More VOIP: Query to Kevin Werbach

Wise commentator (and my lawschool classmate) Kevin Werbach thinks I’ve got the political fallout of the Minnesota PUC vs. Vonage decision at least partially backwards.  Says Kevin:

I actually think the Minnesota decision could lessen the immediate pressure to adopt a rational framework at the federal level. Judge Davis effectively preserved the status quo, in which VOIP services are de facto unregulated. The ones upset about that situation are the square-state Senators worried about universal service funds, but they haven’t made much noise since the FCC turned back their challenge in 1998. What’s much more likely to provoke FCC action is a patchwork of states attempting to regulate VOIP. Partly because it puts in place an outcome contrary to the one the FCC generally supports, and partly because it’s state regulators stepping into what the FCC feels is its turf. Don’t underestimate the power of that second factor.

Kevin’s got a much better sense of The Way Things Are in Washington, especially at the FCC, so I challenge his thinking at my peril.  But, in the interest of furthering my education, I’ll take the bait and push back a little.

There are two ways that a comprehensive reform of federal regulation of the telecom sector (in response to the emerging techical and economic realities of VOIP) can be accomplished:  (1) the FCC rewriting its thicket of regulations implementing the Telecommunications Act of 1996, and/or (2) Congress rewriting the Telecommunications Act itself.  In scenario (1), the FCC would have to reform its regulations within the ever-blurrier “telecommunications service” vs. “information service” paradigm, tinker with the key definitions, reconfigure the consequent regulatory rights and responsibilities, and, if all goes well, generate a semi-rational regulatory outcome within an increasingly irrational statutory framework.  In scenario (2), Congress would have the ability to craft a truly rational converged statutory framework that would then be the basis for a truly rational set of implementing regulations.

Kevin is absolutely right that Judge Davis’s Minnesota PUC vs. Vonage decision lets the VOIP-friendly FCC off the hook for now, because it preserves the status quo of unregulated VOIP and prevents the state regulatory authorities from stepping into what the FCC clearly thinks to be its turf.  So scenario (1) becomes less likely.  But my contention is that the Minnesota decision makes Congressional intervension much more likely.  And not just because the square-state Senators are going to be agitated about universal service funds.  The real hydraulic pressure on Congress to act is going to come from the big telecom operators, who (a) are annoyed that upstart VOIP services are able to offer cheap phone connectivity without any of the regulatory pain, (b) recognize the competitive threat VOIP presents, (c) are aware that their own initiatives to deploy VOIP services are going to be expensive and time-consuming, due to the tremendous engineering challenge of making PSTN and VOIP coexist within the same network, (d) have lots and lots of lobbying muscle and political money to throw around, and (e) have every incentive to put the big hurt on their allies in the Senate and House until they act to harmonize, somehow, the competitive ruleset applicable to fixed and wireless PSTN and VOIP services. 

Given the VOIP-friendliness and relative competence of the FCC and the special-interest-prone political realities of Washington, it seems clear that FCC action is more likely to produce a rational and technically-clueful result.  But I suspect that Judge Davis’s ruling has unleashed a clutch of telecom Furies that will only gather strength as they screech and swoop and hound Congress to take action.  Whether the FCC might ward off these Furies and obviate the need for Congressional action by moving to fashion a reformed (and pre-emptive) regulatory framework on its own is a question I’d pitch back to Kevin.

More broadly, I’m interested to hear what you Gentle Readers think I’m missing or getting wrong.

One response to “More VOIP: Query to Kevin Werbach

  1. Anonymous says:

    Andrew, you’re right that the ultimate issue is when Congress will reform the statutory structure. (Though I’d note that doing so could as easily make things worse and more confused!)

    I disagree, though, with your contention that incumbents will push Congress to change the law because of the Minnesota decision. Incumbents like to see their competitors regulated, but what really gets them going is when they perceive a direct threat to their core business. Vonage is a gnat to the big telcos, and things like Skype and Free World Dialup are specks of dust. They won’t waste political capital crushing them.

    Having unregulated VOIP also helps the incumbents in two ways. It lets them point to “vibrant competition” as an argument for deregulating their own offerings. And it will allow them to offer unregulated VOIP services themselves, when they feel the need to do so.

    Remember, the Minnesota decision isn’t binding on other states. The Bells tend to be in a stronger position at the state level (with a few exceptions) than at the federal level. As long as there are numerous regulatory skirmishes over VOIP regulation happening at the state level, with the prospect of the whole issue going through two levels of federal appeals courts before it’s fully resolved, the incumbents won’t be scared of a powerful, unregulated VOIP competitor. They are much more focused on what’s really eating their lunch — wireless, and soon cable.