Neither Fish Nor Fowl: New Strategies for Selective Regulation of Information Services A Presentation at the 35 th Annual Telecommunications Policy Research Conference George Mason University School of Law Arlington, Virginia September 28-30, 2007 Rob Frieden, Professor of Telecommunications Penn State University (814) ; web:

2 Goals of the Paper Explain the rationale behind the telecommunications service/information service regulatory dichotomy. Explain the rationale behind the telecommunications service/information service regulatory dichotomy. Identify instances where technological and marketplace convergence prevent sustainable compartmentalization of actual services such as Voice over the Internet Protocol (“VoIP”). Identify instances where technological and marketplace convergence prevent sustainable compartmentalization of actual services such as Voice over the Internet Protocol (“VoIP”). Track instances where the FCC re-regulates information services using clever or creative reading of statutory language, or a liberal interpretation of its “ancillary jurisdiction” under Title I of the Communications Act. Track instances where the FCC re-regulates information services using clever or creative reading of statutory language, or a liberal interpretation of its “ancillary jurisdiction” under Title I of the Communications Act. Use case studies to demonstrate how the FCC engages in questionable, results-driven decision making that nevertheless does not trigger close scrutiny by reviewing courts. Use case studies to demonstrate how the FCC engages in questionable, results-driven decision making that nevertheless does not trigger close scrutiny by reviewing courts.

3 Explaining the Telecommunications and Information Service Dichotomy Following models created by the FCC in the Computer Inquiries and Judge Greene in the AT&T divestiture, Congress legislated a dichotomy based on the expectation that information services would qualify for a regulatory “safe harbor.” Following models created by the FCC in the Computer Inquiries and Judge Greene in the AT&T divestiture, Congress legislated a dichotomy based on the expectation that information services would qualify for a regulatory “safe harbor.” In seeking to expand the scope of information services and to safeguard the Internet from regulation, the FCC has encountered countervailing motivations that promote selective re-regulation, e.g., shoring up universal service funding, safeguarding national security and satisfying consumers’ expectations about personal security when making VoIP calls. In seeking to expand the scope of information services and to safeguard the Internet from regulation, the FCC has encountered countervailing motivations that promote selective re-regulation, e.g., shoring up universal service funding, safeguarding national security and satisfying consumers’ expectations about personal security when making VoIP calls. Rather than treat some convergent services as containing both telecommunications and information services, the FCC makes an absolute either/or determination, even though no law mandates this. Rather than treat some convergent services as containing both telecommunications and information services, the FCC makes an absolute either/or determination, even though no law mandates this. To sustain the dichotomy the Commission makes questionable distinctions between telecommunications and telecommunications services and between the offering and providing of telecommunications capabilities. To sustain the dichotomy the Commission makes questionable distinctions between telecommunications and telecommunications services and between the offering and providing of telecommunications capabilities.

4 The Easy Part: Conferring the Gift of Deregulation or Unregulation The FCC applied the information service regulatory safe harbor to cable modem service and the Supreme Court affirmed (in the Brand X case) on Chevron deference to agency expertise grounds. The FCC applied the information service regulatory safe harbor to cable modem service and the Supreme Court affirmed (in the Brand X case) on Chevron deference to agency expertise grounds. The Commission subsequently re-classified Digital Subscriber Link (“DSL”) service as an information service. The Commission subsequently re-classified Digital Subscriber Link (“DSL”) service as an information service. To achieve this result, the FCC created two new dichotomies: 1) what had been a stand alone telecommunications service became a subordinate telecommunications capability; and 2) what had been offered as a telecommunications service became a minor, inseparable and functionally integrated component provided in conjunction with the offered information service. To achieve this result, the FCC created two new dichotomies: 1) what had been a stand alone telecommunications service became a subordinate telecommunications capability; and 2) what had been offered as a telecommunications service became a minor, inseparable and functionally integrated component provided in conjunction with the offered information service. The FCC expanded the information services safe harbor to two technologies that the Commission itself acknowledges as providing over 96% of all broadband access in the United States. The FCC expanded the information services safe harbor to two technologies that the Commission itself acknowledges as providing over 96% of all broadband access in the United States.

5 The Hard Part: Selective Re-regulation of Information Services The FCC has belatedly recognized public policies and laws that provide the basis for regulation of information services. The FCC has belatedly recognized public policies and laws that provide the basis for regulation of information services. Information service providers, including cable modem and DSL carriers, required to provide wiretapping assistance. Information service providers, including cable modem and DSL carriers, required to provide wiretapping assistance. Interconnected VoIP operators, also required to contribute to universal service funding, and to provide access to disabled users and E-911 capability. Interconnected VoIP operators, also required to contribute to universal service funding, and to provide access to disabled users and E-911 capability.

6 Re-regulation Requires Semantic Juggling and Aggressive Expansion of the FCC’s Regulatory Wingspan Even as the FCC avoids having to make the telecommunications service/information service attribution for VoIP, the Commission has to emphasize different dominant features in different proceedings: to justify a USF subsidy obligation, the Commission has to emphasize the even if VoIP does not provide telecommunications services, it does offer a telecommunications link. Even as the FCC avoids having to make the telecommunications service/information service attribution for VoIP, the Commission has to emphasize different dominant features in different proceedings: to justify a USF subsidy obligation, the Commission has to emphasize the even if VoIP does not provide telecommunications services, it does offer a telecommunications link. However the Commission cannot overemphasize the importance of this offered telecommunications link, because of its subordination to the dominant provided information service is essential for applying the information service safe harbor. However the Commission cannot overemphasize the importance of this offered telecommunications link, because of its subordination to the dominant provided information service is essential for applying the information service safe harbor. The FCC ought to explain how it can rationalize exempting providers of broadband access to the Internet, i.e., information service providing cable modem and DSL, but require USF contributions from providers of software enhancements to established information service links. The FCC ought to explain how it can rationalize exempting providers of broadband access to the Internet, i.e., information service providing cable modem and DSL, but require USF contributions from providers of software enhancements to established information service links. How do software enhancements convert information services into a telecommunications capability, but not into a telecommunications service? How do software enhancements convert information services into a telecommunications capability, but not into a telecommunications service?

7 Finding a Way to Make VoIP Operators Pay USF Support Universal service funding accrues as a function of long distance minutes of use. Universal service funding accrues as a function of long distance minutes of use. Consumer migration to wireless and Internet-based options has reduced attributable minutes of use and forced the FCC to increase the “contribution rate” of remaining minutes and to seek new compulsory contributors. Consumer migration to wireless and Internet-based options has reduced attributable minutes of use and forced the FCC to increase the “contribution rate” of remaining minutes and to seek new compulsory contributors. VoIP qualifies regardless of which regulatory classification the FCC eventually decides, because Section 254 of the Communications Act authorizes the FCC to require USF support from any provider of telecommunications, even if it does not offer telecommunications services. VoIP qualifies regardless of which regulatory classification the FCC eventually decides, because Section 254 of the Communications Act authorizes the FCC to require USF support from any provider of telecommunications, even if it does not offer telecommunications services. So arguably a provider of information services that otherwise qualifies for the regulatory safe harbor also can offer telecommunications for purposes of triggering USF liability. So arguably a provider of information services that otherwise qualifies for the regulatory safe harbor also can offer telecommunications for purposes of triggering USF liability. Shouldn’t the FCC require cable modem and DSL carriers to make USF contributions? Shouldn’t the FCC require cable modem and DSL carriers to make USF contributions?

8 Answering CALEA’s Call The Communications Assistance for Law Enforcement Act (“CALEA”) requires telecommunications carriers to help support national security missions through wiretapping. The Communications Assistance for Law Enforcement Act (“CALEA”) requires telecommunications carriers to help support national security missions through wiretapping. CALEA expressly exempts information service providers, but the FCC has interpreted CALEA’s definition of telecommunications carrier as more inclusive. CALEA expressly exempts information service providers, but the FCC has interpreted CALEA’s definition of telecommunications carrier as more inclusive. The FCC requires cable modem, DSL and VoIP operators to comply with wiretapping requests, based on their satisfying a 3 part test: 1) whether the candidate service provider offers wire or electronic communication switching or transmission service; 2) offers a replacement for a substantial portion of the local exchange service and 3) warrants regulation on public interest grounds. The FCC requires cable modem, DSL and VoIP operators to comply with wiretapping requests, based on their satisfying a 3 part test: 1) whether the candidate service provider offers wire or electronic communication switching or transmission service; 2) offers a replacement for a substantial portion of the local exchange service and 3) warrants regulation on public interest grounds. The D.C. Circuit affirmed the FCC’s statutory interpretation using the Chevron test: if CALEA is silent or ambiguous and the agency’s interpretation is permissible, then the court only applies a reasonableness standard. The D.C. Circuit affirmed the FCC’s statutory interpretation using the Chevron test: if CALEA is silent or ambiguous and the agency’s interpretation is permissible, then the court only applies a reasonableness standard. Curiously in many instances courts eagerly second-guess the FCC’s statutory construction, e.g., scope of ILEC unbundling requirements, rationale for liberalizing media cross-ownership restrictions. Curiously in many instances courts eagerly second-guess the FCC’s statutory construction, e.g., scope of ILEC unbundling requirements, rationale for liberalizing media cross-ownership restrictions. Does national security concerns supersede any serious examination of what, if any, information service might qualify for exemption from CALEA requirements? Does national security concerns supersede any serious examination of what, if any, information service might qualify for exemption from CALEA requirements?

9 Conclusions Whether intentionally or not the FCC has eroded the competitive attractiveness of VoIP by saddling it with USF, E-911 and disabled user access. Whether intentionally or not the FCC has eroded the competitive attractiveness of VoIP by saddling it with USF, E-911 and disabled user access. The FCC has forced VoIP services to become more like telecommunications services than VoIP operators may have desired. The FCC has forced VoIP services to become more like telecommunications services than VoIP operators may have desired. There is no consistency in appellate courts’ deferral to FCC expertise and statutory construction. There is no consistency in appellate courts’ deferral to FCC expertise and statutory construction. Title I ancillary jurisdiction has become a powerful regulatory alternative on questionable public interest grounds. Title I ancillary jurisdiction has become a powerful regulatory alternative on questionable public interest grounds. Countervailing public policy objectives appear to trump the consistent and transparent application of statutory definitions. Countervailing public policy objectives appear to trump the consistent and transparent application of statutory definitions. Justice Scalia predicted this mischief in his dissent in Brand X. Justice Scalia predicted this mischief in his dissent in Brand X.