigation, and the Drug Enforcement Agency in their recently filed
petition for rulemaking. Consideration of VOIP issues will not delay
broader resolution of those dockets, and the Commission hopes to move
expeditiously on all fronts.
V. CONCLUSION
The Commission has indicated in the IP-Enabled Services Proceeding
and in its resolution of various petitions that it is cognizant that
VOIP is leading to significant developments in telecommunications
markets. Perhaps most importantly, from the perspective of a regulator,
VOIP is changing the nature of the relationship between consumers and
providers. Thus, it would be wholly irresponsible for any regulator to
impose obsolete regulations reflexively, simply in order to protect a
legacy regime. The examples of cellular technology and the Internet are
perhaps most instructive in this respect. In both cases, the
technologies were left to develop free of many of the regulatory
requirements and regimes applicable to common carriers, notwithstanding
long and hard fought battles to impose such requirements. Today, the
American consumer and economy are far better off because of the
deregulatory course that has been steered--these two industries now
touch millions of lives, bring considerable benefits to consumers, and
generate substantial economic growth. All in the absence of common
carrier regulation.
Thus, while the Commission deals with many significant issues, it
is very likely that treatment of VOIP will have the farthest-reaching
consequences of anything the Commission will consider in the near
future. The Commission is not simply considering minor adjustments to
specific regulations--the Commission is considering the future of
electronic and optic communication for many years to come. Consumers,
the many industries that rely on information technology and advanced
communications in their business, the telecommunications, computer and
software industries, and the investment community are all counting on
the Commission to get it right. It is no overstatement to say that the
world, also, is watching how the U.S. decides to treat these services.
Telecommunications regulators and policy makers in other countries want
to know whether the United States will create an environment that is
conducive to growth and investment in innovation, or an environment
where the United States figures as little more than an also-ran because
other countries, with clear national policies, have been able to
surpass it.
I will conclude by noting that I believe it is important when
dealing with the public policy implications of revolutionary new
technologies to start from the perspective of how to best create the
world we all want to live in, rather than applying regulatory
structures that may have been rendered obsolete. The relevant question
is how we as a society deal with the fundamental change in electronic
communication we are witnessing, rather than falling into rather
abstract fights over definitions. This being said, the Commission can
only act as it may be allowed under the Act, which divides the world
into regulated telecommunications services and unregulated information
services. While the Commission certainly has some ability to fine tune
treatment of new technologies given its discretion and the flexibility
granted to it by Congress, the Commission is still constrained by this
structure. If you believe that VOIP and other new technologies are
working changes in the telecommunications market such that new
regulatory approaches are necessary, you may need to consider whether
the tools the Commission has today are sophisticated enough for the
task.
In the meantime, the Commission will move forward with its work,
and the guidance and leadership of Congress is important to the success
of its process. Accordingly, we at the FCC would like to thank you, Mr.
Chairman, for calling this hearing, and we look forward to working with
you and other members of the Committee on these issues.
Mr. Upton. Thank you very much.
Mr. Citron?
STATEMENT OF JEFFREY CITRON
Mr. Citron. Good morning Chairman Upton, Ranking Member
Markey and members of the committee. That you for the
opportunity to be here today.
I'm Jeff Citron. I'm CEO of Vonage Holdings Corp. We are
the leading providing of consumer and small business VOIP
services in the United States with over 200,000 subscriber line
equivalents.
Vonage is at the forefront of this new emerging market,
which approximately 400,000 users and as such, we are
confronting public policy issues that have never been seen
before. Policy makers are asking us what is voice IP? Is it
like a phone or is more like email? Will it replace the
traditional switch networks or just be another option for
consumers? How can public safety needs be met and improved
upon?
Indeed, VOIP is turning the traditional notions of
telephony on their heads as it blends voice and data into
existing new offerings never seen before.
In the face of such uncertainty and change there is a
tendency by some to try and wedge this new technology into a
common carrier regime, a mild design for monopoly wire line
owners. I hope this committee will not act out of fear as
others have, and instead exercise its leadership and
understanding by creating a new national framework that keeps
this innovative technology free from inappropriate regulation
therefore enabling it to evolve and grow where the
possibilities are endless.
For the first time in history consumers are experiencing
widespread residential local and national competition.
Competition in turn lowers prices and improves offerings.
Vonage offers customers the ability to replace their existing
telephone service with voice over IP for as little as $14.99 a
minute. This also includes 500 minutes of national calling with
the most popular features like caller ID with name, call
waiting and voice mail and host of more all included for free.
At the same time, Vonage is meeting its public policy goals
by supporting universal service, CALEA, 911 and local number
portability. And the good news doesn't stop here. Everyday
people upgrading their dialup Internet connections to get
access to this new killer application, it offers better value
and many new innovative features.
Now, as consumers increasingly demand these new services,
the capital markets have finally taken notice. This has spurred
investment capital to flow into new and existing companies such
as ours which in term has lead to the creation of new jobs,
increased capital spending on telecom equipment. But this
resurgence is already in jeopardy under attack by disparate
interests which for fear of change and lack of understanding
suggest that voice over IP must be subject to a full suite of
common carrier regulation. These disparate groups ignore the
difference between VOIP offerings and traditional wireline
networks with complete disregard for the underlying interstate
nature of the service. Should you allow improper regulation to
take hold, consumers and the telecom industry will suffer
greatly.
And Congress has already shown its leadership by enacting
critical social policy goals. It then became incumbent on all
of this operators to work together with the FCC to achieve
these goals. Vonage has demonstrated our commitment in this
area of becoming the first portable or mobile VOIP provider to
adopt a basic 911 solution.
Vonage continues in its commitment to universal service by
paying indirectly into the Universal Service Fund. And
furthermore, new technologies such as voice over IP can help
meet the USF's primary goal of providing affordable
communication services to everyone everywhere without the need
for costly subsidies.
As for intercarrier compensation, virtually every
participant in the system has acknowledged that there is a need
for reform of the settlement system. And there needs to be put
in place a system, a national carrier intercompensation system
ensuring fairness for all parties including new entrants. While
this work is underway, it'll be reckless to subject VOIP
providers to a broken system.
Now Vonage is fully committed to meeting the needs of law
enforcement personnel and has already responded to numerous
requests, subpoenas from government agencies. If policymakers
are concerned that the CELEA statute may not apply to VOIP
providers, then they should address the deficiencies of the
CELEA statute.
As Congress consider VOIP issues, we remind that the
Internet applications are interstate in nature, whether they be
voice IP applications, sending bits of sound from one
destination to another or a web browsing program sending bits
of an image and text back and forth. Each bit of data deserves
the same treatment regardless of what content it is carrying.
Congress exercises far reaching leadership by promoting
Internet development, and now we need Congress to act again. We
enthusiastically support proposed legislation as a thoughtful
and sensible compromise that would ensure our voice over IP
providers can continue to innovate, create jobs and allow
America to recapture its lead over this technology.
I look forward to answering any questions you may. Thank
you very much for this opportunity.
[The prepared statement of Jeffrey Citron follows:]
Prepared Statement of Jeffrey Citron, Chairman and Chief Executive
Officer, Vonage Holdings Corporation
I. INTRODUCTION.
Good morning Chairman Upton, Ranking Member Markey, and Members of
the Committee, and thank you for inviting me to appear before you
today. I am Jeffrey Citron, Chairman and CEO of Vonage, the leading
voice over Internet protocol (``VOIP'') provider in the United States.
I am honored to be here today. This Committee has been at the
center of the technological and telecommunications revolution that has
swept the United States over the last decades. Now, we have reached a
critical juncture with the emergence of new technologies, and it is
imperative that Congress exercise its leadership to pave the way for
these technologies before their progress is halted by impenetrable
regulatory roadblocks. Going forward, the members of this Committee
will play a key role in ensuring that the United States maintains its
dominant position in the international technology community, and that
every American is able to experience the communications advances that
are being developed on what seems like a daily basis. As such, I
sincerely value the opportunity to contribute to the debate about VOIP
services.
Headquartered in New Jersey, Vonage uses a VOIP software solution
to bring voice communications service to consumers nationwide. Vonage
customers use a third-party provided broadband connection to make
Internet calls, either to another user on the Internet, a traditional
telephone, a wireless customer, or a user of another Internet protocol
(``IP'') network. Regardless of the type of call, a Vonage customer
uses a computer and a broadband Internet connection. Through the use of
special software and the Internet, Vonage provides its customers with a
new communications tool that offers exciting new features and
functionality at a significant cost savings to traditional telephone
service. Further, because the Vonage service requires customers to use
a broadband Internet connection, Vonage's VOIP service drives broadband
adoption. For the first time, many of Vonage's customers now find they
have a reason to subscribe to high speed Internet service. Indeed,
Internet telephony is stimulating the telecommunications and Internet
industries, and the economy as a whole.
The consumer and investor response to our VOIP product has been
remarkable. As recently as 2001, Vonage was in the research and
development phase, and the company did not fully launch its service
until 2003. Nevertheless, Vonage is already the clear Internet
telephony industry leader, commanding about 50 percent of the market
share with a national reach that accounts for more IP telephony lines
than the entire North American cable industry combined. Just this week,
Vonage will activate its 200,000th line.
While the response to our product is overwhelming, VOIP is still in
its infancy, with only .1 percent of all U.S. telephony subscribers,
according to Merrill Lynch. As the market and the technology develop,
we encourage policy makers to resist wedging this promising new
technology into rigid regulatory boxes that were created for legacy
monopoly communication systems and markets. Vonage's form of VOIP is an
``information service'' like e-mail, and rides over the Internet, which
is inherently interstate and incongruous with artificial boundaries.
We understand that critical public policy needs must be met in the
context of VOIP, and we commit to working with policy makers on issues
such as 911 emergency calling, law enforcement interception, disability
access, and the provision of universal service. Meeting these needs,
however, does not require that VOIP be regulated under a system of
rules created decades ago, intended to govern the conduct of wireline
carriers who faced no competition.
Failing to apply new thinking to this new technology carries
serious consequences. VOIP providers would have to divert their
energies to complying with a patchwork of 51 sets of regulations of
questionable merit to this new technology. Compliance would not only be
difficult, but in many cases impossible. The result of misguided state
efforts to regulate new Internet applications is draining resources
away from deployment and innovation. Already, Americans are missing out
on the benefits of competition and advanced functionality that citizens
of Japan and China readily enjoy. Americans are losing out on broadband
adoption and the economic benefits it brings. On a broader level, the
failure by the United States to capitalize on this opportunity is
retarding further innovation, driving VOIP providers off-shore, and
contributing to the export of technology, jobs, and the tax base.
American technological competitiveness is suffering, and we are already
lagging behind many countries in Asia and Europe in broadband
deployment and VOIP offerings.
Congress and this Committee have exercised visionary leadership
with respect to the Internet by codifying in the Telecommunications Act
of 1996 a policy of exempting ``information services'' and thereby the
Internet from common carrier regulation. That critical step put this
nation on a path toward great advances in Internet technology, and
ultimately to the creation of VOIP. We now look to Congress to continue
its bold leadership, for a step back would have catastrophic
consequences. Time is of the essence, as states have already begun the
process of applying antiquated rules to this promising new technology.
On the federal level, the Federal Communications Commission (``FCC'')
appears to be headed in the right direction, but will need your support
and guidance as it struggles to ensure that these new technologies
flourish while at the same time meeting important public policy goals.
We are relying on Congress to reject ill-fitting regulatory models and
focus on principles that value consumer benefits, innovation, and
economic development.
II. VOIP CREATES CONSUMER AND ECONOMIC BENEFITS.
VOIP technology furthers a number of national policy goals. It
provides consumer benefits such as lower prices, innovative features,
and competition. Vonage's VOIP service, and similar VOIP services,
drive broadband adoption, as high speed access is a prerequisite for
using the services. Further, this new technology stimulates economic
development and American competitiveness.
VOIP Technology. Vonage's service is a software application,
independent of the underlying transmission facilities that carry the
calls to the Internet. Vonage's VOIP service converts analog voice
transmissions into digitized data packets and transmits these packets
over either the public Internet or managed IP networks. These data
packets are routed using Internet protocol, which is the world's most
common method for sending data from one computer to another.
Vonage's Product. The Vonage service operates using a VOIP platform
to transmit voice over the public Internet. Vonage customers place
calls using computer equipment that is connected to the user's high-
speed wireline, cable, or fiber-to-the-home connections, Wi-Fi network,
and eventually new networks that have not yet been built. The digital
signal is sent over the public Internet, then in some cases, back
through a traditional phone network to the receiving party's phone. In
order to permit Vonage's end users to communicate with end users on the
traditional public switched telephone network (``PSTN''), Vonage had to
make our service reverse-compatible with today's technologies. However,
our product is also forward compatible; if the receiving party also is
a Vonage customer, the call is transmitted wholly across the Internet,
never touching the traditional phone network. Forward-compatibility
also enables us to terminate calls to wireless phones and other IP
networks without ever touching the PSTN.
In some cases, Vonage customers utilize a software program loaded
on their computers to make a call. In other instances, the customer
will use the special computer adapter. When using the special adapter,
the broadband Internet connection is bridged to an ordinary phone
essentially serving the same function as a microphone and headset when
attached to a computer. In the near future, because Vonage provides a
software application similar to instant messaging or e-mail, Vonage
customers will be able to use a Wi-Fi cordless handset or even personal
digital assistants (``PDAs'') or other Internet-enabled device loaded
with special ``softphone'' software.
Consumers Get More for Less. Through innovative software and
hardware, Vonage provides its customers with increased functionality
and significant cost savings. For example, the Vonage service package
includes voicemail, caller ID, call waiting, call forwarding, call
transfer, 3-way calling, repeat dialing, call return, caller ID block,
and call hunt for no extra charge. Vonage customers experience such
enhanced functionality as local number portability, area code
selection, the ability to use multiple phone numbers, web based
voicemail retrieval, national number mobility, and online features
management. For this multitude of services, Vonage offers customers
flat rate billing options that range from $14.99 per month for 500
minutes anywhere in the United States and Canada to $29.99 for
unlimited residential local and long distance calling in those areas.
Competition. Congress has made it a national priority to encourage
telecommunications competition. While great strides have been made by
traditional telecommunications providers in the competitive business
and long distance markets, there has been no meaningful competition in
the local residential market. VOIP providers are accelerating
competition in this area, realizing technological advancements and
lowering consumer costs, all of which are goals Congress sought to
achieve with the 1996 Telecommunications Act.
Even within the VOIP market, companies have implemented a variety
of consumer offerings that generally fall under the ``VOIP'' banner,
two of which are consumer applications: computer-to-computer and
computer-to-phone. Using computer-to-computer products, the call
dialing and receiving party both must possess special premises
equipment that differs from an ordinary analog telephone. Vonage
customers can talk computer-to-computer, and Vonage's service is also
capable of reverse-compatibility with the legacy phone system by
performing the net protocol conversion necessary to allow customers on
the Internet to communicate with customers on traditional switched
networks and vice versa, largely known as computer-to-phone VOIP.
Additionally, Vonage users are able to communicate with many other
kinds of networks, such as wireless networks and IP networks. In short,
Vonage both enables reverse-compatibility with existing services while
readying consumers for the technologies and functionalities of the
future, when all networks will be IP based.
Broadband Deployment. While an estimated 85 percent of U.S. homes
currently are capable of receiving broadband Internet access, only
about 20 percent of all U.S. homes (23 million total broadband
subscribers) have adopted the technology. These numbers pale in
comparison to countries such as Korea and Canada. Those countries had
broadband penetration levels at almost twice that of the United States.
Also impressive is the development of broadband services in Japan. In
2001, there were less than 10,000 digital subscriber line (``DSL'')
broadband customers in the entire country. In just three years, the
broadband market has swelled to over 10 million customers.
Because VOIP services require a broadband connection to achieve the
necessary speed and ``always on'' functionality, VOIP provides
consumers with the incentive to upgrade to these broadband networks. In
fact, many Vonage customers upgrade to broadband simply to use our
service. Often these customers find that they can receive the
additional benefits of Vonage's service and high speed broadband for
less money than it typically costs to purchase a traditional telephone
service and narrowband Internet access. VOIP penetration drives
broadband adoption, which in turn promotes broadband deployment.
American Competitiveness. Investment in the technology sector will
drive innovation and help America reinforce its role as the world
technology leader. This role is at stake given that broadband
deployment has lagged in this country, and VOIP adoption in other
countries has already surpassed the U.S. That growth has been
attributed, in no small part, to the Internet telephony services that
some Japanese broadband providers offer, like Yahoo! BB, which already
has 3 million VOIP users. The only way America can maintain its
position as the world's technology leader is to foster the growth of
new technologies like VOIP.
Economic Benefits. VOIP can spur a telecommunications industry
rebound and contribute to the national economic recovery. The
telecommunications industry, which once helped drive the technology
boom of the mid-to-late nineties, has been hard hit by the nation's
economic slump. Merrill Lynch estimates the S&P integrated telecom
index fell about 64 percent from January 2000 to January 2004, while
the broader market fell only about 24 percent. According to a 2004
VentureOne report, investment levels in the communications sector are
down to 1996 levels.
Internet telephony can help revive the telecommunications,
technology, and equipment sectors and the economy in general.
Excitement surrounding VOIP services has already increased investment.
A VentureOne report stated that IT investments increased to $2.3
billion last quarter, up from $2.1 billion in the third quarter. That
increase, which was the first time IT funding had demonstrated
sequential growth since 2000, was due in part to several large
investments in VOIP providers. Further, several VOIP equipment
manufacturers, such as Sonus, Cisco, Lucent, and Motorola posted large
stock price gains for 2003, partially due to increasing interest in
VOIP equipment and services.
III. CONGRESS SHOULD CONTINUE ITS POLICY OF ALLOWING ``INFORMATION
SERVICES'' TO GROW UNFETTERED BY REGULATION.
In an effort to stimulate innovation and competition in the
Internet sector, Congress and the FCC have long respected policies that
differentiate ``information services'' from regulated
telecommunications services. While Internet telephony may, in some
respects, resemble traditional telephony from a consumer perspective,
from a technical and regulatory perspective, Vonage provides an
``information service.''
Federal Precedent. Federal policy has long differentiated
``telecommunications services'' and ``information services.'' The FCC
distinguished between ``basic services'' and ``enhanced services'' as
far back as 1980 in the FCC's Second Computer Inquiry, 77 FCC 2d 384
(Computer II). Basic services are essentially telecommunications common
carrier services that are regulated under Title II of the
Communications Act of 1934. The FCC concluded that regulation of
enhanced services is unwarranted because the market for those services
is competitive and consumers benefit from that competition. Id. at 433.
The FCC acknowledged that notwithstanding this decision, there is a
communications component in some enhanced services. Id. at 435. The FCC
reaffirmed the distinction between basic and enhanced services in its
Computer III proceeding in 1986. Third Computer Inquiry, 104 FCC 2d 958
(Computer III).
Congress Codifies Distinction. The Telecommunications Act of 1996
mirrors this distinction with its definitions of ``telecommunications
service'' and ``information service.'' The 1996 Act defines
``telecommunications service'' as ``the offering of telecommunications
for a fee directly to the public or to such classes of users as to be
effectively available directly to the public regardless of the
facilities used.'' 47 USC 153(46). The Act defines
``telecommunications'' as ``transmission, between or among points
specified by the user, of information of the user's choosing, without
change in the form or content of the information as sent and
received.'' 47 USC 153(43). By contrast, the 1996 Act defines
``information service'' as ``the offering of a capability for
generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications, and
includes electronic publishing, but does not include any use of any
such capability for the management, control, or operation of a
telecommunications system or the management of a telecommunications
service.'' 47 USC 153(20).
By codifying these definitions, Congress set out a policy of
separating regulated common carrier services from Internet services to
encourage innovation and competition. Congress found that ``[t]he
Internet and other interactive computer services have flourished, to
the benefit of all Americans, with a minimum of government
regulation.'' 47 USC 230(a)(4). In order ``to promote th[is] continued
development,'' the 1996 Act reaffirmed the ``policy of the United
States' of maintaining the Internet ``unfettered by Federal or State
regulation.'' 47 USC 230(b).
``Information Services.'' By these definitions, VOIP is an
information service, and not a telecommunications service. VOIP is a
software application that rides on broadband Internet networks. VOIP
service offers the ``capability for generating, acquiring, storing,
transforming, processing, retrieving, utilizing, or making available
information via telecommunications.'' 47 USC 153(20).
Policy Has Worked. The government's policy of encouraging
innovation through a regulatory safe harbor sparked unimagined
innovation in Internet development, and led to the development of VOIP.
For years, VOIP services were more theory than reality, and were
largely ignored by policy makers. The neglect proved positive as
entrepreneurs and inventors saw an open playing field and were provided
incentive to create. VOIP is rapidly growing, and should be allowed to
continue, without the trappings of common carrier regulation. Now, as
VOIP is gaining consumer acceptance, policy makers have announced an
intention to explore and even regulate the service, but this would be a
mistake. As I have noted, VOIP still only accounts for .1 percent of
U.S. telephony subscribers. The technology is in its infancy, and
should be allowed to grow consistent with the policy that led to its
inception.
To that end, policy makers should clarify the existing statutory
framework to ensure that it continues to reward innovation, foster
consumer benefits, and facilitate broadband deployment and the growth
of the Internet. In this respect, it is imperative to make clear that
VOIP services such as Vonage's are not telecommunications services, but
rather are interstate information services.
IV. THERE ARE SERIOUS RISKS TO PREMATURELY REGULATING VOIP.
Regulating VOIP prematurely could threaten the consumer and
economic benefits that have already resulted from this nascent
technology. While the technology is beginning to reach the mass market,
it is still evolving, and it is too early to know what regulations, if
any, are necessary. What is known, however, are the risks of
regulation.
Patchwork of State Regulation. Failure to establish a federal
policy protecting the growth of VOIP could result in a patchwork of
premature, burdensome state legislation and regulations, crippling the
domestic VOIP industry. Overregulation, particularly differing
regulations in all 50 states and the District of Columbia, will make it
impossible for VOIP to grow. Newer companies like Vonage do not have
the resources to participate in proceedings at every state utility
commission, nor to comply with 51 sets of differing regulations that
may each have the same goal, but may require us to comply in different
ways. The Internet, by its very nature is an interstate service,
incapable of being divided into artificial boundaries. Policy makers
should recognize this inherent feature of the Internet when formulating
policy and applying such policy to applications riding over the
Internet.
Vonage's Experience. Vonage experienced first hand the strain that
burdensome state regulations can place on a nascent technology company.
The Minnesota Public Utilities Commission (``PUC'') last year asked
Vonage to obtain a certificate of authority to provide a telephone
service. Vonage had less than 500 customers in Minnesota, yet was
forced to vigorously oppose the Minnesota PUC to avoid the
establishment of an improper state level precedent. As a result of the
arguments asserted by Vonage, the United States Federal District Court
for the District of Minnesota ruled in Vonage's favor on October 14,
2003 and issued a permanent injunction.
Notwithstanding the outcome in Minnesota, the New York Public
Service Commission (``PSC'') in May of this year issued a similar order
asserting its jurisdiction over the interstate information services
that Vonage provides. Once again, Vonage was forced to seek relief in
Federal court. Just last week Magistrate Judge Eaton in the Southern
District of New York indicated his intention to issue a preliminary
injunction precluding the PSC from imposing legacy telecommunications
regulations upon the company.
While Vonage is pleased with these decisions, successfully fighting
these cases is a serious drain on Vonage's resources, and continues to
be burdensome. The Minnesota PUC is currently appealing the case for a
second time and a hearing on the issuance of a permanent injunction in
New York is scheduled for early next year. This litigation is forcing
Vonage to use valuable human and financial resources to fight court
battles, directing these resources away from service enhancements and
innovations, including technical solutions to meeting public policy
goals. Vonage simply can not afford to continue to duplicate this
effort in 48 other states and the District of Columbia. We would be
driven out of business.
We hope that federal policy makers will take action to make clear
to states that VOIP is an interstate information service, thereby
halting the march of the states to regulate it.
National Policy Issues. With resources stretched thin for VOIP
providers, overregulation by the states or the federal government would
slow technological development. With the uncertainty that is created by
this regulatory hodgepodge, capital will dry up. If the U.S. becomes a
hostile environment for VOIP, domestic innovation will slow, risking
this nation's role as a technology leader. Furthermore, since VOIP
services are provided over the Internet, they can be launched from
anywhere on the globe. Providers like Skype are already offering
services from off-shore locations. Not only would it be a loss of this
nation's technology base, once providers move off-shore, the U.S. would
have no access to the services and thus face difficulties meeting
public policy goals such as 911 service, universal service, or law
enforcement intercepts for these off-shore services. The U.S. would
also lose an important tax base, and would see a further exportation of
service jobs.
V. VOIP PROVIDERS CAN MEET PUBLIC POLICY GOALS.
While policy makers are rightfully concerned about how VOIP fits in
with public policy goals, VOIP can assist in meeting these aims, and in
some cases it even holds more promise than legacy systems. VOIP will,
of course, have to meet public policy goals in ways that are
technically feasible for its technology, and government should help
facilitate such growth through an understanding of the capabilities and
limitations of the technology.The issues public policy makers most
often identify as areas of concern are compliance with emergency 911
capability, disability access, universal service, law enforcement
access to call intercepts, and intercarrier compensation. However,
public policy goals can be and are being met without classifying VOIP
as a telecommunications common carrier service.
911 Dialing. The ability to access emergency services through
dialing 911 is an important feature for consumers of telephony, whether
it is plain old telephone service, wireless service, or VOIP service.
VOIP service offers the promise of truly exciting functionality in this
area. While we are building solutions now, ultimately VOIP will offer
consumers and emergency workers more functionality than the services of
today. For example, VOIP customers in the future might be able to
access 911 services through any Internet-equipped device, such as a
Blackberry, PDA or instant messaging product. In addition to the
customer's precise location, emergency workers may be able to instantly
and seamlessly access that customer's medical history, while at the
same time a separate message could notify the customer's primary
physician or family members of the emergency situation.
Vonage is the VOIP industry leader in providing a 911 solution to
its customers. Similar to traditional telephone service, Vonage
customers who dial ``9-1-1'' on their handsets have their calls
forwarded to the Public Safety Answering Point (``PSAP'') for that
customer's designated area. There are, however, several technology
issues that currently cause the Vonage solution to differ in certain
respects from traditional 911 service.
First, similar to cellular providers, the mobility of the Vonage
service prevents it from being able to identify the actual geographic
location of customers that place a call using the Vonage software.
Thus, Vonage requires customers to register their location before they
are able to use the 911 service, and then routes any 911 calls to the
PSAP serving that location. Because of the mobility of VOIP customers,
Vonage is developing technology solutions to provide enhanced location
information to PSAPs. We are currently in the midst of several trials
of a new solution, in Rhode Island, Minnesota, Washington and Texas.
Second, in order to route 911 calls to a PSAP's dedicated 911
lines, Vonage must obtain interconnection to the incumbent LECs. While
some incumbents are cooperating with Vonage and local PSAPs, others are
refusing to work with Vonage and local PSAP administrators to foster
interconnection arrangements or technical trials. The reaction has been
mixed, to say the least. In this area, it would be helpful for Congress
to encourage the LECs to provide such assistance as access to trunk
interconnection so we can fulfill our commitment to offering wireline-
comparable 911 services.
Vonage makes the limitations inherent in its 911 service clear to
all Vonage customers and is continually working to remedy these issues.
Vonage is working with the National Emergency Number Association
(``NENA''), which recently adopted a joint resolution with the VOIP
industry, to develop technical solutions for VOIP 911, and we are
regular participants in the NENA working group. We participated in the
FCC's March 18, 2004, Internet Policy Working Group ``Solutions
Summit'' on 911/E911 issues associated with Internet-based
communications services. Further, Vonage is working to upgrade its 911
service and negotiating with competitive LECs to obtain indirect access
to the E911 trunks.
Vonage is confident that it will be able to offer a 911 solution to
its customers in the near future that is comparable to that offered by
traditional telecommunications providers. All of this is being done
despite the fact that VOIP is not classified as a common carrier
service nor required to provide these offerings.
Disability Access. Individuals who have disabilities should have
full access to the range of developing technologies. While VOIP
technology and deployment are in the early stages, VOIP providers
anticipate software solutions to disability-related obstacles to
service. Given the flexibility of software solutions, we anticipate
that VOIP providers will ultimately be able to offer greater
functionality than the traditional legacy systems.
Universal Service. Congress has expressed its commitment to
ensuring that rural and underserved areas receive telecommunications
services equivalent to those found in more high-density or well-funded
locations through the Universal Service Fund (``USF''). In this
context, Congress is contemplating USF reforms and may consider the
role of VOIP services as part of that exercise. While it has been
suggested that VOIP is a threat to the fund and therefore VOIP services
must be regulated as telecommunications services, in fact the existing
system is ``failing'' for a number of reasons and VOIP does not need to
be regulated as a common carrier service in order to make direct
contributions to USF.
The FCC has opened a rulemaking in which it is examining ways to
ensure that USF support remains sustainable. As part of that
proceeding, it has recognized that numerous factors are contributing to
the decline in monies paid into the USF, and the emergence of VOIP
services is only one small piece of that puzzle. For example, the
decline in long distance rates, the proliferation of flat-rated calling
plans and bundled service packages, and the substitution of wireless,
e-mail, instant messaging, and other services for traditional long
distance calling have all reduced monies flowing into USF.
VOIP providers can and do pay into the fund as end-users, and there
is flexibility under current law to accommodate VOIP services in
relation to USF. Even if policymakers determine that VOIP providers
should contribute directly to USF, such a result could be achieved
under existing law. The FCC has broad statutory authority to modify the
current contribution metrics without engaging in any perversion of the
dichotomy between information and telecommunications services. FCC
Chairman Powell testified before this Committee on October 30, 2003,
that the FCC has ``legal authority to assess Universal Service
contributions against information service providers that use telecom.''
Under current law, VOIP providers offer information services, but they
use some underlying telecommunications services. VOIP providers need
not be regulated as carriers to be required to contribute to universal
service.
Unfortunately, the USF distributions currently are weighted heavily
towards the support of legacy narrowband networks, which are not
capable of supporting broadband Internet access services or the modern
applications that run on these broadband networks. This continued
support of legacy networks at the expense of the deployment of modern
broadband networks and applications will only serve to further distance
the United States from the rest of the world leaders in terms of
broadband adoption and the development of modern applications, such as
VOIP. Therefore, Vonage believes it is important that any USF reform
efforts should consider policies that encourage construction of
broadband-capable networks in high cost areas.
Law Enforcement Intercepts. Without exception, Vonage has complied
with all subpoena requests from law enforcement, including providing
call logs, records, and other detailed account information. In the
future, Vonage software will also allow law enforcement intercept
capabilities. Vonage is committed to assisting law enforcement and will
comply with VOIP requirements determined by policy makers. The FCC has
announced its intention to open a proceeding to consider the
interaction between CALEA and VOIP. Vonage looks forward to
participating in that proceeding, and in working toward a technical
solution wherein VOIP providers can continue to assist law enforcement
in their surveillance efforts. It is not necessary, however, to
classify VOIP as telecommunications services in order to meet law
enforcement needs.
Intercarrier compensation. Intercarrier compensation has been
included in the panoply of issues that policy makers are considering as
they evaluate the impact of VOIP services on the market and on public
policy. Vonage does not connect directly to the phone network, but
rather contracts with carriers to transport its calls to their
destination on the public switched network. Vonage has not thus far
participated in proceedings related to VOIP access charges (computer-
to-computer calls are subject to Internet industry voluntary peering
arrangements for termination to other computer users). Nonetheless,
Vonage recognizes, as many policy makers do, that the access charge
system is broken and in need of repair. However, Vonage emphasizes that
VOIP is not the source of the access system's ills; these problems have
myriad causes and predated the emergence of VOIP by several years. VOIP
consumer products, such as Vonage's service, will not have an impact on
access charges for a long while to come, as we represent only .1
percent of telephony subscribers.
The existing system of intercarrier compensation is complex,
imposing unique charges on each different type of carrier and each
different type of service. The FCC has recognized that these
disparities are unsustainable in a converging and increasingly
competitive market and has been examining intercarrier compensation
reform for almost three years. Vonage urges Congress to support the
FCC's efforts to reform this broken system.
In Section 254(e) of the Telecommunications Act of 1996, Congress
required the FCC to make the implicit subsidies in the access charge
regime explicit, and the monies to be collected in the Universal
Service Fund. The FCC has begun the process of making interstate USF
support explicit and reducing subsidies implicit in interstate access
charges. We are hopeful that the FCC will finish these reforms as
quickly as possible and that the states will also take up this
important matter and remove implicit subsidies and rationalize their
intercarrier compensation systems as well.
Removing implicit subsidies from the system of access charges and
imposing a single cost-based termination charge on all types of
providers and traffic should end any alleged arbitrage opportunities
and bring rationality to the system.
VI. RECOMMENDATIONS.
As Congress contemplates the role of VOIP as a provider of consumer
voice services, we offer our perspective on what policies would help
VOIP to grow. First, Congress should make clear that VOIP is an
interstate service, like the Internet itself. Doing so will bring
regulatory clarity, which will stimulate investment and promote further
consumer benefits. Second, Congress should reaffirm that VOIP services
such as Vonage's are ``information services,'' and therefore VOIP
providers such as Vonage are information service providers. Public
policy needs can be met without regulating communications over the
Internet as if they were being provided by a telecommunications
carrier.
We look forward to working with Congress during this exciting time.
We hope that Congress will continue its support for Internet based
technology, by allowing the sector to grow unfettered by ill-fitting
regulations that were designed for legacy systems. Any less would
imperil VOIP carriers like Vonage in the face of what will soon become
overwhelming regulation. VOIP providers have something valuable to
offer to consumers, but we can only move forward by focusing our
limited resources on improving our service, growing, and meeting
critical public policy mandates like those this Committee is
considering.
Accordingly, we are pleased to offer our unqualified support for
Rep. Pickering's bill, which would help keep VOIP on an innovative,
disruptive path by clarifying jurisdictional lines for VOIP services.
This bill offers thoughtful direction on difficult issues such as
intercarrier compensation, USF, 911 services and law enforcement access
to VOIP technology. We urge this Committee to markup this bill as soon
as possible.
I look forward to answering any questions you might have. Thank
you.
Mr. Upton. Ms. Greene?
STATEMENT OF MARGARET H. GREENE
Ms. Greene. Mr. Chairman, members of the subcommittee,
thank you for inviting me here today and for recognizing that
telecom policy really is about technology. Voice over IP, the
technology bringing us together today is disruptive, but it is
merely a technology not the disruptive industry shock. The real
shock, the earthquake that has disrupted the global telecom
landscape is the increasing mobility and convergence of
networks and devices.
The industry is moving in clear fundamental directions,
from wireline to wireless, from narrow band to broadband. And
all things broadband and wireless are moving to IP. The
profound implications of that are becoming more evident
everyday. Surely wireless and broadband networks have changed
your communication experience, and yet their impact remains
largely absent from our policy decisions.
A few facts. Disruptive shock No. 1: Wireline to wireless.
More and more customers go to wireless. In 2002 wireless
customers surpassed wireline customers in number. Wireless
minutes dramatically increased while wireline voice minutes,
especially in long distance, declined. And yet wireline policy
continues on much as it has for the last decade, if not for the
last seven decades.
Disruptive shock No. 2: Narrow band to broadband. In the
digital broadband era once separate technologies have
converged. Two-thirds of the traffic on BellSouth's network is
not data, text, photo, video. No longer just plain old voice.
The combined effects of broadband and IP are profoundly
disruptive; broadband because of the rich applications that it
can deliver to consumers and IP because it is quickly becoming
the common denominator across all communications. Whether it is
your cell phone, your laptop or your interactive pager; most
any form of communication people are using today is either at
or moving toward an IP platform.
Where Internet applications like email and instant
messaging replace over 40 percent of what used to be local
phone calls. Broadband competitors have names like BellSouth
and Comcast, but also Microsoft, Cisco, Vonage, Skype. Apple,
IBM, Earthlink. VOIP, it is real, it is imminent, it is a new
software application which creates a new market.
VOIP technology allows voice to be turned into data and
carried over the network in packets. It is not a new network,
but it is a use of existing networks. Cable telecom companies
and many others are rapidly moving forward deploying VOIP
technology. Best Buy and Circuit City sell a Vonage starter kit
for $29.99. Cablevision launched voice over IP across its
entire footprint. Time Warner now offers voice over IP in
Charlotte and Raleigh-Durham and shortly throughout the region.
Cox has rolled out in Roanoke. Comcast plans to offer VOIP
service to 40 million customers by the end of 2005. AT&T has
launched CallVantage in 34 markets and plans to sign up a
million customers by the end of 2005.
At BellSouth we have explained our VOIP solutions for our
business customers and we are exploring ways to bring increased
functionality and technology to our residential customers.
But why are these statistics important? Because they show
that broadband, wireless, IP telephony, high speed
unconstrained and always on communications are here today.
These are the shocks that technology has unleased in our
telecom ecosystem, and we have not even mentioned the impact of
broadband over power lines.
How policymakers respond to these shocks will be a major
determinant of the course of the industry. The response must be
timely, but it must also be comprehensive and balanced. It must
recognize that the functionally equivalent technologies need to
be lumped together and treated alike, not separately considered
or singled out for preferential treatment. And we must
recognize that government cannot keep pace with the technology
cycle, and should not try to legislate on a technology specific
basis.
For this reason, we think voice over IP should not be the
subject of stand alone legislation. But nor should it be the
subject of 51 different approaches. Like most of telecom
policy, it should be jurisdictionally interstate and subject to
the exclusive jurisdiction of the FCC.
Much of the value of VOIP comes from the value of being
able to be carried on the ubiquitous public network. Today
there are two broadband capable networks that exist; cable and
wireline telecommunications with the promise of two more, fixed
wireless and power lines. Yet only the wireline network has the
burden of legacy social dues which include governmental
intervention and control at both the retail and the wholesale
level. Access charges were established to provide compensation
for these social responsibilities. Nothing changes that
equation when VOIP is involved. Those that use the public
switch network should pay compensation for its use.
Additionally, the underpinning and main prerequisite for
providing VOIP service is a broadband connection which between
85 and 90 percent of U.S. households can now obtain from a
provider other than their incumbent local exchange telephone
company. And that is why I would like to recognize the Boucher-
Stearns bill as a positive contribution to the regulatory
debate. That bill recognizes the role that networks play in the
development and growth of voice over IP by freeing the
underlying IP broadband networks from legacy regulation.
IP-enabled services should be free of economic regulation,
of discriminatory regimes like computer inquiry rules that
stifle innovation and raise the cost of broadband services.
Instead we need to shift the focus to vital issues facing us
such as universal service contributions across all
technological platforms; 911, access for the disabled, privacy
safeguards and cooperation on homeland security. With that
focus we can ensure that this technology brings the greatest
benefits to consumers as quickly as possible.
Thank you.
[The prepared statement of Margaret H. Greene follows:]
Prepared Statement of Margaret H. Greene, President--Regulatory and
External Affairs, BellSouth Corporation
Mr. Chairman, Congressman Markey, members of the Subcommittee,
thank you for giving me the opportunity once again to testify before
you to present BellSouth's views on Voice over Internet Protocol
(VOIP). Your hearing today is timely and I am sure it will prove to be
a valuable contribution to the consideration of the many issues that
VOIP presents. Today, we have the Congress, State Legislatures, Federal
Courts, the Federal Communications Commission (FCC) and State
Regulatory Commissions all looking intensively at this issue.
VOIP is a software application that allows voice to be turned into
data and carried over the network in packets. VOIP is not a new
network, but a use of the existing network to provide new voice
alternatives. The underpinning and main prerequisite for providing VOIP
service is a broadband connection, which between 85 and 90 percent of
U.S. households can now obtain from a provider, other than their
incumbent local exchange telephone company. Additionally, in the 9
BellSouth states, DSL now passes more than 75% of all households.
Riding on this competitive infrastructure, a wide range of providers
are deploying and marketing VOIP services nationwide. All six major
cable operators, which collectively reach 85 percent of U.S.
households, have begun commercial deployment of VOIP, or have announced
plans to do so imminently. VOIP services are now being offered in
markets throughout the country by incumbent local exchange carriers
such as BellSouth, AT&T and other inter-exchange carriers, CLECS and a
new breed of VOIP-only competitors such as Vonage and Pulver.com. Here
are a few examples demonstrating that VOIP is real. It is imminent and
it will transform voice into another data application--
Best Buy and Circuit City are now both making available a ``Vonage
Broadband Phone Service Starter Kit'' for $29.99 after a $50
rebate.
Cablevision has already launched VOIP across its entire footprint.
Time Warner now offers VOIP in Charlotte and Raleigh-Durham and will
shortly expand throughout the region.
Cox has rolled out in Roanoke, Virginia.
Comcast announced plans to offer VOIP service to 40 million customers
by the end of 2006.
AT&T has launched its CallVantage service in 34 markets and plans to
sign up 1 million customers by the end of 2005.
VOIP providers now market their service as a primary-line
replacement, and the majority of consumers are purchasing the service
as such. Significant numbers of consumers have already abandoned
circuit-switched service in favor of VOIP, and their ranks are rising
very rapidly. Added functionality and price points are the cornerstone
of why consumers are moving to VOIP. Analysts predict that, within the
next three years, local telephone companies will lose up to 10 percent
of their line to cable-operator providers of VOIP services, and
millions of additional lines to other VOIP competitors. On June 14,
2004, the New York Times reported on a Mercer Management Consulting
survey that indicated that as many as 30% of all U.S. homes will
subscribe to VOIP in the next three years. This is astronomical growth
given that the same article reported that the market research firm,
IDC, is expecting only 600,000 such VOIP subscribers by the end of this
year, with Vonage being the current dominant provider with 200,000.
Why such a massive increase in three years? The answer is that
there has been an earthquake in telecommunications. The industry is
moving in clear fundamental technological directions--from wireline to
wireless; from narrowband to broadband--and all things broadband and
wireless are moving to IP.
VOIP services match the functionality of conventional circuit-
switched voice in many respects, including voice quality, total home
wiring, and number portability, and are typically priced 30-40 percent
or more below comparable circuit-switched offerings. VOIP providers
also offer many features that are unavailable on conventional circuit-
switched networks.
Most importantly, VOIP is promoting adoption of broadband service
itself. As FCC Chairman Powell and AT&T CEO David Dorman have both
indicated, VOIP is now widely viewed as the ``killer app'' for
broadband service. Because VOIP will give consumers an increased
incentive to subscribe to broadband service, it will expand the base of
broadband customers, and thereby lower the average cost of providing
broadband service. Today, about 24 million customers--22 percent of
U.S. households--currently subscribe to broadband; 30 percent will by
the end of 2004 and almost 40 percent by the end of 2005. As the
participation by Best Buy and Circuit City in marketing Vonage VOIP
service attests, the incremental cost, for these broadband customers,
of adding VOIP service is low. This is due to the fact that the
principal incremental cost of adding VOIP, for a customer who already
has a broadband connection, is for a relatively inexpensive adapter
that encodes the analog signal into digital packets.
Given that VOIP service costs considerably less, many customers
would likely substitute VOIP for circuit-switched service, even if
there was some difference in quality or functionality. But as industry
analysts, competitive carriers, and equipment vendors now uniformly
agree, VOIP provides comparable or superior quality and functionality
to conventional circuit-switched service.
Change is in the process of occurring as we speak here today, and
there are a number of issues that need to be addressed concerning VOIP,
broadband and economic regulation of these applications and services.
A. JURISDICTION--STATE OR FCC
When you have VOIP phone service, your phone number no longer has a
relationship to your physical location. The user can choose any area
code offered by the VOIP provider, and it need not be an area code
where you live. Two examples that I will cite for you will illustrate
what this is all about.
First, on June 14, 2004, Brian M. Carney, the Deputy Editorial Page
Editor of the Wall Street Journal Europe wrote a column for the Op-Ed
page of the Wall Street Journal (U.S. edition) entitled ``VOIPification
(No, It's Not In the Dictionary . . . Yet). Mr. Carney tells us in this
article that he lives and works in Brussels, Belgium, where he is a
Vonage customer and that he has a phone in his apartment that is
assigned a telephone number with a 917 (U.S.) area code. 917 is one of
the area codes for New York City. As he points out in his article:
``friends and relatives in New York can call for the cost of a local
call and we can call them--or anyone else, anywhere in the U.S. or
Canada--for a fixed monthly fee of around $30.''
The second example involves the decision by the Minnesota Public
Utilities Commission (MPUC) to require Vonage to comply with Minnesota
laws that regulate telephone companies. This MPUC determination was
appealed to Federal District Court and the court granted Vonage a
permanent injunction against this MPUC action finding that Vonage's
service was an information service not subject to state jurisdiction.
The court pointed out in its recitation of the facts in this case that
at that the time of the MPUC decision (September 2003) that Vonage had
500 customers with billing addresses in Minnesota. It also had 38
customers with Minnesota billing addresses who had requested telephone
numbers not geographically situated within Minnesota and 88 customers
with billing addresses outside of Minnesota.
What these two examples illustrate is that VOIP is not an
intrastate communication service within the meaning of Section 2(b) of
the Communications Act of 1934. Yes, you can make a call on a VOIP
phone say from here on the Hill to our offices on 21st Street, but you
could also take that VOIP phone on vacation with you to Florida and
call back to the office on 21st Street. The two calls would use the
same phone number, and the actual location of the caller is unknown. IP
enabled services, meaning services such as broadband internet access
and applications such as VOIP that rely on the IP protocol, should be
determined to be jurisdictionally interstate and subject to the
exclusive jurisdiction of the FCC.
At least two state legislatures (Florida and Pennsylvania) have
passed laws pertinent to VOIP. A number of states regulatory bodies
such in Alabama, California, Colorado, Illinois, New York, Ohio and
Wisconsin are considering issues raised by VOIP, either on their own,
or in response to petitions from interested parties. This
jurisdictional confusion should be ended as it creates a climate of
uncertainty that is not conducive to investment and innovation.
We have followed the development, introduction and deliberations
regarding the two major VOIP bills that have been introduced to date in
the Congress ``H.R. 4129 introduced by Congressman Pickering and S.2281
introduced by Senator Sununu. Both bills wisely provide that VOIP
applications are to be subject to Federal government jurisdiction and
delegation of that authority to the states is prohibited by the terms
of the bills.
B. REGULATORY TREATMENT
IP enabled services that include VOIP applications and broadband
internet access services should be free of economic regulation, by
which I mean the authority to regulate any IP enabled service with
respect to its rates, charges, terms or conditions for any such service
as well as authority to regulate entry into or exit from the IP-enabled
services market. This withdrawal of economic regulation is warranted by
the fact that as the FCC has recently noted: ``[a]s communications
migrate from networks relaying on incumbent providers enjoying monopoly
ownership of the underlying transmission facilities to an environment
relating on numerous competing applications traversing platforms, power
over the prices and terms of service necessarily shifts from the
provider to the end user.''
Today's disparate regulatory treatment assigned to providers of
``telecommunications services'' and ``information services'' is
inappropriate in the context of IP enabled services. The VOIP and
broadband markets are widely competitive, making economic regulation of
these services and applications inappropriate and unwarranted.
In the current VOIP market, there are already multiple providers of
VOIP offering services in non-traditional ways. Hosted voice providers,
free of economic regulation such as Vonage currently dominate the VOIP
market. Cable operators, also free of legacy economic regulations,
continue to invest in their own VOIP infrastructure and are expected to
dominate the consumer cable VOIP market by the end of this year. The
result of all of this largely unregulated (with the significant
exception of the BOC new entrants) investment activity is that VOIP is
now competitive with those voice services available over traditional
circuit switched networks. These competitive circumstances also make
the elimination of economic regulation of these circuit switched
services likewise warranted.
The market for broadband internet access is equally as competitive
as the VOIP market. Broadband over cable is now available to more than
85% of all U.S. households and should be available to 90% by the end of
this year. Small businesses are increasingly turning to cable for
broadband access service and inter-exchange carriers, not ILECs, have
captured most of the business broadband market. Moreover, inter-modal
competition continues to grow by means of fixed wireless while the
nation's largest electric utility companies have been conducting
broadband over power line (BPL) trials. The Power Line Communications
Association estimates that BPL will reach between 750,000 and 1 million
customers by the end of this year and independent industry analysts
estimate that BPL could reach 6 million power lines by 2006.
Given these market conditions, IP enabled services should be free
of economic regulation and Bell operating companies that are non-
dominant in the provision of broadband services should no longer be
subject to legacy type regulation, such as the Computer Inquiry rules
that stifle innovation in, and raise the cost of, the broadband
services that are essential to VOIP. The legal, technological and
market circumstances of the early 1980's when the Computer Inquiry
rules were established are very different than those that exist in
broadband today.
Neither H.R. 4129 nor S.2281 totally accomplishes these regulatory
reform goals. They do for VOIP applications, but not for broadband
internet access services. We believe that legislation should not, as
these bills both do, address only a single application such as VOIP as
Congress will, if this approach is taken, surely wind up having to
legislate on each flavor of new communications technology. Given the
rapid pace of change in communications, this would surely be a futile
effort. At a minimum, the issues revolving around the jurisdiction and
regulation of all broadband services should be addressed.
C. SOCIAL POLICY OBJECTIVES
All IP enabled services, even though free from economic regulation,
should contribute to federal universal service support mechanisms, be
subject to inter-carrier compensation obligations, provide access to
the disabled, provide emergency 911 services and provide assistance to
law enforcement. Simply put, the regulatory framework should be
constructed so that all analogous IP enabled services are treated the
same, regardless of transmission technology or legacy regulation.
1. Universal Service and Inter-carrier Compensation
There should be a regulatory framework designed to provide
incentives to invest in new services and facilities, which will
eventually require a comprehensive and holistic overhaul of current
universal service funding and PSTN access charge regimes that will
eliminate opportunities for arbitrage. Steps must be taken to level the
playing field in both these areas through the establishment of a
competitively neutral mechanism for universal service funding and for a
unified inter-carrier compensation regime that eliminates existing
distortions and arbitrage opportunities. By doing so, there will be
eliminated any incentive for carriers to characterize their IP-enabled
service offerings exclusively to avoid legitimate contribution and
compensation obligations.
In the final analysis, the essential rule should be that those who
use the PSTN should pay for its support, regardless of how their
service or application is classified or categorized for regulatory or
taxation purpose. If the PSTN is not equitably supported and available
for VOIP customers to reach other customers, the value proposition of
VOIP service would disappear. Local exchange carriers have a right to
recover the legitimate costs imposed on their networks in the
origination and termination of interstate communications. A PSTN
interconnecting provider's use or substitution of IP technology does
nothing to change the nature of the interconnecting provider's use of
the network. A government policy or requirement that allows some
providers to avoid access charges, because of the technology that they
use would therefore deprive local exchange carriers of appropriate
compensation for their property. Those that use the Public Switched
Telephone Network to terminate their traffic should pay compensation
for this use.
The Federal Universal Service Support Programs are in serious need
of comprehensive reform from both the contribution and distribution
perspectives. As I indicated in my testimony before this Subcommittee
last September regarding Universal Service :
``As communications migrate to broadband, the old world base
of universal service funds--local and long distance wireline is
shrinking. And increasingly, alternate technologies, like cable
modem and VOIP, offer directly competitive services while being
exempt from the social responsibilities attendant to universal
service. Like so many other aspects of our current regulatory
scheme for telecommunications, this puts the historic providers
of universal service, those living with the legacy of using
wireline revenue flows to subsidize social goals, at a
competitive disadvantage in a robustly competitive marketplace.
This situation cannot exist without serious detriment to the
regulated carriers and it must be fixed.
Fixing this competitive/social policy mismatch means, for the
issue of universal service, ensuring neutrality on both sides
of the equation. Parity of obligation must exist between those
who offer functionally equivalent telecommunications services.
If broadband connections are to be assessed, as DSL is today,
then functional equivalents, like cable modem service, must
pay.''
These observations are as timely today as they were when I shared
them with you last year. Neither the House nor the Senate bill
comprehensively reforms Federal Universal Service--the Congress needs
to.
2. E 911 Requirements
An IP-enabled information service that (1) includes a voice
capability component and (2) is either (a) assigned a North American
Numbering Plan (NANP) telephone number or (b) can call a line assigned
to a NANP telephone number and (3) either (a) originates or terminates
or both originates and terminates calls on the PSTN or (b) is a
substitute for traditional voice communications, should comply with
E911 requirements that are economically and technically reasonably
achievable given the nature of the technology and the associated costs.
IP-enabled service providers that meet the foregoing test should be
required to fulfill 911 emergency call processing requirements in a
manner that is not unnecessarily disruptive of the overall market
development of IP-enabled services. The industry should be allowed to
develop reasonable solutions for accomplishing E911 requirements
through the adoption of open and voluntary industry standards prior to
imposing any government mandated standards.
The National Emergency Numbering Association (``NENA'') has been
actively addressing, with industry support and participation, various
proposals for ``migratory paths'' for IP-enabled services. BellSouth
strongly encourages reliance on NENA for guidance on leading the
industry toward operational and technical solutions and standards that
would enable VOIP and IP-enabled services to move forward in manageable
stages.
Both H.R. 4129 and S.2281 require the FCC to appoint a
representative industry organization to develop consensus guidelines,
protocols or performance standards in this area. So long as, NENA and
in turn the Emergency Services Interconnection Forum (``ESIF''), for
the purpose of creating an American National Institute Standard
(``ANSI''), are brought within this ambit , the industry will be able
to develop the appropriate and desired standards.
3. CALEA
BellSouth has a very long history of cooperating with law
enforcement, which has existed long before the promulgation of CALEA.
BellSouth has been an active participant in the development of
technical standards and products necessary to comply with CALEA and has
devoted substantial time and resources to upgrade its network to deploy
CALEA-compliant solutions. BellSouth remains committed to working
together with the FBI, Department of Justice and other members of the
industry to develop standards for IP enabled services that fall within
the scope of CALEA.
D. CONCLUSION
VOIP is a new application which has created a new market, and the
rules need to fit that new market--no economic regulation, no entry and
exit requirements, no unbundling obligations, and limited regulations
which apply equally to all providers to address public safety issues.
But the networks which enable VOIP are not new. Today there are two
networks that exist: cable and telecommunications, with the promise of
two more: fixed wireless and power lines. Yet only the
telecommunications network has the requirement to provide voice
ubiquitously with a host of social responsibilities while having its
profits diluted by the obligation to unbundle and sell pieces to its
competitors at below cost.
VOIP is just an application using this network to transport voice
carried in packets. Our network was created to provide ubiquitous
service to all customers. Access charges were established to provide
compensation for that network, which is today still saddled with many
social obligations not shared by other network providers. Nothing
changes that equation when VOIP is involved. Those that use the Public
Switched Telephone Network should pay compensation for its use.
So the question is not whether VOIP will disrupt the industry. The
disruption has begun. At this point how regulation or legislation
responds will determine whether the technology is disrupted. A light
handed regulatory approach which is limited to ensuring parity for all
providers, public safety requirements, incentives for broadband
investment, and compensation for the Public Switched Telephone Network
will allow the technology to bring the greatest benefit to consumers as
quickly as possible.
Mr. Upton. Mr. Jensen?
STATEMENT OF S. MICHAEL JENSEN
Mr. Jensen. Good morning Chairman Upton and members of this
committee. I am Mich Jensen, CEO of Great Plains
Communications.
It is a privilege to have the opportunity to share some
thoughts with you about the exciting evolution of Voice Over
Internet from the perspective of a telecommunications service
provider serving a high cost rural area of our nation.
I also appreciate the concern you have for maintaining and
advancing universal service in rural areas, and I want to note
especially my appreciation of the efforts of your fellow
committee member, by friend Congressman Lee Terry.
Great Plains Communications is a family owned telephone
company headquarters in Blair, Nebraska. We had a very humble
beginning in 2009 when my wife's father began to build what is
now Nebraska largest independent telecommunications company. We
serve 32,000 access lines in 76 communities with absolutely the
best telephone service possible.
Great Plains had Nebraska first all buried cable
distribution plant, first digital switchboard, first all
digital network and we were the first to bury fiberoptic cable.
However, there was a deeper more basic principle that guided
our growth and development: Keep the customers as your highest
priority. Serve them as you want to be served. Be a part of
their community.
Our family is now in its fourth generation of ownership of
Great Plains Communications and those principles have not
changed. We now provide much more than local telephone service.
We have deployed broadband Internet services to every single
community we serve, even those that have fewer than 100 people.
Our cable television business has the latest digital TV
technology and we also offer long distant services. None of
that would have ever been possible without our customers in
hometown Nebraska loyally paying their telephone bills every
month. Intercarrier compensation and universal service also
played a very key role in our network buildout and upgrades.
Great Plains is representative of the Nation's small rural
incumbent local exchange carriers and I am indeed honored to be
appearing today on behalf of the hundreds of local exchange
carriers that are represented by NTCA and OPASTCO, and more
importantly on behalf of the several million subscribers that
we serve together.
VOIP technology certainly is intriguing. The ability to
send voice, data and other information over the Internet or
using Internet protocol is one that all companies both large
and small must deploy. However, as promising as the technology
may be, VOIP is a long way from replacing traditional
telephony. It is merely an evolution, not a revolution of
technology.
In the haste to jump on the VOIP bandwagon, Congress must
guard against legislation that has the potential to ravage the
underlying networks that carry not only VOIP but every other
form of telecommunication service. I comment Congressman
Pickering on his work bringing this important issue to the
forefront. However, VOIP is but one of the many technologies
that has a potential to transform the telecommunication
industry.
Instead of looking at single technology such as VOIP, the
committee must look at the telecommunications industry as a
whole and seek to construct a broad framework that will allow
the industry and the regulations that govern it to adopt the
rapidly changing technologies now and in the future. Rather
than prohibiting any form of regulatory oversight of VOIP,
policymakers should be taking steps to ensure that the
underlying telecommunication infrastructure is properly
deployed and maintained. Without universal service and
compensation by carriers that utilize real company's networks,
the United States would not have the high quality network that
exists today. Without this new network, new technologies like
VOIP would simply not be possible.
Exempting VOIP providers from universal service obligations
and access would lead to disinvestment in network
infrastructure and result in deterioration of the national
network.
I would like to lay out a balance and sustainable approach
to VOIP. VOIP and other IP-enabled service providers should be
required to pay access charges regardless of their regulatory
classification as an information or telecommunication service.
Next, the underlying network upon which all calls,
including VOIP are carried must continued to be supported to
enable the deployment of existing and new technologies and to
uphold the doctrine of universal service. Also, the definition
of universal service must evolve to include broadband services
so that all Americans have access to them.
Further, the universal service contribution base should be
expanded to include cable, wireless and satellite broadband
Internet access service providers and VOIP and other IP-enabled
service providers since those providers benefit from that
national network.
Next, rather than Federal preemption across the board, the
FCC should allow for the possibility that some IP-enabled
services may fall under exclusive State jurisdiction or shared
State and Federal jurisdiction. The FCC must also ensure that
all consumers, particularly those in rural areas are protected
from power that large carriers would possess were IP to be
deregulated.
VOIP providers should be required to comply with the same
911, CALEA and disability access rules as incumbent providers.
I strongly encourage the committee to take its time to
ensure any legislation ultimately adopted is comprehensive and
must avoid a piecemeal approach to telecom reform. Congress
must continue to support the longstanding policy of providing
all Americans with access to comparable affordable
telecommunication services now and in the future.
Mr. Chairman, thank you for this opportunity to speak on a
topic on a topic so critical to the future success of rural
telecommunication.
[The prepared statement of S. Michael Jensen follows:]
Prepared Statement of S. Michael Jensen, Great Plains Communications on
Behalf of the National Telecommunications Cooperative Association
Good Morning Chairman Upton and members of the committee. I am Mick
Jensen, CEO of Great Plains Communications. Great Plains is a family-
owned telephone company in Blair, Nebraska. We had a very humble, and
by today's standards, very primitive beginnings in 1909. Those were the
days when telephone service was a challenge to provide and a luxury to
have. It was in that environment that my wife's grandfather started
down the path to building what is now Nebraska's largest independent
telecommunications company, serving 34,000 access lines in 76
communities in the state with the absolute best telephone service.
Along the way, our founding family members established themselves and
our company as true pioneers. We developed some of the first techniques
anywhere for burying telephone lines; an innovation that helped make
America's telecommunications networks the most reliable in the world.
We were the first company in Nebraska to develop an all-digital
switching network, and we were the first to install fiber optics in the
state. But, beyond the technical innovations that identified us, there
was a deeper, more basic principle that guided our growth and
development--keep the customers as your highest priority. Serve them as
you want to be served. Be part of their community. Take care of them,
and they will do their part to take care of you.
Our family is now into its fourth generation of ownership of Great
Plains Communications and those principles have not changed. By
building on that foundation, we now provide much more than local
telephone service. We have deployed some form of broadband Internet
services to every single community we serve, even those that have fewer
than 100 people. We have built a cable television business that has the
latest digital TV technology in 31 communities. We began offering long
distance services a couple of years ago, and we have established
ourselves as the experts in utility locating and damage prevention
services.
None of that would have ever been possible without our customers in
hometown, Nebraska loyally paying their telephone bills every month. We
owe it all to them and we must look out for their best interest
whenever possible.
Great Plains is representative of the nation's small, rural
incumbent local exchange carriers. The good things we stand for and do,
make our rural communities a better place in which to live and work.
That is why I am honored to be appearing today on behalf of the
hundreds of rural local exchange carriers that are represented by NTCA
and OPASTCO, and more importantly, on behalf of their several thousand
employees and several million subscribers.
NTCA members and their fellow rural independents provide service to
seven percent of this nation's access lines, but actually cover 40
percent of the landmass of this country. We have a mission of service
that supersedes profit making. That is why we appreciate the
opportunity to provide feedback on all of the regulatory and
legislative activity surrounding Voice over Internet protocol or VOIP.
Today the vast majority of Americans use their landline and
wireless telephones to place and receive voice calls. Over the next
several years there will be some migration of voice communications from
landline and wireless telephone service to Voice over Internet protocol
(VOIP) service. During this migration there will be a significant
number of VOIP originated calls terminating on the public switched
telephone network (PSTN). Until the day when all American households
and businesses completely migrate from the PSTN to an IP-network to
place and receive calls, which may take decades, there will always be
VOIP call traffic using and imposing costs onto the PSTN. Even if all
VOIP and other IP-enabled services were accommodated on broadband-only-
facilities, the costs of these facilities are still higher in rural
areas. Some form of access and/or universal service will be needed to
ensure that rural consumers continue to receive access to advanced
telecommunications and information services that are reasonably
comparable in urban and rural areas of the United States.
Recognizing that the transition of all voice communications to an
IP-only platform will not occur in a flash cut, policymakers should
take a flexible and evolving approach to deciding the issues related to
the regulatory classification and level of regulation placed on
specific types of VOIP and IP-enabled services and should follow
competitively neutral principles when considering the formulation of
VOIP policy.
First, to the extent that VOIP and IP-enabled service providers use
the PSTN to originate or terminate voice calls, they should be subject
to the same inter-carrier compensation obligations as interexchange
carriers (IXCs), irrespective of whether the traffic originates on the
PSTN, on an IP network, on a wireless network, or on a cable network.
Second, all VOIP and IP-enabled service providers, regardless of their
VOIP service's regulatory classification as an ``information service,''
``telecommunications service,'' ``cable service,'' or ``wireless
service,'' should be required to contribute to the universal service
fund (USF) to ensure that all Americans have access to affordable
communications services. Third, VOIP providers should adhere to similar
regulatory obligations to provide consumers with 911 service, CALEA
compliance and disability access, or require VOIP providers to provide
other alternatives that meet the public's interest in security and
safety. Fourth, policy should allow for the possibility that some VOIP
and IP-enabled services may fall under exclusive state jurisdiction or
shared state and federal jurisdiction. Fifth, policymakers should
expand the list of USF contributors to include cable, wireless and
satellite broadband Internet access service providers and facilities-
based and non-facilities-based VOIP/IP-enabled services providers to
ensure all Americans, rural and urban, have access to affordable and
comparable communications services.
Regulation is necessary in order to provide for equitable and non-
discriminatory compensation to underlying carriers that supply VOIP
providers access to their networks to complete VOIP originated calls.
Without universal service and compensation by carriers that use rural
networks, we would not have the ubiquitous high quality network we have
today. Exempting such companies would lead to a disinvestments in
network infrastructure and result in the deterioration of the national
network in the future. Simply because VOIP providers use an IP-network
platform to provide voice communications, VOIP providers should not be
granted with Most Favored Nation (MFN) status and be given a free pass
on access charges. This will only create an unfair competitive
advantage in favor of VOIP providers in the highly competitive voice
communications market. VOIP providers and competing voice providers
using different network platforms all impose terminating traffic costs
on rural ILECs. In order to adhere to the FCC's principle of
competitive neutrality, all VOIP and other IP-enabled service providers
must be required to pay access charges. All providers, regardless of
the technology they utilize, should pay for their use of other
carrier's networks.
Existing VOIP providers do not actually make universal service fund
(USF) contributions. As VOIP calls move more voice minutes off the
PSTN, these lost minutes and revenues assessed for USF funding will
increase the overall USF contribution burden on existing landline and
wireless telecommunications carriers. Over time, this will make it more
and more difficult for some small, high-cost, rural ILECs to recover
the cost of their total network facilities. Consequently, some high-
cost ILECs that provide the high-speed Internet connections may not
have enough access revenues and/or USF support to cover their costs.
Without these rural networks many consumers in high-cost rural areas
would be left without landline, wireless and/or cable telephone and
broadband service. To avoid this outcome, NTCA urges Congress and the
FCC to require all VOIP/IP-enabled service providers to contribute to
the universal service fund to support the underlying networks that
enable broadband Internet access to carry VOIP traffic.
In addition, all VOIP providers should be required to adhere to
similar regulatory obligations concerning 911, CALEA and disability
access services. VOIP consumers deserve the same protections that other
voice carriers are forced to provide. Landline, wireless, cable and
VOIP providers provide similar voice services. No provider of voice
communications services, regardless of the technology used to provide
the service, should have an unfair competitive advantage in the
marketplace. Imposing similar 911, CALEA and disability access
obligations on VOIP providers will promote the public health and safety
and ensure competitive neutrality.
We also ask Congress to urge the Commission to refrain from making
a blanket ruling that it has exclusive federal jurisdiction over all
VOIP and/or IP-enabled services. The Commission has recognized that if
an information service is characterized as ``purely intrastate'' or it
is practically and economically possible to separate interstate and
intrastate components of a jurisdictionally mixed information service
without negating the federal objectives, state commission jurisdiction
could apply over such services. With the creation of new IP-based
services and their tracking mechanisms there will likely be some
``purely intrastate'' VOIP and IP-enabled services and the ability to
track the intrastate and interstate components of these services. The
FCC should allow for the possibility that some VOIP and IP-enabled
services may fall under exclusive state jurisdiction or shared state
and federal jurisdiction.
The enhanced service provider (ESP) exemption for Internet service
providers (ISPs), which provides ISPs with an exemption from access
charges and USF contributions should also be eliminated. With the
implementation of the CALLS and MAG access reform plans for non-rural
and rural ILECs, access charges have been reduced to historical lows
and are based on cost. At the same time, ISP usage of the PSTN has
continued to increase dramatically and has placed a significant and
rapidly growing cost burden on ILECs without adequate compensation for
ISP usage. If VOIP services are added to the list of services exempt
from access charges and USF contributions, the entire universal service
funding system will be at risk of collapsing. All ISP's and VOIP
service providers using the PSTN must pay access charges and universal
service contributions.
Finally, just as the current definition of universal service must
evolve to keep pace with consumer needs and evolving technology, so
must the USF assessment base. The universal service support ensures
comparable and affordable services throughout the Nation. Cable,
wireless and satellite broadband Internet access providers and
facilities-based and non-facilities-based VOIP and other IP-enabled
services providers will benefit from the nationwide network made
possible by universal service. They should therefore all contribute.
Expanding the list of contributors to the fund will be critical to this
Nation's continued success in providing all Americans, rural and urban,
access to affordable and comparable communications services.
In addition, as the committee moves forward on telecom policy, we
would implore the committee to remain cognizant of the following
specific areas that are so critical to rural carriers and the consumers
they serve--the preservation of universal service for the high cost
carriers, compensation by carriers that use rural networks; targeted
regulation over outright deregulation in order to protect rural
consumers; reasonable access to spectrum; and, finally, strong,
meaningful leadership to encourage nationwide broadband deployment and
ensure a level playing field for all carriers in this competitive
environment.
Congress must continue to support the longstanding policy of
providing all Americans with access to comparable affordable
telecommunications services at comparable rates now and in the future.
That is why public policy must ensure that the underlying networks that
deliver voice, and data to consumers remains affordable and reliable.
Therefore, it is essential that the regulatory treatment of VOIP
applications not negatively impact the existing public switched network
or slow the deployment of broadband in rural areas.
Mr. Chairman, thank you for this opportunity to provide testimony
on a topic so critical to the future success of rural
telecommunications.
Mr. Upton. Mr. Kirkland?
STATEMENT OF JAMES KIRKLAND
Mr. Kirkland. Good morning, Chairman Upton, Ranking Member
Markey and members of the subcommittee. My name is James
Kirkland, and I am Senior Vice President and General Counsel of
Covad Communications.
Let me start by thanking the chairman for convening this
important hearing on VOIP services, and for asking Covad to
provide its perspective on these important issues. We would
also like to commend Congressman Pickering for his leadership
on these issues in introducing the VOIP Regulatory Freedom Act
of 2004. We support the Pickering bill's national declaration
that VOIP is an unregulated information service, with a focus
on industry-led, rather than government-mandated solutions. We
believe that this deregulatory framework is a good starting
point for further dialog on this very important technology.
Covad is very excited to be a critical ingredient in the
deployment of voice over IP. We've invested hundreds of
millions of dollars in building a facility's based alternative
broadband network to compete with the large incumbent providers
who provide broadband services. Our network reaches more than
50 million homes in 35 States.
Our facilities include state-of-the-art DSLAM or DSL
multiplexers that are located in 2000 central offices
throughout this country, as well as 19 Internet points and
presence. Our network incorporate local loops provided by the
incumbent carriers, but other than those local loops is
entirely facilities-based.
Covad was responsible for kick-starting DSL competition in
the United States. In fact, we were the first company to launch
commercial DSL service in the United States. We currently
provide service to 500,000 consumers and businesses.
We also provide competitive DSL services so that our
partners like AT&T can compete in the bundling arena providing
full bundles of broadband and telecommunication services.
We agree with everything that's been said about the
potential for voice over IP to revolutionize the
telecommunications industry within the next few years. And
Covad will be at the forefront of that.
One critical fact about voice over IP is that for this
service to really effectively work, broadband is required. And
so diverse sources of broadband will be critical ensuring that
VOIP develops in a competitive manner. Covad's management of
our own facilities allows us not simply to provide service on a
best efforts basis over a third party's network, but to control
the quality of the communications that reside over a network.
Some of the early entrants currently provide service over
existing networks such as the phone company and cable network
on what's called a best efforts basis. To put that into
practical terms, if you are using your broadband connection to
download files and you're also using it to make phone calls,
the phone calls will vie with the data usage for that broadband
pipe, and the quality of service is not necessarily guaranteed
depending on what your usage patterns are.
Covad by being a facilities-based carrier is able to
engineer its network to ensure that voice, which you really
don't want interruptions of, gets the priority over the network
and the quality can be maintained. So facilities-based
competition is essential to allow differentiation, competition
across all different features and allow consumer's choice of
who their provider is.
On the other hand, if you limit the facilities-based
competitors to two, the decisions on how VOIP is deployed, the
features that you get will be dictated by the decisions of
essentially two entities in anyone market. And Covad submits
that the history of innovation in this country is driven as
much by the small entrepreneurial companies as by the large
well funded incumbents with substantial resources to invest.
Next week we are celebrating the launch of VOIP service in
Washington, DC. And I think all of you will have received
invitations, and we hope you can hope. Voice over IP, while we
have talked about it a lot today, it is hard to really
understand what it is until you actually see a service like
CallVantage or like Vonage, or like our service which we
acquired by a company called Gobeam. The amazing diversity of
features that you can get is really something that you have to
see to believe. It is also, I am sure you have all had the
experience of looking at all the data that is in your computer
and then having to write down on a scrap of paper what a phone
number is so you can dial it over your phone connection. VOIP
eliminates all that. You can do instantaneous conference calls,
instantaneous callback just by clicking your mouse. And it
really is a great service. We're very excited about it.
Again, I think Covad's perspective here is that VOIP does
have tremendous potential, but the true potential of VOIP will
not be met unless there is full facilities-based competition.
We still need to utilize phone company loops. These are a
ubiquitous resource that was developed with ratepayer money. We
believe that it is the only ubiquitous infrastructure. While we
hear much talk of new technologies, it is the only network that
connects virtually all homes and small businesses in this
country. And without continued access to unbundled elements in
the network, it will be very difficult for competitive
facilities-based competition to develop.
And I look forward to the questions from the panel.
[The prepared statement of James Kirkland follows:]
Prepared Statement of James Kirkland, General Counsel and Senior Vice
President, Covad Communications Group, Inc.
INTRODUCTION
Good morning Chairman Upton, Ranking Member Markey, and Members of
the Subcommittee. My name is James Kirkland, and I am the General
Counsel of Covad Communications. Let me start by thanking Chairman
Upton for convening this important hearing on VOIP services, and for
allowing me the opportunity to offer Covad's perspective on ensuring
the rapid rollout of VOIP. Let me also commend Congressman Pickering
for his leadership on these issues by introducing the VOIP Regulatory
Freedom Act of 2004, H.R. 4129. We support the Pickering bill's
national declaration that VOIP is an unregulated information service,
with a focus on industry-led, rather than government-mandated,
solutions. We believe that the deregulatory framework set forth in the
Pickering bill is the right place to start in considering the critical
policy issues raised by VOIP.
COVAD: LEADING FACILITIES-BASED VOIP COMPETITION
Covad will be at the forefront of deployment of VOIP technology.
Covad was the first company to deploy mass market DSL services in the
nation. Covad has invested hundreds of million of dollars in building
the leading nationwide facilities-based broadband network, reaching
nearly 50 million homes and businesses in 35 states. Covad's broadband
facilities include Digital Subscriber Line Access Multiplexers
(DSLAMs), IP routers, and ATM switches in over 2000 central offices
across the nation.
Today, Covad continues to invest in facilities-based competition.
This year, Covad acquired a leading VOIP service provider, Gobeam, and
in March we raised $125 million in new capital to help fund a
nationwide VOIP rollout. By the end of 2004, Covad plans to roll out
its business-class VOIP services nationwide to 100 major markets. In
2005, Covad will develop consumer VOIP services across its nationwide
broadband facilities.
Covad is particularly excited by the revolutionary enhanced
features that VOIP services make possible, in comparison to the
relatively limited features available with legacy POTS services. As its
name suggests, Voice over Internet Protocol based services bring the
flexibility and capacity for rapid innovation found in other IP enabled
services to public voice services. These services have traditionally
relied upon the hard wired, and relatively inflexible, capabilities of
the public telephone network. Covad's VOIP services illustrate the
power of this combination of voice and IP. Covad's services provide
businesses with all of the capabilities of expensive PBX systems, with
little investment in hardware. Each user receives a unique phone number
to consolidate their multiple phone numbers. Find me and follow me
capabilities allow calls to find you no matter what phone you are
using, and are all configurable in real time using a ``Dashboard'' web-
interface to manage incoming and outgoing phone calls through a
computer. The service includes a personal virtual fax number to handle
all incoming faxes; a unified visual mailbox to manage voicemail and
faxes like e-mail; and robust call logs and integration with Microsoft
Outlook, allowing users to make and return calls from their PC. Covad's
VOIP services also include easy to use web collaboration and voice
conferencing tools. These features dramatically enhance the speed and
ease with which end users can access the enhanced functionalities of
VOIP telephony, combining the familiarity of a traditional telephone
handset with the flexibility and power of a computer-based interface.
Covad's services are available today. Gobeam, which was a small,
venture capital backed company, had 13,000 VOIP lines in service when
Covad acquired it. Covad is now launching this service nationwide. Next
week, to celebrate our launch of VOIP services in the Washington, D.C.
area, Covad will host a launch party with live demonstrations of its
new VOIP services. We will shortly send you all invitations for this
event, and welcome the opportunity to demonstrate our innovative VOIP
services firsthand.
CURRENT MARKET
It is not an understatement to say that facilities-based VOIP
services truly hold the potential to revolutionize the
telecommunications industry, all within a few short years. Indeed, the
VOIP revolution is not just around the corner--it is already underway.
The U.S. VOIP market has been forecasted to grow to more than five
million subscribers by 2007, a five-fold increase over 2002 levels.
Furthermore, the Internet Protocol-PBX market, which has just under
100,000 lines today, is expected to grow to more than 1.7 million lines
by 2007. Covad adds a unique and critical ingredient to this
revolution--namely, its own nationwide, facilities-based broadband
network. Covad's management of last-mile broadband transmission
facilities enables it to offer VOIP services that rival the legacy
public switched telephone network in their reliability, quality of
service, and public safety features, such as access to 911. Because
Covad's VOIP services are facilities-based, they offer more than simply
a rough, ``best efforts'' imitation of traditional telephone services.
Instead, Covad's VOIP services offer a complete, high quality
alternative to traditional telephony services--with all the additional
features and enhancements that VOIP makes possible.
FOSTERING FACILITIES-BASED COMPETITION
Covad is able to provide innovative new services like VOIP because
Congress had the vision and the foresight in 1996 to create a flexible
regulatory framework to manage the transition from local telephone
monopolies to robust local competition. This transition is still at a
very early stage. The local telephone network remains the sole,
ubiquitous public infrastructure connecting virtually every home and
business in this country. By requiring that the local telephone
companies allow competitors to utilize and integrate these ubiquitous
loops into innovative, facilities based service platforms, competitors
can develop new and innovative services like VOIP.
True innovation in the provision of telecommunications services
requires that a service provider control both the ``application''
portion of the service it provides as well as the underlying
transmission capabilities used to carry a service. By controlling its
own broadband facilities, which utilize telephone company loops from
customer premises to central offices where Covad maintains its own
broadband points of presence, Covad is able to control the quality of
service it provides to its customers, and introduce innovative features
that are both software and network based. On the other hand, if the
loops which connect homes and businesses become the exclusive province
of a single phone company in any area, the deployment of new
technologies like VOIP will be determined by the decisions and business
objectives of one, or at most two large incumbents that control
facilities in any market. Covad respectfully submits that the history
of innovation in this country has been driven as much, if not more, by
small entrepreneurial companies as large, well funded incumbents. If
VOIP is to truly flourish, there must be room for both small and large
competitors. With the competitive spur of smaller, often nimbler and
more focused competitors, the large incumbents are far more likely to
deliver on their promises of future investment in advanced facilities.
Without robust facilities-based competition from multiple players,
Covad believes that the revolutionary potential of VOIP may not be
fully realized, or may be realized much more slowly. At this initial
stage in the development of VOIP services, VOIP service providers that
do not operate their own broadband transmission facilities have had
some initial success in developing the marketplace for VOIP services.
For example, in a few short years, Vonage has grown its subscriber line
count to more than 100,000 consumers and small businesses across the
nation.1 AT&T recently announced its own entry into the
third party VOIP marketplace, with the rollout of its CallVantage
Service. AT&T plans to enter 100 major markets by year's end, and
expects to sign up 1 million consumers and businesses for CallVantage
services by year-end 2005.2
---------------------------------------------------------------------------
\1\ See ``Vonage Becomes First Broadband Telephony Provider To
Activate 100,000 Lines,'' Press Release, Vonage, Feb. 2, 2004
(available at http://www.vonage.com/corporate/press_index.
php?PR=2004_02_02_0).
\2\ See ``AT&T Ushers In New Era in Communication With Launch of
AT&T CallVantage Service--New Jersey,'' Press Release, AT&T, March 29,
2004 (available at http://www.att.com/news/item/0,1847,12989,00.html).
---------------------------------------------------------------------------
These services offer innovative features, but are limited by their
providers' lack of control over the facilities used to carry them.
Indeed, as Banc of America Securities recently wrote,
Because they have no legacy voice business, the virtual
carriers, like Vonage, have every reason to press ahead
aggressively . . . But they have significant risks long term.
The current regulatory arbitrage from which they benefit
(namely the ability to circumvent access charges and the USF),
may go away eventually; they have little brand awareness or
reputation; they can't bundle multiple services; and they are
at the mercy of the infrastructure provider to maintain the
plant sufficiently; and, at least today, they can't offer a
quality of service (QoS) guarantee.3
---------------------------------------------------------------------------
\3\ See ``Straight Talk on VOIP,'' David W. Barden, et al., Banc of
America Securities Equity Research, April 15, 2004, at 4.
---------------------------------------------------------------------------
Control over and operation of underlying broadband transmission
facilities will confer significant advantages to service providers
offering integrated transmission and VOIP services, such as:
[the abilities] to control the quality of service, leverage
existing customer relationships and take advantage of their on-
the-ground field service networks to assist with customer
installation.4
---------------------------------------------------------------------------
\4\ See ``Everything Over IP,'' Glenn Campbell, et al., Merrill
Lynch Research Report, March 12, 2004, at 19 (available at http://
www.vonage.com/media/pdf/res_03_12_04.pdf).
---------------------------------------------------------------------------
For example, Covad's control over its network based facilities allows
it to use packet prioritization techniques to ensure that voice quality
is maintained even as a user downloads large files or watches streaming
media.
Competition in the underlying transmission facilities layer will
become increasingly more important over time in ensuring the
competitiveness of services and applications like VOIP. In other words,
to preserve and extend the competition being created by third party
providers of IP enabled services, it will become increasingly more
important to preserve and extend competition in the underlying
provision of broadband transmission services. Robust competition in the
broadband transmission facilities layer for competitors like Covad who
are unencumbered by legacy businesses will help ensure that the
exciting innovation being witnessed today in the provision of third
party IP enabled services like VOIP will continue unabated.
IMPORTANCE OF BROADBAND COMPETITION
Robust facilities-based competition in the provision of the
broadband services that VOIP requires does not yet exist. Amidst all
the hype over the broadband future and new technologies, the underlying
reality is stark. In most areas of the country Covad remains the only
provider of broadband access services left to compete with cable and
ILEC broadband. According to the Commission's latest data, the
incumbent telephone companies and cable providers control more than 93%
of the nation's broadband access lines.5 Moreover, many end
users lack a choice even amongst this limited set of two providers--for
example, cable providers have historically focused their network
deployment in residential areas, leaving most businesses with the
incumbent telephone company as their only broadband option. In fact,
recent figures show that cable penetration in the small business
segment has actually dropped: ``We projected cable modem would surpass
DSL in this [the small business] segment by year-end 2003. However,
cable modem penetration dropped precipitously in the small business
market, or businesses with between 20 and 99 people. Cable operators
also achieved limited success in the remote office market, reaching
only 4.2 percent of the market in 2003.'' 6 As the Yankee
Group now recognizes, ``DSL operators dominate the U.S. [small
business] broadband and enterprise remote-office broadband market.''
7 Even more fundamentally, as both the Department of Justice
and the FCC have long recognized, duopoly conditions are insufficient
to produce competitive outcomes. Duopoly competition is problematic not
simply because the firm with the larger market share may exercise
market power, but also because both participants are likely to have the
incentive and ability to maintain prices above competitive levels
rather than attempting to ruthlessly compete with each other, as they
would need to do in a market with multiple firms.8
Accordingly, as the FCC has concluded, ``both economic theory and
empirical studies'' indicate that ``five or more relatively equally
sized firms'' are necessary to achieve a ``level of market performance
comparable to a fragmented, structurally competitive market.''
9 Most importantly, large incumbents with substantial
investments in existing facilities are less likely, left to their own
devices, to be aggressive innovators in disruptive technologies like
VOIP.
---------------------------------------------------------------------------
\5\ See High-Speed Services for Internet Access: Status as of June
30, 2003, Industry Analysis and Technology Division of the Wireline
Competition Bureau, Federal Communications Commission, at Table 5
(December 2003). Specifically, out of a total of 23,459,671 high-speed
lines (over 200kbps in at least one direction), RBOCs served 7,266,765
lines, other ILECs served 948,828 lines, and cable providers served
13,684,225 lines.
\6\ Yankee Group, Cable and DSL Battle for Broadband Dominance
(February 2004), at 4-5 (emphasis added).
\7\ Id. at 4 (emphasis added).
\8\ See United States Department of Justice/Federal Trade
Commission, Horizontal Merger Guidelines, Section 2 (rev. Apr. 8,
1997).
\9\ Report and Order, 2002 Biennial Regulatory Review--Review of
the Commission's Broadcast Ownership Rules and Other Rules Adopted
Pursuant to Section 202 of the Telecommunications Act of 1996, 18 FCC
Rcd. 13620, 289 (2003).
---------------------------------------------------------------------------
The incumbent telephone companies, with substantial legacy
businesses, face conflicting incentives in deploying VOIP which
threatens their core circuit-switched voice businesses with VOIP
services:
SIP threatens to strand the Bells' core network . . . VOIP
customers bypass, obsolete and strand the Public Switched
Telecom Network (PSTN).10
---------------------------------------------------------------------------
\10\ See ``SIP Happens: How VOIP Technology `Re-unbundles'
Telecom,'' Scott Cleland, et al., Precursor Telecom and Media Research,
Apr. 12, 2004.
---------------------------------------------------------------------------
Given nearly $150 billion invested in circuit-switched telephone
plant,11 it is easy to see why incumbent telephone companies
have severely conflicting incentives in rolling out VOIP: ``the Bells
will be reluctant to cannibalize themselves . . .''.12 The
Bells'' history in deploying DSL technology is instructive. As is now
widely acknowledged, the incumbent phone monopolies were slow to deploy
ADSL precisely because it threatened to cannibalize lucrative, legacy
monopoly services such as ISDN, T1, and second line telephone service.
---------------------------------------------------------------------------
\11\ See id.
\12\ See ``Straight Talk on VOIP,'' supra n. , at 4.
---------------------------------------------------------------------------
The cable industry also has conflicting incentives. Cable providers
have much stronger incentives to aggressively roll-out bundles of VOIP
and broadband transmission. After all, ``[r]elative to the Bells,
[cable's] major advantage is obviously that it doesn't have a legacy
voice business it needs to protect.'' 13 Viewed in the
broader context of their own legacy monopoly, however, the picture gets
murkier. Under duopoly conditions, the ILECs and cable providers have
every incentive not to aggressively compete in each others' core
businesses:
---------------------------------------------------------------------------
\13\ See ``Straight Talk on VOIP,'' supra n. , at 5.
---------------------------------------------------------------------------
[W]e think cable operators are wary of being too successful .
. . the chief risk is that being too successful in VOIP could
induce the Bells to be more aggressive in the data and video
businesses (such as ratcheting up marketing activity and price
pressure). To put it another way, we think cable operators want
to be successful with VOIP only up to the Bells' threshold of
pain; maximizing the value of VOIP may not maximize the value
of the cable business if it invokes a predatory response . .
.14
---------------------------------------------------------------------------
\14\ See id.
---------------------------------------------------------------------------
[W]e think cable regards the potential Bell threat as much
larger [than virtual carriers like Vonage] and we think it is
highly unlikely to risk baiting the Bells with an aggressive
push into VOIP just to preempt what it regards as a smaller
threat.15
---------------------------------------------------------------------------
\15\ See id. at 6.
---------------------------------------------------------------------------
Indeed, alongside the flurry of press announcements announcing cable
operators' ambitious future VOIP rollout plans is a note of caution:
Most are wary of using big, new capital expenditures to take
on entrenched local phone giants, such as Verizon, while they
are also spending heavily on fancy, new set-top boxes and cable
modems. ``To dislodge a competitor that large takes a lot of
money, and cable operators are still loaded with debt,'' says
Richard Nespola, CEO of telecom consultant TMNG. ``Investors
would not jump for joy.'' 16
---------------------------------------------------------------------------
\16\ See ``Cable Poised to Offer Phone Service--Just Not So Fast,''
USA Today, May 27, 2004.
---------------------------------------------------------------------------
This economic reality highlights another limitation of duopoly
competition in the IP transmission layer. To the extent that the cable
industry does pursue VOIP services, this is no guarantee that the
industry will make further investments to optimize their transmission
networks for VOIP. They may merely elect to provide VOIP services on a
``best efforts'' basis utilizing their existing internet access
capabilities. In this scenario, cable companies would not drive any
significant transmission layer innovation, but would simply be
``virtual'' voice carriers, like Vonage, over their own networks.
Unlike the established telephone and cable companies, Covad has no
legacy business to protect--Covad has always been a broadband company,
with a network designed from the ground up to provide advanced
broadband services like VOIP. Covad has every incentive to roll out
VOIP services as quickly as possible to as many businesses and
consumers as it reaches. Thus, we believe that including Covad's
facilities-based VOIP offerings in the overall marketplace will
significantly speed the rate at which broadband services like VOIP are
adopted.
TRANSITION TO FULL FACILITIES-BASED COMPETITION
Covad is well aware of the controversy surrounding unbundling
requirements. Recently, the U.S. Court of Appeals for the D.C. Circuit
has issued a ruling that many predict will result in the phase-out of
UNE-P competitive voice services. Although Covad disagreed in many
significant respects with the Court's reasoning, the Court's decision
is now the law of the land. Today, Covad stands ready to participate in
the transition to facilities-based services, including VOIP, that do
not rely on unbundled phone company switching. Covad believes strongly
that the Court's decision and the expected phase out of unbundled
switching should not and need not mean the death of telephone
competition. Instead, by migrating to facilities-based VOIP services
using unbundled loops, competitive carriers can respond to the Court's
mandate, ensuring that consumers retain continued choice among multiple
telephone providers. Covad stands ready to meet the Court's mandate and
offer that choice, with a facilities-based VOIP solution. Furthermore,
Covad is currently the leading nationwide provider of wholesale
broadband services, including broadband services to many of the
companies currently relying on UNE-P. Thus, Covad is well poised to
answer the Court's call by providing a migration path for these
companies away from UNE-P and onto facilities-based VOIP services.
In order to achieve this transition, it is critical that the FCC
respond to the Court's decision by quickly developing judicially
sustainable rules for competitive access to critical last-mile
transmission facilities. For facilities-based mass market VOIP
competition to transform from vision to reality, Covad will need
continued non-discriminatory access to unbundled local loops and local
transport. These last-mile transmission facilities provide the critical
link between end users and Covad's backhaul network facilities. These
simple last-mile transmission links, which no single company could ever
duplicate, represent the bare minimum unbundling regime needed to fully
realize a facilities-based VOIP revolution. And, as I've already
mentioned, Covad's facilities-based broadband network and existing
wholesale relationships offer a viable migration path for the 20
million consumers currently served using UNE-P. But this transition
cannot happen overnight or without rules that foster facilities-based
competition such as ensuring that hot cut processes facilitate an
orderly transition from UNE-P to UNE-L and maintaining rate stability.
The experiences of countries like South Korea and Japan are
instructive. Both nations enjoy significant leads over the U.S. in
broadband penetration, and both nations have experienced explosive
growth in broadband deployment after adopting and enforcing unbundling
regimes. South Korea's market-opening measures included $400 million in
loans to competing broadband carriers,17 the formation of a
new company (Hanero) to compete with incumbent Korea
Telecom,18 and opening Korea Telecom's network with
requirements for local loop unbundling, including sharing of the local
loop.19 The result has been thriving competition in the
broadband market, with three main suppliers,20 and rock-
bottom prices (as low as $25 a month 21) for consumers. As a
result, ``[a]t the end of June 2003, South Korea ranked third in the
world by the total number of DSL lines and first in the world in terms
of DSL penetration, with 14.27 DSL lines per 100 population.''
22 Japan's market-opening measure included being one of the
first countries to introduce line sharing, reducing line sharing
charges to the lowest rates in the world, reducing collocation costs,
shortening provisioning intervals, and unbundling backhaul
facilities.23 As a result of such actions, at the end of
2003, Japan led the U.S. in broadband penetration, and a competitor
named Softbank--not the incumbent--was the top DSL carrier in
Japan.24 The experiences of South Korea and Japan show that
maintaining competitive access to local loop and transport facilities
spurs the deployment and adoption of innovative new services like
broadband. Similarly, preserving competition among multiple facilities-
based providers of VOIP will dramatically speed the pace at which VOIP
services are developed, deployed and adopted here in the U.S.
---------------------------------------------------------------------------
\17\ Seoul's Strong Hand Sets Pace on Web, International Herald
Tribune Online, November 26, 2001.
\18\ Id.
\19\ See ``Developments in Local Loop Unbundling,'' Organisation
for Economic Cooperation and Development, Working Party on
Telecommunications and Information Services Policies, Sept. 10, 2003,
at 49 (available at http://www.oecd.org/dataoecd/25/24/6869228.pdf).
\20\ Korea Broadband, PDS Consulting Short Paper, Version 12 June
2003.
\21\ Seoul's Strong Hand Sets Pace on Web, International Herald
Tribune Online, November 26, 2001.
\22\ South Korea, Korea Broadband Overview, Point Topic, October
20, 2003.
\23\ On a roll: Japan's success with DSL, Ovum Research, DSL:
Business Models for Exploiting the Local Loop, July 2002.
\24\ How the ``Japanese Miracle'' of Broadband Came About, Glocom
Platform, Japanese Institute of Global Communication, Colloquim #43,
December 24, 2003.
---------------------------------------------------------------------------
SOCIAL POLICY OBJECTIVES
Apart from the minimal regulation over last-mile transmission
facilities needed to preserve competition among multiple service
providers, we believe that regulators should adopt a generally
deregulatory stance towards VOIP. We believe there is promising
evidence that traditional social policy objectives can be met without
enacting new regulatory requirements for VOIP services. For example,
last December, the National Emergency Number Association (NENA) and the
Voice on the NET (VON) Coalition, of which Covad is a member, announced
a voluntary agreement on approaches to provide VOIP subscribers with
basic 911 service, and to work together to develop solutions for
enhanced 911 functionality. Likewise, in the area of law enforcement
access to IP enabled services, industry standards setting bodies have
been working on developing solutions enabling law enforcement access to
packet-mode and broadband transmission technologies, calling into
question the need for intrusive new regulation of overlying information
services like VOIP.
Furthermore, we believe that many critical social policy objectives
can be met by focusing on enforcing and rationalizing existing
telecommunications service regulations, rather than by extending them
to information services like VOIP. For example, we generally believe
that regulators should refrain from imposing legacy access charge
regulations on VOIP services, and instead should focus their efforts on
reforming existing regulations to develop a comprehensive intercarrier
compensation mechanism. Similarly, rather than imposing new universal
service obligations on information services like VOIP, we believe that
regulators can help safeguard universal service by rationalizing the
existing contribution mechanism, so that all providers of broadband
transmission services contribute equitably. In sum, we believe that the
enforcement of existing regulations on broadband telecommunications
service providers like Covad, combined with voluntary industry
collaborative efforts and standards setting, can meet critical social
policy objectives like public safety and universal service--without
imposing intrusive new forms of regulation on information services like
VOIP.
CONCLUSION
Mr. Chairman, Members of the Subcommittee, we are in the midst of a
revolution in the telecommunications industry. We are witnessing a
revolution away from the limitations of traditional phone service to
all of the enhancements, efficiency gains and innovation that VOIP
makes possible. We are witnessing a revolution away from competition
through legacy circuit switches to facilities-based competition over
packet-switched broadband networks. We are witnessing a transformative
revolution in the way the entire telecommunications industry does
business. Covad is excited to be part of that revolution, and looks
forward to working with the Subcommittee to maximize the potential of a
facilities-based, broadband future.
Thank you again for this opportunity and I welcome questions from
the panel.
Mr. Upton. Ms. Martine?
STATEMENT OF CATHY MARTINE
Ms. Martine. Mr. Chairman and members of the committee,
thank you for giving me the opportunity to discuss voice over
IP today.
AT&T intends to provide IP-based services to all of the key
market segments; large enterprises, call centers, small
offices, teleworkers and residential users. We have been
delivering voice over IP services in the business market since
1997, and in March 2004 we launched our residential VOIP
service known as AT&T CallVantage. Now, less than 4 months
later, it is offered in 22 States and 72 major markets. Soon it
will be available in over 100 markets.
VOIP is the foundation for our future. Much of the Silicon
Valley will benefit from an IP explosion. Small and medium
sized businesses will also profit from affordable VOIP
services. The resulting productivity gains can, in turn, drive
broader economic growth. These benefits will only emerge if
policymakers limit regulations to a light handed regime, and
most importantly avoid saddling VOIP with flawed intercarrier
compensation requirements.
We support the legislation proposed by Congressman
Pickering which recognizes the need for regulatory restraint if
VOIP is to develop to its fullest potential. Let me provide
some details on these points.
As you have heard, VOIP holds the promise of choices and
capabilities far beyond today's offerings. In the IP
environment VOIP services and features can be provided and
enhanced much more efficiently. VOIP could well be the killer
application that drives broadbanded option.
AT&T fully intends to lead the VOIP revolution. We have
invested heavily to upgrade our total network including some $3
billion in 2003 alone.
AT&T CallVantage service provides a host of new advanced
features such as the ability to detect voicemail from your
computer and dynamically control your feature settings
yourself.
Innovations will increase as manufacturers, service
providers and software developers take advantage of the ability
to integrate voice, data and advanced consumer computer
capabilities.
AT&T has been committed to providing a choice in the market
for local telephone service. We have invested billions of
dollars in our own facilities. Today we provide local service
to more than 4.3 million residential users and 4.5 million
business lines. Last year AT&T began developing residential
VOIP services as yet one more means of competing for local
phone customers.
The recent Federal court decision invalidating the FCC's
unbundling rules could impede our deployment of VOIP. Without
access to unbundled network elements, AT&T will not be able to
offer residential local services to households that lack
broadband services. AT&T will also have far less ability and
incentive to invest in VOIP absent a mass market base of
customers.
Equally important to our ability to deploy VOIP are the
decisions that the Congress and the FCC make about its
regulation. We welcome the fact that many policyholders and
makers such Congressman Pickering support a hands off approach
to VOIP. His bill recognizes that to accomplish this goal a
Federal framework makes the most sense.
We agree with those who have said VOIP services must
provide access for the disabled, enable 911 and cooperate with
requests from law enforcement agencies. These are issues that
the industry is working hard to resolve, and AT&T is taking a
lead in this efforts. There is no need to regulate in these
areas barring a demonstrated failure by the industry to act
appropriately.
The universal service and intercarrier compensation schemes
are badly broken and require substantial revisions before they
can or should be applied to VOIP.
Noting about VOIP threatens universal service. The real
threat is the shrinking base of interstate revenues that
support the system today. AT&T has proposed moving to a flat
rate charge for each assigned and user telephone number. This
system would include VOIP and would be competitively neutral
and provide a solid foundation for the fund.
The Commission's access charge regulations are especially
unworkable, but the long promised overhaul has yet to occur.
The emergence of VOIP services dramatically underscores the
urgent need for intercarrier compensation reform. VOIP
providers collectively serve only several hundred thousand
customers while the Bells serve nearly 100 million. Having VOIP
providers subsidizing the incumbents cannot be the right
answer. No one demanded that the auto industry subsidize the
buggy manufacturers, the computer industry the typewriter
providers or email providers the post office. And contrary to
some claims, VOIP providers do not get a free ride when they
don't pay legacy access charges. VOIP providers purchase high
speed or other local business lines to connect to the public
switch network and pay for termination as an enhanced service.
AT&T agrees that affordable service needs to be maintained
in high cost areas of the country. Applying the old access
charge regime to VOIP will not achieve this result. If VOIP is
to deliver on its promising potential, then it can not be
regulated like plain old telephone service. Today we are asking
your support to keep that from happening so that all Americans
can realize the competitive and innovative benefits of VOIP
technology.
Thank you for inviting me here today, and I look forward to
your questions.
[The prepared statement of Cathy Martine follows:]
Prepared Statement of Cathy Martine, Senior Vice President, AT&T
Internet Telephony, Consumer Marketing and Sales
Mr. Chairman and Members of the Committee, thank you very much for
giving me the opportunity today to discuss Voice Over Internet
Protocol. AT&T intends to provide IP-based services to all of the key
market segments--large enterprises, call centers, small offices,
teleworkers, and residential users. In March 2004, AT&T launched its
residential VOIP service, known as AT&T CallVantagesm Service. Now,
less than four months later, it is offered in 22 states and 72 major
markets. By the end of September, it will be available in over 100
markets.
VOIP is the convergence of voice and data, with the potential to
bring choice and innovation to the telecommunications marketplace. If
allowed to grow unimpeded by legacy regulation, it will offer consumers
an increasing array of advanced features not available today to enhance
ways of communicating and simplify busy lives.
VOIP will also contribute significantly to the business world.
Teleworkers using VOIP will be far more productive and successful at
their work. VOIP will bring the kind of advanced voice and data service
now available only to Fortune 500 companies within the reach of small
and medium-sized businesses. Much of Silicon Valley is now in the IP
value chain and will benefit from an IP explosion in this market. The
resulting productivity gains can, in turn, drive broader economic
growth and raise standards of living for all Americans.
These benefits will only emerge, however, if policymakers limit
regulation to a light-handed regime that allows VOIP to develop free of
burdensome regulation at the federal, state or local level and, most
importantly, avoids saddling VOIP with flawed intercarrier compensation
requirements. The VOIP legislation proposed by Congressman Pickering--
H.R. 4129--would do just this.
Imposing today's inflated access charges on nascent VOIP providers
would severely impede the growth of VOIP. VOIP providers are already
paying substantial compensation to local exchange carriers for the
right to terminate traffic on their networks. They should not have to
subsidize their established competitors as well. With respect to
intercarrier compensation, the priority should be on reform rather than
burdening innovative new services and technologies with an outmoded
regulatory model heavy with subsidies.
If VOIP is to develop into a robust alternative service for
residential consumers, then competitive carriers must first have the
opportunity to develop the residential subscriber base for local voice
service that is necessary to justify our continued and growing
investment in VOIP. To accomplish this, we and other competitive local
exchange carriers need ongoing access to unbundled elements of the Bell
networks at reasonable rates. While we do not like being dependent on
the Bell network, the transition cannot occur overnight.
Firm resolve in enforcing the pro-competitive policies of the 1996
Act is a necessary first step on the path to VOIP. Unfortunately, those
policies are in dire jeopardy. In the face of the Administration's
refusal to appeal the recent decision striking down the FCC's
unbundling rules, we have reluctantly concluded that we cannot incur
the costs to solicit any additional local and long distance customers
in seven states. Without the swift adoption of new rules to ensure
local competition, we will have to consider similar steps in other
states. Such retrenchment in the offering of traditional communications
services will directly hinder the growth of next generation VOIP
services.
Let me provide more detail on each of these points.
VOIP HOLDS THE PROMISE OF NEW CHOICES, MORE CAPABILITIES AND THE
POTENTIAL FINALLY TO ELIMINATE LOCAL TELEPHONE MONOPOLIES
VOIP holds the promise of choices and capabilities far beyond
today's circuit-switched offerings. It enables consumers to enhance and
tailor their communications services to their needs and lifestyles at
competitive prices. It very well could be the ``killer app'' to drive
widespread broadband adoption for which we have all waited. It could
also be an important economic driver for our nation.
AT&T fully intends to lead the VOIP revolution for businesses and
consumers. We have invested heavily to make the necessary changes to
our network--some $3 billion in 2003 alone--and we have announced that
we will be providing VOIP service in the top 100 markets in the country
this year.
With VOIP, voice service is just another ``hosted application''
like e-mail, letting customers take their phone numbers wherever they
go and access connections over any device, such as a standard home
telephone, wireless phone, or computer. AT&T's consumer offer, AT&T
CallVantagesm Service, for example, already includes a host of new
advanced features, including advanced call forwarding features and ``do
not disturb'' options that enable consumers to program the service so
that the phone answers to their needs instead of the other way around.
AT&T CallVantagesm Service provides subscribers a ``Personal Call
Manager Web Site,'' which gives subscribers complete control over their
answering, voice mail and other capabilities. Subscribers can check
their voicemail from their computer and forward information as a
``talking'' e-mail. These benefits will only increase as device
manufacturers, network operators, service providers and application
developers take full advantage of the ability to integrate voice, data
and advanced computer capabilities.
In the IP environment, voice services can also be provided much
more efficiently. IP technology allows for more efficient routing of
calls than traditional circuit-switching. These efficiencies enable
more innovative service packages. Current VOIP offerings allow
customers that have a broadband connection to place unlimited calls
anywhere in the country for a single, low monthly price. The Alexis de
Tocqueville Institution concluded earlier this year that government at
all levels could save $3-10 billion annually--up to 60% of their
current phone bills--by replacing circuit-switched service with VOIP.
You should not, however, think of VOIP as ``cheap phone service.'' It
promises to be lower-cost, yes, but with a host of new communications
management features and options that go well beyond today's ``plain old
telephone service'' (``POTS'').
AT&T'S HISTORY AS A LOCAL COMPETITOR
AT&T has long been committed to providing a choice in the market
for local telephone service. Today we provide local service to more
than 4.3 million residential lines and 4.5 million business lines,
including 1 million small business lines. We have done so through a
combination of facilities-based entry--we have invested billions of
dollars in our own local facilities since 1996--and the lease of Bell
network elements, both means established by Congress in 1996 and
pursuant to rules crafted by the FCC as instructed by the Act.
In both the business and residential markets, however, facilities-
based service requires a significant concentration of demand to be
economic. To the extent multiple networks can ever economically
compete, a significant customer base is needed to justify network
deployment and reduce the risk of such deployment. Up to this point,
the economic challenges presented by facilities-based competition and
the incumbents' legacy advantages in this area have made the lease of
capacity on the incumbent carriers' networks--``UNE-P''--the only
viable means of competitive local market entry in the mass market.
I cannot emphasize enough how important access to fairly priced
network elements is to the widespread availability of VOIP: without
access to unbundled network elements at reasonable prices, AT&T will
not be able to offer mass market residential local competition to those
households that have not signed up for broadband service for reasons
ranging from availability to affordability. And without a mass market
customer base, AT&T will have far less ability and incentive to fund
the customer support, billing and back-office systems that are
necessary to offer VOIP services on a very large scale. Even then, we
will not be able to compete if the Bells are allowed to restrict the
ability of AT&T and other competitors to provide VOIP services to the
Bells' DSL customers.
Until just last month, UNE-P provided the stepping-stone to
facilities-based competition by enabling competitors to build a
customer base that justifies investment in facilities. Unfortunately,
however, a recent federal court decision invalidating the FCC's
unbundling rules will prevent us from doing just that. AT&T strongly
believes that this decision is both wrong and flatly contradicts
Supreme Court precedent, but the Administration has refused to appeal
it. The Bell companies' refusal to negotiate reasonable interconnection
and leasing agreements in the wake of that decision has left AT&T no
choice but to stop incurring the costs to solicit new local phone
customers in many residential markets. With the Bell companies poised
to raise wholesale rates for UNE-P as early as November, we will simply
not be able to provide a bundle of local and long distance services
economically and build the customer base for VOIP. We therefore
urgently need interim rules ensuring fair competition so that more
consumers will not face higher rates for their telephone service and to
provide much-needed stability in the marketplace.
Interim rules should guarantee, at a minimum, that the rates
competitors pay the Bells for lease of unbundled network elements do
not rise above current levels, which have already been judged by the
Supreme Court to allow the Bells a reasonable profit. The new rules
must also foster the transition to facilities-based competition by
ensuring that the Bell companies continue to provide so-called ``UNE-
L'' access to copper loops, high-capacity loops, transport and dark
fiber at current rates. UNE-L service will, among other things, allow
competitors to offer service options to customers who lack the
broadband connections that enable VOIP.
There is also a direct correlation to the availability of unbundled
loops and the growth of broadband. Of the ten countries that surpass
the United States in per capita broadband penetration, nine of them
require local loop unbundling. AT&T proposed a plan earlier this year
to transition from UNE-P to UNE-L, and even offered to pay higher
wholesale rates if we failed to meet our own deadlines for
construction, but the Bells were unwilling to enter into any such
agreements.
The fact is, we do not regard UNE-P as a panacea, and we never
have. We do not like being dependent on a reluctant supplier for our
critical service inputs, and we are highly motivated to escape our
dependence on the Bells. VOIP has the potential to allow us to end this
dependence, but only if we and other national carriers can remain in
the market today. If we are squeezed out of the local marketplace now,
our ability to deploy and grow our VOIP service will be far more
difficult and take far longer, leaving VOIP as yet another technology
controlled by the Bells.
Remember that these are the same companies that held back the
deployment of DSL services to residential customers for some ten years
so customers would have to take their other, higher priced services.
Only when forced by competition, in that case the deployment of
broadband Internet connections by cable operators and competitive
carriers Covad and Rhythms, did the Bells finally introduce mass-
market, high-speed Internet access service. Similarly, without the
threat of losing customers to a VOIP rival, the Bells will have no
incentive to invest in and deploy this new technology or the rich array
of features it is capable of providing. Competition will spur VOIP
investment by the incumbents, not deter it.
A ``HANDS-OFF'' APPROACH IS THE APPROPRIATE REGULATORY APPROACH FOR
VOIP
Allowing VOIP to develop in the marketplace is a critical step to
bringing this Nation into the digital age. AT&T welcomes the fact that
many Members of Congress, such as Congressman Pickering, support a
``hands off'' approach to VOIP and have introduced legislation that
would bring the benefits of competition and innovation to the
telecommunications marketplace. Congressman Pickering's deregulatory
approach to VOIP--H.R. 4129--acknowledges the need to reform the
current subsidy system and allow this nascent service to flourish.
In particular, the bill recognizes that because the Internet is
global in nature and these services will be deployed nationwide, a
federal framework makes the most sense. Forcing U.S. VOIP providers to
develop 50 different varieties of VOIP services to comply with a
patchwork of potentially inconsistent state regulatory burdens could
hinder their development. Continuing regulatory uncertainty as to
federal versus state regulation of VOIP, or worse yet, the regulatory
uncertainty that would accompany implementation of 50 different regimes
to regulate VOIP, would inevitably impede investment, in direct
opposition to the federal policy of creating a regulatory framework
that promotes the growth and development of broadband services. Indeed,
recognizing the critical importance of a uniform, nationwide
deregulatory environment, the Pickering bill prohibits even the FCC
from regulating VOIP applications except as specifically authorized.
Such an approach will be critical to VOIP's ability to lead the
United States' broadband revolution: the United States' broadband
penetration lags behind that of a number of other countries. Many of
those who have higher rates of broadband penetration have recognized
that allowing VOIP to flourish will contribute to a positive economy
and allow them a competitive edge in the global marketplace. The United
States, too, must protect its economic interests by abandoning outdated
policies favoring and protecting incumbent revenue streams.
AT&T strongly supports the approach of this legislation. Allowing
emerging VOIP services to develop free of unwarranted, legacy
regulation allows carriers to design the service to respond to customer
needs and interests, and to remain flexible in their business plans as
customer preferences emerge, rather than be bound by a government-
dictated vision of what the service should include and what is a
benefit to consumers. As FCC Chairman Powell stated on February 8,
2004:
the case for government imposed regulations regarding the use
or provision of broadband content, applications and devices is
unconvincing and speculative. Government regulation of the
terms and conditions of private contracts is the most
fundamental intrusion on free markets and potentially
destructive, particularly where innovation and experimentation
are hallmarks of an emerging market.
The wisdom of this approach was confirmed recently--in reverse--
when a new local VOIP provider concluded it could not stay in business
in any of the states in which it had been operating when faced with an
order from Washington state regulators to register as a telephone
company and comply with the same laws as other long distance companies
(including the payment of access charges). Regulators must be able to
approach VOIP service flexibly if they expect VOIP to bring its
promised benefits to consumers and competition. As Congressman Upton
has recognized, VOIP services ``revolutionize how we communicate, and
as is the case with any innovative technology, will call into question
many aspects of today's antiquated regulatory regime.'' 1
Congressman Stearns has similarly recognized the ``problem in pigeon-
holing [VOIP] into an outdated regulatory framework.'' 2
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\1\ Congress Daily AM, February 24, 2004
\2\ Congress Daily AM, February 5, 2004
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We agree with those who've said that providers of VOIP services
must meet important social policies. Providing access for the disabled,
enabling public safety (911) response, and cooperating with lawful
requests for information from law enforcement are issues that the
industry can and is working to resolve, and AT&T is taking the lead in
these efforts. While government has a legitimate role in ensuring that
these things get done, it should refrain from regulating this new
service in these or other areas in the absence of a demonstrated
failure on the part of industry to act appropriately. We may also need
some flexibility and reasonable transition periods to come into
compliance, in recognition of the fact that IP-enabled services present
different technical and operational issues than those considered when
the legacy common carrier regulations were originally developed.
Nonetheless, we believe that the enormous flexibility and power of VOIP
promises to address these issues in ways superior to current circuit-
switched technology.
Other legacy regulations, however, will require substantial
revisions before they can or should be applied to VOIP. The universal
service and intercarrier compensation schemes are irremediably broken
and indeed, no longer make sense even in the context of the
traditional, circuit-switched wireline telephone services for which
they were developed. Prompt attention to these fundamental flaws in
existing regulation is urgently needed so that IP-enabled services are
not burdened with costly and outdated, broken regulatory schemes that
would prevent VOIP services from reaching their potential.
Let me emphasize that nothing about VOIP threatens universal
service. The problem with the universal service fund (USF) is that it
is still supported by a shrinking base of interstate revenues for
traditional telecommunications services. A growing fund with a
shrinking base cannot be sustained. It's long past time for the
universal service systems in this country to be reformed, and we
support VOIP being part of the broader reform of the USF system. We
think VOIP providers should contribute to a reformed universal service
system--in a sustainable, fair, and nondiscriminatory manner.
AT&T has proposed a contribution system to the FCC that would
replace the current revenues-based system with a numbers/capacity-based
system that is fairer and more sustainable. Under our proposal,
providers would pay a flat-rated charge for each assigned telephone
number that maps to a unique end-user's service. Services known as
``special access services'' would also be assessed a flat-rated charge
based on the capacity of the service. Such a system would be
competitively neutral, and would provide a solid foundation for the
fund because the use of numbers is increasing. Moreover, VOIP providers
would be fully included, since their service nearly always uses
traditional phone numbers--as would future technologies, which are
likely to retain the use of numbering. The Commission has full
authority to implement such reforms--but it has yet to do so. Carriers
need clarity and predictability in the marketplace if they are to make
the risky investment needed to make VOIP widely available.
Especially unworkable are the Commission's vastly outdated access
charge regulations. The access charge scheme was developed decades ago
to ensure that whenever a long distance company used the local network,
it would subsidize local service by paying grossly inflated rates to
the local carrier. While there was much in this framework to which one
could object, it remained workable as long as local carriers and long
distance carriers operated in separate markets. Its infirmities became
apparent and unsustainable when those carriers entered each others'
markets, and even more so when wireless companies and ISPs became the
largest users of access minutes. For that reason, eight years ago,
Congress ordered that implicit subsidies, including those in access
charges, must be eliminated. Unfortunately, they still remain in place
eight years later, and the FCC's long-promised overhaul of its
intercarrier compensation regime has yet to occur. While Chairman
Powell commendably opened a proceeding examining needed revisions as
one of his first acts as Chairman, that docket remains unresolved more
than three years later.
Now, the emergence of VOIP services dramatically underscores the
urgent need for the Commission to complete intercarrier compensation
reform. Whatever the historical wisdom of requiring interexchange
carriers to subsidize through inflated access charges local exchange
carriers operating in a different market, it makes no sense to require
nascent VOIP providers to subsidize the monopoly local exchange
carriers against whom they will be directly competing. VOIP providers
collectively serve only several hundred thousand customers, while the
Bells serve nearly one hundred million. It cannot be the right answer
for the emergence of VOIP to subsidize the Bells.
The far better course is comprehensive reform of the intercarrier
compensation regime to eliminate market distortions and opportunities
for regulatory arbitrage. Nearly every segment of industry agrees that
there is a need to move to a rational system in which all traffic is
exchanged under the same compensation rules. Even OPASTCO--the
Organization for the Promotion and Advancement of Small
Telecommunications Companies--acknowledges the need for intercarrier
compensation reform, although its members directly benefit from current
law. In a hearing before the Senate Commerce Committee on June 16,
2004, Arturo Macias, current Chairman of OPASTCO, testified that
although it was important for rural carriers to be able to recover
their costs of providing access to their networks, current intercarrier
compensation rates are not cost-based, and OPASTCO would not oppose
their reform.
Until that reform occurs, however, these legacy access charges
should not apply to IP-enabled services, even on an interim basis. Even
Qwest agrees with us that providers using IP at either the origination
or termination points of telephone traffic should not pay access
charges, even if the traffic at some point traverses the public
switched telephone network. The imposition of above-cost access charges
on IP telephony would radically alter the economics of providing VOIP
services and would severely impede the development of those services.
Contrary to the Bells' claims, VOIP providers do not get a ``free
ride'' when they don't pay access charges. To the contrary, VOIP
providers typically purchase what are known as Primary Rate Interfaces
(``PRIs'')--a type of high-speed line--or other local business lines to
connect to the public switched telephone network, and they pay
substantial compensation to the terminating local exchange carrier for
the right to do so.
AT&T agrees that affordable service needs to be maintained in high-
cost areas of the country. Applying the legacy access charge regime to
VOIP, however, is not the way to achieve this result and would prove
counterproductive and market-distorting. It simply slows the deployment
of new and desirable technologies while driving users away.
Today we are at a crossroads where we must call upon your
leadership. If VOIP is to deliver on its promising potential--and offer
something truly different in the marketplace--then it cannot be treated
and regulated like plain old telephone service. We are asking for your
support to keep that from happening, so that Americans can finally
realize the long-promised benefits of widespread competition and the
innovations promised by VOIP.
Thank you again for inviting me here today, and I look forward to
your questions.
Mr. Upton. Thank you.
Mr. Nelson?
STATEMENT OF ROBERT B. NELSON
Mr. Nelson. Thank you, Mr. Chairman. I applaud you for
holding this hearing today on what you and others have noted is
an exciting new innovation in the telecommunications industry
and holds great promise for all residential and business
customers alike.
As representative of our national association, I will
address today the appropriate role for States in promoting VOIP
in cooperation with our Federal partners.
Our challenge is to let innovation take its course while
preserving the services and features consumers care about and
expect in the telecom systems. State commissions want VOIP to
succeed and have pursued a light touch policy where they have
taken action. Despite the fears of some today, no State to date
has pursued full scale economic regulation of VOIP. In fact,
many States have chosen to forgo all regulation.
In answer to the question that the chairman posed in the
title to this hearing, regulation can be tailored so it does
not disrupt this new exciting technology.
The VOIP services attracting the most attention today are
actually hybrids that bundle telecom services. They combine
packets with origination of calls with completion of calls; in
fact, 90 percent of VOIP calls are completed to the PSTN. They
are marketed as substitutes for traditional telecom service and
consumers are actually purchasing a means of connecting to the
PSTN. In our view, services that rely on healthy publicly
switch telephone networks should support that network through
universal service and participation in the carrier
compensation. Without the support, the customers without access
to broadband will be asked to share an even increasing burden
to sustain this network.
We believe that consumer protection should apply to VOIP.
Services that replace traditional phone services should meet
consumer expectations. Consumers depends on their phones on
ways they don't even realize. State commissions handle tens of
thousands of consumer complaints every year on issues like
slamming like cramming, service outages and service quality,
clarity and honesty in billing and truths of deceptive
marketing, privacy of customer billing, emergency dialing and
these protections should apply to VOIP as well.
State commissions are well suited to be the watchdog and
referee in these proceedings. We are the laboratories of
democracy, if you will. We are local and staffed to be
responsive. We provide a human voice to sort out these
complaints and usually mediating or explaining the complaint to
consumers. Distant Federal agencies would be hard pressed to
handle this case load.
Cable industry representatives have suggested that States
should arbitrate interconnection agreements for facilities-
based GOIP providers as we have for wireless and CLECs. It is a
role we are very much attuned to.
Chairman Powell and Ms. Martine have indicated that
independent VOIP providers with no call origination facilities
may not survive in the near future, And indeed, incumbent
providers will step into VOIP and be the dominate providers.
This indicates to me the packets which alone should not be a
shield against all economic regulation. Market power is a
better measure of that. Most VOIP providers have none of this
market power, but we shouldn't unwittingly created a loophole
for incumbents.
As Ms. Greene indicated earlier, we should look at the
function nature of the service and not the underlying
technology in developing our polices, otherwise we will create
winners and losers as Congressman Dingell has indicated we
should not do.
A consensus of State commissions have concluded that
writing new polices around specific technologies will always
leave us one step behind. It's tempting to put our thumb on the
scale for new hot technologies, but that would actually distort
the market.
Now, the New York Commission has taken this functional
approach to heart and it looked at specific service offered by
Vonage Holdings and found that economic regulations should not
apply, but that 911 emergency dialing should apply. Vonage's
web based form contract had some alarming terms, including the
fact that it might not work after business hours. This would
have dire consequences for a consumer who replaced his phone
with a Vonage phone and had a heart attack after business
hours. He might be very much out of luck. This is an
interesting thing that Congressman Shimkus raised and something
that this committee should be very much attuned to.
In addressing this dilemma the New York Commission's action
were very narrowly tailored, flexible and practical. Both the
New York and Minnesota Commissions have issued orders that have
now been enjoined by the courts, but they provide a worthwhile
road map to a ``light touch`'' approach.
In terms of Representative Pickering's bill, I believe it
is constructive in recognizing the interdependency of the VOIP
service with the public switch network, and it does require
participation in Federal USF, intercarrier comp and CELEA.
Unfortunately, though, it pursues a technology specific
approach that will build a new silo for VOIP and ultimately
distort the market. By dismissing a State role out of hand it
shortchanges consumers on consumer protection, interconnection,
emergency dialing and competition. While we have just begin
studying the Stearns-Boucher Bill, it too may have some of the
same problems that the Pickering bill has. But it does leave
out as well consumer protection in our view.
We appreciate and respect the dialog these bills have
spurred, but at this time we cannot support them. We look
forward, however, to participating in that dialog to see that
new technologies like VOIP are allowed to flourish and achieve
the promise that they hold within the framework of a ``light
touch'' regulatory policy.
Thank you very much.
[The prepared statement of Robert B. Nelson follows:]
Prepared Statement of Hon. Robert Nelson, Commissioner, Michigan Public
Service Commission and Chairman, Committee on Telecommunications,
National Association of Regulatory Utility Commissioners
Mr. Chairman, Ranking Member Markey and members of the
Subcommittee, I am Robert Nelson, Commissioner with the Michigan Public
Service Commission and Chairman of the National Association of
Regulatory Utility Commissioners' (NARUC) Committee on
Telecommunications. Founded in 1889, NARUC represents the interests and
consensus policy positions of State public utility commissions.
NARUC applauds your leadership for calling this hearing and
appreciates the opportunity to testify today on the impact of Voice-
Over-Internet-Protocol (VOIP) and other technologies on the ever-
changing telecom market. Now is an exciting time for the telecom
industry because so many innovative technologies are entering the
market to enrich the lives of consumers and the productivity of
businesses.
The challenge of policymakers is to stand aside and let innovation
take its course wherever we can, while still preserving the services
and features consumers care about and expect in their telecom system.
This philosophy guides our inquiries at State commissions and will
undoubtedly guide this Committee as it examines not just VOIP
technologies but all the aspects of the Federal Telecommunications Act
and its interaction with the evolving telecom marketplace.
State commissions are committed to making sure VOIP can reach its
full potential for consumers and the marketplace. Just like members of
Congress, State commissioners are constantly gathering information from
industry and the various stakeholders to understand the unique business
models, services, and consumer opportunities that have sprung up around
VOIP technology. Several States have pursued a ``light touch''
regulation of VOIP services, while most have declined to regulate VOIP
at all thus far. No state has pursued any degree of economic regulation
of VOIP.
PSTN/VOIP HYBRID SERVICES
The VOIP services attracting the most attention are actually hybrid
services that bundle together packet-switched origination of calls with
the services of traditional competitive and long-distance phone
companies, terminating well over 90 percent of their calls to the
Public-Switched Telephone Network. Such services are generally marketed
as replacements for traditional phone service and the product they are
actually selling is access to (and the ability to receive calls from)
millions of traditional PSTN phones in every home and office around the
nation.
These PSTN hybrid services are more than just an ``application,''
because unlike with any Internet application, the service provider must
hand the traffic off to a traditional telecom carrier like Qwest or
Level 3, convert the traffic to analog and avail itself of the
interconnection agreements that have been negotiated with the local
exchange carrier of the called party. Even the FCC has conceded that at
least some hybrid services, such as that featured in AT&T's petition,
should be regulated as telecommunications services.
The vast majority of VOIP customers would never pay a dime for the
service if they didn't have that universal access to the PSTN. As such,
it is entirely appropriate for VOIP carriers to support the
universality of the phone network that completes their business model,
and for local exchange carriers to receive the same compensation for
terminating their calls that similarly situated traditional telecom
carriers must pay.
State universal service programs are an integral part of the
universal service system because they fill in gaps that the federal
program misses. Without state programs, consumers in many states would
be shortchanged by the nationwide proxy formulas of the federal
program. Making sure those state programs have a support base as the
technology of the phone system evolves is critical to their long-term
health. Such a support base is even more critical in light of the
substantial contributions to the PSTN made by carriers and customers in
the form of intercarrier compensation and federal universal service,
which may be significantly depleted through the emergence of hybrid
VOIP services.
CONSUMER PROTECTION
Consumers should also receive effective, responsive local consumer
protection in the phone system of the future. If VOIP providers achieve
even a measure of the success they have promised their share holders
and venture capitalists, they will quickly progress beyond the
technology-savvy early adopters and begin offering services to the
average consumer.
Whether we realize it or not, we build our lives around a phone
system that is reliable and dependable. The telecom business continues
to be one where an ongoing consumer relationship is formed through an
extensive and detailed legalese-laden contract that goes largely unread
until there is a problem with the service. Often the contract locks the
consumer into a year or more of services with stiff financial penalties
for quitting the relationship early.
State Commissions handle tens of thousands of individual consumer
complaints every year, covering such issues as:
Slamming and cramming;
Timely response to service outages, quality deterioration, etc.;
Clarity and honesty in billing;
Intrusive or deceptive marketing;
Access to telecommunications services by blind and disabled
consumers.
Privacy of customer billing or calling records; and
Making sure the emergency dialing service lives up to the trust that
consumers put in it.
While much has been written about a new telecom system where
different ``layers'' of service (transmission, application, etc) are
offered by different companies, consumer protection obligations
generally apply to whichever company maintains the consumer
relationship (and collects the bill). Most complaints are resolved
through Commission mediation or often just explanation, although some
merit intervention and enforcement.
State Commissions are well suited to the watch dog and referee role
because they are in the local communities, staffed to be responsive and
have unique expertise in the telecom business. Depriving states of
their consumer protection role would fragment the response effort and
confuse consumers as they were shuffled from one agency to another
based on the technology they were using--a federally mandated
runaround. Distant federal agencies would be hard-pressed to handle the
load.
INTERCONNECTION AND COMPETITION
Cable industry representatives recently commented that State
commissions will likely have a critical role to play in arbitration of
interconnection agreements as the facilities-based VOIP carriers seek
to knit themselves into the larger phone network. State commissions
have fulfilled this important role for years already and are prepared
to safeguard the same rules of nondiscrimination and fair dealing for
the VOIP industry as they have for CLECs and others.
Congressman Pickering's bill raises a related issue--also
highlighted recently by FCC Chairman Michael Powell--of whether
``independent'' VOIP carriers with no call-originating facilities of
their own will be able to survive if the facilities owners choose to
favor their own VOIP products in the long run with preferential packet
treatment. Vonage CEO Jeffrey Citron recently commented to the
Washington Post that this might be an area that merits government
intervention.
Also, it is important to clarify that simple use of packet
switching should not absolve a company of all its competitive
obligations. While a company like Pulver, Packet8 or Vonage may not be
positioned to exert market power when it acts independently, it is
entirely foreseeable that a traditional incumbent could migrate
customers to VOIP service en masse and still position itself to exert
market power, especially in regions where it was the exclusive
facilities-based broadband provider.
FUNCTIONAL NATURE TEST
In assessing the impact of new communications technologies, a
consensus of NARUC commissioners have come to the conclusion that
writing broad new policies around specific technologies will always
leave us one step behind and may even hurt the development of
technology by sending distorted signals to the marketplace. Instead,
NARUC's resolutions addressing VOIP emphasize that regulatory treatment
should follow the functional nature of the service, not the way it
works under the hood. Rather than looking to the technology itself,
policymakers should look at the salient features of a service. In most
cases, the starting point in our analysis should be what the service
provides to the consumer.
The ``functional nature'' approach does not mean regulating new
VOIP services just as if they were traditional circuit-switched service
from Ma Bell. Rather it means a rigorous, intellectually honest
dialogue about which public interest obligations are attached to which
features of a particular service. If the physical structure of a
particular service makes its carrier unable to exert market power, for
example, that may impact whether the full panoply of economic
regulations ought to apply.
The New York Public Service Commission took the functional nature
approach to heart in its recent decision regarding Vonage Holdings
Corp. It examined a specific service offered to New York consumers and
found it to be a telecom service. Based on the salient traits of that
service, the NY PSC found traditional economic regulations
inapplicable, but it did rule that consumers should receive reliable
911 emergency dialing services.
The service was marketed as a replacement for traditional phone
service but the lengthy standard contract that consumers had to sign
contained some alarming provisions. Specifically, the company's Terms
of Service agreement, on page 7 of a 15 page single-spaced document
1 said:
---------------------------------------------------------------------------
\1\ The Terms of Service agreement is contained in a small window
that consumers may scroll through when signing up for Vonage service
online. If copied and pasted into a Word document, it takes up 15
single-spaced pages. The document quoted above was last updated on
April 27, 2004.
---------------------------------------------------------------------------
``You acknowledge and understand that 911 dialing from your
Vonage equipment will be routed to the general telephone number
for the local emergency service provider (which may not be
answered outside business hours), and will not be routed to the
911 dispatcher(s) who are specifically designated to receive
incoming 911 calls at such local provider's facilities when
such calls are routed using traditional 911 dialing.''
(emphasis added)
Imagine if a consumer in upstate New York who replaced his
traditional phone line with this service had the rotten luck of
experiencing a heart attack or stroke after ``normal business hours.''
He dials 911 and, because it only goes to the business line, no one
picks up. Brutal as it sounds, he is simply out of luck!!
The New York PSC's order suggested this was unacceptable but
actually invited the company to work with them on an acceptable
framework for achieving these important goals and to apply for waivers
where traditional phone regulations did not apply. While the actions of
New York and Minnesota have been enjoined by federal courts for the
time being, they provide a worthwhile roadmap that illustrates a
``light touch'' approach that so many leaders of industry and
government have sought.
THE ``VOIP REGULATORY FREEDOM ACT''
By requiring the PSTN hybrid services (``connected VOIP
applications'') to participate in universal service and intercarrier
compensation, H.R. 4129 recognizes those services' relationship with,
and dependence on, the Public-Switched Telephone Network. This
recognition is telling and crucial as we lay the foundations for a
broader debate about telecom policy that this Committee will
undoubtedly lead.
Unfortunately, H.R. 4129 suffers from a technology-specific
approach that will only serve to create a new market-distorting
regulatory ``silo'' or ``stovepipe'' for one particular technology,
even though that technology will almost certainly evolve in
unanticipated directions. With more time, state and federal
policymakers could cooperate in parsing out functionalities and
features that deserve more precise regulatory treatment and, in some
cases, strategic forbearance.
We are also concerned that H.R. 4129, by dismissing a state role
out of hand on such core issues as consumer protection,
interconnection, emergency dialing, market power and state universal
service programs, would deal consumers and competitors a poor hand at
the outset of a new era in telecommunications.
NARUC commends Congressman Pickering and his cosponsors for their
leadership in introducing the VOIP Regulatory Freedom Act because we
appreciate and respect the dialogue it has spurred here in Congress and
among other federal policymakers. While we cannot support H.R. 4129, we
look forward to participating in that dialogue, on VOIP and the full
range of telecom issues before this Committee, to craft a comprehensive
federal telecom policy that will serve consumers well for decades to
come.
Mr. Upton. Mr. Rutledge?
STATEMENT OF THOMAS M. RUTLEDGE
Mr. Rutledge. Mr. Chairman, Congressman Markey, members of
the committee, my name is Tom Rutledge. I am the chief
operating officer of Cablevision Systems Corporation in New
York. Thank you for the opportunity to appear before the
committee.
Eight years after the Telecommunications Act of 1996
advances in technology are giving consumers unprecedented
ability to choose and create communications packages that meet
their individual needs. Consumers can choose among wired and
wireless platforms for a combination of waste, data and tech
services regularly substituting different, newer products for
old ways of communicating. Voice over IP service is an example
of this competition, a true facilities-based service offering
consumers greater choice and more value enabled by broadband
networks and improved technologies over IP.
Since 1998, Cablevision has invested $5 billion in an
advanced two-way broadband network that reaches 4.4 million
homes in the New York metropolitan area. That investment
enables us to offer consumers a range of more robust and
valuable services, including our high speed broadband service,
digital video, video on demand, 15 high definition television
services, interactive services, and voice service.
Offered on our high speed broadband platform, ``Optimum
Voice,'' our QoS, quality of voice over IP service, is among
the most successful products we have ever offered. Launched
late last year, Optimum Voice today has more than 100,000
customers and is winning new customers at a rate of more than
3,000 per week.
Voice over IP is poised to evolve in conjunction with
enhanced data and mobile services, such that the concept of
voice service will mean something far different to users in the
coming years than what it does today. Prior technological
innovations did not change the fundamental character of plain
old telephone service, POTS. VOIP, by contrast, will usher in a
whole new kind of communications markets.
Our service, Optimum Voice, is already more than a
tradition phone service, and this is just the beginning. In
addition to offering our customers limitless local, regional
and long distance calling and all the advanced features
available from a traditional phone service, Optimum Vice is a
suite of IP applications that includes functionality never
offered before. Advanced call forwarding options let customers
route calls to up to three different locations simultaneously.
The data platform allows them to send and review voice messages
on email. An interactive web portal lets subscribers customize
the way they want to receive communications day-by-day, hour-
by-hour, and with total control from any location. And it
includes E911 and is capable of meeting all law enforcement
access and surveillance requests.
It is notable that Optimum Voice today is totally
unregulated by the States in which it is being provided.
Because of this deregulatory environment, not in spite of it,
Optimum Voice is succeeding with customers by meeting their
needs, providing value and competing in the marketplace.
Technological advances in VOIP and related services are
quickly overtaking specific regulations based on the legacy
networks. The pace of these changes will quickly render
inapplicable any very specific rule or classification based on
what is even current technology. Even what appears to fit today
will no longer fit tomorrow.
In this new world, I encourage policymakers to embrace the
potential for consumer choice by establishing a broad,
deregulatory, national framework that encourages new services
and technological advancement. It is important that a new
framework be developed that allows consistent State rules that
foster growth of IP-based voice applications and permits the
discipline of choice to ensure protection and value to
consumers.
I commend Congressman Pickering for advancing a forward
looking, deregulatory legislative approach to VOIP. Of special
importance, the legislation establishes the principle that
there must be a predictable, national framework for the
development of these inherently mobile and borderless services
that allows providers to respond to the marketplace, not the
government, in designing, pricing and selling services. While
some States understandably have an interest in VOIP, there must
be recognition that clear rules of the road that operate on a
national basis are essential for the service to expand and to
offer the kind of choice and value envisioned by the 1996
Telecommunications Act.
In the tradition from legacy telephone regulation toward a
modern, deregulatory framework appropriate for the new
marketplace, we recognize that a number of existing policies
must be rationalized. I commend Chairman Powell and his
colleagues on the FCC for initiating proceedings to address
each of these transitional issues. These include the legacy of
access charges and intercarrier compensation, and creating new
mechanisms for supporting universal service. The timely
resolution of these issues by the Commission by Congress will
provide much needed certainty to the providers seeking to grow
and improve on this fledgling service.
We also recognize that there will continue to be need to
address significant public safety and security issues. VOIP
customers must have ready access to E911 and emergency
services. Law enforcement must have access to VOIP applications
to support the national security interests. These targeted
policy goals can be achieved by narrowly tailored regulation or
industry commitments without carrying forward the costly and
dates regime of local retail phone regulation from a monopoly
era.
Mr. Chairman, members of the committee, we are at the
beginning of a realignment of mass-market communications,
Internet-based voice applications promise to give consumers
real communications choices. These choices will not be limited
to less expensive versions of POTS, although that is possible,
but will include access to totally new products and services
that will remake the entire concept of voice service. This is
an exciting new market for Cablevision and our customers. We
are proud to be a leader in offering voice over IP services at
the forefront of this transition and look forward to working
with this committee to establish policies that maximize its
potential.
Thank you again for this opportunity. And I welcome
questions from the panel.
[The prepared statement of Thomas M. Rutledge follows:]
Prepared Statement of Thomas Rutledge, Chief Operating Officer,
Cablevision Systems Corp.
Mr. Chairman, Congressman Markey, members of the Committee, my name
is Tom Rutledge; I am the Chief Operating Officer of Cablevision
Systems Corporation in New York. Thank you for the opportunity to
appear before the Committee.
INTRODUCTION
Eight years after the Telecommunications Act of 1996, advances in
technology are giving consumers unprecedented ability to choose and
create communications packages that meet their individual needs.
Consumers can choose among wired and wireless platforms for a
combination of voice, data, and text services, regularly substituting
different, newer products for old ways of communicating. Voice over IP
service is an example of this competition, a true facilities-based
service offering consumers greater choice and more value, enabled by
broadband networks and improved voice technologies over IP.
BACKGROUND
Since 1998, Cablevision has invested $5 billion in an advanced two-
way broadband network that reaches 4.4 million homes in the New York
metro area. That investment enables us to offer consumers a range of
more robust and valuable services, including our high speed broadband
service, digital video, video on demand, 15 High-Definition television
services, interactive services, and voice service.
Offered on our high-speed broadband platform, ``Optimum Voice''--
our QoS (Quality of Service) voice over IP service--is among the most
successful products we have ever offered. Launched late last year,
``Optimum Voice'' today has more than 100,000 customers and is winning
new customers at a rate of more than 3,000 per week.
``Voice over IP'' is poised to evolve, in conjunction with enhanced
data and mobile services, such that the concept of ``voice service''
will mean something far different to users in the coming years from
what it does today. Prior technological innovations did not change the
fundamental character of plain old telephone service (POTS). VOIP, by
contrast, will usher in a whole new kind of communications market.
Our service, Optimum Voice, is already much more than traditional
phone service, and this is just the beginning. In addition to offering
our customers limitless local, regional and long distance calling and
all the advanced features available from a traditional phone service,
Optimum Voice is a suite of IP applications that includes functionality
never offered before. Advanced call forwarding options let customers
route calls to up to three different locations simultaneously. The data
platform allows them to send and review voice messages on e-mail. An
interactive Web portal lets subscribers customize the way they want to
receive communications day-by-day, hour-by-hour, with total control
from any location. And it includes E911 and is capable of meeting all
law enforcement access and surveillance requests.
It is notable that Optimum Voice today is totally unregulated by
the States in which it is being provided. Because of this deregulatory
environment--not in spite of it--Optimum Voice is succeeding with
customers by meeting their needs, providing value and competing in the
marketplace.
POLICY
Technological advances in VOIP and related services are quickly
overtaking specific regulations based on the legacy network. The pace
of these changes will quickly render inapplicable any very specific
rules or classifications based on what is even current technology. Even
what appears to fit today will no longer fit tomorrow.
In this new world, I encourage policymakers to embrace the
potential for consumer choice by establishing a broad, deregulatory,
national framework that encourages new services and technological
advancement. It is important that a new framework be developed that
allows consistent state rules that foster growth of IP-based voice
applications and that permits the discipline of choice to ensure
protection and value to consumers.
I commend Congressman Pickering for advancing a forward-looking,
deregulatory legislative approach to VOIP. Of special importance, the
legislation establishes the principle that there must be a predictable,
national framework for the development of these inherently mobile and
borderless services that allows providers to respond to the
marketplace, not to government, in designing, pricing, and selling
services. While some states understandably have an interest in VOIP,
there must be recognition that clear rules of the road that operate on
a national basis are essential for the service to expand and to offer
the kind of choice and value envisioned by the 1996 Telecommunications
Act.
In the transition from legacy telephone regulation toward a modern,
deregulatory framework appropriate for the new marketplace, we
recognize that a number of existing policies must be rationalized. I
commend Chairman Powell and his colleagues on the Federal
Communications Commission for initiating proceedings to address each of
these transitional issues. These include the legacy of access charges
and inter-carrier compensation, and creating new mechanisms for
supporting universal service. The timely resolution of these issues by
the Commission or by Congress will provide much needed certainty to the
providers seeking to grow and improve on this fledgling service.
We also recognize there will continue to be a need to address
significant public safety and security issues. VOIP customers must have
ready access to E911 and emergency services. Law enforcement must have
access to Voice over IP applications to support the nation's security
interests. These targeted policy goals can be achieved by narrowly
tailored regulation or industry commitments without carrying forward
the costly and dated regime of local retail phone regulation from a
monopoly era.
CONCLUSION
Mr. Chairman, members of the Committee, we are at the beginning of
a realignment of mass-market communications. Internet-based voice
applications promise to give consumers real communications choices.
These choices will not be limited to less expensive versions of POTS--
although that, too, is possible--but will include access to totally new
products and services that will remake the entire concept of voice
service. This is an exciting new market for Cablevision and for our
customers. We are proud to be a leader in offering Voice over IP
services at the forefront of this transition and look forward to
working with this committee to establish policies that maximize its
potential.
Thank you again for this opportunity and I welcome questions from
the panel.
Mr. Upton. Thank you.
Mr. Vidal?
STATEMENT OF RONALD J. VIDAL
Mr. Vidal. Thank you, Chairman Upton, Congressman Markey,
members of the subcommittee for inviting me here today to share
my thoughts on Voice over Internet Protocol or VOIP.
I am Ron Vidal, I am the Group Vice President of Emerging
Opportunities for Level 3 Communications. Part of my
responsibility is looking into the future for new technologies
and services on behalf of our company. But first a bit of
background about Level 3 Communications.
Level 3 owns a 23,000 mole fiber optic long haul and metro
network spanning both North American and Europe, which we built
between 1998 and 2001 at a cost of over $9 billion. Today we
are a Fortune 500 company which operates one of the largest
Internet protocol or IP backbones in the world and we sell our
services wholesale to many of the world's leading
communications and content companies.
We have also been an industry pioneer in softswitch, the
core technology of VOIP. In fact, we hold patents on connecting
packets switch data networks with the legacy public switch
telephone network or PSTN.
Over the last 5 years we have carried over 250 billion
minutes over our softswitch platform. Today we offer a full
suite of wholesale VOIP services to our business and consumer
customers. There is not a single circuit switch in our entire
network.
Now let me turn to the regulation of VOIP. You know, it was
not that long ago that VOIP occupied the fringes of the telecom
world. Recently, however, VOIP has been able to replicate the
quality of the PSTN at lower costs while delivering new
features not possible over the PSTN. Well, why is that?
Well, first we have had 25 years of incredible performance
improvements in computing, software and hardware all at
affordable prices. And many of these technologies were invented
and developed in districts represented by members of this
committee.
Second, and in parallel, the development and worldwide
adoption of the Internet connected those computers in ways
unimagined just decades earlier. Again, a set of technologies
largely invented and developed in the United States. Third,
broadband has been rapidly adopted by businesses and in homes
using many different technologies and many different services
providers. With residential broadband adoption at over 20
percent, consumers in nearly every district represented by this
Congress are voting with their checkbooks for the benefits of
high speed Internet access.
Bottom line: All things digital are getting better, faster
and more affordable. The fundamental technology building blocks
are now in place to extend those benefits to voice. But the
fate of VOIP does not rest with market forces or technology
advances alone. In the past, all calls were PSTN-to-PSTN.
Perhaps in the future all calls will be IP to IP. But for the
foreseeable future we will have two different networks, each
born in a different century connected to each other with
different technologies and with different rules.
At the moment VOIP service providers and their customers
continue to live in a kind of regulatory no-man's-land with
much uncertainty. Fortunately, many members of this committee
and the House recognize this and are acting to clarify the VOIP
regulatory through bills recently introduced by Congressman
Pickering, Stearns and Boucher. As you consider a course of
action, I would urge you to keep three points in mind.
Point one, there is a strong need for Federal preemption.
In the absence of clear Federal rules individual State PUCs
have begun issuing conflicting rulings on VOIP. Congress needs
to occupy the field on this important issue. Recently
Commissioner Susan Kennedy of the California PUC and
Commissioner Charles Davidson of the Florida PSC have both
asked FCC Chairman Michael Powell to have the Federal
Government preempt State jurisdiction no VOIP.
Point two: Legislate it with a light hand. Congress should
not force VOIP into outmoded laws and regulations devised for
the PSTN which were created at different times in history and
largely to protect consumers from monopolies. In particular,
the existing intercarrier compensation regime creates
irrational economic incentives that distort the market. A free
market economic model must be put in place.
Point three: VOIP service providers have an obligation to
support social policies that the government has identified is
in the public interest. This includes making sure that IP
networks are compliant with industry standards for CELEA, E911
and access for the disabled, and that they contribute
appropriately to Universal Service Funding. It is also
appropriate for government to enact rules for VOIP services
providers in these important areas.
With the history of computing and the Internet as a guide,
extraordinary innovations are on the horizon for voice over IP.
For example, we have a vision for how VOIP can improve E911 in
ways that the PSTN simply cannot match.
Furthermore, VOIP shows promise as a killer application
that will drive broadband penetration in this country. American
companies, entrepreneurs and our capital markets have always
been in the vanguard of technology innovation. Today they are
again poised to lead the way in VOIP. But to be successful,
however, these innovators and investors require a stable
regulatory environment.
Remember, our leadership in computing and the Internet
largely developed with little government regulation. I urge you
to treat broadband and VOIP in much the same way. Congress has
a real opportunity today to create an environment that will
extend the country's long history of innovation into VOIP.
With that, I would be happy to answer any questions that
you have, but thank you for the opportunity.
[The prepared statement of Ronald J. Vidal follows:]
Prepared Statement of Ron Vidal, Group Vice President, Emerging
Opportunities, Level 3 Communications, LLC
Thank you, Chairman Upton and members of the subcommittee for
inviting me here today to share my thoughts on Voice over Internet
Protocol (VOIP) services.
First I'd like to provide some background about our company. Level
3 owns a 23,000-mile fiber-optic long haul and metro network spanning
both North America and Europe, which we built between 1998 and 2001 at
a cost of $9 billion. Today it is one of the largest Internet backbones
in the world.
Level 3 is less well known than some of the other telecom service
providers here today. Besides being a young company, we sell our
services on a wholesale basis to large communications and content
companies, and do not sell directly to residential or business
customers.
Today, we are a Fortune 500 company and our customers include:
The ten largest communications carriers in the world;
The nation's four largest local telephone companies;
The nation's top 10 Internet Service Providers (ISPs);
The six largest cable companies in the U.S.;
Wireless companies serving more than 140 million U.S. subscribers;
The 10 largest carriers in Europe;
And many of the world's leading satellite companies, Internet content
providers, media and entertainment companies, research and
academic institutions, and government agencies.
Level 3 has been an industry pioneer in softswitch, the core
technology of VOIP. In fact, we hold patents on a system and method for
communicating voice and data over a packet-switched network that is
adapted to coexist and communicate with a legacy Public switched
Telecommunications Network (PSTN). Over the last five years, we have
carried over 250 billion minutes of dial-up traffic over our softswitch
platform. We introduced the world's first carrier-grade, VOIP long
distance service back in 1999, and today we offer a full suite of
business, consumer and wholesale Voice-over-IP services to our
customers. There is not a single circuit switch in our network.
Now let me turn to the regulation of VOIP.
It wasn't long ago that VOIP occupied the fringes of the telecom
world--as a niche application of interest only to hard-core
technologists.
Recently, however, VOIP has been able to replicate the quality of
the public switched telephone network at far lower cost, while
delivering new features and functionality not possible over older,
legacy network systems.
Why is that?
First, we've had 25 years of incredible performance improvements in
computers, software and hardware, all at affordable prices. Many of
those technologies were invented and developed in districts represented
by members of this Committee.
Second, and in parallel, the development and worldwide adoption of
the Internet connected those computers in ways unimagined just decades
earlier. Again, a set of technologies largely invented and developed in
the United States.
Third, broadband has been rapidly adopted in businesses and homes,
using many different technologies and many different service providers.
With residential broadband adoption at over 20 percent, consumers in
nearly every district represented by this Congress are voting with
their checkbooks for the benefits of high speed Internet access.
Bottom line: All things digital are getting better, faster and more
affordable, from word processing to entertainment. The fundamental
technology building blocks are in now in place to extend those benefits
to voice.
But the fate of Voice over IP does not rest with market forces or
technology advancements alone. As most members of Congress know,
government regulators will exercise significant influence over how VOIP
technologies are deployed. I'm confident that technology questions will
be answered by the market, but many remaining questions reside in the
regulatory arena.
Today, there are misguided calls from some to regulate VOIP with
the same policies that were developed for the PSTN, as a utility
business. Others understand that VOIP requires a new approach more
appropriate to the age of Internet Protocol, as a technology business.
Twenty years ago, all calls were PSTN-PSTN. Perhaps 20 years from now,
all calls will be IP-IP. But, for the foreseeable future, we will have
two different networks connected to each other with different rules. As
of yet, however, VOIP service providers, and their customers, continue
to live in a kind of regulatory No Man's Land, with no clear direction
from regulators.
This regulatory uncertainty, if it is prolonged, may undermine VOIP
deployment in this country. Fortunately, many members of this committee
and the House recognize this, and are acting to clarify the VOIP
regulatory framework through bills like the one recently introduced by
Congressman Chip Pickering.
As you consider a course of action, I would urge you to keep three
points in mind:
There's a strong need for federal pre-emption. In the absence of clear
federal rules, individual states PUCs have been begun issuing
conflicting rulings on Voice over IP. Congress needs to occupy
the field on this important issue. Recently, Commissioner Susan
Kennedy of the California PUC and Commissioner Charles Davidson
of Florida PSC have both asked FCC Chairman Michael Powell to
have the federal government pre-empt state jurisdiction on
VOIP.
Legislate with a light-hand. Congress should not force-fit VOIP into
outmoded regulatory constructs devised for the PSTN, at a
different time in history and to protect consumers from
monopolies. In particular, the existing inter-carrier
compensation regime creates irrational economic incentives that
distort the market. In order to truly maximize the benefits of
VOIP, a free-market economic model must be put in place.
VOIP service providers have an obligation to support social policies
that the government has identified as in the public interest.
This includes making sure that IP networks are compliant with
industry standards for CALEA, E911 and access for the disabled,
and that they contribute appropriately to Universal Service
funding. It's entirely appropriate for government to enact
rules for VOIP service providers in these important areas.
With the history of computing and the Internet as a guide,
extraordinary innovations are on the horizon for VOIP. For example, we
have a vision for how VOIP can improve E-911 by providing first
responders with more accurate information as incidents develop, in ways
that the PSTN simply can't match. Furthermore, VOIP shows promise as a
``killer app'' that will drive broadband penetration by enhancing the
consumer value of broadband Internet service.
American companies, entrepreneurs and our capital markets have
always been in the vanguard of technology innovation. Today, they are
again poised to lead the way in VOIP, with new technologies and
applications that will fundamentally change how we communicate. To be
successful, however, these innovators and investors require a stable
regulatory environment. Remember, our leadership in computers, software
and the Internet largely developed with little government regulation. I
urge you to treat broadband and VOIP in much the same way. Congress has
a real opportunity today to help foster an environment that will ensure
the country's long history of innovation continues with VOIP.
With that, I'd be happy to answer any questions you might have.
Thank you.
Mr. Upton. Well thank you very much.
I would like to say at the outset we are very appreciative
of the member's attention, and I think we have had 25 members
for opening statements and for much of the testimony. I am also
very pleased that I followed the advice of Mr. Markey when I
took the helm of this subcommittee Mr. Barton, that we have
only one panel, not two. So I appreciate that.
A couple of questions. As Mr. Carlisle mentioned, the FCC's
rulemaking asked the question as to whether the economic common
carrier regulations are relevant for VOIP providers. And I
would like to know if, maybe a yes, no, if there is a maybe
perhaps. But we will go right down the row, Mr. Citron, do you
think that common carrier regulations are relevant for VOIP
provider?
Mr. Citron. Absolutely not.
Mr. Upton. Ms. Greene?
Ms. Greene. Most of the common carrier regulations would
not be. There are some very clear concerns about 911, USF,
several others that have been mentioned.
Mr. Upton. Mr. Jensen?
Mr. Jensen. Common carrier rules probably are not in their
entirety applicable. I think that is one of the complicating
factors that we have and we need to work carefully on this
through the future.
Mr. Upton. Mr. Kirkland? You had better hit that mike
button.
Mr. Kirkland. Sorry. Turned it off.
We believe that common carrier regulations should not apply
to the service aspect of VOIP services. It is important,
though, to distinguish that from the regulation of the
underlying facilities over which they are carried. And we do
believe there should continue to be obligations to unbundle
facilities and provide access to competitors such as Covad.
Mr. Upton. Ms. Martine?
Ms. Martine. We believe it should not.
Mr. Upton. Mr. Nelson?
Mr. Nelson. Yes. I would agree with Ms. Greene that there
are certain aspects of common carrier regulations that might
apply, but for the most part we would support full scale common
carrier regulations.
Mr. Upton. Mr. Rutledge?
Mr. Rutledge. We believe they should not apply.
Mr. Upton. Mr. Vidal?
Mr. Vidal. We believe they should not apply.
Mr. Upton. Now, second question is is the regulatory
uncertainty at both the State and the Federal level at all
impeded the roll out of your VOIP services as you have looked
at them.
Mr. Citron?
Mr. Citron. Yes, it has. The clear uncertainty has made
difficult for capital to be raised not only for service buyers
like ourselves to deploy services, but also for the funding of
the hundreds of different companies that will develop the
technology and the equipment that goes into building these new
advanced networks.
Furthermore, as we get attacked State by State, recently in
New York and formerly in Minnesota and soon to be potentially
from California, this gives us second thoughts about how we
want to deploy our networks and where we should deploy those
assets.
Mr. Upton. Let me just ask as a follow up to that then part
of your answer, Mr. Citron, if in fact it has impeded the
unveiling of VOIP, what additional resources do you think you
would need to deal with I guess you would have to say 51
different regulatory groups, 52 if you include the Federal
Government.
Mr. Citron. Yes. It's the opposite problem, is that right
now we spend an inordinate amount of money in resources both
internally and externally dealing with the regulatory landscape
where for a company of our nature where a year ago we had 100
employees sit there and go with 51 jurisdiction PSCs, very
difficult for us in order to allow us the freedom to really
innovate and deploy resources in getting the service in the
hands of Americans who really do need a national framework that
provides clarity.
Mr. Upton. Ms. Greene?
Ms. Greene. Well, I feel Mr. Citron's pain here. We, too,
believe that the lack of clarity has clouded our ability to
invest at BellSouth. We need to have a national framework. We
also need to have relief from computer inquiry rules which make
us spend an inordinate amount of time deciding where we need to
place investment, how that investment will be treated, how we
need to classify, if there's anything we can do to protect from
regulation. And then in addition, we need to have clarify and
recognition of the fact that the broadband market is deeply
competitive even at the network level and there needs to be a
different hand in regulation.
Mr. Upton. Mr. Jensen?
Mr. Jensen. I think our challenge in ruling out the new
services is more economic than anything else. We deal in one
State. We have also had to up our regulatory and legislative
representation, but we find it more on the Federal level than
we do on the State level. We find ourselves coming to
Washington much more than we did in the past, and that is a
very costly trip for us. Our commission, on the other hand,
understands what it is our customers need and to the extent
that they can help us with the economics of rural America, they
have been very helpful in this regard.
Mr. Upton. Mr. Kirkland?
Mr. Kirkland. Yes. Covad uses a fairly limited set of
unbundled elements including T1s and others in access to loops.
And I think the fundamental uncertainty with the court decision
around the disruption of that unbundling regime and the vacuum
now does create uncertainty and inhibits our ability to invest.
So we really look forward to the FCC, hopefully, working very
hard to ensure a smooth transition with respect to fallout. But
anytime you change the rules, you know, we raised private
capital. We raised $125 million dollars to roll out VOIP, and
we would like to know the ground rules that we are operating
under both with respect to regulation of VOIP itself, but also
in the telecom regulatory framework in general.
Mr. Upton. Ms. Martine?
Ms. Martine. Yes. We actually have been concerned about
this because we think the Internet is not just a national
opportunity for us, it is a global opportunity and uncertainty
requires us to really establish a principle by which we invest
our limited capital. So in some cases we have found the global
reaction to our VOIP trials in some selective countries more
open and predictable than we have seen so far in the U.S. But
we definitely have a duty to our shareholders to ensure we
invest in the most profitable opportunities for payback and we
need to make certain we have servitude here.
Mr. Nelson. Yes. I would take issue with the fact that we
may have 51 different forms of regulatory framework here. We
really have just two models here. We have a lot of States who
don't do anything on VOIP, who have made a decision not to
regulate. Other States who have entertained a very light touch
regulation focusing on consumer protection issues and 911. And
I think it is important that certain cable companies have come
in and asked for certificates. It is not a very onerous
process, not very costly and the States can then have the
discretion to decide how much regulation is warranted.
Mr. Upton. Mr. Rutledge?
Mr. Rutledge. As we made the investments in our cable
system and expanded the capacity of those networks, we
envisioned that we would have opportunities to involve
ourselves in new telecommunication businesses. And, actually,
making it work technically has been fairly simple.
The biggest issue we have, and we have been rolling out as
fast as we can go, is that we really do not know what our costs
our. And so we have a risk from a regulatory perspective that
we are not sure of and cannot really quantify. And as that
compounds, that creates issues for us.
So I think we need to go very quickly here and eliminate
the risk of the marketplace that is caused by the regulatory
uncertainty.
Mr. Upton. Mr. Vidal?
Mr. Vidal. Yes. I would just add anytime you are going to
roll out a new product or service you have to ask yourself a
few basic questions, such as what is it; how much does it cost
to produce and how much can you sell it for in the marketplace.
And whereas you can see a set of technologies available today
that you can purchase and implement yourself, put them in a
network, if it is strictly an Internet application such as
email or supporting MP3 or any other myriad of Internet
applications, that is a very straightforward answer to a fairly
straightforward question. If, however, the application turns
out to be voice, then you have to say what is going to cost for
me to complete this set of packets over my network? You don't
have an idea what your costs are, therefore it is difficult to
figure out if you have an ongoing liability or not and what you
should charge your customers for.
And part of this is also the fact that we need to
interconnect these two disparate networks, as I mentioned in my
testimony, that have completely different characteristics. And
so we connect in with the public switch telephone network, in
our case, to 93 percent of the United States population also.
That is also a fairly intensive activity in terms of dealing
with every different telephone company and in front of every
different State public utility commission. And so we would echo
the fact that you do not know what your costs are and it is a
laborious process to do so.
Mr. Upton. Ms. Eshoo?
Ms. Eshoo. Thank you, again, Mr. Chairman for holding this
hearing. And to all of the witnesses, thank you for your
testimony.
I have four questions. The first one, and I am sure you
have given thought to this but I do not know, I would like to
hear what your thinking in preparation for this: In case of an
emergency the telephone lines do not normally go down but the
Internet can. What is the backup for voice over the Internet?
My second question is, and I think this is directed more to
Covad and to AT&T, you are obviously bullish on voice over the
Internet and you are moving quickly to make it available. Can
you explain to what is left of the committee here today why you
continue to need access to unbundled network elements?
My third question is to the FCC, and that is as we move
toward a packet switched model for voice communications does
not the contents of the packet become less and less relevant? I
mean when do we get to the point where an email and a phone
call are given equal treatment and subject to similar
regulations?
And my last question, I think to Covad, is what are the
alternatives to reach the last mile for most residential
customers? If you are unable to negotiate that with an ILEC,
what can you do to provide service?
So those are my four questions, and let us make time for
whomever to answer them. Whoever would like to start on the
whole issue of an emergency and voice over the Internet.
Mr. Citron. Sure. I will take the first one.
First, one point in fact, POTS lines do go down, and they
go down and 911 does not work.
Point two in fact, PSAPs, people who operate 911 response
centers, do go down. We all remember New York City lost their
entire 911 operation for almost an entire day due to a
technical malfunction.
Third point. The Internet itself was designed in a manor in
which for single point to failure. In theory, and in
practicality, the Internet is much more resilient to any kind
of disaster or problem which allow for the seamless of
rerouting of packets in real time. Now, I will admit the last
mile of these networks are all----
Ms. Eshoo. But what do you do about electricity?
Mr. Citron. Electricity is a great question.
Ms. Eshoo. Well, that is my question.
Mr. Citron. Sure. No. In the area of electricity, our
customers who have that concern will use a battery backup.
These battery backups are available two ways. One, increasingly
imbedded in the physical devices and, two, also stand alone
units that can provide an easily 8 hours worth of standby power
in the event of a power outage.
Ms. Eshoo. Does anyone else want to respond briefly--
because I have three other questions.
Mr. Rutledge. At Cablevision we offer a similar battery
backup for modems, but we also--you have to consider our cable
plant itself is powered by the power grid. So if power goes
out, we have built battery backup into our cable system at all
the power supply locations that allows 4 hours of standby
power.
The other thing that we have done, though, by upgrading our
networks we have made them a lot more reliable. And we explain
to our customers the kind of reliability we have built and we
have done that through our high speed access business. So when
we sell a voice over IP products we explain to customers that
they are getting the same kind of reliability they get on their
high speed access service. So they have a way of judging what
they are buying. And so we think there is a marketplace
expectation. Many customers also have cell phones today, in
fact the vast majority of our customers have cell phones with
similar E911 capabilities so that----
Ms. Eshoo. I wish there were more.
Mr. Rutledge. [continuing] if there is a failure, it can
work in.
Ms. Eshoo. Being very familiar with it.
Ms. Martine. I would like to support Mr. Rutledge's
comments.
Ms. Eshoo. Yes.
Ms. Martine. We have seen also with customers full
disclosure matters. Clearly with the amount of customers today
that have broadband and in fact have taken advantage of web
services it is very clear about 911 capability. We have
actually marked it on the TA so people are fully aware of that.
Most customers who are early adopters and very
technologically savvy have suggested, as Mr. Rutledge suggested
as well, they have backup services with mobility services if
their house phone does not work and they happen to have a VOIP
phone as well, they go to their car if their cell phone is not
working and charge it up. So that has not been barrier.
But again, we have to remember this is not a service that
we expect all 100 million households in America to adopt
overnight. This will take time and people will self-select who
are willing to deal with those issues.
Ms. Eshoo. Yes. I think it is a good point to raise,
though, given our heightened sensibilities about emergencies
now.
Maybe we can get to the other three questions.
Mr. Kirkland. Sure. Maybe I'll take since you have a
question in there for us.
Ms. Eshoo. Okay. Be as brief as possible.
Mr. Kirkland. Yes.
With respect to the emergency service issue, again this is
the importance of facilities-based competition. Covad manages
its own network, so the Internet goes down, our network goes
down. Whereas, I think where you are relying on the facilities
of a second provider, you are not in a position to control that
critical input. So having multiple people doing that.
With respect to access to UNIs, the 1996 Act set forth a
very flexible framework to manage the transition from local
monopoly to competition. That transition is still at a very
early stage, just like VOIP is at a very early stage.
We serve small businesses who often have only one option,
which is the phone company, and we provide those small
businesses with an alternative. There are still consumers out
there who do not have access to multiple alternatives. So,
until there is full competition unbundling the framework of an
Act is still critical.
We are looking at things like wireless, those technologies
are available in very, very small percentages of the country.
So there is really not an alternative to that ubiquitous phone
network at this point.
Mr. Stearns [presiding]. The time of the gentlelady has
expired.
Ms. Eshoo. I did not make an opening statement.
Mr. Stearns. I think we gave the extra time to you, as I
understand. Did we do that?
We do not have you recorded as being here when the opening
statement--it did not record you with an extra 3 minutes. That
is what the staff shows.
Chairman Barton. Well, Mr. Chairman, could I ask unanimous
consent that the gentlelady from California have 2 additional
minutes.
Mr. Stearns. Yes. She has asked four questions, Mr.
Chairman, and I am just thinking if all four questions are
answered, it will be well over. And I would be glad to do what
you suggest. I am just trying to in deference to all the other
members that are here that if she has four questions, that we
should try--and those questions can be submitted for the record
to her and not necessarily take the entire time to answer those
four questions. But if that is your----
Chairman Barton. She should not ask such hard questions,
see.
Mr. Stearns. Yes. Yes. So----
Ms. Eshoo. By the time we comment on this we will use up
another 3 minutes. So it is up to you gentlemen.
Mr. Stearns. Mr. Chairman, what is your unanimous----
Chairman Barton. I would yield to whatever the----
Mr. Stearns. Well, I would say at this point the other
three remaining questions that I suggest the panel submit those
to us for the answer, and possibly we might have a second
round.
With that, I would go to the chairman.
Chairman Barton. Well, I do not want to cutoff the
gentlelady. I would be happy to yield my time to the gentlelady
from California.
Mr. Stearns. The gentleman yields his time.
Ms. Eshoo. Mr. Chairman, you are enormously generous.
And I would just ask that two be answered in writing and
that the gentleman from the FCC just briefly comment on the
question to him, and then I will yield back.
Thank you very, very much, Chairman Barton.
Mr. Carlisle. I can do so very briefly.
You asked when content of a packet becomes irrelevant. We
are already there. That is the central issue in why this is an
important and controversial debate.
You can look at VOIP from the point of view of telephony
and say it looks like what a telephone does, or you can look at
it from the point of the Internet and say it is one bit stream
just like any other bit stream on the Internet and why are we
taking that one bit stream out and treating it differently from
email and file sharing and web browsing?
We are already there.
Ms. Eshoo. Thank you.
Thanks again.
Mr. Stearns. I thank the gentlelady.
And the chairman is recognized for a remaining 4 minutes.
Chairman Barton. I did have four questions, but I am just
going to put one of them on the record and if we have time, I
will get the others.
I am going to go to what I call the $64,000 question. Does
everybody on this panel support a Federal bill that would
preempt State regulation of VOIP? And if somebody says no, why
not?
Mr. Nelson?
Mr. Nelson. Yes, Mr. Chairman. My testimony indicates that
we believe there are certain meaningful roles the States can
play in this debate, again under a light touch regulatory
policy but working in cooperation with the Federal regulators
as well. Such things as I have indicated, the enforcement of
911 provisions, the consumer protection provisions that we have
outlined in our testimony and the interconnections agreements
that have to be made between right now wireless companies and
wireline companies, between CELECs and ILECs. Those same types
of agreements can be arbitrated between VOIP providers and
traditional wireline companies under the auspices of State
commissions.
Chairman Barton. Okay. Other than the person who regulates
the State PUCs, does anybody oppose a Federal bill?
Mr. Jensen. Mr. Chairman, I do not know that I would oppose
a Federal bill if it were in concert with allowing input from
the States.
I come from Nebraska, and we were required to provide equal
access a number of years ago, we had long distance providers
crop up faster than the dot.com mania that went around. And
there were hearings for certification and rural setup. And as
far as I know, we had one long distance company that locked its
doors over 1 weekend and just abandoned the customers that they
had signed up. I think that is a pretty good record when you
consider all the number of people that were there.
I think our State commissions have the opportunity to know
what my customers much more quickly than perhaps in Washington,
DC. And our customers would have much greater access than they
would having to come to Washington to work on quality of
service, universal service and the other myriad of----
Chairman Barton. Well, I think any Federal bill that passes
is going to have adequate input from State regulatory
authorities. But ultimately there has to be one final
arbitrator, and it just seems to me self-evident that a service
is not only national and interstate, but international, it
seems to be an absolute no-brainer that there should be a
Federal statute.
Now I understand what the gentleman is saying and I
understand what you are saying, but when we created the
existing telephone system, I mean there was obviously it was
done on a monopolistic model based on local service and State
service with some interstate service. I am old enough to
remember when somebody said you had a long distance phone call,
that was a big deal and you went right to the phone because you
are getting charged a $1.00 or something and it must be
important; somebody had died or been born or something had
happened because you just did not make long distance calls
other than that.
Mr. Jensen. One statistic that I might bring to your
attention, and if I have it correctly it is subject to check,
but 73 percent of our customers do not make an interstate phone
call.
Chairman Barton. Yes.
Mr. Jensen. And so there is a lot of intrastate that goes
on in our States, and I believe the State commissioners are
useful in determining what should be happening there.
Chairman Barton. My last question, I will put the others in
the record, assuming that there is going to be a Federal bill
that preempts State regulation, do we need to put a definition
in the bill explicitly certifying in which cases these services
are FCC jurisdictional? In other words, do we need to put a
definition that defines an information service if it is purely
a local loop, purely within a physical headquarters location or
that that is not jurisdictional but if it goes across State
boundaries or between buildings, or between different entities.
Do we need to define what is jurisdictional if we pass a
Federal statute or is that not necessary? Who wants to answer
that one?
You want to think about it? I want to ask that they
submit--get their lawyers to give them a credible answer to put
that in the record, Mr. Chairman. And I have several other
questions I will submit for the record.
And I yield back.
Mr. Stearns. Thank you, Chairman.
Mr. Boucher?
Mr. Boucher. Thank you very much, Mr. Chairman. And I also
want to thank the witnesses for taking their time today to
educate us with respect their views on this very important
matter.
I think it is has become increasingly clear that we are
going to legislate with regard to Internet-based communication
services in the next Congress. And I have perceived from your
testimony basic anticipation of that legislation. And so I have
several questions that are directed toward what the various
elements of that legislative approach should be.
I think that in answer to Mr. Barton's question and to some
of the previous questions including those of Ms. Eshoo, you
have commented on whether or not there should be exclusive
Federal authority. You have probably also commented to some
extent on the need for basic consumer protection regulation. I
heard Mr. Nelson comment on that.
And by the way, Mr. Nelson, the Stearns-Boucher Bill does
leave open the opportunity for basic consumer protection
regulation. That certainly is our intent.
So let me start by asking three basic questions, and you
can make notes on these if you would like, and I appreciate
your response to these general principles and whether or not
you think a bill should contain them.
First of all, would you agree that we need a broad
framework that encompasses all Internet-based communications,
not just VOIP but a broader framework that, for example, would
encompass video-based communications when the services that
accommodate that emerge in the future. That way we would not
have to come back and legislate again and again every time
there is a new Internet-based more sophisticated and capable
Internet application.
As a second matter, would you agree that we should clearly
say that these advanced Internet-based communication services
are neither information services nor telecommunication services
so that we make a clean break from the current regulatory
regime into which existing services are required to fit?
And then third, would you agree that we should treat the
offerors of all of these advanced services equally so that a
cable service that is identical to a telephone service does not
receive treatment from a regulatory standpoint that is
different from that which the telephone services receives?
Should we declare regulatory parity and neutrality with respect
to all broadband platforms offering advanced communication
services?
I have some other questions which I will also submit for
the record, but those are the three that I would quickly like
to have your responses to. And please be as brief as you can.
Mr. Carlisle, would you like to begin?
Mr. Carlisle. Certainly. I would agree first that we should
be looking at a broad framework again out of administrative
efficiency if nothing else. The IP-enabled services NPRM was
written deliberately to have a broad scope so once we issue an
order, when somebody shows up with video and voice over IP we
do not have to go back and formulate an entirely new regulatory
system.
So a broad scope makes sense, although we have to be
concerned about making sure that we do not then fade over into
unintentionally regulating vast other portions of the Internet
that have never been subject to regulation and nobody
reasonably would argue that they should be brought into any
regulatory regime.
Second, should we say they are neither information or
telecom services and make a clean break? The NPRM raises these
questions, and I think under our current rules there may be
flavors of VOIP that clearly could be considered information
services. I think the larger question, though, is whether we
want to make a clean break.
In my written testimony I make the statement that I believe
we should not be getting trapped into the definitional fight as
opposed to figuring out what kind of world we actually want to
live in for these services. And that would argue for a more
sophisticated approach that allows a higher level of nuance to
be applied to these services.
You may not want to say everything is a telecommunication
service or everything is an information service. You may want
to acknowledge there are different flavors.
And finally, should we treat all providers equally? I think
there are very strong arguments for regulatory parity between
industry actors that are in a similar positions. If you have
two actors who are investing hundreds of millions if not
billions of dollars in infrastructure, there may be very good
arguments to say treat them the same, otherwise the regulation
is driving investment in a specific direction.
Mr. Boucher. Thank you, Mr. Carlisle. I think we are going
to move along given the time.
Mr. Citron?
Mr. Citron. Thank you. One, yes, we do agree that there
needs to be a broad framework that gives us all application
that live above the physical layer.
I cannot give a comment as to whether we need to make a
clean break from a telecom service or information service what
is clear is it is definitely not a telecom service.
On the final point, regulatory parity. That is a very
difficult question as you echo Mr. Carlisle's comments.
Clearly, we have to recognize that voice over OP is not the
same as wireline, and thus there never can be regulatory
parity. Much in the same way, the wireline and wireless
networks are not the same, and thus there is no regulatory
parity there either. But within inside anyone in the industry,
VOIP players against VOIP players, then clearly regulatory
parity should exist.
Mr. Boucher. Thank you.
Ms. Greene?
Ms. Greene. Yes, yes and yes.
Mr. Boucher. Thank you, Ms. Greene. That is the kind of
answer I was looking for. You get the gold star.
Ms. Greene. Thank you.
Mr. Boucher. Mr. Jensen?
Mr. Jensen. I concur with Ms. Greene.
Mr. Boucher. Wonderful. Can we move along? Thank you very
much.
Mr. Kirkland?
Mr. Kirkland. Yes, yes and it depends.
Mr. Boucher. Well, elaborate on depends just briefly.
Mr. Kirkland. Yes. I think, again, the distinction is to
the extent people are providing like services, if BellSouth is
providing the same service as Covad, as Vonage, then clearly
regulatory parity should apply. I just think we need to be very
careful about identifying situations in which market power
still exists, people do not have alternative facilities. And
the fact that those facilities may carry traffic that is IP or
is voice over IP does not necessarily change the equation on
market power----
Mr. Boucher. I understand. You want unbundling and
interconnection to meet that. I understand it.
Ms. Martine?
Ms. Martine. Yes, but it is interesting VOIP is something
that is being the catalyst to ask this question. There are many
other applications on the Internet that are not regulated.
Mr. Boucher. So that is three yeses or one yes?
Ms. Martine. No, that is just the first one.
Mr. Boucher. I'm sorry.
Ms. Martine. The second one is yes.
And the third one I think we have not had a lot of time to
digest your bill, but I think there are some issues that I
support Mr. Kirkland's points with regard to IP UEL and
facilities-based competition. We can't have the RBOCs being
advantaged and the others not capable of supporting.
Mr. Boucher. Thank you.
Mr. Nelson?
Mr. Nelson. Yes. I would say yes, no and yes. And I can
explain the no.
It is our position that many VOIP services should be
classified as telecom services, such as Ms. Martine's service
was classified by the FCC earlier this year. And it does not
make any difference I think whether the digital conversation
occurs in the network or at the customer location, as with Mr.
Citron's product. But, having said that, there should be some
forbearance because of the nature of this technology so that
the full scale of common carrier regulation, as I indicated
earlier, should not be applied.
Mr. Boucher. Thank you.
Mr. Rutledge?
Mr. Rutledge. I think the answer to the first question is
probably no that I think that most communications, most video
will ultimately end up in an IP format. And so I just think
that there is a opportunity now to get this nascent business
off the ground with VOIP voice communications. But to take all
IP and subject it to a new paradigm, I am not sure where that
would go.
The classification question I am not sure matters.
And the last question, VOIP is not a traditional voice
service and not a legacy telecom service. And we think it is a
completely different product. And so if we were doing is lumped
under the kind of treatment that currently exists to
traditional phone companies, that would not be good.
Mr. Boucher. Okay. Thank you very much.
Mr. Vidal?
Mr. Vidal. Yes. On the first no.
On the second we need to see a bit more details.
And on the third, regulatory parity presumes a parity
amongst size, breadth scope of offers and I am not sure that is
exactly the situation that----
Mr. Boucher. Yes. Let me say, Mr. Chairman, I appreciate
your indulgence. And I am not going to ask another question in
view of the time.
But, Mr. Vidal, I am surprised by your answer to the first
one, and I would like to have an exchange with you----
Mr. Vidal. Certainly.
Mr. Boucher. [continuing] subsequentially either verbally
or in writing as to why you would say. That really does
surprise me.
Mr. Vidal. Certainly.
Mr. Boucher. Thanks to each of you. And thank you, Mr.
Chairman.
Mr. Stearns. The gentleman's time has expired.
Mr. Shimkus?
Mr. Shimkus. Thank you, Mr. Chairman.
Two questions that I will just put out in the open and for
submission, because this line of questions has raised a
question in my mind and a point I want to discuss.
Would you respond back to the committee who should be
responsible to make sure that Voice over Internet Protocol
service also includes E911 service? Is that something the State
commissions, the FCC or the industry have to tackle? And it is
listed on the questionnaire E911, but E stands for enhanced,
which means cellular. We are eventually going to go to laptops,
probably voice over IP. So if you have got a laptop somewhere
accessing enhanced 911, I mean do you have to have a GPS chip?
This is a great hearing because of all the different
aspects.
So answer that for me if you can.
And the second question is can you tell what you are doing
to make sure that consumers who use Voice over Internet
Protocol service also can access 911, E911 services? If Voice
over Internet Protocol services not today capable of supporting
enhanced 911, when you believe you believe you will have E911
capable service?
Now, the question that has stirred my thoughts in this is a
whole facilities-based discussion, which reminded me of other
facility-based debates that we have had here, whether it was
Tauzin-Dingell, my facilities-based discussion in
telecommunications after visiting with Chairman Upton at the
Verizon building after September 11. The Verizon building is
right across the World Trade Towers, which had great damage.
Verizon, obviously being a big company, could get that up and
running relatively quick. Talks about entrenched regional Bells
being able to reconnect where when you have what is not
facility-based, how does a competitor who is using parts of the
system get up?
So, the first question, and I know that Mr. Kirkland has
said he is a facility-based operation; would anyone else claim
to be a facilities-based operation by whatever definition you
want to define that? And you can help education us on that?
Yes?
Mr. Citron. Yes. Vonage would be considered a facilities-
based operation with the perspective that we deploy network
assets into the network but acts as bridges, both to bridge the
current IP network to the legacy PSTN network, to also bridge
to other IP networks and of course finally to also bridge to
next generation wireless networks.
Mr. Rutledge. Cablevision is also a different kind of
facilities-based network in a sense that we have our own plant,
our own wire that goes to every customer we serve. And it is
complete and differentiated from the public switch network. So
it is truly a facilities-based network.
Mr. Shimkus. So that is why your answers to some of these
questions deal with if it is the regulation aspects under
traditional phone regulation would not in your opinion be
appropriate because you are not using the regular phone
systems?
Mr. Rutledge. That is correct. Now, we actually terminate
calls to the public switching network----
Mr. Shimkus. Right.
Mr. Rutledge. [continuing] through a CLEC that we happen to
own called Lightpath, which also provides redundancy to the
public switch network to big companies in New York, for
instance, that want redundant routing in case there is an
emergency of some kind. So we are actually in the business of
selling redundancy as a communications business.
But separate from that we have a cable television network
which is also capable of this IP communication system. And so
we are selling IP communications on a cable network which is
separate and distinct from the public switch network, which we
do connect to, though.
Mr. Vidal. If I may, I think it is worthwhile so we are all
on the same page here, for what would be a consensus of
facilities-based, right? Is it facilities-based in what used to
be called the local loop or in the local access system, is it
facilities-based in the long haul, is it facilities-based in
the international, is it facilities-based inside the premise on
each end?
In our particular case our facilities are literally about
36 inches deep across almost 23,000 miles of property in North
America and Europe. I mean, we would consider that to be
facilities-based. At some point in time there is going to be a
facility there. It depends on who owns it, who has control of
it and/or who is reselling it.
So I think maybe a definition or at least a consistent
definition might be useful.
Mr. Shimkus. Just confirms my statement that I always make
that the more you learn, the more you realize you do not know.
It is a great job of being a Member of Congress.
Thank you.
Mr. Stearns. The gentleman's time has expired.
The gentleman from Florida, Mr. Davis?
Mr. Davis. Thank you, Mr. Chairman.
My first question is for those of you who think that the
Congress needs to act urgently to preempt State regulation. My
question is which of you think that Congress needs to proceed
urgently to preempt State regulation and if so, why do you
think that is urgent?
Mr. Rutledge. Cablevision thinks that you should act
urgently because we are rapidly growing our business by
thousands of customers per week in our service area and we
really do not know what the regulatory treatment will be, what
our costs are really going to be. You know, we are making
estimates but we have no assurance that the cost estimates that
we put in our business models are in fact correct. And as that
base of customers gets bigger and bigger, the risk to us gets
greater and greater. So we would like certainly.
Another thing is that we operate in the New York
metropolitan area, which happens to be 3 States. So we have one
television marketplace, one community with three different
States that have potential regulatory authority and yet we are
selling a single product and servicing a single product across
that entire service area. And so we think that in order to get
the same quality and the same pricing across our footprint,
that you urgently need to preempt in this particular limited
way for VOIP.
Ms. Martine. I would like to support that position. In
addition to the comments made about the 3 States, many of you
know VOIP is a mobile service so you could sign up for service
in New York and move to Florida and keep your phone number. We
need to have Federal regulation so that you do not have Florida
regulating one way if you happen to live there then and a
different way when you signed up for the service in New York.
So it is very critical that there is national policy on this so
you do not subject yourself to customer confusion and
dissatisfaction saying I do not understand these are the rules
under which I bought the service, why is not changing. And one
of the features is mobility in addition to unlimited local and
long distance service.
Mr. Citron. I would like to echo the statements of Ms.
Martine and Mr. Rutledge. I would also like to add that Vonage
operates and has customers in all 50 States inside the United
States. And from our perspective, we have already been attacked
by a number of State regulators to try and take voice over IP
and put it into common carrier regulation. Of course, we have
successfully fended off all such attacks to date but at a
price, and a very expensive price that causes us to rethink
which markets we are going to go ahead and deploy assets in.
Ms. Greene. Well, I do not disagree with anything that the
previous witnesses have said in response to your question. I
think that those are all reasons why we need to have a Federal
policy. It is important that we get a timely Federal policy,
but there are some real issues here about consumer protection
that need to be addressed comprehensively and fully. It is more
important to get it right than to get it done quickly.
Mr. Jensen. If I might add just one more element. My
segment of the industry being very rural and high cost serves 7
percent of the population of the United States, but we serve 40
percent of the land mass. And, unfortunately, many times in
Washington and other places they forget about us when they are
talking about all of the rules and regulations and parameters
that you need to work with. And it just seems to me that a
comprehensive rewrite rather than a piecemeal rewrite would
better serve our customers in rural.
Mr. Carlisle. I'll just briefly say that in a letter dated
July 6 to Congressman Pickering, Chairman Powell stated: ``The
time has come for Congress and this Commission to confront the
legal and policy environment for IP-enabled services, including
VOIP services.''
As I mentioned in my oral testimony and in more detail in
my written testimony, the FCC can act and is moving forward to
act as best we can. And it is a top priority for the Bureau to
work on this. However, there are limits to our flexibility and
if Congress believes that we need more sophisticated tools,
then we are certainly in favor of Congress acting.
Mr. Vidal. If I may, I would like to add just an add on to
that, which is if we look at the problem from a different
perspective, and that is the benefit of delay or is there a
benefit of delay? So far we have heard a lot of comments about
why there should be a benefit to moving quickly and I think my
definition of quickly would implicitly include an accurately
and correctly and rightly. But I have yet to hear an argument
that suggests that the strains that VOIP is putting on
universal service or the reduction in wireline access line
counts is going to slow down anytime in the future. I do not
see any indications from anyone that said that the consumers
are going to turn around and not continue to operate in which
they have been operating.
Thank you.
Mr. Nelson. Let me just add, if I may, I would support Mr.
Jensen's call for a comprehensive review of the situation. The
two States that have been most active, Minnesota and New York,
have been enjoined by Federal courts. So there really is no
urgency in my view.
Mr. Davis. For those of you that advocate a slower
approach, a more comprehensive approach which I certainly
understand, would you agree that this Congress could be at that
issue for 2 or 3 years and that as time goes by, some States
will at least begin to regulate all of you in terms of the
delivery of the VOIP and further complicate the issue?
Mr. Jensen. I can speak for one State; I would not see them
as wanting to complicate the issue terribly. Their goal, like
ours, is to get these services out as quickly as possible yet
maintain the consumer protections that need to be there; CALEA,
911, TDD and these types of activities plus the quality of
service. So, from our perspective I do not think that would be
a problem.
Mr. Nelson. I would agree with that, too. I think most
States are like Nebraska in that regard. They want to see this
technology develop and they are not going to put unnecessary
roadblocks in the way.
Ms. Greene. Since I did put a caveat on my response to your
question, this issue cannot go 2 or 3 years without being
resolved.
Mr. Citron. Well, from Vonage's perspective, the one who
gets all the inquiries from the States, we do not have 2 or 3
years to wait. It will take that long and clearly if we listen
to other commissioners in States, while Nebraska may--I am not
sure if you are speaking for Nebraska, but whereas Nebraska may
not act, may not move, surely Susan Kennedy from California has
told us that California will regulate and trying to force a
common carrier relation on voice over IP if the Federal
Government does not step in, and I expect other States will
follow.
Mr. Davis. I think all of us here appreciate your alls
expression of confidence and how quickly this Congress can act
on the broader rewrite. I hope you are correct.
But for those of you who all that advocate preemption at
whatever particular time and as part of a particular package,
should there be some carve out for State regulation in matters
such a fraudulent advertising or billing?
Mr. Rutledge. Yes. I think that you can certainly preempt
VOIP regulation at the State level while not undercutting any
of the consumer protection laws of the States. And, obviously,
different States treat different consumer issues legally
differently. And we already live in that world and are prepared
to continue to live in that world. So I do not think that
promoting this legislation as it is currently written you will
undercut the State's authority generally to protect consumers.
Mr. Citron. I would like to echo Mr. Rutledge's comments
and further state that Vonage would not be opposed to States
taking on that role. But just to make this committee aware that
the States already have that role. Vonage today is already
subject to a number of State laws throughout the land that deal
with things like truth in advertising and other disputes that
may arise with constituents that live with inside that State.
Mr. Carlisle. If I may point out, if you think about it
from the perspective of a function operating on a computer, for
example, if you have a problem with your spreadsheet program or
you have a problem with your word processing program, that is
subject to action by State attorneys general enforcing consumer
protection laws. That does not necessarily need something like
common carrier regulation as an additional layer in order to
protect consumers.
You can think of it similarly for VOIP. We have asked those
questions about consumer protection within the NPRM. We will be
receiving comment on that, and considering it seriously.
Mr. Davis. Thank you.
Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman.
The gentlelady from New Mexico, Ms. Wilson.
Ms. Wilson. Thank you, Mr. Chairman.
I would like to yield 3 minutes to my colleague from
Mississippi, Mr. Pickering.
Mr. Pickering. I thank the gentlelady from New Mexico.
And I just have a quick comment, and it is basically
focused on our most recent conversation here.
Everyone knows a broad telecom reform act will be very
intensive and it will take at the minimum from today 3 years. I
do not think anybody here who has ever done telecom policy has
ever thought that we could do a broad telecom reform in the
next year. At the very least it will take both years of the
next Congress to get to comprehensive reform.
The other reality is that most people project that VOIP is
going to have a rapid emergence in the marketplace. Some
project up to 30 percent of the U.S. market will be voice over
Internet within 3 years. That gives us great urgency to try to
get where we have consensus. Where we have consensus among the
industry from BellSouth to AT&T to cable to Covad to wireless
where the lions and the lambs have lain down together is
Federal preemption. And for the certainty of capital and for
the certainly of new competition we need to in this Congress in
this year go forward on the Federal preemption.
Now what else does that mean? In 911 my friend John Shimkus
and Anne Eshoo both raised questions on public safety. We can
have an industry led process with a date certain to make sure
that everyone knows that we will have E911 and public safety as
we have preemption.
To my friends at the State level, I would say we want to
affirm that you continue to have consumer protections against
fraud. And nothing in this bill or in a preemption would
undermine that.
To my friends in rural areas, and I am from a rural area,
this is not only a catalyst for capital and competition, but
this would be a catalyst to reach universal service reform that
will be sustainable.
We need to do the preemption now. We can do it in a way
that acknowledges the USF intercarrier comp relationship
between VOIP and the public switch telephone network. We can do
those things, find consensus, move forward quickly so that we
can unleash this new application, the capital, the competition
and find ways to make sure that we do it in a reasoned wise way
as it relates to public service, universal service or public
safety, universal service and law enforcement.
Mr. Chairman, I would hope that we could find a way to get
it done this year because if we wait, it will be 3 years and
the market and the technology cannot wait that long.
Ms. Wilson. I had a couple of questions that I wanted to
ask with respect to this technology, but I am in an interesting
position of watching our incumbent telephone company in New
Mexico do some really innovative things.
About a week ago they announced, Qwest announced that it is
going to start offering Voice over Internet Protocol to
business customers, and not just in places like Casper, Wyoming
and Albuquerque, New Mexico and Billings, Montana but the list
of cities that are going to be covered in their first year, 22
cities included Baltimore and Boston, Washington, DC and San
Francisco, Seattle, Los Angeles, San Jose so that it is a
nationwide business footprint from an incumbent carrier
offering voice over IP. It is an interesting approach to
business. And I also understand that they have a different way
of charging carriers, voice over IP carriers for access
charges.
And, Mr. Citron, I wanted to ask you how Qwest does access
fees differently than other incumbent carriers and what that
means? How does this work?
Mr. Citron. Sure. Well, we are not 100 percent sure yet on
how it is going to work. We have read Qwest's public
announcement that they would no longer charge access fees on
terminating VOIP traffic. We have contacted Qwest regarding
that offering and we are currently in active discussions about
putting together an interconnection agreement that would take
advantage of that item.
I would welcome the opportunity to report back to you on
the progress of those negotiations.
Ms. Wilson. I would be very interested in that and what
that means. Because it looks as though we have one incumbent
company that is kind of out there on the leading edge of this
change of being both, a voice over IP offerer nationwide and an
incumbent carrier. And I would be very interested to see what
kind of business model you come up with that as that goes
along.
I also understand that Qwest is offering something they
call naked DSL, which is where a subscriber can purchase DSL
from Qwest without also having to buy the local service form
Qwest. And I wanted to ask Ms. Green does BellSouth plan to
offer DSL on a stand alone basis to somebody who may want to
come in and just buy DSL from BellSouth or do you believe that
consumers who want to get DSL should also have to subscribe to
BellSouth's local phone service?
Ms. Greene. We do not currently offer naked DSL. Our DSL
subscribers have to have our voice service at this point in
time. But it is something that we are always looking at.
Because as the wireless market matures, a stand alone DSL is a
product that may be something that we need to put into the
marketplace. We do not currently offer it.
Ms. Wilson. What do you think about another ILEC coming
into your territory and offering VOIP?
Ms. Greene. You know, one of the things that is interesting
about your question and the thought that was going through my
mind is we tend to think about the ILECs and the
telecommunications industry as a monolithic industry, and we
are not. We are very different companies. Each of us have
different business plans. And one of the problems that we have
with the current regulatory regime is it treats everybody,
including all the CLEC customers as if they have the same
business model.
In fact, Qwest has the bulk of its revenues now, I believe,
come from its long distance operation. And it in many ways are
much more like Level 3 than it is like a BellSouth.
So each of our companies are different and we no longer
have a monolithic telecommunications industry.
Ms. Wilson. Mr. Rutledge, I wanted to ask you does
Cablevision require cable modem customers to buy VOIP service
from Cablevision.
Mr. Rutledge. No. In fact, most of our modem business was
developed before we launched VOIP. So the vast majority of our
modem customers do not have yet to buy VOIP.
Ms. Wilson. But if a cable modem subscriber wanted to get
VOIP from one of your competitors----
Mr. Rutledge. Oh, they do and can. Some of them are Vonage
customers or AT&T customers. Yes, we do not prohibit them.
Ms. Wilson. Thank you.
I think this is one of the most interesting issue facing
telecommunication, and it likely to cause tremendous changes in
the way that we are able to communicate with friends and
neighbors and do business around world. And I think I agree
with my colleagues here on both sides of the aisle that this is
an issue we will have to deal with sooner rather than later,
because if we delay too long we end up preempting certain
business models without giving guidelines up front as to what
the rules of the game should be.
And I thank all of you for your time and helping to educate
us.
Thank you, Mr. Chairman.
Mr. Stearns. Then gentleman from New York, Mr. Engel.
Mr. Engel. Thank you, Mr. Chairman.
Mr. Pickering before he left gave an impassioned plea for
Congress to act quickly saying that if we did not, it would
take 3 years for us to do a total rewrite. My experience, I do
not necessarily disagree with what he said, however my
experience in Congress has told me that sometimes there are
bigger and broader issues and you can use the need to deal with
the smaller issue as a catalyst to deal with all the issues.
My concern would be that if we start dealing with VOIP on
its own, that we never quite get to the total rewrite because
there is really no impetus for doing that.
I do not know that we should try to keep plugging holes in
a law that was written for the analog age with digital age
Band-Aids. I think that we might be better to address this in
context of a larger rewrite. I know that Mr. Davis, others,
have asked the questions and that many of you have responded.
But I am wondering if anybody else would care to comment?
Ms. Greene. Well, you have more articulately expressed what
my concerns are. Voice over IP is a tremendous pressure point
in an obvious kind of sexy new technology. It is symptomatic of
the tremendous disruption that the telecommunications industry
has undergone. And to treat VOIP by itself I think could
possibly be a mistake.
Mr. Engel. Well, anybody else?
Ms. Martine. I would suggest that this is a very new and
nascent technology. As I mentioned, there are several hundred
thousand customers and to overly handicap that with regulation
at this stage we think is unnecessary and not relevant.
It needs the opportunity to grow without being handicapped
by old regulation policies that were done in a very age of the
telecommunications business where there was monopolistic
incumbency to which degree is still in place, by the way.
Mr. Citron. If I might add, if we do not take action in a
relatively short period of time, not 3 years, something less
than 3 years, there is a big risk of this issue will be
oppressed to the point where all the new competitive players
that come to the marketplace, both old world and new world
companies, will be permanently impaired. And that would be
unfortunate because the benefit of VOIP to consumers is very
dramatic.
Mr. Engel. Let me ask Mr. Rutledge who was about to speak--
--
Mr. Rutledge. Well, I was just going to say that--thank
you, Congressman Engel. That a lot of customers, thousands of
customers a week in our area are adopting this service. And so
it is a very attractive product and it is rapidly becoming the
communications choice of the New York marketplace. And so to
impede it while granted there are lots of telecommunications
issues that have to be resolved and there are a lot of open
questions that are quite complicated in this changing landscape
that have to be dealt with, we are really looking for an
opportunity here to set a level field and set a ground work so
we can develop this business and add a lot of value to
consumers. And then over the period of time that it will take
to develop the rest of the regulatory regime, I think you are
going to have rapid adoption of this service. And so I think it
would be a shame to hold up regulatory reform in the meantime
for this particular application.
Mr. Engel. Mr. Rutledge, let me ask you, because I am a
Cablevision consumer, I have it in my apartment in New York and
I am told that 11,000 people just in my district alone have
already signed up for VOIP, which is an----
Mr. Rutledge. That is correct.
Mr. Engel. [continuing] unbelievable phenomenon. For your
VOIP service you chose to deliver all your calls to a
traditional telecommunication service provider called
Lightpath. Can you tell us why Cablevision chose this business
model.
Mr. Rutledge. That is right. Well, it is because as
customers make calls to each other, to the extent that the
11,000 customers in your district call each other, there is no
actual termination of those calls anywhere outside the cable
system. But in order to call someone who is on NYNEX or Verizon
or SBC, or any other local exchange carriers in our service
area, you have to terminate the call on their network. And so
you have to have an interconnection agreement and you have to
pay for that termination.
And so Lightpath is Cablevision's CLEC, and it is licensed
tariffed company that has interconnection agreements. And so in
order to actually transmit the call to the public switch
network, we have to go through a regulated entity to do that.
And that is why we chose the business model we did.
Mr. Engel. Thank you.
I am wondering if I could ask Ms. Greene a question. I'm
quoting your testimony, and you stated that ``we believe the
legislation should not, as these bills both do, address only a
single application such as VOIP as Congress will if this
approach is taken surely wind up having to legislate on each
flavor of new communications technology.'' That is what I asked
before. Now, you said that you support a more holistic
approach, and I do as well. My concern is funding for the E-
rate program, but I want a clear level playing field that it is
capable of being adapted to new technologies. So those are my
goals that I mentioned before for a rewrite.
What are the top issues that BellSouth believes Congress
needs to address?
Ms. Greene. Well, I think that we need to have a Federal
unified perspective. We need to be sure that the continuing
support for access charges and universal service is a burden
that is shared equally. We need to have technology neutral
platforms and not isolate out an application without dealing
with the underlying service networks and service providers as
well. And then there are some very real social concerns.
I do not think that we want to have responsibility on our
consumers to know whether or not the phone that they are
picking up is 911 capable or to run out in the yard and pick up
the cell phone if something happens. I think those are very
real social concerns and they need to be addressed.
Mr. Engel. Okay. Thank you.
And thank you, Mr. Chairman, for your indulgence.
Mr. Stearns. Mr. Buyer?
Mr. Buyer. Thank you for the help with the clerk.
I am going to ask some questions and we are going to go
right down the line with the questions.
First question is, and we do not need long answers here,
what is the right statutory classification? The IP-enabled
services and VOIP, are they telecommunication services or are
they information services? So just tell me; telecommunication
services or information services. And we are going to go right
down the line. Start with the FCC.
Mr. Carlisle. Well, it depends on the flavor. Under our
current rules some might be telecom services, as we found the
AT&T service to be. Some might be information services as we
found pulver.com's Free World Dialup to be. We have asked
questions as to how the regulations might change.
Mr. Buyer. Next?
Mr. Citron. Sure. Vonage's service should be an information
service.
Mr. Buyer. Next?
Ms. McCarthy. I agree with Mr. Carlisle. Right now we do
not have a clear way of separating. Whoever put in their
testimony we need a Title 1.5, I think that I agree with that.
Mr. Buyer. All right.
Mr. Jensen. I would go call them telecom, but I am not sure
it makes any difference. I think they are still carried across
our network and they need to be handled and charged the same as
if they are all the same.
Mr. Buyer. Okay.
Mr. Kirkland. In Covad's view VOIP applications are
generally information services.
Ms. Martine. At AT&T they are information services because
they are stored content interacting with advanced features.
Mr. Buyer. All right.
Mr. Nelson. Any service that connects that PSTN should be
the telecommunication service.
Mr. Rutledge. At Cablevision we think they are an
information service and are acting accordingly.
Mr. Vidal. Yes. And last but not least here, if we think
about things that have a computer on one end that transmits out
Internet protocol, packets; it sure looks like an information
service to us.
Mr. Buyer. Now with the CALEA, since CALEA does not apply
to information services, should Voice over Internet Protocol
providers comply with CALEA? Go right down the line, yes or no.
Mr. Citron. Yes.
Ms. Greene. Yes.
Mr. Jensen. Absolutely.
Mr. Kirkland. Yes, and we do it today.
Ms. Martine. Yes.
Mr. Nelson. Yes.
Mr. Rutledge. Yes, and we do it today.
Mr. Vidal. Yes.
Mr. Carlisle. Yes.
Mr. Buyer. Thank you for the confusion.
I do it but do not classify me as information services.
Mmm.
To BellSouth, you just answered a question just a few
moments ago about a shared burden, and I suppose you are
referring to avoiding cost shifts that occur in the marketplace
since you and others bear a pretty strong burden with the
national telephone network. And if there is not a shared
burden, then you obviously are shifting costs to customers. Is
that what you were referring to?
Ms. Greene. Well, really, there is two different levels
that I am talking at. One of them is that there are the social
costs of 911, CALEA and also universal service support. Those
are things that are enjoyed by the wireline telecommunications
industry today. But in addition to that there is the burden the
social pricing that we have as an industry, meaning that we
have a 100 years of social pricing where business subsidizes
residential and urban subsidizes rural, and our State
commissions still exercise control over our retail pricing.
Access charges were put in place to help offset some of that
burden. So our position is that if VOIP or another application
that has a telecommunications substitute flavor and accesses
the public switch telephone network, that access charges should
apply at that.
Mr. Buyer. Well, let us go right to this one. How should
Voice over Internet Protocol providers compensate local
exchange carriers for the use of the public circuit switch
telephone network? How should that be compensated? Go right
down the line.
Mr. Carlisle. We have already stated in the Pulver.com
order and also in the NPRM that we believe services that use
the PSTN in a similar manner should compensate it in an
equitable way.
Mr. Citron. Vonage believes that there needs to be broad
based reforms on intercarrier compensation and until such time
of reforms, it would be difficult to burden us with a method of
compensation. For example, it can cost as much as .14 cents to
terminate a call intrastate, yet to terminate a call just a few
miles away may be as low as half a penny. The system is clearly
broken and it needs to be fixed. But once it is uniform and
national and treats all participants fairly, we would be glad
to participate.
Ms. Greene. And I do not disagree that there needs to be
intercarrier compensation reform. But in the meantime, services
like VOIP do not ride over air. They ride over existing
networks.
Mr. Jensen. There may be a need for intercarrier
compensation reform, but today we must be compensated for
people that use our network, especially in rural.
Mr. Kirkland. We agree that there are fundamental issues
that need to be resolved. For example, mobile carriers
terminate and use the ILEC network and pay a lot less than
access charges. This is a new technology and it really should
not be subject to a legacy regime. The legacy regime should be
reformed.
Ms. Martine. We agree that the regime needs to be reformed
and we should treat this traffic like ISP traffic is treated
when they are terminate with an ILEC facility today.
Mr. Nelson. We at NARUC have embraced the need for
intercompensation reform. And in that context we believe that
there should be some contribution from all VOIP providers that
touch the network.
Mr. Rutledge. WE are currently paying on the unreformed
intercarrier compensation structure and do think it needs to be
reformed. But we are paying under it.
Mr. Vidal. Yes. A clear agreement that the intercarrier
compensation mechanism is broke and getting more broken by the
day. In fact, we took the step about 6 or 7 months ago of
filing a forbearance petition at the FCC for IP calls. One of
the provisions that we believe is a key provision is to make
sure that access charges continue to get paid to those rural
carriers that currently have the rural exemption.
Mr. Buyer. Thank you.
Ms. Greene, what are you doing at BellSouth to offer the
Voice over Internet Protocol to your customers and business and
your consumers?
Ms. Greene. We have several business services that we have
put into the marketplace, both for our enterprise customers and
small and mid size businesses. We are exploring putting voice
over IP into our mass market consumer offer.
The problem that you have as a legacy company is that right
now the functions that are available using voice over IP
technology are not compelling to our customers. The price point
is compelling to our customers. And I think that is why you
have a lot of customers are making the move right now primarily
for price. But we are constantly looking at the technology and
we are also looking at how we can use voice over IP technology
to transform our own cost structure to be able to better serve
our consumers.
Mr. Buyer. So to an earlier question, you would consider
offering a broadband service an a VOIP even if they did not
sign up for your local service?
Ms. Greene. We are considering it. We do not have that
offer in place today.
Mr. Buyer. All right. Thank you.
Mr. Stearns. Mr. Walden?
Mr. Walden. Thank you, Mr. Chairman.
Mr. Kirkland, I believe you said a couple of times that
VOIP should not have to pay for the legacy costs of the
network, is that correct?
Mr. Kirkland. No. In response to the last question, the
question was should VOIP pay access charges. And I said that
there is a legacy structure or framework that needs to be
reformed. And as Ms. Martine pointed out, information services
do not pay access charges now. As I said, the mobile carriers
just as an illustration pay a different set of charges and
access charges.
So my point was just to reform that legacy structure and,
as I think, we are willing to pay to cover those costs if they
are cost based. But part of the problem is they are not cost
based right now.
Mr. Walden. But you would not be in any hurry necessarily
to start paying those charges?
Mr. Kirkland. Well, from Covad's standpoint, you know we
enable voice over IP carriers. We will be terminating traffic
and we do expect that we will be paying access charges under
the existing rules of the FCC in certain circumstances. So I
was addressing what I thought the right outcome was.
Mr. Walden. I see.
Mr. Kirkland. And we pay for services from the ILECs all
the time. We use their network on a regular basis and pay the
costs for that.
Mr. Walden. All right. Ms. Martine, one of the issues I
have is Universal Service Fund. I represent a very, very rural
district, some areas less than one person per square mile. And
I know there was comment made earlier, I think by Mr. Rutledge,
that you cannot have VOIP without broadband.
And I guess the question I have is connecting those two.
And the concern I have is that I think VOIP is going to take
off like wild fire in the west in the summer for those who have
access to broadband. And how do we maintain access to phone
service at all in the very remote areas if you narrow that base
of subscribers on the ILECs over the old legacy network, how do
you maintain that infrastructure? Because it would seem to me
if I am an ILEC in that model, it is the last group that I am
going to have to deal with at all if the new wave of technology
is over here on VOIP. What happens in these rural areas?
Cable will be there to the extent it is practical. But let
us face it, you are not going to string out into some of these
service areas, or if you did your investors would probably have
you. So what do we here on Universal Service Fund?
And perhaps Ms. Martine, you could start, because I am
curious about your comment about doing it by phone number and
the affect that has in interindustry. Who loses----
Ms. Martine. Well, thank you for the question.
I think we believe that the USF regime needs to be reformed
because the industry has changed from when it was first set up.
We believe that the economics, and we could describe this to
you in a formal writing if you would like, is just by using
phone numbers or some other equivalence where you charged a
fixed rate per number so that wireless companies, VOIP
companies, telephone companies are all required to pay that, it
is not like anyone gets a free ride. If you have a number, they
have to pay a dollar or some associated fee that is
recommended. And we believe there could be equivalence in the
USF to that number, but it is not going to require--with
declining interstate revenues, there is no way for USF to keep
up with what the numbers used to be unless the numbers paid go
up. And I think that is unfair to those carriers that are
currently involved in intrastate that they have to pay more
just because the overall utilization is going down.
So we want to see equality for wireless companies as well
as traditional phone companies, as well as VOIP providers that
everyone should be required to pay, not just those that do
interstate.
Mr. Walden. All right.
Mr. Vidal. Congressman Walden, it seems to me that one way
of the many ways to look at the Universal Funding debate is
financially as there are sources of cash that fund that program
and there are uses of cash which are disbursements that are
made to the high cost fund, to the low income fund and to
Internet for Schools, etcetera, and a myriad of other programs.
Mr. Walden. For just Mississippi. No. Go ahead.
Mr. Vidal. I did not quite get all that.
But it seems to me that the concentration today is on the
sources of funds, not necessarily on the uses of funds. As near
as I can tell, there is about $6.5 billion a year that goes
into and out of the Universal Service Administrative--and it is
distributed out by high cost, low cost and Internet to Schools.
And I am not so sure I have heard anybody suggesting that the
sources of funds--that the uses of funds should be different.
It is just how do you fund a program----
Mr. Walden. No, I understand that.
Mr. Vidal. Yes. And so I think to go back to the idea of
there needs to be another mechanism, whether is on numbers or
something that is a nondiscriminatory non-arbitrage type of
funding mechanism that could stay in place for a long time so
we are not back here in a few years.
Mr. Walden. Okay. Anyone else? Mr. Jensen?
Mr. Jensen. One way to work through USF problem, and it is
a problem and it is becoming worse and worse, is to enhance the
number of participants that contribute to that fund as they
utilize it. In other words, you use it you pay for it and help
with the USF Fund.
One of the problems I have with Ms. Martine's analysis is I
am not sure that that sends correct pricing signals. If you
have flat rate, I am afraid that that would send some incorrect
utilization of the resources that we have available and it
needs much more discussion. But we need to enlarge the
contribution base.
Mr. Walden. And Mr. Rutledge, tell me cable's role in USF,
what it should be, what it is?
Mr. Rutledge. Well, today we pay USF fees through the
interconnection agreements that we have and through our
Lightpath subsidiary which does call terminations in both
directions.
But I do think that we do need a mechanism that will
support the needs of the country. About 88 percent of the
country through cable is serviceable with high speed access, so
broadband. That leaves well over 10 million homes that are not.
And what the communications technologies in those homes should
be, what the most appropriate way to do it is, I really do not
know. But we recognize that something has to be done. And so
picking the appropriate mechanism to subsidize I think is also
important. And we are willing to work out an equitable payment
structure as an industry and contribute to that. But we need to
work with you in doing that.
Mr. Walden. Do you have recommendation on what you would
like to see on the cable side?
Mr. Rutledge. I do not think we do today, but we would be
glad to make some.
Mr. Walden. Okay. I would welcome those, from all of you,
actually. Because I think this is an issue--well, I know it is
an issue that the committee is going to address. It is one we
need to address just as we need to address the whole regulatory
framework governing telecommunication and voice. I mean, I
cannot tell the difference between a packet of voice and a
packet of data. It is all the same thing, it seems to me,
technologically when it goes down the line or through the
airwaves, or whatever. And it seems to me we have got these
legacy regulations that every time we had a new development in
telecommunication, we regulated it differently. And that, you
cannot change this it seems to me without having winners and
losers. If you change how USF is collected, somebody on this
panel is going to benefit and somebody is going to lose, it
seems to me. So I think we are going to have to balance this
out so that it is fair, but in my mind there are going to be
winners and losers. And the key is to make sure the consumers
benefit in the end and we do not totally upend the business
structure somewhere.
So I thank you for your testimony. It has been most
helpful.
Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman.
My turn is next.
Mr. Carlisle, let me talk to you. California was one of the
first and few States in the Nation to declare VOIP to be a
telecommunication service. Now we have had other members ask
how many people think VOIP is an information service. And we
did not have a complete agreement on the panel here today.
I guess the question would be for you assuming that we have
to come up with a Federal bill for a preemption that almost
everybody agrees on, should we not come up with almost a new
definition that would include voice, video, high speed data;
and it might be something new? And I suggest that something new
might be where you would take a letter and put it into the
Internet function and it would have a dictation mode, and you
would call up and it would come in and it would be dictated. So
I could have a voice over delayed in which the computer would
speak to me from a letter from you from yesterday.
Now, that is still voice over the Internet. But there are
so many different things you could emerging technologies.
Should we not rewrite the Telecom Act of 1996 to include maybe
a new definition for voice, data, video and this emerging
possible new technology? That way we would get out of this
California deciding that it is a telecommunication service,
Nevada an information service, Virginia a telecommunication and
we would not have this disagreement. Why do we not go above all
this and give it a new name and new regulation and set in place
a new rewrite of the Telecom Act? What is wrong with that or is
that okay?
Mr. Carlisle. Well, one of the problems with the current
structure that we have under the Act is that everything depends
on an off/on switch. Is it a telecommunication service, is it
an information service. So the dynamic that that creates is, is
that groups that want to have a specific regulation applied say
it is a telecommunication service without regard to any of the
other number of things that might flow from applying that
definition. It is a very sort of broad, sort of meat cleaver
way toward approaching regulation.
Now we do have some flexibility. We can forebear from
applying regulation to telecommunication service, and we may
have some ability to apply regulations under our ancillary
jurisdiction to an information service. But again, these are
sort of making up for the fact that the structure is bipolar.
If Congress were to tackle this issue, I think a very
useful way of starting is to avoid that debate entirely and
define it as something different. Start from the point of view
of what kind of regulation you want to have apply to it, if
any, and define the service appropriately. That is a simpler
way of approaching it. It starts from the ground up as opposed
to----
Mr. Stearns. Can I use your words? Then you would say if
you were in the driver's seat and you could determine what
would happen, you would go back to the Telecom Act, rewrite it
such that you would establish what you want and then put it all
into a new structure? Are you suggesting we rewrite the Telecom
Act to take care of this?
For example, we have this intercarrier compensation system
that they are asking forbearance for, you know. I mean, we just
have this constant reiteration of problems. Should we not just
come up with a whole new process here and rewrite it?
Mr. Carlisle. Well, I think the FCC has ability under the
current Act to address many issues in intercarrier compensation
and Universal Service Fund.
Mr. Stearns. So you think you can solve all these problems
that we have talked today through the FCC?
Mr. Carlisle. About VOIP today.
Mr. Stearns. Yes.
Mr. Carlisle. I think we can provide a certain amount of
clarity. And when I say ``certain amount,'' we can provide a
lot. But we have to acknowledge that whatever we do we are
going to be sued. There are going to be people who do not agree
with our interpretation and implementation of the Act. So
ultimately clarification will depend on whether whatever we do
can be sustained in the courts.
Congress may also have to weather scrutiny in the courts.
But, obviously, you have much more flexibility to start out
from ground zero and buildup.
Mr. Stearns. Mr. Rutledge, if your cable modem system was
subject to regulation as the other transmission providers are,
would you still be able to roll out the services as quickly as
possible?
Mr. Rutledge. First of all, we think the 1996 Act was
generally successful and that you have a very competitive
telecommunications marketplace. You have true facilities-based
competition. You have the broadband roll out that has occurred
since the Act was put in place. You have multiple competitors.
And now you have very low cost voice services on a facilities-
based competition level being provided.
So we think the Act needs some tinkering, and we think this
particular bill is appropriate, but not necessarily a whole
rewrite.
Mr. Stearns. No, I do not mean a whole rewrite, but just
maybe establish in the area of VOIP and video and data that we
come up with a new name that includes the telecommunication
service, information services and just blend them in together
and then just have one establishment, a new definition and a
new regulation that applies to everybody who is dealing with
those services?
Mr. Rutledge. Well, I guess I would have to see that.
Mr. Stearns. Yes. I know. I know. I know.
Mr. Rutledge. Before I said it was a good idea.
Mr. Stearns. Yes.
Mr. Vidal?
Mr. Vidal. I guess the key question here is how good do we
think we are going be at in predicting the future. Right? In
1996 we thought we had a pretty good crystal ball into the
future. And as I have heard someone say today, the Internet was
given only collateral treatment in something that took 3 years
to build.
So, what kind of accuracy can we build into the future for
things not yet invented? I mean, VOIP was exactly this type of
not yet invented a few years ago.
I would also submit to you I think that VOIP today may look
a bit like an overnight phenomenon, but the stresses that have
been occurring on the intercarrier compensation scheme, the
seeds of those were sown long along. VOIP just happens to bring
it to a head.
And I am not trying to get a particular answer on this as
much as trying to raise a question, which is how should you
treat things that have yet to be contemplated? Because whereas
in the telephone industry, which I think was largely a
centrally planned economy with centralized standards, bodies
that met every couple of years over at the International
Telecommunications Union. Today you have technologists around
the world with a lot of capital or little capital building
servers themselves and writing applications.
It just seems to me that it is tough to get ahead of the
curve.
Mr. Stearns. Anyone else? We have no more series of
questions and we are getting to close out the hearing. And if
there is anyone else who wanted to make a few concluding
comments, we are very respective to that.
If not, we are not appreciate your time and effort.
Yes, Mr. Vidal?
Mr. Vidal. Yes. I just wanted to leave with one thing, and
that is that we have talked about a lot of things whereas voice
over IP needs to be able to be backward capable into what the
public switch telephone network functionality is today, like
E911, CELEA, etcetera. But I would urge you to consider the
fact that we may miss a golden opportunity if we do not think
about the things that VOIP can do that the PSTN simply cannot
do.
What is possible, for instance, in the E911 community if
you are dispatcher is significantly different with VOIP than it
is with simply getting a screen pop on a computer that shows a
dialing number and a street address. We think that there are
significant opportunities to increase public safety, to
increase first responder safety, to bring interconnection in
amongst organizations that have never had interconnection
before.
So I would urge you to think that no only should we
consider what we do to be backward compatible to the existing
system, but to also give our imagination an opportunity to
prosper into what is possible.
Mr. Stearns. On that positive note, the subcommittee will
adjourn.
[Whereupon, the subcommittee was adjourned at 1:11 p.m.]
[Additional material submitted for the record follows:]
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