Circumscribing the Public Interest in the Voip Debate

Florida State University Libraries

Electronic Theses, Treatises and Dissertations The Graduate School

2006 Circumscribing the Public Interest in the VOIP Policy Debate Kimberley Leahy

Follow this and additional works at the FSU Digital Library. For more information, please contact [email protected]

THE FLORIDA STATE UNIVERSITY

COLLEGE OF COMMUNICATION

CIRCUMSCRIBING THE PUBLIC INTEREST

IN THE VOIP POLICY DEBATE

KIMBERLEY LEAHY

A Dissertation submitted to the Department of Communication in partial fulfillment of the requirements for the degree of Doctor of Philosophy

Degree Awarded: Summer Semester, 2006

The members of the Committee approve the dissertation of Kimberley Leahy defended on January 20th, 2006.

______

Stephen McDowell Professor Co-Directing Dissertation

______

John K. Mayo Dean Co-Directing Dissertation

______

Barney Warf Outside Committee Member

______

Jonathan Adams Committee Member

______

Marilyn J. Young Committee Member

Approved:

______

Stephen McDowell, Chairperson, Department of Communication

______

John K. Mayo, Dean, College of Communication

The Office of Graduate Studies has verified and approved the above named committee members. ii

For John,

My love and my life.

iii

ACKNOWLEDGEMENTS

I would like to give special thanks to the people who helped see my through this challenging process. First, I wish to thank Stephen McDowell for his teaching and direction over the past four years. His guidance during my research and writing instilled in me a respect for answering the question why. His knowledge allowed me to grow as a researcher and his patience allowed me to grow as an individual. I will always appreciate his calm assuredness and his dedication to thorough research.

I would like to thank John Mayo for his contribution of innovation diffusion concepts to my manuscript. His insights into the public interest of VoIP diffusion gave shape to a once scattered research outline.

I would like to thank Barney Warf for his contribution of political economic principles to my manuscript. His observations concerning global resource distribution resonated not only within my manuscript, but also within my personal beliefs.

I would like to thank Marilyn Young for her contribution of rhetorical discourse to my manuscript. Her guidance ensured that my manuscript remained focused throughout the argument I presented.

I would like to thank Jonathan Adams for his technical expertise as I wrote my manuscript. He challenged me to examine aspects of Internet technology that once evaded me, but ultimately gave me a knowledge base upon which I could build salient technological observations on VoIP applications.

I would like to offer a personal thanks to Kelly Andrews Smith. Without her friendship, her laughter, and her cheers I could never have weathered the storms that accompanied these past four years.

Finally, I would like to thank my husband John Leahy. His unwavering faith in this project gave me the strength to complete the most challenging undertaking of my career thus far. I owe the realization of this dream to his patience across so many long nights of seemingly endless work. Thank you, John, for rejoicing in my soaring highs and lifting me from my bottomless lows. I love you with all my heart. This is for you.

TABLE OF CONTENTS

Abstract ...... Page vii

1. The Voice over Internet Protocol Policy Debate ...... Page 1 Background...... Page 3 Stakeholder Discourse ...... Page 7 The Research Questions ...... Page 8

2. Circumscribing of the Public Interest in Communication Literature...... Page 13 Debating the Public Interest...... Page 15 Innovation, Technology and the Market...... Page 19 Economics, Competition and the Public Interest ...... Page 26 Universal Service ...... Page 30

3. Telecommunication’s Public Interest History ...... Page 38 Early Regulatory History...... Page 39 The Communications Act of 1934 ...... Page 45 Mid-Century Public Interest Shift...... Page 47 The 1982 Consent Decree and 1996 Telecommunications Act...... Page 53 IP-enabled Services Policy ...... Page 56

4. Framing the Debate ...... Page 64 Rhetorical Theory...... Page 65 Methods of Analysis...... Page 67 Research Examples...... Page 73 Research Questions ...... Page 75 The Data ...... Page 78

5. The VoIP Forum and the NPRM ...... Page 80 Setting the Stage...... Page 80 The VoIP Forum...... Page 81 Stakeholders not Included in the Forum Proceedings ...... Page 99 The NPRM ...... Page 104

6. Stakeholder Frames Around VoIP and Technology ...... Page 105 FCC Issue Framing...... Page 112 Telephone and Transmission Technology ...... Page 112 VoIP Technology ...... Page 115 Internet Architecture...... Page 120 Stakeholder Technology Claims ...... Page 123

7. Stakeholder Claims Concerning VoIP and Competition...... Page 175 Framing the Claims ...... Page 176 Stakeholder Competition Comments...... Page 178

8. The Universal Service Issue ...... Page 228 The Universal Service Debate...... Page 228 Definitions and Contributions...... Page 230

9. Changes in Public Interest Conceptions...... Page 269 Innovation, Competition, and Universal Service ...... Page 271 Looking Back...... Page 273 The Larger Regulatory Picture...... Page 275 Changes over Time...... Page 276 Global Applications for Public Interest Framing...... Page 279 Reflections and Future Research...... Page 280

Appendix A ...... Page 283 Appendix B ...... Page 284 Appendix C ...... Page 285 Appendix D ...... Page 287 References ...... Page 288 Biographical Sketch ...... Page 309

ABSTRACT

This inquiry evaluates claims made by stakeholders attempting to circumscribe the concepts of the public interest in the Voice over Internet Protocol policy debate using technology, competition, and the universal service as their foil. The three policy options under debate as stakeholders respond to the 2004 Federal Communications Commission Notice of Proposed Ruling-making 04-28, In the Matter of IP-enabled Services, are the layered approach, the functional approach, and, what this dissertation terms, the dichotomous approach. Each of these approaches to regulating VoIP is mutually exclusive. To help inform future policy debate on the regulation of new communication technologies, the following research questions are posed within the framework of the public interest: What interpretations of the public interest are reflected in stakeholder claims pertaining to VoIP regulatory policy and technology? What interpretations of the public interest are reflected in stakeholder claims pertaining to VoIP regulatory policy and competition? What interpretations of the public interest are reflected in stakeholder claims regarding VoIP regulatory policy and universal service? In what ways has the VoIP debate reflected changes over time regarding interpretations of the public interest? The central method of inquiry is a rhetorical analysis of stakeholder claims using techniques of issue frame analysis. It includes methods of contextual and symbolic language analysis to offer a more complete understanding of the nature of the policy debate surrounding VoIP. The literature will show how theorists recommend evaluating the frames that stakeholders seek to impose on the public interest. It provides a construct for examination of national policies driving a technology sector, telecommunications, that serves as a core component of the U.S. economy. This inquiry intends to inform future policy-making in the communications industry with respect to issues of economic competition, technological innovation and universal service. The broader purpose of this study is to inform discussion of issue framing by stakeholders regarding policy-making in the public interest.

vii

CHAPTER ONE

THE V OICE OVER INTERNET PROTOCOL POLICY DEBATE

In the wake of numerous policy-centered state and federal cases involving the communications industry and information service providers, debate has arisen among stakeholders and policy makers in the telecommunications and Internet communications arenas concerning the regulation of an emerging technology derived from the convergence of telephony with computer networking. Telecommunications and Internet communications are each governed by their own unique regulatory framework, with telecommunications firms regulated as common carriers and Internet communications firms regulated as information service providers. Important distinctions exist between the two, arising from their diverging regulatory implications. A new communications application, Voice over Internet Protocol (VoIP), has resulted from telecommunications and Internet-communications networks’ convergence, enabling voice transmission over the Internet. In terms of IP-enabled services, VoIP is just another data application riding along a network. Telecommunications providers using the Internet as a portion of their network and Internet Service Providers (ISPs), affording an end-user transmission infrastructure access, can offer VoIP as a means for enabling voice communications while bypassing some or all of the Public Switched Telephone Network (PSTN). A VoIP service provider also can offer the application to an end-user who then chooses which Internet service provider to use to enable Internet connectivity and access to those applications made workable by the Internet. Debate has resulted over how to regulate VoIP, an application that, depending upon the regulatory classification of the firm offering it, will either subject the firm to or free the firm from the fees attached to traditional telecommunications services that remain dependent on the PSTN. VoIP is an application that on the one hand functions simply as another means of transmitting voice over a communication channel, yet on the other hand is a voice service that. VoIP technology allows for the first time in telecommunications history voice transmission to be decoupled from voice application. How to regulate such a technology is the central theme of the VoIP debate. The controversy surrounding VoIP centers on how to regulate a voice application that offers service nearly identical – from the end-user 1

standpoint – to that delivered by the regulated telecommunications industry. However, it uses as its transmission infrastructure the Internet backbone, a communications medium whose service providers operate in a largely unregulated industry. Debate between the VoIP providers and telecommunication providers resulted from the disagreement between the two regarding whether to regulate VoIP as a telecommunications service or to regulate VoIP technology as an information service. The former would subject the nascent industry to common carrier obligations laid out in the 1996 Telecommunications Act (the 1996 Act), the latter would render VoIP providers exempt from all provisions of the 1996 Act. Both regulatory models have financial implication for telecommunications providers and VoIP providers alike, implications that represent the crux of the VoIP debate. Both the telecommunications provider and VoIP provider industries have used claims about the public interest as the primary reasons given to the Federal Communication Commission (FCC) – the government agency overseeing the VoIP regulatory process – for ruling in favor of their respective industry’s policy interests. The VoIP regulatory debate offers an important opportunity to examine attempts at circumscribing public interest interpretations across time they pertain to communications policy. It also has meaning in a broader context when analyzing policy debate outside of the communications industry where stakeholders attempt to circumscribe the public interest to sway regulatory outcomes. This dissertation examines VoIP stakeholders’ efforts in marshaling rhetorical resources to frame the public interest in ways most optimally reflective of their own interests. The VoIP debate gives provides a unique perspective on attempts at public interest definition contouring. In the communications industry, attempts at framing the public interest began with 19th century common carrier regulatory policy. This inquiry seeks to understand the ways in which representations of the public interest may have undergone reshaping from the time of the first telecommunication voice networks through to the 21st century debate surrounding VoIP regulation, and the ways interpretations of the public interest may have changed over time, to better understand contemporary telecommunication and information service public interest regulatory constructs.

The voice communication landscape has seen few instances of radical change in its hundred-year history. The 1996 Telecommunications Act was the first time since the Communications Act of 1934 that telecommunications law had been comprehensively overhauled, and the first time since the 1982 Consent Decree’s breaking up of AT&T that competition in the telecommunications arena was directly addressed. In the 1982 Consent Decree, AT&T agreed to divest itself of its wholly owned local exchange service providers (the Bell operating companies) thus ending the government’s antitrust suit against AT&T, that began in 1974. On January 1, 1984, ten years of attempt at reform finally severed AT&T local exchanges – where a ‘natural monopoly’ was still seen as valid – from the long distance, manufacturing, and research & development sectors of the business – where the government deemed competition to be appropriate – thus ending the century-old Bell System. AT&T subsequently remained a long distance provider while the new Regional Bell Operating Companies handled local calls (AT&T, 2004). With the VoIP debate, the telecommunications industry faces the prospect of change due not only to internal competitive pressures driving regulatory reform but from external technological pressures requiring competitive adaptation. VoIP, the enabling of voice transmission over the Internet, has changed the nature of telecommunications. Where once users could converse remotely only over the PSTN, technology has advanced to such a degree that voice communication can bypass the network entirely, relying solely on the Internet for connectivity. The question of how the providers of this new VoIP technology will be regulated – under telecommunications regulations, under information service regulations, or under a completely new regulatory paradigm – is in the hands of the FCC.

Background

The United States Federal Communications Commission (FCC) arose from the passing of the Communications Act of 1934, a part of President Franklin Delano Roosevelt’s (1933-1945) New Deal initiative. The General Provisions of Title I of the 1934 Act stipulate the administration, formation, and powers of the FCC. Section Seven of Title I reads:

“(a) It shall be the policy of the United States to encourage the provision of new technologies and services to the public. Any person or party (other than the Commission) who opposes a new technology or service proposed to be permitted under this Act shall have the burden to demonstrate that such proposal is inconsistent with the public interest; [and]

(b) The Commission shall determine whether any new technology or service proposed in a petition or application is in the public interest within one year after such petition or application is filed. If the Commission initiates its own proceeding for a new technology or service, such proceeding shall be completed within 12 months after it is initiated” [47 U.S.C. 157]

In the 1996 Act, the FCC sought:

“To promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies”

The 1996 Act further stated that:

“all providers of telecommunication services should contribute to Federal universal service in some equitable and nondiscriminatory manner; there should be specific, predictable, and sufficient Federal and State mechanisms to preserve and advance universal service; all schools, classrooms, health care providers, and libraries should, generally, have access to advanced telecommunications services; and finally, that the Federal-State Joint Board and the Commission should determine those other principles that, consistent with the Act, are necessary to protect the public interest.” [47 U.S.C. 231]

The VoIP policy debate draws its technology and public interest dimensions from over one hundred years of telecommunications history. Whatever decision the FCC makes concerning VoIP regulation will likely set precedent for future communication policy decisions. A brief description of the FCC’s regulatory process follows, which will provide important background in fully understanding the implications of the VoIP debate. The 1934 Communication Act states that the President of the United States appoints and that the U.S. Senate approves five FCC Commissioners (formerly seven but reduced to five in 1983), each for five-year terms (formerly seven but reduced to five in 1983) with one Commissioner designated as Chair by the President. Not more than three Commissioners may come from the same political party. The composition of the FCC 4

will be noteworthy as this dissertation investigates whether an FCC VoIP regulatory agenda framed around the public interest exists, as FCC Commissioner political party affiliations traditionally reflect the will of the White House administration – especially those Commissioners in the majority party – fulfilling a key institutional role in telecommunication policy-making. Beginning in 2005, the FCC Chairman was Kevin Martin, a Republican, appointed following the resignation from the FCC of former Chairman Michael Powell, a Republican and son of Colin Powell, former Secretary of State under George W. Bush. Chairman Michael Powell was appointed to the FCC by President William Jefferson Clinton in 1997 and nominated as FCC Chairman by George W. Bush in 2001. Bush nominated Kathleen Abernathy and Kevin Martin, both Republicans, in 2001. Bush nominated Deborah Tate, a Republican, to fill Michael Powell’s vacant seat in 2005. Michael Copps, a Democrat, was nominated to the FCC in 2001 and Jonathan S. Adelstein, also a Democrat, was nominated to the FCC in 2002 (FCC, 2005). The FCC has a specific set of administrative procedures it follows to begin consideration of a new issue, for example the regulation of a new communication technology such as VoIP. This section highlights the administrative procedures undertaken over the course of the VoIP debate, but it should be noted that the FCC has several other procedural alternatives available to it when enacting new policy. In the case of VoIP, the FCC first announced that a VoIP Forum to include all Commissioners and FCC invited speakers would be held on December 1, 2003. The VoIP Forum was a unique event, representing the first time the FCC ever sought public comment on an issue other than through traditional channels of written requests for comment, a process by which the record is created by stakeholders responding to FCC requests for comments, whereupon the FCC then issues a ruling that dictates policy. The VoIP Forum opened to the public at 10:30 am December 1, 2003 with public attendance conforming to a first- come first-served basis. Concerned stakeholders could listen to remarks by those industry and government leaders invited by the FCC to participate on two panels that discussed “how digital technologies are being used to provide innovative and affordable voice services to consumers and stimulate economic growth” (FCC, 2003). For two weeks

following the VoIP Forum, December 1 through December 15 2003, private citizens and interested stakeholders could choose to submit feedback to the FCC on VoIP regulation. The second step taken by the FCC in its VoIP regulatory policy inquiry was the issuance of a Notice of Proposed Rulemaking (NPRM). An NPRM in general terms is:

“issued to detail proposed changes to FCC rules and to seek public comment on either focused or specific proposals and/or to ask questions on an issue or set of issues. The NPRM describes where and when comments may be submitted, where and when (stakeholders) can review comments others have made and how to respond to those comments” (FCC, 2005).

Notice of Proposed Rulemaking 04-28, “In the Matter of IP-enabled Services” was adopted February 12, 2004 and released to the Federal Register by the FCC on March 10, 2004 with the intent of collecting information

“relating to services and applications making use of Internet Protocol…, including but not limited to Voice over IP (VoIP) services collectively, ‘IP-enabled services’, … [and] seek[ing] comment on the impact that IP-enabled services, many of which are accessed over the Internet, have had and will continue to have on the United States’ communications landscape” (FCC, 2005)

After issuing an NPRM, the FCC has the option of taking any of a number of actions before issuing a final ruling on the matter at hand. With regards to In the Matter of IP-enabled Services, following the issuance of NPRM 04-28, on March 28, 2004 the FCC released a Public Notice, referenced as WC Docket No. 04-36, indicating that an FCC summary of NPRM 04-28 had been published in the Federal Register, and that stakeholders could submit further comments or reply comments in response to the FCC’s NPRM summary. The deadline for comments expired on May 28, 2004; for reply comments the deadline was extended to June 28, 2004. Precedent exists which may have some bearing on the FCC’s final decision In the Matter of IP-enabled Services (the NPRM). In 2002, the FCC issued a declarative ruling that, among other decisions, exempted providers of “advanced telecommunication capabilities” as defined by Section 706 of the 1996 Telecommunications Act (such as fax, voice mail) from classification as common carriers. This ruling released advanced telecommunication service providers from the Universal Service Fund (USF)

contribution levied against common carriers such as traditional telecommunications companies and wireless voice communication providers. An FCC clarification in the same ruling stipulates that ISPs, and thus any firms that provide VoIP connectivity, also are not beholden to the common carrier obligations itemized in the 1996 Telecommunications Act [47 U.S.C. Sec. 231 (e) (3)]. The “universal access” portion of the 1996 Act speaks to the Universal Service Fund (USF) contribution set quarterly by the FCC, which all telecommunication providers must pay to ensure that the provisions of the Act are met. This, in other words, ensures that these provisions of 1996 Act remain a funded mandate. The terms “universal service” and “universal access” are significant to the VoIP debate as stakeholders attempt to frame their respective VoIP policy positions around specific language in the 1996 Act. For year-ending 2004, the contribution paid by each telecommunication provider to the federal universal service amounted to 10.4% of revenues from interstate and international long distance calls (FCC, 2004); ISP’s offering VoIP service were required to pay nothing. Contributions to USF will become important as this inquiry explores claims made by stakeholders in the VoIP debate concerning how contributions paid to the USF advance or hinder technological development and industry competition – as well as how universal service works in the public interest – according to each stakeholder’s interpretation of universal service.

Stakeholder Discourse

Throughout every policy debate, stakeholders attempt to place in the foreground certain positions while attempting to place others in the background so that they might present their respective agendas most favorably to decision makers and others they wish to influence. This inquiry uses framing analysis as a rhetorical technique to help determine how stakeholders in the VoIP debate attempt to frame regulatory issues and cast policy as representing the public interest, but also most favorably for their own desired outcomes. Due to the public interest’s abstruse nature, stakeholders in the VoIP debate can invoke the public interest in such a way that interpretations of its tenets most usefully support a specific argument. Stakeholders enjoy similar liberty when endeavoring to frame arguments defining VoIP as a telecommunications service, 7

information service, or otherwise. This inquiry evaluates interpretations of the public interest within stakeholder claims concerning VoIP regulation. It examines the aporia – a term used by Derrida (Reynolds and Roffe, 2004) to suggest a difficulty in reaching resolution – inherent in defining the public interest, and the devices stakeholders use to frame such a nebulous concept as most in keeping with a stakeholders’ policy stratagems surrounding VoIP. This inquiry investigates how public interest interpretations have changed over time and whether FCC policy initiatives across the history of telecommunications have circumscribed the public interest in a fashion ever more in keeping with marketplace competition – as reflective of the public interest – and less in keeping with the assurance of universal services provided equally to everyone as reflective of the public interest. It seeks to uncover the means by which stakeholder evidence supporting claims to the public interest is selected to represent certain positions most favorable to stakeholder policy objectives while concurrently decrying those of the opposition. It addresses the presuppositions an audience is asked to endorse, such that the “facts” presented by stakeholders convey the meaning that the stakeholder intends an audience to infer. The analytic approach used in this inquiry explores the implication of the public interest for each context in which stakeholders apply it to the VoIP policy discussion. It examines how stakeholder interpretations of the public interest’s extensible definitions bring about and shape audience opinion. Investigation of issues involving technology, competition, and universal service evaluate the relationships between evidence and claims, and the varying treatments by stakeholders of evidence said to reflect the public interest in the VoIP debate.

The Research Questions

The interventions this dissertation follows in the FCC decision making process on VoIP regulation include those made at the December 2003 VoIP Forum and responses to the NPRM 04-28, In the Matter of IP-enabled services (the NPRM). In concert with addressing issues of technology, competition, and universal service within the VoIP debate, this dissertation strives to determine how stakeholders in the VoIP debate interpret one of the cornerstones of the Communications Act of 1934: the public interest. 8

This inquiry will undertake a rhetorical analysis to look closely at how the public interest has been shaped over time by public policy, concluding with an analysis of public interest representations in the VoIP debate. This inquiry describes the historical impact of each new telecommunication policy decision as either forwarding or departing from any prior public interest mandate. This inquiry traces the ways throughout telecommunication’s history in which the public interest has been reframed with each telecommunication policy decision. In an effort to inform future policy debate on the regulation of new communication technologies, this dissertation attempts to answer the following research questions within the framework of the public interest:

RQ1). What interpretations of the public interest are reflected in stakeholder claims pertaining to VoIP regulatory policy and technology? (RQ2). What interpretations of the public interest are reflected in stakeholder claims pertaining to VoIP regulatory policy and competition? RQ3). What interpretations of the public interest are reflected in stakeholder claims regarding VoIP regulatory policy and universal service? RQ4). In what ways has the VoIP debate reflected changes over time regarding interpretations of the public interest?

Stakeholders in the VoIP debate include politicians, think tanks, Inter-exchange carriers (IXCs), Incumbent Local Exchange Carriers (ILECs), Competitive Local Exchange Carriers (CLECs), VoIP providers, broadband providers, wireless providers, cable providers, industry organizations, and infrastructure and equipment providers. Each of these stakeholders views VoIP regulation from a standpoint unique to their respective interests, interests that will be discussed as each stakeholder is introduced in forthcoming chapters. Not all stakeholders responded to the NPRM in an equally lengthy fashion. Not all stakeholders responded to all topics on which the NPRM sought stakeholder commentary. This inquiry selected for examination those stakeholder responses to the NPRM that most comprehensively inform the issues this inquiry has chosen to investigate. This first chapter provided a definitional benchmark for public interest policy- making from the standpoint of public interest claims. In Chapter Two, analysis compares 9

and contrasts different theories that help define the public interest, including economic Public Interest Theory, which will help frame the VoIP regulatory debate. Supporting theories drawn from the communication discipline will reinforce primary theories pertaining to the public interest. The literature will show how theorists recommend evaluating the frames that stakeholders wish to impose on debates about the public interest, and provide a construct for examination of the four research questions, their fundamental concepts, and their importance to communication study. Chapter Three provides a detailed history of the U.S. telecommunications industry and introduces the various regulatory schemes that have shaped telecommunication policy since the industry’s inception, beginning with the 1887 Interstate Commerce Commission. It presents an historical background describing the evolution of telecommunication policy and illustrates how that history is used to inform today’s debates surrounding VoIP. It compares the ways in which stakeholders throughout telecommunication’s regulatory history have used claims about the public interest in casting industry policy, and addresses the question of how today’s VoIP stakeholders reference historical representations of the public interest to shape telecommunication policy in the VoIP debate. Chapter Three offers analysis of stakeholders’ regulatory histories and provides a detailed explanation of the technological history from which VoIP is derived; it offers an historical background of national policies driving telecommunications, a core component of the U.S. economy. Chapter Four describes the methods for this inquiry’s data investigation. The central method of inquiry involves a rhetorical analysis of stakeholder comments using techniques of framing analysis as well as comparative, contextual, and symbolic language analysis. It addresses the framing techniques stakeholders employ when making claims about technology, competition, and universal service, and evaluates the contexts in which stakeholder claims are made concerning these issues as they pertain to the public interest. Chapter Four’s analysis examines symbolic language that stakeholders invoke when attempting to assert their respective policy positions to the FCC concerning how best to regulate VoIP within the contexts of technology, competition, and universal service. Chapter Five reviews the 2003 FCC VoIP Forum and analyzes comments made by presenters concerning recommendations for VoIP policy-making. It introduces the 10

stakeholders whose claims regarding the VoIP debate were selected for analysis in this dissertation, and reviews the document from the FCC, Notice of Proposed Rulemaking 04-28, on whose request for regulatory comment responses by stakeholders were submitted and upon which issue this dissertation is based. Chapter Five’s analysis introduces the areas about which the FCC seeks comment as it endeavors to craft VoIP policy, and investigates the degree of neutrality the FCC brings to its VoIP policy-making task. Chapter Six evaluates stakeholder claims surrounding aspects of technology change and new technology relevant to the VoIP debate. It introduces telecommunication technology and VoIP technology and contrasts the differences between the two from a regulatory standpoint. It discusses perceptions of innovation as a function of competition, and the relationship between technology and competition as represented by VoIP stakeholders. Chapter Six’s analysis evaluates claims made by stakeholders attempting to circumscribe the public interest in the VoIP space using technology as their foil. Chapter Seven evaluates stakeholder claims surrounding all aspects of competition relevant to the VoIP debate. It introduces the distinct ways stakeholders choose to define competition and contrasts the differences among those definitions as applied in the VoIP debate. Chapter Seven’s analysis discusses perceptions of competition as a function of innovation, and the relationship between competition and the public interest as represented by stakeholders in the VoIP space. Chapter Eight evaluates the ways in which stakeholders frame the concept of universal service, and the ways in which they invoke the public interest to do so. It examines how innovation and competition factor into stakeholder claims regarding universal service and the public interest. Chapter Eight analysis’s evaluates original intentions of universal service against any suggestions for new universal service applications made by VoIP policy stakeholders and considers claims made by stakeholders attempting to define the role of universal service in the VoIP space. Chapter Nine evaluates how, if at all, the concept of the public interest has changed over time, and how any changes in representations of the public interest might be reflected in the VoIP debate. It summarizes the findings of this dissertation’s investigation of stakeholder attempts at circumscribing the public interest by stakeholders 11

in the VoIP debate. It examines changes over time in representations of the public interest within the context of technology, competition, and universal service, and evaluates the ways changes in public interest perceptions have been reflected in stakeholder claims in the VoIP debate. It examines the nature of the public interest as applied to the VoIP debate to provide a framework for critically examining stakeholder attempts at circumscribing the public interest in policy debates outside of the communications arena. It discusses findings from the VoIP debate analysis and how theses findings might be applied in broader contexts of policy-making in the public interest, and offers conclusions that might reasonably be drawn from the analysis. Chapter Nine concludes by reflecting on the usefulness of applying framing analysis in examining the rhetoric surrounding policy-making procedures, and it examines the value of the public interest as a theory to investigate how stakeholders in a policy-making debate attempt to circumscribe the public interest to sway decision-makers toward regulatory outcomes most favorable to the stakeholder’s own policy agenda. It acknowledges the limitations of this study and suggests areas of future research concerning policy-making and stakeholder attempts to circumscribe the public interest. Issues of the public interest with respect to technology, competition, and universal service constitute the primary areas of inquiry that this dissertation addresses concerning the regulation of VoIP. There are other considerations of the VoIP policy debate, such as E-911, E-Rate, disability provisions and CALEA that, though important, are outside of the scope of this dissertation. They are not controversial and are therefore not addressed here. The public interest concerns of technology, competition, and universal service issues have taken center stage from the VoIP Forum forward and therefore remain the focus of this dissertation.

CHAPTER TWO

CIRCUMSCRIBING OF THE PUBLIC INTEREST IN COMMUNICATION LITERATURE

When attempting to outline the public interest following the contours of the VoIP debate, scholars seek to understand why, and in what ways, stakeholders might wish to circumscribe the boundaries of the public interest and how any forthcoming adoption of these boundaries by regulatory agencies might further the stakeholders’ own interests. As presented in Chapter One, this dissertation endeavors to explain the ways in which stakeholders in the VoIP debate attempt to circumscribe the public interest with unipartite claims intended to guide a desired policy outcome. This inquiry explores the manner in which VoIP stakeholders select applications of the public interest advantageous to their policy agendas and minimize any public interest interpretations deemed useful to their opponents’ intended policy outcome. Chapter One provided a definitional benchmark for the public interest policy- making from the standpoint of stakeholder claims in the VoIP debate, especially concerning innovation, competition, and universal service. It considered the essentially contestable nature of the public interest and how the public interest’s indeterminate characteristics lend themselves well to stakeholder framing attempts in the VoIP debate. The nature of the VoIP debate is one in which stakeholders attempt to define this new technology using imprecise constructs, such as the distinction between a telecommunication service and an information service. The public interest as a theoretical construct is interesting because, throughout the VoIP debate, this inquiry will show, stakeholders propose to circumscribe a concept as nebulous as the public interest such that its interpretation can be applied toward framing VoIP as a telecommunications service, an information service, or some other regulatory designation entirely. It is important because as the construct of the public interest is circumscribed around certain stakeholder agendas, the resulting policy implications can hold social, economic, and political consequences that reach beyond the scope of an initial policy debate and result in regulatory outcomes that affect a global constituency.

Part of the intrigue of applying interpretations of the public interest to policy discussions come from its indistinct nature and varying contextual meanings. On the one hand, the public interest represents a sociological ideal – that which could be said to represent the greater good – while on the other it denotes an economic theory – specifically, Public Interest Theory. The first section of this chapter examines research from both the sociological and economic premises of the public interest as they pertain to the VoIP debate and shows how the two premises differ. It considers how efforts at circumscribing the public interest compete when applied to oppositional stakeholder policy goals. The second section examines how research informs discussion about technological issues in policy-making as they pertain to regulating new technology in the public interest. It considers the oppositional frameworks that stakeholders apply to interpretations of the public interest as they seek to sway policy outcomes to advance their specific regulatory agendas. The third section examines research on the economics of regulation as relate to new technologies. It considers applications of competition to the public interest as a component of policy-making and what effect these applications have on a new technology. The final section of this chapter examines research on universal service. It considers the ways industry stakeholders might frame conceptions of universal service as applied to a new technology as serving the public interest when advocating for policies favoring their own specific interpretations of universal service. To ascertain how stakeholders in the VoIP debate venture to advance their particular regulatory concerns, this dissertation explores stakeholder interpretations of the public interest to provide a framework for claims made concerning the regulation of VoIP. In evaluating stakeholder comments concerning the public interest, the framework provided by this review of literature is useful in revealing stakeholder policy positions, uncovering stakeholder motives, and unveiling stakeholder policy partiality as relate to the VoIP debate. This chapter compares different theories that define the public interest – including Public Interest Theory – which frame the VoIP regulatory debate. This section begins with an overview of varying perspectives on the concept of public interest.

Debating the Public Interest

The term public interest first came into popular use during the Progressive Era (~1890-1913), when it was used to describe a change in the business climate from one with the full support by the government of corporate interests to one with an interest in protecting the citizenry from corporate abuse (Rauchway, 2005). Advocates of Plato’s Idealist school believe that only government officials – themselves from the noble class – have sufficient knowledge and wisdom to determine what is in the public interest, whether or not the citizenry would endorse the resulting public policy. This section discusses interpretations of the public interest contemporaneous to the VoIP debate in an effort to understand the public interest’s numerous technological, economic and social implications. The concept of public interest takes on different meaning in different contexts. Often the definition is more one of expedience, rather than precision – a challenge that similarly exists when endeavoring to define VoIP under current regulatory constructs. Suggestions of how the public interest is applied within given policy contexts, and assertions of what the public interest should accomplish, vary with each new regulatory reform. Burkhead and Miner (1971) choose to speak to the procedural public interest, which they define as establishing the values that underlie the public interest while revealing the consequences of alternate policies – a definition which illustrates the indistinct nature of the public interest. Burkhead and Miner cannot, it seems, get around their referencing of the public interest while proposing to define it. Gandy (2002) writes that a continuing debate exists concerning the government’s role “responsibility for ensuring that the public interest … of citizens [is] well served” (p. 449), and argues that this public interest debate – much like the debate surrounding VoIP – has yet to be resolved. Gandy suggests that, “because of the differences in the definition of the public interest, as well as the means thought most likely to ensure it, there is no simple way to evaluate the performance of … [a] media system as a whole” as it strives to serve the public interest (p. 452). The debate concerning how to regulate in the public interest a media system that combines the traditional telecommunications network with a new

Internet technology to facilitate VoIP communication seems to illustrate Gandy’s thoughts rather effectively. McQuail (1992) writes that the notion of the public interest is hard to “pin down,” but offers the provisional definition that “the term public interest refer[s] to the complex of supposed informational, cultural, and social benefits to the wider society which go beyond immediate … individual interests” (p. 452). This definition, like so many others, defines the public interest from a general perspective. The dearth of definitions concerning the specifics of the public interest illustrates how actions said to serve the public interest in specific fashion often remain open to interpretation. Former FCC Chairman Mark Fowler (1987-1989) described the public interest as simply whatever interests the public. Recently retired FCC Chair Michael Powell (2001-2005) is quoted in a speech to the American Bar Association (ABA) as saying, “with respect to “the invisible hand of the market,” that the business of the FCC is to resolve "matters that predominantly involve the competing interests of industry" without concern for the "public interest.” These responses suggest that the definition of the public interest is amorphous and situationally adaptable. In the ABA speech, Powell’s comments regarding the public interest foreshadowed his disposition on the matter he would undertake as FCC Chair: “The night after I was sworn in, I waited for a visit from the angel of the public interest. I waited all night but she did not come. And, in fact, five months into this job, I still have had no divine awakening.” (Powell, 1998).

The sentiments of Powell’s quotations will become important as this inquiry evaluates changes over time in FCC decision-making reflective of the public interest, especially given that Powell served at the FCC helm at the time of the VoIP debate’s inception. Decision makers often consider that the public interest has been met, Strugman and Reid (1980) write, when they have taken into account a balance of various viewpoints. Banfield (1991) comments on this balance in explaining the difference between special interests and the public interest. Special interests, according to Banfield, further the agenda of a portion of the public at the expense of the larger public; the public interest is met when the cause of the entire public sector is served, not merely the cause of a handful of stakeholders. Clearly this is not only difficult to define but difficult to

achieve. Downs (1997) offers his definition of the public interest as decisions based on a consensus of a preponderance of the people. In contrast, Marks (1973) advocates for a balance of interests – some public, some private – rather than a search for consensus in attaining the common good and thereby serving the public interest. In responses given to the FCC concerning how to regulate VoIP, claims about the public interest represents the primary component of VoIP stakeholders’ arguments as to how policy concerning VoIP should be shaped. One useful interpretation of the public interest put forth by McQuail (1992, p. 452) defines the public interest as the “complex of socio-economic benefits enjoyed by the greater society that transcend individual interests.” In any regulatory debate, intergenerational equity issues should balance the economic, technical and service requirements of today’s society with those of future constituencies. Gandy (2002, p. 448) writes that “because of the conflicting ideas about the nature of the public interest, it is impossible even to predict that an increase in source diversity,” a preponderance of service providers, for example, could represent ‘a net contribution to the public interest’.” Yet Gandy still does not tell us what the public interest constitutes, only what will definitely not contribute to it. McChesney (1999) would call this a “massive paradox.” The public interest, as a goal, currently stands as one of the key areas of contention used by both sides of the VoIP debate to forward their respective claims concerning VoIP regulation. Among the most highly charged topics of the debate include issues dealing with VoIP as it pertains to technological issues, economics, and universal access/service. Mody, Trebing, and Stein (2002, p. 386) note an important point concerning the public interest and the VoIP debate, that “the rhetoric for competition has not resulted in competitive market structures, and advances in technology liberated by market openings have not provided suitable solutions” to economical universal service provision. To this end, what Dahlgren (1995, p. 52) suggests is needed to provide for the public interest “is re-regulation, to counteract the negative aspects of market forces and optimize the positive role they can play.” Van Cuilenberg and Slaa (1995) address the issue of positive and negative market forces. They ask, “To what extent, and how is, competition [among] telecommunication providers positively influencing innovation in telecommunication?” 17

This question remains important a full decade after the study’s publication because competition as a function of VoIP regulation ranks among the most important considerations of the FCC’s concerning the public interest in their current VoIP regulatory investigation. Former FCC Chairman Powell was often quoted as not wishing to restrain competition as a result of any VoIP regulatory ruling; current FCC Chair Kevin Martin has echoed these sentiments (VoIP Forum, 2003). When evaluating competition in the telecommunications sector, Van Cuilenberg and Slaa (1995) write, policy makers must decide what level and what type of competition would provide the most positive industry environment most favorable to the public interest. Ideally, they state, governments should opt for policy that maximizes freedom of communication, opportunities for social interaction, and economic production. According to these researchers, a society that offers its consumers a diversity of communication products at affordable prices – VoIP, some stakeholders might suggest – is providing a high level of freedom, and in so doing representing the public interest to its citizens. Fainsod (1940) foreshadows this point in his writings on how agencies – such as the FCC – have a crucial role in developing new social values in the public interest. Fainsod sees regulation as “a public interest inspired” process that must consider technology, economic organization, and the law combined with stakeholders such as investors, financial groups, management, labor, consumers, and industry suppliers and competitive party politics, legislative activity, the exercise of administrative discretion, and judicial determination. Each of these components of the public interest was cited in the Introduction as representing the critical components of VoIP regulation, which responsible policy makers must consider when including public interest as an important component of new technology regulation. This inquiry investigates the degree to which the FCC has expressed an inclination to hold VoIP to any bonds of regulation, and the degree to which stakeholders in the VoIP debate have used claims concerning how their interpretations of the public interest and regulatory policy will affect the three central themes of this dissertation – technology, competition, and universal service. Continuing analysis examines how a common claim in the VoIP discussion posited by some stakeholders, that freedom from regulation is in the public interest, contrasts with

assertions by other stakeholders that only through regulation can a market remain free and competitive.

Innovation, Technology, and the Market

This section begins with a survey of research on market forces in technological innovation and changes in telecommunications, highlights a case study germane to this inquiry’s examination of the VoIP debate, and concludes with a discussion of regulatory environments cited by researchers as most conducive to technological development in the public interest. Castells (2000) observes that at least two industrial revolutions have occurred in America’s history – one in the last third of the 18th century and the second approximately 100 years later with the diffusion of the telegraph and then the telephone. Fidler (1997) explains that new technologies do not spontaneously generate, instead they build upon technologies all along their historical path. Kondratieff (1926) was among the first researchers to apply change in technology to economic predictions when he ascertained the connection between the “long waves” in economic cycles – resulting in expansion and contraction of economies – and how technology helps an economy advance from a downward wave cycle into an economic upturn from a cyclical nadir. Building on Kondratieff’s long wave theory, Schumpeter (1939) observes that over time innovations will tend to supplant one another as technology advances. Schumpeter deduced the theory of “creative destruction” from which was derived the techno-economic paradigm. Researchers in fields ranging from economics to technology would build on Schumpeter’s approach to understanding technological innovation and development in an economy. Kuhn (1962) describes how societies undergo shifts in paradigms, for example, those centered upon uses of technologies that resultantly change entire economies. To this end, Henten and Skouby (2002, p. 325) discuss how outside of the technological paradigm, “technology has been seen as exogenous” and assigned a peripheral role as a driver of economic change. The VoIP debate highlights a dilemma often encountered in policy-making: policy drives innovation, which in turn creates more need for policy. Roller and Waverman (2001) show how the cause of economic growth may be the cumulative effect of fixed 19

assets, for example in research and development, to which telecommunication investment is closely correlated. The concept of network externalities amplifies this point, illustrating how, as technology is adopted by more and more people, the value of that technology for those who already employ it increases even as its value increases for the late adopters (Star & Bowker, 2002). The decision to select a new technology over a current technology with existing infrastructure already in place has resonance beyond the initial decision (Leahy, 2004). Through network externalities, David (1985) explains, infrastructure deployment becomes increasingly more important to those who adopt it, and leads to even greater adoption of the technology. Metcalf’s Law observes that the value of a network is proportional to the square of the number of people using it. This exponential growth results in ongoing network externalities easily leveraged by an intact network such as that represented by the Public Switched Telephone Network (PSTN). Harris (1998), however, observes that the externalities associated with network economics often leave some users behind as technology advances. The key to helping ensure optimal network economies, according to Star and Bowker (2002), is integrating innovations with existing infrastructure, thus leading to what they call social shaping of technology. The narrative that threads together public beliefs about communication technology, Selfe (1999) and McChesney (2000) observe, is reliance on an unregulated free market as a solution to most of the world’s economic problems. Selfe (1999) argues that this narrative grows out of modernism’s view that science and technology will yield a better world for the human species. Technological utopians see a world replete with the technologies of freedom. When technological development and capitalist enterprise are combined with democratic social systems, Warnick (2002) contends that, according to some rhetoric, their potential for improving people’s lives can be fulfilled in the public interest. Mody, Trebing, and Stein (2002) tell us that, with respect to new communication technology development, the market should be the servant, not the master. Blackman (1998) envisions the public interest as a largely market-based consideration, believing that the pace and direction of the development of information and communication infrastructures should be market driven as much as possible. McChesney (2000) takes issue with the idea that market forces alone should regulate the Internet, and by inference, Internet based communication technologies. The promoters of the market forces position, 20

Warnick (2002) suggests, apparently believe that combining the market with the Internet allows entrepreneurs to develop new products, form companies, and compete. New technologies, Warnick perceives, are frequently viewed as developments that by their very existence serve the public interest and will necessarily lead to economic development and an elevated standard of living. Pro-technology rhetoric such as that surrounding VoIP – that it functions as the center of development for new technology applications and that its free market economy is the best environment in which to cultivate technology, innovation, and serve the public interest– can be powerfully appealing, according to Warnick. She surmises that the only narrative around which any policy consensus has formed is that of Libertarians who she claims insist that the public interest is best served by letting laissez-faire market policies plot their course. This position seems to privilege those fortunate enough to find themselves at the vanguard of technological diffusion while seeming to marginalize those in whom the public shows little interest. Van Cuilenberg and Slaa (1995) argue that this diffusion of technological innovation is “relevant for judging the public interest payoff from competition in telecommunications.” These two researchers also stipulate that competition is generally assumed to be favorable for technological innovation. However, van Cuilenberg and Slaa show that market competition often only results in process innovation, or, more efficient production, rather than product innovation. The intense production and network input cost-cutting competition, which industry watchers predict will likely intensify before it levels off (Charney, 2004), do not lend always themselves to research and development investment that results in product innovation. A regulatory case that involved a new technology breaking into an existing communication market speaks directly to this inquiry’s concerns regarding claims concerning the public interest. In 1995, Kim wrote of the Direct Broadcast Satellite (DBS) rulemaking process. His analysis provides an interesting historical perspective as this inquiry evaluates the VoIP ruling making process currently underway at the FCC. While his article specifically references “the media,” Kim’s observations are very much on point as this inquiry discusses the public interest in VoIP policy-making. He cites former FCC commissioner Nicholas Johnson (FCC term 1966-1973) as stating that the 21

public interest “is a process of decision making that gives equal consideration” to the diverse needs of all stakeholders. In Kim’s analysis of the DBS debate, he notes that a portion of the communication industry objected to free entry of new, competing, services. Citizen groups, according to Kim, welcomed new the technology but opposed the market- based approach to serving the public interest. Kim shows how citizens envisioned uses of the new technology beyond what industry incumbents could provide. The public in the DBS debate believed that the suppression of a new technology constitutes what Kim interprets as the abandonment of the public interest mandate bestowed on the FCC. Comments such as those in Kim’s examination of the DBS debate are very similar to those made by stakeholders throughout the VoIP debate, and as such are useful as a comparative analysis of policy-making debate surrounding new communication technology. Kim advocates for the free entry of new communication technologies and services and the elimination, or non-imposition, of incumbent regulation on new market entrants. He points to comments by stakeholders indicating what he felt was an understanding of the issues at stake concerning the use of regulation as a way to protect the public interest. He explains how stakeholders in the DBS debate offered comments indicating a preference for not impeding the proliferation of a new communication technology, and how the public expressed a preference for access to new technology. “The marketplace does not deserve our blind faith,” Kim (1995, p. 55) quotes stakeholders as having said, concerned by assurances that without FCC involvement the new technology in question would become available through natural market movement and response. Researchers have also written extensively about the introduction and regulation of a new communication technology into an existing market. Government institutions have become increasingly important sources of technological advance, Volti (2001) asserts. Technical decisions are made in accordance with vertical relationships whereby those at the top can countermand lower decisions even when facts suggest they do otherwise and merely give the appearance of seeking 360 degree feedback, a decision making method that suggests an unilateral view of the public interest. Rogers’ (1995) diffusion of innovation theory lists the five primary characteristics that explain the rate of adoption as 22

relative advantage, compatibility, complexity, triability, and observability. When evaluating how a technology diffuses over a homogeneous society this model works very well. It seems to assume a type of economic ceteras parabus – that all economic factors are held constant and that every member of society has enough money to adopt any technology deemed better than the one it supercedes, consistent with the existing values of the potential adopters, relatively easy to understand, available for experimentation, and visible to others. One question that Rogers’ diffusion of innovations model does not address is what degree an individual’s decision to adopt a new technology is not sociologic but economic. Mody, Trebing, and Stein (2002) suggest that, in policy-making, the real question becomes which values and interests will technology be represented as serving, and how will those values be defined. When evaluating the policies in place around new or existing communication technologies, Benkler (1998) cautions society to be wary of predictions claiming that technological convergence, such as that seen with telephony and Internet technology, will inevitably result in the displacement by the Internet of the current U.S. telecommunication model. He reminds us that technology alone – be it VoIP, telephony, both, or neither – does not determine the path of development for its use. Benkler writes of a phenomenon of institutional and adaptive lock-in, whereby an incumbent communication technology or infrastructure resists changes made possible by technological shifts or advances. His observations are evidenced in the debate surrounding VoIP policy, when the incumbent telecommunication provider resists the technological change that Internet telephony creates. He writes of how organizations operating within a paradigm developed under an old communication technology may attempt to fit the new technology into the old patterns of use. Benkler notes that the social consequences of a policy that affects uses of a communication technology are not found in the public interest rhetoric surrounding regulation. He observes that the more stakeholders who adopt a new technological paradigm – such as VoIP – the more valuable each respective mode becomes to those who embrace them. Perceptions of what is efficient or desirable as relates to the public interest are shaped over time, according to Benkler, to reduce the perceived opportunity costs of the stable condition in which society exists. Organizations, he maintains, invest 23

in technology that has the highest value within a given pattern of use in order to optimally attend to the public interest, a phenomenon he calls “technological determinism.” As institutional frameworks such as traditional telecommunications or VoIP persist over time, individuals embracing either the telecommunications or VoIP paradigm create more elaborate justifications for the technology’s continuation. Stakeholders will employ selective attention techniques to assuage any cognitive dissonance involved in continually justifying their choice, given that assimilation of new information could require action or expense and must therefore be filtered out so as not to risk what Benker calls uncertain patterns of redistribution. Combined, per Lieverouw (2002), these factors produce an historically contingent pattern of communication technology with a path dependent robustness highly difficult to reverse once set. According to Benkler (1998), there is no reason to predict that a digital technology such as VoIP would force the supplanting of traditional telecommunications. Benkler does advise, however, that a society acting without taking into account the policies it directly or tacitly embraces, may find itself “locked” in to a path it would not have chosen had it considered options other than those seen as pre-determined. His thesis reflects the theory of technological determinism, which stipulates that the persistence of social behavior patterns has a feedback effect on the path of technological development (Lieverouw, 2002). Volti (2001) builds upon Benkler’s (1998) observations, explaining that a technology’s genesis is often a result of a concentration of innovation research with a pre- determined path dependency. Antonelli (1991) writes that as concerns technological advances in telecommunications – VoIP, for example – one would infer high lock-in effects – that is, once a specific technological deployment is made following a policy decision, it becomes difficult to reverse course. Indeed, it takes exponentially more effort to change direction once a technological commitment has been made than to move in a given technological direction from a technologically neutral original starting point. In the VoIP debate, whether such technological lock-in is deemed beneficial or detrimental to the public interest depends largely on which stakeholder interventions hold the greatest sway with the FCC. Stakeholders frame regulatory arguments to the FCC around the public interest, with each side of the debate cautioning for the careful choosing of a VoIP policy to ensure the desired regulatory path is chosen. Poor planning, stakeholders agree, 24

reflects no one’s definition of the public interest. This inquiry examines how some stakeholders frame lock-in effects as representative of a technological utopia they suggest will be brought on by VoIP – and the public interest this utopia represents – while others caution that VoIP holds no more nor less promise than any other new communication technology. In examining the policy opposite of technological determinism, the phenomenon about which Benkler, Volti, and Antonelli write, Hughes (1983) explains that technology is a social construction, that societies can use technology as best fulfills their needs and are not bound by technological determinism that shapes the way they use innovations. It may benefit a society not to be bound to the technological paths that innovations’ creators might dictate. When free to reinvent any technology, or to choose to reject, discontinue, or replace that which does not meet society’s technological needs, a society is free to innovate within a particular technology’s application. Hughes calls attention to “reverse salients,” those areas of technological, social, or political friction that can slow deployment of a technology. He notes that solutions to issues of reverse salients need not reflect precise the nature of the reverse salient itself, i.e.: a technology problem does not need a technology solution; a policy solution, for example might resolve the issue. This inquiry explores the ways stakeholders in the VoIP debate might draw from Hughes’ theory of reverse salients as frames for why the FCC should consider the policy solutions the stakeholder recommends for resolving the VoIP debate. Roller and Waverman (1996) how the supply of telecommunication transmission and applications can cause economic growth while simultaneously economic growth can cause an increase in demand for telecommunication transmission and applications. According to Lovelock and Ure (2002; p. 268) “where anything beyond simple commodity production exists, markets exist and value for telecommunications [and applications] can be derived.” This inquiry explores how stakeholders in the VoIP debate frame policy arguments in an effort to ensure that their products, whether transmission or application, neither become commoditized, and therefore fungible across markets, nor priced so far beyond market equilibrium that competitors seek a technological bypass to their infrastructure.

In summary, concerning communication technology, this inquiry has considered how one set of stakeholders may frame the public interest as best served with more technological choice, for example, while another set of stakeholders might counter that if improperly regulated, a new communication technology would merely serve to lessen the technological choices for markets deemed too remote or poor to serve profitably. Researchers caution that when evaluating the technology claims made by stakeholders concerning the VoIP debate, to pay attention to the ways in which arguments are framed in support of specific VoIP policy agendas and how those arguments work to sway FCC decision- making using the public interest as a foil.

Economics, Competition, and the Public Interest

The economics of a new communication technology policy is affected by FCC decision outcomes and heavily contested by all sides of the VoIP debate. Economists point to the public goal of regulation as the economic growth of a given industry such that this growth serves the public interest. This section evaluates the economics of Public Interest Theory and contrasts its postulates with those chronicled above concerning the societal definitions of the public interest. It explains the nuances between the economic and social components to the public interest, which provide the foundation for the research questions this dissertation seeks to answer. Schumpeter (1939) theorized that capitalism and its focus on entrepreneurialism through technological innovation brought about “creative destruction” which changed how companies responded to new technologies, integrating them into their business model often displacing currently embedded technologies. Christensen (1997, p. ix) expands on Schumpeter’s observations, noting that, “outstanding companies…that invested aggressively in new technologies still lost their market leadership when confronted with disruptive changes in technology and market forces.” The term “disruptive technology” has come to describe an innovation that forces change in a company’s business model which the company would not otherwise have made but for the introduction of the new technology. Christensen (1997, p. x) predicts that stakeholders in a technology-centered policy debate might initially reject the disruptive technology and “unwittingly bypass opportunities and clear the way for more nimble 26

entrepreneurial companies to catch the next wave of industry growth.” Christenson’s predictions portend the nature of the policy debate between VoIP stakeholders with regard to how best to classify a technology that has the ability to disrupt the regulatory framework of the entire telecommunications industry. Disruptive technologies such as VoIP leave regulators with challenges to enact policy appropriate to the technology without being seen as supportive of that technology over an already existing technology. Posner (1974) sees an appropriate role for regulatory agencies when they protect competitive forces within a particular market. Posner hypothesizes that markets are “prone to fail if left alone” and that “the transaction cost of government regulation” is zero. In his 1971 article, “Taxation by Regulation,” Posner writes that regulation that protects the public from monopoly power takes a public interest approach. He traces his theory of the public interest back to the enactment of the 1887 Interstate Commerce Act, the predecessor to the Communications Act of 1934, which gave rise to today’s FCC. Market failure was recognized by Posner as part of the Public Interest Theory of regulation, “related to the non-correlation between (a) regulation and the presence of external economies or diseconomies, (b) the monopolistic market structure, and (c) the non-existence of transaction costs of regulation, according to the empirical evidence available at that time.” In other words, Hantke-Domas (2003) restates, the public interest theory of regulation “holds that regulatory agencies are created for bona fide public purposes, but are then mismanaged, with the result that those purposes are not always achieved.” Posner nonetheless found that evidence pointed to “socially undesirable results of regulation” frequently benefiting stakeholders that have participated in the enactment of regulatory legislation. Public Interest Theory, according to Horwitz (1989), shows the reader how those supporting the deregulation of the telecommunications industry initiated in the 1980’s declared it morally right and in the public interest – a claim some stakeholders might make regarding their respective positions on VoIP regulation. In acknowledging that defining public interest is only ever an approximation, Horwitz views regulation in the public interest as a balance among competing interests, a "black box” epitomizing a “terrain of struggle.” Traditional regulation of telecommunications exhibited what 27

Horwitz termed “cautious guardianship over industries and firms said to be central to commerce” (p. 6). The public interest claims made at the time of Horwitz’s writing were in favor of regulation by the very firm to be regulated, AT&T, using rhetoric similar to that of today’s VoIP arguments from both camps, the facilitation of commerce. By providing an “extra-market policing function” telecommunication regulatory agencies – i.e.: the FCC – helped to “rationalize corporate capitalism” Horwitz reports (1989, p. 7). The regulatory agencies themselves, he continues, “provided an administrative framework within which … large corporations could legally collude under state imprimatur” (1989, p. 14). Promoting commerce while expanding the telecommunication marketplace and all the markets that telecommunications influenced, Horwitz writes, constituted a fundamental public interest justifying the regulatory role of the state intervening in telecommunication policy-making. According to Horwitz (1989), the transformation of the concept of public interest posed by deregulation of telecommunication involved a shift away from concerns with network stability and a kind of social equity to a concern with market controls and economic efficiencies. The regulation of telecommunications has facilitated what Horwitz describes as “socially valued cross-subsidy arrangements” (1989, p. 7). In telephony, for example, long distance rates were supposedly used to keep local rates low in order to encourage the expansion of the telephone network. However, because of these very arrangements, Horwitz explains, there always exist incentives for certain classes of consumers – primarily large corporate users – to “bypass” the regulated system, and for would-be entrepreneurs to serve those users. Horowitz explains how technological innovations, particularly in telecommunications, provide potential by-passers with “additional incentives and the means to drop out of the regulated system”(1989, p. 7). Mosco (1989) speaks to this issue when he observes that judgment concerning an individual’s ability or willingness to pay for communication technologies has supplanted the public interest in determining who gets access to technology while supporting “those who contend that market rules should replace, as fully as possible, any government or public intervention” (p. 316). Murdock and Golding (1999) describe the policy shift allowing a domination of communication and related technologies by corporations as what they term “marketization.” They state that supporters of marketization claim that 28

any barriers to entry into a communications market as imposed by government policy would constitute “a cost to society” that falls outside of the public interest. McNamara (1991) expands this theme when observing that the view advanced by corporations conflates active competition with the threat of competition that, in the long run, will “discipline” – ostensibly to fit their product offerings with the public interest. In direct opposition to this viewpoint, Gandy (2002, p. 449) points out that there have never been any markets that were self-regulating, and therefore, “the introduction of information technologies …only increases the need for governance.” Henten and Skouby (2002) write about to the co-opting of the public interest by regulating bodies, yet that “trade and industry policies are not very specific” – a theme this analysis explores with respect to the public interest via VoIP policy – and mostly “consist of broader vision statements [and] a fundamental belief that market forces will ultimately realize the vision” (p. 321). Henten and Skouby elaborate on their premise to explain the differences between competition regulated in laissez-faire fashion - where a market such as telecommunications is simply “liberalized without any further regulation” and “types of regulated competition where asymmetric regulation is established in order to open the market [to] new providers” (p. 326). Henten and Skouby speak specifically to the telecommunications industry and reference Progressive Era reforms when they state, “regulatory agencies are supposed to be custodians of the public interest” (2002, p. 327). The societal definition of the public interested was first promulgated during the Progressive Era. Still a challenge remains in differentiating between the political concept of public interest and the economic Public Interest Theory – the cornerstone of today’s VoIP regulatory debate – defining the public interest and then regulating on the basis of that definition. When one reads the treatments of the public interest from an economic, an understanding begins concerning how opposing sides of a VoIP debate can exploit the properties of the public interest which best support their respective agendas. This inquiry explores whether, in the VoIP debate, stakeholders demonstrate an inclination of choosing to interpret public interest in a fashion as best suits their case. The following section will evaluate public interest interpretations with an attempt to clarify how definitional selective application of public

interest theory becomes the rhetoric of the respective stakeholders for how they frame their definition of the public interest to buttress their respective arguments.

Universal Service

Claims can be made neither about a communication technology’s market contribution nor its impact on the public interest without exploring how the expansion of access to the technology would expand its promulgation through society. This section explores researchers’ perspectives on universal service – what it means, how it is defined, and why it remains a topic of contention in the VoIP debate. At the end of this section the reader will have been presented with the definitional nuances of universal service, universal access, and how researchers treat each definition with respect to the public interest. This section will be important when evaluating public interest claims made by stakeholders in the VoIP debate as each side frames universal service to best support arguments that favor their respective universal service dispositions. Before examining literature on universal service, it will be useful to first define both universal service and universal access to help differentiate the stakeholders’ positions on each and how those positions are manifest in VoIP claims. One portion of the 1996 Telecommunications Act (1996 Act) on universal service reads:

“The goals of Universal Service, as mandated by the 1996 Act, are to promote the availability of quality services at just, reasonable, and affordable rates; increase access to advanced telecommunications services throughout the Nation; advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas. In addition, the 1996 Act states that all providers of telecommunications services should contribute to Federal universal service in some equitable and nondiscriminatory manner; there should be specific, predictable, and sufficient Federal and State mechanisms to preserve and advance universal service.”

One notices that the 1996 Act provides no quantification of how universal service is to be provided, leaving an ambiguous definition of universal service provision standards. This inquiry explores in its analysis of the VoIP debate stakeholder claims on the topic of universal service address the degree to which service is simply available,

though perhaps not accessed, and make assertions as to where the responsibility lies in ensuring 100% service area coverage and leaving no consumer without service. This inquiry explores how stakeholders frame universal service as a basic service level entitlement but not necessarily an advanced services entitlement, under which category these stakeholders assert that VoIP falls. Stakeholder differentiations in the universal service definition set the stage for how the various stakeholders in the VoIP debate view universal service contributions: either as requiring any communications company providing voice service of any kind to contribute in the same manner as do the current telecommunications firms, or as exempting any firm providing advanced communication services, as referenced in Chapter One, from liability to the universal service fund. Analysis will attempt to uncover each stakeholder’s policy standpoint concerning concepts of universal service as compared with those of universal access. This section explores how researchers disagree as to where the accountability for universal service provision falls, how it is defined, and, especially, who is responsible to pay for it. Much of the rhetoric in the VoIP debate revolves around universal service. Frieden (1998) sees a genuine threat to universal service if VoIP captures a significant portion of current long-distance traffic, while Martin and Schumann (1997) suggest that big business, such as that represented by multi-billion dollar VoIP providers, does not want to maintain disparities in universal service. They posit that it is only by granting access to more people in the digital voice domain that business can, as Foucault (1980) states, “increase subjected forces” thus improving “the forces and efficacy” with which they and society remain subjugated to business interests. The typical distinction between universal service and universal access is the difference between services that are delivered to all users versus service to which all users have access, irrespective of whether or not they elect to avail themselves of those services, although Hudson (2002, p. 372) explains that “the terms universal service and universal access are sometimes used interchangeably.” Hudson adds that “it is the importance of communication to socio-economic development and equity that has been the foundation of ‘the public interest’ concerns in telecommunications, and the concept of universal service as a means of providing accessible and affordable communication throughout society” (p. 371). There is, she says, “still a danger of creating electronic 31

ghettos – low-profit regions such as inner cities and rural areas – that carriers and service providers may have little incentive to serve or upgrade” (374). Drawing from earlier economic discussion, the “obligation to serve” (p. 13) Horwitz (1997) maintains, was “an essential feature of the regulation of infrastructural services.” Traditional regulation was not always seen as bad, Horwitz advises; instead it was “largely responsible for the stabilization, growth, and universalization of U.S. telecommunications and served as industrial policy.” The common carrier principle, Horwitz shares, was “little more than a commerce based notion of the public interest” with common carrier law simply “guaranteeing access to the means of transmission.” Part of the provision of universal, nondiscriminatory access to service meant that common carriers were mandated to interconnect their lines with other carriers. One of the reasons put forward for the initial deregulation of telecommunications, Horwitz writes, was that industry had to be “unshackled” so that the U.S. could enter the information age. A quarter century later the same argument is made for laissez-faire policies regarding VoIP regulation, but this time by the actual agency in addition to the industry. VoIP proponents insist that the market will correct for any initial loss of service breadth. Stakeholders in the telecommunication arena demand that historic forms of regulatory universal service requirements remain in place. In contrast to today’s concept of universal service, Mueller (1993) writes that in the early days of telephony service provision, concerning his term “universal service,” Theodore Vail was referring to universal connectivity among networks rather advocating for universal service for everyone. The definition of universal service is still under discussion 100 years later within the VoIP debate. Jayakar and Sawhney (2004) speak of the “ambiguity” surrounding universal service as a concept. With regard to what impact the technology will have on universal service, depending on the position taken by various stakeholders, VoIP is both heralded as the savior of and condemned as the death knell of universal service, in one fashion an upholder of the public interest and in another a public interest underminer, depending on the way a particular stakeholder chooses to frame the subject. Rooskby and Weckert (2004) write that a society in which half of the population uses high-speed, latest-generation Internet connectivity and the other half access the Internet via basic Public Switched telephone Network (PSTN) dial-up services, a society 32

cannot characterize itself as one with no inequalities in universal service or access. Still, the question of whether these inequalities have any moral significance as they pertain to the public interest remains unaddressed. Roosky and Weckert indicate that generally, if an innovation – such as VoIP – affords users with “substantial positional advantages” the distributive inequality of access to service will tend to increase, and those who are already better off will be the ones who gain further positional advantages. However, they counter their own arguments that if inequalities of access to a new communication technology do not mirror existing patterns of distributive inequality, then the introduction of that innovation may tend to encourage diffusion across all of society. Curiously, both sides of the VoIP debate manage to corral these stipulations within their respective circumscribed public interest boundaries and incorporate them into their dispositions concerning the public interest. An additional “indirect objection to social inequalities,” Rooksby and Weckert (2004) state, is that they are associated with (or even help to create) societies in which those who are advantaged have an unreasonably large say about the organization of those societies. If those who are advantaged have an “unreasonably large” say about social organization, Rooksby and Weckert explain, then those who are disadvantaged are, by the same token, deprived of a “reasonable” say in social organization. Continuing with a social equality discussion of technological distribution, Rooksby and Weckert posit that by treating communication innovations as luxury goods – like sports cars, for example – that perform no practical function that other cheaper means could not perform, society allows the implication that there is no particular moral significance to inequalities in access to the innovation. Again, the researchers do not directly address the public interest, leaving the reader to draw his or her own inferences as to the public interest from Rooksby and Weckert’s repetition of the term “moral.” Interestingly, because they do not speak to the public interest directly, the authors’ comments are open for interpretation by both sides of a debate such as that of VoIP, and we will explore the degree to which stakeholders do so. In an attempt to tie universal service issues to the public interest, Gandy (2002, p. 457) suggests that in telecommunications, “universal service has come to be equated with an entitlement, a right to goods and services that have been argued to be essential for 33

participation in society” but at the same time believes that “it is appropriate to consider the extent to which universal service is both necessary and beneficial to society as a whole.” Stakeholders in the VoIP debate argue both for and against service entitlement, invoking arguments ranging from economic impacts, to the social network and technological diffusion. Hadden (1991) studied the different ways that innovations diffused throughout society based upon their dependence on specific installed infrastructures. She found that technologies diffused much more rapidly when they made use of pre-existing systems in the home, as compared with those that required ancillary infrastructural installations, broadband Internet connectivity, for example, in order to maximize the technology’s utility. Gandy (2002, p. 457) notes of Haddon that in her “examination of the substantial inequality” of communication service access, and by “focusing on function rather than technology,” Haddon (1991) illustrates how universal service could encompass more than universal access because “the seemingly natural and inevitable forces of diffusion” would not by themselves ensure that “genuine universal service would be achieved” through functional utility of, as compared with mere proximity to, communication services. As Kuttner (1999, p. 362) observes, “[i]f markets are not perfectly correcting, then the only check on their excesses must be extra-market institutions,” or regulations; some stakeholders claim that we could not count on ensuring the public interest otherwise. Over time, changes in the larger economic environment and technological innovation such as VoIP may alter the balance of interest in and around the regulated industry, but regulatory structures do not adapt to these changes, according to Horwitz. Organizations, he says, do not tend to shrink or dismantle themselves. Instead, what the U.S. government supports in formerly monopolistic industries, typically, is regulation, symmetrical or asymmetrical. The former imposes equal regulatory conditions on all competitors in a given market and the latter imposes greater regulation on some market players and less regulation on others in an attempt to influence market conditions. Conversely, laissez-faire policies represent a more passive means of affecting market outcomes, with the presumption that making no decision implies that tacit decision- making has occurred to allow non-state forces to shape market outcomes. When planning policy surrounding new technology, such as VoIP for example, Henten and Skouby 34

(2002, p. 326) elucidate how the U.S. tends to fall under the assumption that “the market is taking care of the development of new services, technologies, and structures,” or, as they call it, “a general acceptance of the neo-liberal policy vision.” Observers in the VoIP arena who have expressed concern over the public’s lack of attention to and engagement in major issues such as technology development have noted a “public apathy, indifference, and ambivalence about the social effects of technology policy” (McChesney, 1999; Bellah, et al., 1996) – perhaps due to a belief that the FCC has a pre-disposition toward VoIP regulation and any request for comment is mere formality. Along with other authors (Dawson and Foster, 1998; Castells, 1996), McChesney believes there should be greater public involvement in governmental policy- making in the communications arena. Reder (1999) expounds upon this point by noting that, without compelling evidence to the contrary, the market, not government policy, is given the benefit of the doubt concerning the correction of socio-economic disparity. Calabrese (1999) wrote of the irony of the praise we give to the market as producing better responsiveness to individual needs than do political systems despite the clear inequalities that the market continues to promulgate. Gandy (2002) adds that laissez- faire policies serve the interests of society’s powerful, not quite an all-encompassing, public interest. When evaluating VoIP policy, therefore, society must ask what powers are being served by the FCC’s choice of technological regulation. In summary, the underlying challenge in deriving a universal service definition is the incompatibility between the need to preserve universal access and the legislative directive to ensure competitive neutrality – two issues we will see repeated throughout the VoIP debate. Universal service, Jayakar and Sawhney (2004) write, has come to acquire a variety of meanings over its almost century-long history. At various times it has stood for a fully interconnected national network, universal service ensured for all consumers, universal access brought to consumers, a geographically ubiquitous service, service at reasonable rates, subsidized access for disadvantaged and high cost consumers such as poor or rural users. The fundamental problem in regulating VoIP, and a key concern of the VoIP debate, is how to ensure all currently available telecommunication technologies will remain available and keep pace with new innovations once the policies of a VoIP regulatory decision are in place, while at the same time guaranteeing that 35

market forces will drive the ongoing VoIP and telecommunications technology development. This inquiry examines the ways in which stakeholders in the VoIP debate attempt to co-opt representations of universal service when advocating their policy positions to the FCC.

Conclusion

To assist in creating VoIP policy, the FCC has solicited public comment on the regulatory issues concerning the technology, but with its one-year time limit for rendering decisions having expired, considerations of technological innovation, economic competition, and universal service remain without policy guidelines. Well-crafted policy concerning new communication technologies, Warnick (2002) writes, will depend on public awareness of the stakes involved in decisions about regulation of new communication technology such as VoIP. According to Warnick, only a public that is fully aware of how it is persuaded to adopt certain views of technology – whether VoIP or any other – will be prepared to shape VoIP policy or any other in the future. The existence of potential market competitors can be framed as the presence of actual market competition, which stakeholders can then imply fulfills the public interest. When technology changes more quickly than the policies intended to ensure its use and diffusion in the public interest, some stakeholders will insist upon maintenance of the familiar while others demand support for state-of-the-art. The social polarization theme presents itself frequently throughout the VoIP regulatory debate, with the incumbent telecommunication firms divining societal doom resulting from system bypass and entrepreneurs invoking the public interest to justify a laissez-faire policy that encourages bypass. In the course of the VoIP debate entrepreneurs also occasionally take the opportunity to lobby for the removal of any existing regulations deemed too onerous to business – and by implication, society. Telecommunication regulation, Horwitz (1989) concludes, “has fulfilled the Keynesian macro-economic goal of stimulating aggregate demand and constructed a type of service based entitlement system” whereby regulation compelled that rates be skewed to facilitate the expansion of service to poor and out-of- the-way customers which generally led to cross-subsidization.

In the on going exploration of the VoIP debate, this inquiry evaluates how stakeholder attempt to frame the public interest around the issues of technology, economics, and universal service. Researchers have written extensively on these three topics; their positions vary, with both contradiction and accord evidenced in nearly every argument. Further exploration will show that although the public interest has numerous interpretations in the VoIP debate, each offers valid arguments, even in face of contradicting opinions formed from evidence produced. Researchers have shown that the public interest can at once represent the interests of one constituency and marginalize the interests of another, yet, when inverted, can equally support an opposing viewpoint using the same argument. In all, the public interest takes on distinct meaning depending on one’s intent upon invoking it, and thus can be used persuasively by both sides of the VoIP argument to forward diametrically opposed stakeholder claims. This inquiry explore representations of the public interest as constructed by each constituency. It evaluates not only what is said in course of policy arguments, but also what goes unsaid; Derrida (1967) writes that absence of mention can reveal agendas in as equally compelling fashion as can active assertions. Kellner (1999, p. 253) requests from his research colleagues new theories that support intervention, possibly policy related, which “ensure that the democratic possibilities” of new communication, and other, technologies remain open to society. This dissertation attempts to fulfill his request.

CHAPTER THREE

PUBLIC INTEREST HISTORY IN TELECOMMUNICATIONS

Telecommunications history represents an important consideration when endeavoring to understand efforts to regulate telecommunication technologies, efforts that will in turn have an impact on future policy-making. This chapter details the evolution of telecommunications policy-making, beginning just after the invention of the telephone in 1876, the introduction of “exchanges” instead of point-to-point telephone connections in 1878 (AT&T, 2005), and, continuing through the current VoIP debate, focus on the public interest considerations of each regulatory change. It describes the chronology of telecommunications policy-making decisions to help explain how that decision-making has evolved over time, building on different claims about and understandings of the public interest. History is important to this discussion not only because many of the stakeholders in the VoIP debate refer to and make use of the historical telecommunications policy frameworks they believe to be relevant to their policy regulatory outcome interests. History can inform the VoIP debate, and other debates that would alter a regulatory paradigm, with regard to policy-making in the public interest. This chapter provides an overview of the history of telecommunications policy-making, beginning with the onset of public interest considerations in industry regulation originating during the Progressive Era. It follows the legislation applied to telecommunications policy and shows the changing interpretations of the public interest over time concerning telecommunications policy rulings. Analysis will examine how interpretations of the public interest have evolved from policy implementations protecting monopoly concerns to policy implementations endorsing laissez-faire industry oversight. This chapter sets the framework for analysis of references by VoIP stakeholders to historical events by which stakeholders assert support for their public interest claims to the FCC in the VoIP debate. The references to legislation and telecommunication policy selected in this chapter have relevance not only to the public interest for the period in which they were written. They hold importance as considerations of public interest manifest when discussing VoIP

policy-making and the ways in which the public interest is invoked during the VoIP debates. The Progressive Era, (circa 1897-1910) ushered in the idea – following the robber barons’ exploits of the Gilded Age (circa 1873-1890) – that consumers needed government protection from big business. Progressives, led by president Theodore Roosevelt (1901-1908), felt that regulation would helpfully insert government policy experts and the economic protections they offered between the public and the “seemingly chaotic forces of the market” (Gifford, 2003, p. 2). These protections were deemed in government circles to be consistent with the public interest. As part of the regulatory arena, “this ‘public interest’ view meant that, where perceived market failures were taking place, regulatory oversight was both necessary and beneficial” (Gifford, 2003, p. 2). Progressive Era economic thought was premised on sometimes inchoate economic notions that monopoly was bad, that business tended to abuse consumers and that monopolistic practices should be constrained to accomplish social goals through regulation (Judis, 2000). Over the next century, dispositions would gradually shift to favor a more competitive business environment. Analysis below follows communications-industry policy changes to deconstruct initiatives across the history of telecommunications policy-making as regulators interpret the public interest. Identifying how changing interpretations of the public interest manifest over time in the telecommunications field can help guide future policy decisions made in the public interest, especially concerning the three areas of this investigation: technology, the economy, and universal service.

Early Regulatory History

The concepts of “public interest” and “just and reasonable” are prototypical standards of regulatory application handed down from Progressive Era legislation. On most occasions the means for upholding the public interest were not specifically codified in legislation in early telecommunications history. Newly formed enterprises such as Alexander Graham Bell’s Bell Telephone Company took advantage of imprecise legislative language to drive competition out of desired geographic markets. For the 17 years following Bell’s 1876 patented invention - now 20 years for patent retention - (U.S. 39

PTO, 2005) and the Philadelphia World’s Fair showing of his telephone, Bell’s telephone company enjoyed exclusive rights to all telecommunications over phone lines. When Bell’s various communication and equipment patents expired in 1893-94, small local telephone communication providers began entering Bell’s markets (AT&T, 2005). Many of what the VoIP stakeholders refer to as “essential technologies” of telecommunications were not at first recognized as such. Bell was laughed at by Western Union in 1876 when he offered his fledgling innovation for $100,000 – or $1,681,031.84 in turn of the 21st Century dollars (U.S. IRS, 2005) – but by the turn of the 20th century, Bell had purchased controlling interest in Western Union (AT&T, 2005). In 1899, Bell reorganized to become AT&T, the parent company of the vertically integrated Bell System, which provided local exchange service and long distance service, equipment, and research & development (AT&T, 2005). Bell’s new company, AT&T, began consolidating the telephone communications market by buying out its small competitors, typically by letting those competitors know that they could either allow themselves to be purchased or wither on the vine, as AT&T’s monopoly over long lines would refuse to connect with them (Huber, Kellogg and Thorne, 1996). These mergers were held out by AT&T as symbiotic relationships: AT&T used the local telephone lines to connect both local calls and long distance calls via Western Union’s telegraph – or “Long Lines” – the acquired local carriers got to stay in business. Western Union telegrams can still be sent over telephone lines. The hands-off stance the US government had taken to this point regarding commerce regulation that allowed the AT&T consolidations, although admittedly profitable for business, began to be seen as not representing the public interest concerns of the new Progressive Era. In 1887, the Interstate Commerce Act, “An Act to Regulate Commerce,” challenged the philosophy of laissez-faire economics by clearly providing the right of Congress to regulate private corporations engaged in interstate commerce:

All charges made for any service rendered or to be rendered in the transportation of passengers or property as aforesaid, or in connection therewith, or for the receiving, delivering, storage, or handling of such property, shall be reasonable and just; and every unjust and unreasonable charge for such service is prohibited and declared to be unlawful [49 U.S.C. 10101].

Congress passed the Interstate Commerce Act to give the right to govern interstate commerce to the federal government, a right originally residing with “the many states” and referring primarily to railroad commerce. The Interstate Commerce Commission, the governing body of the Interstate Commerce Commission, had five commissioners, appointed by the president, not more than three of whom could be from the same political party. The commissioners each served six-year terms and earned annual salaries of $7,500 – or $153,938.14 in 2005 dollars (IRS, 2005). This Act was important in setting the stage for future industry-specific regulation because it represented the first time that the right of Congress to bring action against a corporation for egregious business practiced was codified, while at the same time serving as a benchmark for how any future industry regulatory policy might be instituted and overseen. Shortly following the enactment of the Interstate Commerce Act [49 USC 10101 (1887)], the Sherman Antitrust Act of 1890 (15 U.S.C. Sections 1-7) expanded the 1887 Act when it became the first piece of legislation to render illegal “every contract, combination . . . or conspiracy, in restraint of trade;” Section 2 of the Sherman Antitrust Act outlaws any company’s efforts to “monopolize, or attempt to monopolize,” commerce. We see this Act’s importance to the telecommunications policy discussion in that it illustrates how some businesses in the early 20th century were held to certain regulatory constraints while other businesses were not. As regulatory concepts, the importance of all three areas of this inquiry’s investigation, technology, economics, and universal service had already been acknowledged by the turn of the 20th century. By 1908, AT&T president Theodore Vail (b. 1845, d. 1920), having begun his telecommunications career in new technology as a telegraph operator in Morristown, NJ (CCSNJ, 2004), had succeeded in consolidating the telecommunications market in AT&T’s favor. He had not only taken over almost 3000 small, locally competing telecommunication providers but also Western Union, AT&T’s only direct competitor in long distance telegraph communications (AT&T, 2005). AT&T had competitors in up to 25% of local exchange telephone provision, however. In Abilene, Kansas, Cleyson Brown began Brown Telephone in 1899. Subsequent to his acquisition of several local exchanges across surrounding states, Brown sold his company

to United Telecommunications, the company that would ultimately become Sprint (Sprint, 2005). Shortly after the turn of the 20th century, Vail had begun to champion the idea of universal service. Vail forwarded the idea that ensuring interconnectivity among all telecommunications users on one unified network would benefit the public interest more users than would many disparate networks that did not enable all users to connect to all other users. Vail had a compelling argument for his brand of universal service. Not coincidentally, it worked in AT&T’s favor to advocate the elimination of redundancy – also known as competition – in an industry that required full interconnection to maximize the use of a network. Consolidation in telecommunications, among other markets, led to a general feeling of business not working in the “public interest” but in its own interest. However in the telecommunications industry, policies that endorsed consolidation, and the inherent monopoly consolidation creates, allowed AT&T to remain the sole provider of all US telecommunication services for nearly 60 years – with monopoly seen as serving the public interest, in a country without, unlike most countries, an official, nationalized telecommunications system (ITU, 2005). The VoIP debate centers on the concept of a “common carrier,” its definition, and which industries fall under that designation. In the United States, “common carrier” indication is derived from the Commerce Clause of the Constitution stating that “the Congress shall have the right to regulate commerce among the many states” [Article 1, Section 8 (3)]. In 1906, the industries affected by the concept of common carriage as generally explained under the Interstate Commerce Act became explicitly defined with the passing of the Hepburn Act [34 Stat. 584 (1906)]. Hepburn stated that common carriage “ shall include cars and other vehicles and all instrumentalities and facilities of shipment or carriage, irrespective of ownership or of any contract, express or implied, for the use thereof. ” The common carrier designation circa the time of the Hepburn Act was interpreted to include transportation; it neither specifically ruled in nor ruled out the telegraph as among the “facilities of” voice carriage expressly covered under the Hepburn Act. In 1910, the Mann Elkins Act [36 Stat. 539, (1910)] explicitly brought voice carriage, and hence the telecommunications industry, under oversight of the Interstate

Commerce Commission by classifying telecommunications as a common carrier in accordance with the common carriage tenets of the Hepburn Act. The Mann Elkins Act amended the Interstate Commerce Act to state specifically that “The provisions of this act shall include telegraph, telephone and cable companies (whether wire or wireless) engaged in sending from one State, to any other State, Territory, or District of the United States or to any foreign country who shall be considered and held to be common carriers within the meaning and purpose of this act.” Section Four of Mann Elkins explicitly states that “the United States may intervene in any case or proceeding in the commerce court whenever … the public interest [is] involved,” and Section Five grants the “Attorney General shall have charge and control of the interest of the government in all cases and proceedings in the Commerce Court and in the Supreme Court of the United States upon appeal from the Commerce Court if in his opinion the public interest requires it” [36 stat. 539 (1910)]. The Mann Elkins Act is the first time the public interest and telecommunications are used together in a statutory ruling. From June 18, 1910 forward, the public interest is considered, either implicitly or explicitly, in telecommunications policy-making. Only the definition and interpretation of the public interest is left open for debate. Still, the Mann Elkins Act does not define the public interest, leaving interpretation open – as it is in the VoIP debate – to regulators and stakeholders. Nor does it single out telecommunications for legislative treatment that reflects the public interest. In 1914, The Clayton Act [15 USC Secs. 12-27] extended the scope of the Sherman Anti Trust Act of 1890 by explicitly prohibiting mergers and acquisitions whose effects "may be substantially to lessen competition, or to tend to create a monopoly,” and allowing for “treble damages” to be awarded to any person proving that he [or she] sustained damages from a firm engaged in antitrust practices. The expanded scope of antitrust applications to the telecommunications industry addressed such issues as the prohibition of denying service to competing common carriers by disallowing interconnection with communication lines, and the assurance that no telecommunications company could exercise monopoly-pricing power in the marketplace. Legislation in the public interest, beginning with the Sherman Antitrust Act of 1890 and continuing to the Mann Elkins and Clayton Acts, attempted to limit monopoly 43

positions held by businesses in an effort to quash monopoly pricing schemes and allow supply and demand to dictate pricing. By this time in regulatory history, competition within industries, not industry monopoly, was seen as responsive to the public interest. The telecommunications industry remained a curious exception to anti-monopoly legislation. Despite the many ways prohibition of monopolistic practices are rendered in early 20th century legislation, most prohibitions, in the name of the public interest, are not applied to the telecommunications industry. Selective application of antitrust laws shows the interest that industry regulators had in ensuring that the telecommunications industry remained a public interest inspired monopoly. Responding to an antitrust suit brought by the United States Department of Justice (DOJ) against AT&T in 1913 for aggressive acquisition of rival firms, AT&T’s Vice President Kingsbury and the Attorney General of President Woodrow Wilson (1912-1920) McReynolds (who in 1914 was appointed to the Supreme Court by Wilson) crafted a letter referred to as the Kingsbury Commitment which responded to the DOJ’s objections to AT&T president Vail’s further efforts at consolidating the telecommunications industry. In the Commitment, AT&T promised to allow independent telecommunications providers access to interconnection with AT&T’s lines, to stop all acquisitive activity directed at competing firms operating in the same markets as Bell subsidiaries, to divest of all Western Electric holdings to break up the vertical integration seen to be stifling competition, and to request permission from the Interstate Commerce Commission prior to attempting to acquire any competitors in the future. A phrase in the Commitment, however, allowed further consolidation if “special reasons existed making the transaction desirable for the protection of the general public service or Bell System property.” AT&T remained free to continue to legally purchase independent, non-competing telecommunications firms, owning 62% of all local telecommunications providers by 1921 (AT&T, 2005). The Kingsbury Commitment’s stipulations were short lived, however. In 1921, the Willis-Graham Act [42 stat 27 (1921)] was enacted to reassign telecommunication policy-making rights from the courts to the Interstate Commerce Commission. It was the first piece of legislation specifically directed at telecommunications policy, amending the Esch-Cummins Act passed a year earlier [41 stat. 482 (1920)], which allowed railroad consolidation because Congress had determined monopoly in that industry appropriate 44

and in the public interest. Congress’s affection for monopoly in common carriers as seen in railroad regulation was transferred to the telecommunications industry with the 1921 enactment of Willis-Graham. For the first time, policy-making in telecommunications uses the expression “natural monopoly” to describe the nature of U.S. telecommunications provision, and, with respect to telecommunications, to describe monopoly as serving “economic interest and public good.” In U.S. House of Representatives’ debates, Representative Graham declared that, “ I think I am stating the opinion of most men … that it is believed to be better policy to have one telephone system in a community that serves all the people … than it is to have two competing systems” [61 Cong. Rec. 1983 (1921)]. AT&T kept its congressionally endorsed natural monopoly protections even after Graham-Willis rendered the Kingsbury Commitment moot. Despite Mann-Elkins charging the attorney General with overseeing the public interest with respect to commerce, and with the Sherman Act enjoining businesses from engaging in monopolistic practices, the attorney General – recall: McReynolds, the endorser of the monopoly protecting Kingsbury Commitment – by inference, did not see protecting telecommunications from monopolistic practices as part of the public interest. It would take a depression and world war before competition was seen in the telecommunications industry.

The Communications Act of 1934

Into the Great Depression (1929-1941), the public interest focus turned to encouraging economic growth while ensuring protections for consumers. As part of his New Deal efforts, president Franklin Delano Roosevelt (1932-1945) created a number of agencies to make oversight of the county’s increasingly disparate industries more manageable through centralization. With the enactment of the Communications Act of 1934 [47 U.S.C. Sec 218], the public interest was referenced in plain language and for the first time specifically directed at telecommunications. The 1934 Act codified every aspect of telecommunication regulation – including technology, competition, and universal service – and identifies areas in which considerations in the public interest should be applied. Still, the public interest was not defined. 45

Technology and competition are important policy considerations throughout telecommunications history because beginning from the enactment of the 1934 Act, to its amending Act in 1996, and through the VoIP debate, the public interest was referenced by both the FCC and stakeholders in telecommunication policy matters as potential regulation is debated. Although the FCC and stakeholders point to the public interest to support their positions on technological development and competition, nowhere still does one find a definition of public interest. The public interest remains open to debate by stakeholders in telecommunication policy matters. Beginning with the Communications Act of 1934, the public interest began to garner the interest of regulators. This section explores how the FCC chose to interpret the public interest, especially with respect to two of the three areas of investigation of the VoIP debate, technology and economic competition, and examines how the public interest regulatory interpretations by the FCC and the Courts have evolved through the time of the VoIP debate. Examination of universal service issues will be addressed in subsequent sections of this chapter. These pieces of legislative history will be important when considering the different ways the public interest is framed depending upon the stakeholders’ disposition on at issue regulatory rulings. The historical background helps to frame the regulatory debates of the day with respect to telecommunication’s evolving technologies and its changing economic impact on society, both still relevant issues in the VoIP debate. The Communications Act of 1934 consolidated the powers of the ICC and the US Postal Service and the Federal Radio Commission. This New Deal piece of legislation encouraged the FCC to stay current with telecommunication innovation “to the end that new innovations and developments may be made available to the people of the United States,” a relevant concept across time including up through the VoIP debate. Economically, supplanting the Interstate Commerce Act with the Communications Act did not change the government payroll – an important consideration during the Great Depression. The number of commissioners reflected the number of Interstate Commerce commissioners the new FCC replaced, and, just like the Interstate Commerce Commission pay scales at the turn of the 19th century, the government pay scales of FCC commissioners circa the VoIP debate are commensurate with Interstate Commerce Commission pay scales. 46

Section 1 of the Act charges its new commission at the outset “to make available, so far as possible, to all people of the United States a rapid, efficient, Nation-wide and world-wide wire and radio communication service with adequate facilities at reasonable prices,” which arguably represents a call for universal service, especially since the new AT&T President Gifford advocated during the house hearings on the proposed Communications Act the value of “one service, one policy, universal service.” Vail had come up with this phrase, AT&T’s first slogan, and Gifford continued to insist that, “the telephone is a monopoly and competition is against the public interest” [H.R. hearings 8301 73rd Congress 2nd Session, 1934]. Gifford’s issue framing distinctly contrasts with Friday’s advocating for the independent carriers who were desirous of competition, and the pro-competitive ideas he advanced in the same hearings in which Gifford spoke of monopoly, competition, and the public interest. However, interpretations of the day led regulators to conclude that one word in Sec. 1, consisting of one letter in Sec. 1 – “a,” combined with “service” in the singular, meant that monopoly could be sanctioned. Telecommunications firms would remain exempt from antitrust suits so long as any of their monopolistic practices could be considered “in the public interest” as defined by first Interstate Commerce Commission and then the Act of 1934. Whether the Communications Act of 1934 expressly provided statute for monopoly in the telecommunications arena, or whether the new commissioners simply chose to apply a monopoly frame around vague language – no where is “service to all” etc. defined – the upshot of the Act is that the monopoly of AT&T in telecommunications was preserved and defended for another half century.

Mid-Century Public Interest Shift

The end of World War Two saw a new sense of prosperity rise in the US, at least partly due to new and resurrected industries bringing innovation and jobs to a generation for whom the Great Depression would remain a never-distant memory. Innovation was seen as stemming from competition among newly created markets, but in the telecommunications industry AT&T’s monopoly prevented competitors from entering the telecommunications arena. In 1949, President Harry S. Truman (1945-1952) had his Justice Department begin an antitrust suit against AT&T in an effort to break up the 47

company’s vertical integration, consisting of research and development, customer premises equipment, and local and long distance service. This would be the first time that an administration challenged the validity of AT&T’s monopoly. President Truman wanted to separate AT&T’s Western Electric’s equipment, Bell Lab’s research, AT&T- licensed independent operators, and AT&T’s long lines to allow more competition into the telecommunications industry. He felt that requiring the separation of AT&T long lines from its short line service, releasing all of its 8,600 communications equipment patents, and divesting of Western Electric and Bell Labs would bring more parity to an industry run by only one company and its local subsidiaries. The actions of Truman’s Justice Department were stalled by AT&T’s attorneys, and not until the President Dwight D. Eisenhower (1952-1960) administration did AT&T & the Justice Department come to agree in the 1956 Western Electric and AT&T Consent Decree that AT&T would open up patents such as those for the first facsimile machine (1924), the mechanical larynx (1929), and the semiconductor (1945) – essential subsequently to be able to compete in the computer services market. The Decree compelled all competitors in telecommunications not to discriminate or use predatory pricing with regard to independent local firms connecting to their network (AT&T, 2005). AT&T’s vertical integration, the firm’s ownership of carrier lines, telecommunication equipment manufacturing, and research and development remained intact. By 1959, just after AT&T consented not to enter the computer industry, its labs invented the solid-state switch with no moving parts, and the digital switch in 1976 (the mechanical switch was invented in 1891; prior to that human operators had to connect users manually at the exchanges) (AT&T, 2005). These two pieces of equipment would be critical to the development of an industry that the Consent Decree forbade AT&T from entering – information services provision. Beginning in the late 1940’s, while the Justice Department was investigating AT&T’s antitrust practices, the FCC began to evaluate the inseparable connection between “foreign attachments” – non-AT&T produced Customer Premises Equipment – and the AT&T network, an evaluation that began to show the FCC’s mind shift from interpreting monopoly to be in the public interest to viewing competition as reflective of the public interest. In a 1947 FCC Report and Order [11 FCC 1033], commonly known 48

as the Recording Devices decision, the FCC ruled against AT&T claims that devices connected to the AT&T network enabling recording capabilities were “of primary importance to the telephone service and part of the telephone facilities” and that as such, those “essential” devices had to be “furnished, installed, and maintained by the telephone companies.” The FCC found instead that recording devices could be used without “any perceptible effect on the functioning of the telephone apparatus or the quality of the telephone service,” thereby opening up the right of AT&T competitors to attach non- AT&T recording devices to the AT&T network. Three additional cases further eroded AT&T’s monopoly protection, underscoring how the public interest was beginning to be more reflected in the interests of innovation and competition than merely protecting a monopoly. In the middle of the 20th century with AT&T v. Jordaphone [18 FCC 644 (1954)], AT&T v. Hush-a-phone [20 FCC 391 (1955)], and Carterphone v. AT&T [14 FCC 2d 571 (1968)] further addressed the issue of device attachments, and by implication competition, with AT&T again claiming damage to its network lines resulting from the attachments. In the Jordaphone case, the defendant, Jordaphone, manufactured an answering machine-like recording device that “opened and closed the telephone circuit” by electronically answering a phone, recording the message, and electronically disconnecting the call. The FCC upheld AT&T’s refusal to allow Jordaphone access to its networks, and deferred further jurisdiction in like cases to the states. AT&T won the first round in the fight to prevent competition from equipment manufacturers, but future competition rulings would result in outcomes similar to that of the 1947 Recording Devices case. In the Hush-a-phone case, the defendant Hush-a-phone manufactured a “cup-like device” that attached to a telephone handset and helped block noise distractions while an individual spoke or listened during a conversation. AT&T argued that the device might detract from the overall quality of the network, but provided no evidence of this assertion. The FCC ruled in AT&T’s favor finding that “the use of Hush-a-phone affects more than the conversation of the user, that its influence pervades in some fashion the whole telephone system” [20 FCC 391 (1955)]. The decision was remanded back to the FCC in 1956 by the D.C. Appeals Court [238 F.2d 266, 268] who echoed the dissenting opinion written in the original case by 49

FCC commissioner Frieda Hennock – the first woman FCC commissioner (Truman Library, 2005), appointed by President Eisenhower – that devices attached to a network ruled to do the network no harm and a telephone subscriber has the right to use a telephone “in ways that are privately beneficial without being publicly detrimental.” In a nod to competition, the Court added that “the mere fact that the telephone companies can provide a rival device would seem to be a poor reason for disregarding Hush-a-phone’s value in assuring a quiet line.” The FCC reversed its original decision on remand, setting precedent that the use of devices could not be barred from just a claim of harm to the network, but had to aptly distinguish between “harmful and harmless” devices, thus expanding the notion of inter-connectivity from the network to devices and implicitly expanding telecommunication competition on the premise of the Kingsbury Commitment, a new precedent within the tightly controlled industry. A third such case upholds this precedent, coming down on the side of endorsing through innovation competition in the public interest. In the Carterphone case, the plaintiff Thomas F. Carter, founder of Carterphone, manufactured a device that allowed connectivity between “a two-way radio at the base station serving a mobile radio system,” permitting conversation between users of a hand- held mobile communication equipment unit and land-line telephones. AT&T argued that allowing this type of interconnection would aversely affect the network, the economy and universal service. It could not, however, offer proof substantiating these claims. The FCC ruled against AT&T, stating that while AT&T’s claims “might well be a public interest question, but it is an issue if the carrier seeks to raise it, to be decided upon facts.” Carterphone could, and did, continue to manufacture its mobile connectivity devices. Thomas Carter was posthumously named to the Wireless Hall of Fame in May 2001 as the “essential founder of the competitive telephone equipment market” following Carter’s 1978 recognition by the North American Telecommunication Association of his “outstanding service in the public interest in the telecommunications industry” (TIA, 2005). While still enmeshed in the cases described above, the FCC in 1959 opened competition in telecommunications to include private microwave transmission facilities. With the Specialized Common Carrier Decision [27 FCC 359], the FCC expanded its 50

permissions to allow firms to seek non-AT&T sources for signal transmission. In 1969, Microwave Communications Incorporated – known by 1970 as MCI – took advantage of the ruling from a decade earlier and opened private lines supplying microwave transmission of voice between its Chicago and St. Louis offices, competing with AT&T (MCI, 2005). In 1974, MCI began marketing voice transmission capabilities to outside customers with its Execunet services, this time in direct competition with AT&T for long-distance telecommunication business. The FCC, at the behest of AT&T, in the case known as Execunet I [561 F.2d 365 (D.C. Cir. 1977)], denied MCI permission to function as a common carrier of long distance service on the basis that doing so was outside of the scope of the Specialized Common Carrier Decision. The FCC held that it did not say that MCI could provide the long distance service. MCI countered that the FCC didn’t say they couldn’t. MCI appealed the FCC decision [580 F.2d 590 (D.C cir. (1978)], and the case known as Execunet II was remanded back to the FCC for an explanation as to why permitting MCI to use its microwave technology to provide long distance service not only between their own offices, but to other companies as well was “not in the public interest.” In response to the remand, the FCC sought comment on competition in AT&T’s service markets. In 1980, the FCC opened competition in the long distance market to any new market entrants, firmly putting competition ahead of a continuing monopoly in serving the public interest. The FCC was at the time of its Execunet decisions beginning to open competition in the computer industry as well. In 1971, the FCC rendered a final decision, on a case initiated in 1960, concerning the case commonly known as Computer I [28 FCC 2d 267]. In the decision, the FCC determined the regulatory difference between “data processing” and “communications”; data processing facilitates communication between computers, and “communications” facilitates communication between people. It was in Computer I that the FCC first differentiated between the “enhanced services” of computer-based communication service provision and “basic” services of telecommunication service provision. The FCC noted that, “important types of computer enterprises now emerging ... illustrate the growing convergence and interdependence of communication and data processing technologies.” At the time, very little computer-to-person communication existed, but advancing technology very quickly rendered Computer I obsolete. 51

In 1976, three years after final litigation ended in the Computer I ruling, the FCC recognized the need to keep pace with changing computer communication technology and initiated a proceeding commonly known as Computer II. The final decision was rendered in 1980 [77 FCC 2d 384]. Due to what the FCC saw as “issues raised by the confluence of technology in the offering of communications and data processing services,” Computer II allowed telecommunications companies to enter the enhanced service arena under which information service providers fall, so long as the telecommunications arm and enhanced service provider arm remained distinctly separate business units, a requirement that the FCC termed “structural separation.” The enhanced service provider could not own common carrier telecommunications equipment, and any joint research and development must be compensated by each arm to the other at fair market value and reported in writing to the FCC for approval. The enhanced service provider could not provide common carrier service and the common carrier could not provide its enhanced services arm with common carrier equipment, nor could the common carrier promote the business of its enhanced service provider subsidiary. Computer II opened the opportunity for AT&T to compete in enhanced service provision, examples of which include fax, voice-mail, e-mail, a competition opportunity important for AT&T because it became the gateway to the firm’s providing service in one of the most burgeoning industries and one from which AT&T had been barred since 1956 – information service provision. In 1990, the third and final Computer Inquiry, [905 F.2d 1217 9th Cir. (1990)], or Computer III, the FCC labeled “enhanced services” as inclusive of “telecommunications services combining both data processing and communications components,” which the 9th Circuit recognized as using “the transmission facilities of common carriers,” a very different definition of enhanced services from that which was introduced in Computer I, where “enhanced services” were merely data processing between computers and “basic service” was communication between people. The regulatory ramp up to a telecommunications firm providing information services parallels the VoIP debate’s issue of an information service provider offering voice transmission. With the three Computer Inquiries, for the first time, but not the last, the communications industry began to see a blurring of the lines between telecommunications and information service. The third Computer Inquiry showed ever 52

more blurring of the two service offerings and lead to the most dramatic shift in telecommunication policy since the 1934 Communication Act, placing ever more emphasis on competition in the public interest and dismantling any remaining telecommunication monopolies

The 1982 Consent Decree and 1996 Telecommunications Act

Deregulation had become a central theme of politics in the 1970s and into the 1980’s. In the spirit of “getting the government off the backs of business,” common carrier industries such as airlines and trucking had had regulations lifted, changing the competitive framework in which each of the industries operated. Deregulators had set their sights on telecommunications, as well, and sought to open to the public portions of the deregulatory process. The Tunney Act of 1974 [15 USC Sec. 16 (c)] was passed to permit public comment on antitrust settlements, and amended the Clayton Act to include reference to the public interest. In 1974, the Department of Justice brought an antitrust lawsuit against AT&T, alleging that it had violated federal law by using its control over local telephone networks to foreclose competition in the long distance and Customer Premises Equipment markets. The case went to trial in 1978, and settled in 1982 with the industry’s first antitrust Consent Decree since the 1956 Consent Decree enjoining AT&T from entering the computer industry. After a protracted battle, the US government and AT&T negotiated an agreement, or Consent Decree, which became known as the Modification of Final Judgment (MFJ), to settle the anti trust suit [460 U.S. 1001 (1983)]. Modification of Final Judgment presiding Judge Harold Greene opened his remarks on the record concerning the MFJ by referring directly to “the public interest” as the primary interest of the 1982 Consent Decree. The agreement between AT&T and the Justice Department restructured the U.S. telecommunications sector with the intent to add more competition in long distance markets. AT&T was required to fully divest of all its local telephone companies affiliates, known as “regional Bell operating companies.” These “Baby Bells” were divided into seven separate, non-competing companies serving different parts of the country. The new companies were not regional monopolies because along with the divestiture of AT&T, the FCC permitted new local telecommunications companies to form and to compete against the Baby Bells. As part of the agreement, 53

AT&T could no longer provide local telephone service and the new local companies and Baby Bells could not originate long distance toll calls that would cross the boundaries of arbitrarily drawn, non-local calling regions, a regulatory calling scheme known as inter- Local Access and Transport Area (LATA) calling. In return, the Consent Decree injunction from telecommunications companies entering the information service market was lifted, and the structural separations that prevented common carriers from operating in enhanced service markets – and enhanced service providers from operating as common carriers – were removed. Despite the breakup of AT&T, by 1995 the FCC had begun to evaluate the effects of the MFJ. It saw that while competition had increased in some telecommunications markets such as intra-state long distance, local competition had hardly been affected at all by the 1982 divestiture. The FCC felt that it had not succeeded in applying Judge Harold Greene’s admonition to deregulate in the public interest. Complicating matters was that the FCC could not render any rulings to increase local competition. The Communications Act of 1934 prevented the FCC from applying federal regulation to any calling that originated and terminated within a single state. State commissions regulated the local calling markets. In order to increase competition to better serve the public interest, Congress passed the Telecommunications Act of 1996 (the 1996 Act), which amended the 1934 Communications Act and established a national policy to promote competition at all levels of the telecommunications industry. The 1996 Act had key provisions that would ostensibly encourage competition in all areas of the telecommunications industry while protecting those markets that could become neglected by major carriers, notably rural and high cost areas. The some of the main tenets of the 1996 Act, shown below, are important in understanding how the public interest is treated in the 1996 Act with respect to the three areas of investigation for this dissertation: technology, economics, and universal service. From these tenets VoIP stakeholders draw their references to the public interest the context of the 1996 Act: REGULATORY REFORM. (a) BIENNIAL REVIEW OF REGULATIONS. In every even-numbered year (beginning with 1998), the Commission—

(1) shall review all regulations issued under this Act in effect at the time of the review that apply to the operations or activities of any provider of telecommunications service; (2) shall determine whether any such regulation is no longer necessary in the public interest as the result of meaningful economic competition between providers of such service. (b) EFFECT OF DETERMINATION. The Commission shall repeal or modify any regulation it determines to be no longer necessary in the public interest. SEC. 11. [47 U.S.C. 161]

(b) COMPETITIVE EFFECT TO BE WEIGHED. In making the determination under subsection (a)(3), the Commission shall consider whether forbearance from enforcing the provision or regulation will promote competitive market conditions, including the extent to which such forbearance will enhance competition among providers of telecommunications services. If the Commission determines that such forbearance will promote competition among providers of telecommunications services, that determination may be the basis for a Commission finding that forbearance is in the public interest.

MARKET ENTRY BARRIERS PROCEEDING. (a) ELIMINATION OF BARRIERS. Within 15 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall complete a proceeding for the purpose of identifying and eliminating, by regulations pursuant to its authority under this Act (other than this section), market entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services and information services, or in the provision of parts or services to providers of telecommunications services and information services. (b) NATIONAL POLICY. In carrying out subsection (a), the Commission shall seek to promote the policies and purposes of this Act favoring diversity of media voices, vigorous economic competition, technological advancement, and promotion of the public interest, convenience, and necessity. (c) PERIODIC REVIEW. Every 3 years following the completion of the proceeding required by subsection (a), the Commission shall review and report to Congress on (1) any regulations prescribed to eliminate barriers within its jurisdiction that are identified under subsection (a) and that can be prescribed consistent with the public interest, convenience, and necessity; and (2) the statutory barriers identified under subsection (a) that the Commission recommends be eliminated, consistent with the public interest, convenience, and necessity [47 U.S.C. 257].

The reader should take particular notice of the references to the public interest with respect to the three areas of investigation of this dissertation: technological innovation, economic competition, and universal service. The 1996 Telecommunications Act explicitly charges the FCC with conducting bi-annual reviews of telecommunications 55

policies and, when competition – stated as being in the public interest – has rendered regulation obsolete, to revisit the necessity of that regulation and forebear from enforcing provisions in the 1934 Communications Act which do not “enhance competition among telecommunication providers.” This view represents a 180-degree turn from the 1934 Act, which sanctioned telecommunication industry monopoly as serving the public interest. Elimination of barriers to entry for information service providers, under which heading VoIP providers assert they belong, would, per the VoIP providers, conform with the Act’s challenge to advance technology and economic competition – both of which the Act specifically deems to be reflective of the public interest. VoIP providers also note that the 1996 Act suggests that economic competition and technological innovation are part of a national policy in the public interest. Supporting VoIP provider’s ability to overlook universal service as a required part of VoIP service provision is the 1996 Act itself. A careful reading of the above provisions shows that while the concepts of innovation and competition take center stage as components of the 1996 telecommunications policy rendering, nowhere does the 1996 Act require provision of universal service as innovation advances.

IP-Enabled Services Policy

Universal service and the public interest saw direct treatment in the first FCC policy document following, and required by, the Telecommunications Act of 1996. In its 1998 Universal Service Report and Order, [CC Docket 96-45], the first of the bi-annual reports newly required by the 1996 Act, the FCC analyzed, along with universal service, VoIP services for the first time. It did so from the perspective of the two distinct classifications set forth in the Communications Act of 1934, and as amended in 1996, to reflect more up-to-date definitions of “telecommunications service” [47 U.S.C. sec. 153(46)] and “information service” [47 U.S.C. Sec. 153(20)]. The connection of universal service and VoIP will remain a central theme in determining regulation of IP- enabled services “in the public interest.” This section provides a background on the FCC’s interpretation of the public interest from which to evaluate stakeholder claims in the VoIP debate, and offer a case-based foundation for analysis of the framing of the concept of the public interest by VoIP stakeholders. 56

In its 1998 Report, the FCC found that “IP-Enabled Service” blurred the line between telecommunications services and information services, and that phone-to-phone VoIP had begun to “resemble traditional basic transmission offerings,” which would require that the service be regulated as a telecommunications service. The economic connection of these findings with respect to the public interest reflects the differences in universal service contribution requirements by telecommunications providers versus the contribution requirements of information service providers. In the 1998 Report the FCC stated that, “IP-telephony serves the public interest by placing significant downward pressure on … consumer prices.” It also found that “if the public interest standard is met, that non-common carriers should contribute to universal service mechanisms along with common carriers.” Further, the FCC found, with respect to universal service, “the public interest requires a broad contribution base so that the burden on each contributor will be lessened.” The FCC begins in its 1998 Report to endorse competition in the VoIP industry, but with considerations to universal service. The FCC felt that, “the public interest requires, to the extent possible, that carriers with universal service contribution obligations should not be at a competitive disadvantage in relation to providers … who do not have such obligations.” The FCC continues that, “the public interest suggests that certain telecommunication providers should contribute [to universal service] who use the PSTN which is supported by universal service mechanisms.” The FCC acknowledges the debate in the VoIP arena in its 1998 Report, and speaks to the issue by acknowledging that “although there may be instances in which competing public interest reasons compel us to conclude that … certain providers should not contribute, we are persuaded that it is in the public interest that those who benefit from the PSTN should contribute to support the network.” The FCC further acknowledged that “some parties argue that the public interest does not require contributions from telecommunication providers that are not interconnected with the PSTN” and that “contributions … for high cost low income support mechanisms is consistent with the public interest.” In conclusion, the FCC feared that if they did not “move quickly enough” regarding contributions, that “Congress will step in and show us what the public interest requires.”

The 1998 Report was the first time the FCC had taken steps to distinguish among the various types of IP-enabled services (phone-to-phone, computer-to-computer, computer-to-phone and vice versa) and to discuss how those services compare against traditional telecommunications services. The distinctions will set the stage for the VoIP regulatory debate as stakeholders attempt to frame the public interest to guide decision- making on where VoIP regulation should fall within the various types of services discussed by the FCC in its 1998 Report. The FCC noted in the 1998 Report that computer-to-computer IP-Enabled Service was not a telecommunications service because the software, hardware and infrastructure enabling the VoIP calls were classified as customer premises equipment, not telecommunication transmission. The FCC made the same determination concerning Internet Service Providers (ISPs). In light of any evidence to the contrary, the FCC felt it had to assume that computer equipment was performing computing functions, given that Internet services “alter the format of information through computer processing applications such as protocol conversion and interaction with stored data.” The FCC ruled that Internet services are therefore information services for purposes of universal service and not subject to contribution obligations. The analysis of the 1998 Universal Service Report and Order offered a foundation for analysis of the ongoing debate concerning VoIP regulation. The following case examples provide a background for discussion of the VoIP debate so that readers might compare the framing of issues concerning VoIP policy as presented by stakeholders in the current debate. The FCC’s 2002 declaratory Cable Modem Ruling [17 FCC Rcd 4798] is important to the classification of VoIP services provided via a cable modem. The FCC had ruled that cable modem service was properly classified as an information service subject to Title I of the 1934 Communication Act, not a cable service subject to Title VI of the 1934 Act, and that there is no separate offering of telecommunications service by cable modem providers. In this ruling the FCC chair said that “classifying cable modem service as an information service … with ample authority under Title I … consistently … guard(s) against public interest harms and anti-competitive results,” citing Computer I, II, and III “promulgated … in an effort to protect against public interest harms.” The FCC defined cable modem service, for the purpose of this proceeding, as “a service that uses cable system facilities to provide residential subscribers with high-speed Internet access, as 58

well as many applications or functions that can be used with high-speed Internet access.” This is an important distinction because telecommunications services can be required by the FCC to allow non-facilities based Internet Service Providers access to their broadband lines. Non-facilities based Internet Service Providers constitute those ISPs that do not own their own network infrastructure and who therefore must rely on leasing high-speed network access from the broadband providers in order to provide their Internet services to their customers. Information services are not subject to regulations that force them to resell their broadband lines to the ISPs. A decision as to cable’s recognition as an information service provider or a telecommunications service will have broad implications for competition in each of the industries mentioned. The FCC believed that it was in the public interest to classify cable as an information service provider, believing that allowing ISPs access to broadband lines would serve to increase competition in the information service industry. The cable companies felt strongly enough about a telecommunications classification, which would free them from the obligation to open access to their broadband lines, that contributing to universal service was seen as a secondary consideration. Cable providers appealed the decision to the Ninth Circuit Court of Appeals, which had previously found that cable modem service was both an information service and a telecommunications service (contradicting the FCC’s statements in the Cable Modem Ruling that cable and telecommunication service are mutually exclusive so could not be both). In National Cable and Telecommunications Association v. Brand X Internet Services et al, (2004) the case that became known as Brand X [345 F.3d 1120], the Ninth Circuit chose not to overrule its prior decision and therefore reaffirmed that cable modem service was both an information service and a telecommunications service. The plaintiff appealed the case to the Supreme Court. Brand X was decided in favor of cable companies, with the Supreme Court ruling 6-3 that cable companies are not telecommunications providers but are solely information service providers. The term ruled “in favor” is used purposefully because the decision means that the cable companies are not obligated to share their broadband networks with non-facilities based Internet Service Providers. This decision has important implications for competition within the broadband provider industry, and, by implication, the VoIP 59

debate. The Supreme Court over-ruled and remanded the appeal in Brand X because it felt that requiring firms to supply their own broadband infrastructure would contribute more to increasing competition in the telecommunications industry than would allowing non-facilities based ISPs to compete with the use of leased lines. In writing the majority opinion, Justice Thomas referred to the FCC’s reliance on its 1998 Universal Service Report and Order for precedent in this case, a report with a great deal of reference to the public interest vis-à-vis competition in the broadband market. He declared that the FCC was correct when it “concluded that broadband services should exist in a minimal regulatory environment that promotes investment and innovation in a competitive market.” At the time of the Brand X Supreme Court ruling, a decision had still not been made as to VoIP’s classification as a telecommunications provider or an information service provider. Analysis suggests, however, that this ruling could set precedent for a decision should the FCC or courts ever decide to render one. A similar case, known as the DSL Decision, was decided close on the heels of the Brand X decision. In August 2005, the FCC ruled unanimously (4-0 due to a vacancy on the FCC) that high speed Digital Subscriber Lines (DSL) formerly classified as telecommunications services would now fall under the information services classification [FCC 05-150]. With the ruling, the phone companies are, like the cable companies, no longer required to share their broadband lines with non-facilities based common carriers. The competition implications of the Brand X ruling have equal implication in the common carrier arena. The Supreme Court again felt that competition would be better served by requiring telecommunications providers to build their own networks than be permitted to access the lines of the broadband providers. The ruling notes that legacy systems must still be open to common carriers wishing to lease the lines, but the affected firms see this as little consolation given the direction of the industry toward more broadband-centered services. The common carriers have one year from the time of the ruling’s posting to the Federal Register to continue to gain access to proprietary DSL lines. The case that seems most to foreshadow future VoIP regulation occurred prior to the Brand X and DSL rulings. In August 2003, the Minnesota Public Utilities Commission found that the Vonage VoIP service constituted a “telephone service” under 60

Minnesota law, concluding that “Vonage is offering two-way communication that is functionally no different than any other telephone service.” Minnesota’s telecommunications jurisdiction relies on the “functional equivalence” test applied by some stakeholders to debate on VoIP policy. Minnesota asserted that it could exercise jurisdiction over Vonage as a company providing in-state telecommunications service because there is no “federal law that preempts state law with respect to telephone services provided using VoIP technology.” The Minnesota law asserting jurisdiction over telecommunications providers is reminiscent of federal laws prior to the 1996 Act barring the FCC from making rulings on any interstate telecommunications issues. Vonage challenged the Minnesota functional equivalency test. In Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, commonly referred to as the Vonage Order [19 FCC Rcd 22404 (2004)], Vonage argued that Minnesota’s jurisdiction over VoIP providers is inconsistent with Congress’s and the FCC’s stated intention to leave the Internet unregulated. Vonage argued that because it provides an information service, it should not be subject to regulation as either a “common carrier” or a “telecommunications carrier” under the 1996 Act. Vonage had filed a petition for a Declaratory Ruling with the FCC at the same time it had filed its appeal with the Minnesota District Court, wherein it requested that “the Commission preempt the Minnesota Commission’s order and find that (1) Vonage is a provider of “information services,” and is not a “telecommunications carrier,” as those terms are defined in the Act, and (2) state regulation of this service would unavoidably conflict “with the national policy of promoting unregulated competition in the Internet and information service market” [FCC 04-267]. The FCC agreed with Vonage. The State of Minnesota challenged the FCC ruling in the Minnesota federal district court. The federal district court also concluded that Vonage is an information service provider and that as such is not held to Minnesota state law. The Minnesota PUC appealed the decision to the Eighth Circuit in Minnesota Public Utilities Commission v. Vonage Holdings Corp. [No. 04-1434 (8th Cir. (Dec., 2004)]. In April 2004, the FCC had filed an amicus brief urging the court to refrain from issuing a ruling in the case until the FCC completes its pending proceedings (the VoIP debate) addressing “Vonage’s 61

regulatory status in particular and the regulatory status of Internet telephony services more generally,” sharing that it would be in the public interest to ensure that Court have benefit of the FCC’s considered views with respect to federal and state authority over VoIP services. In November 2004, the FCC’s historic ruling in the Minnesota Public Utilities Commission v. Vonage Holdings Corp. case came down on the side of the VoIP provider. Making several references to the public interest in its majority opinion, the FCC said “the Minnesota Commission may not require Vonage to comply with its certification, tariffing or other related requirements as conditions to offering DigitalVoice in that state. Moreover, for services having the same capabilities as DigitalVoice, the regulations of other states must likewise yield to important federal objectives. To the extent other entities, such as cable companies, provide VoIP services, we would preempt state regulation to an extent comparable to what we have done in this Order” [WC Docket 03- 211].

Conclusion

The case histories in this chapter highlight the points Chapter Two addressed when referencing Horwitz’s (1989) depiction of the relationship between economics, technology and the public interest. Technology and competition are two of the three prongs of the VoIP regulatory debate this study examines. The third issue, universal service, and its relation to the public interest has remained more in the policy background since the 1996 Act mandating its support. This chapter has shown how the institutional processes of the FCC still request input from stakeholders on all three areas of this study’s inquiry, but that since the middle of the last century the FCC has articulated a policy agenda that gives primacy to market forces in deciding economic outcomes in the telecommunications industry. This chapter illustrated the ways in which innovation and economic competition continue to be privileged as regulatory topics in telecommunications and how universal service considerations are given tertiary consideration in contemporary FCC rule-making. It explored how some of those ironies have traversed a decade of policy-making to come to light once again in the VoIP debate, and how those ironies reflect the same ironies as those in Horwitz’s writings, including 62

the marginalization of universal service concerns in favor of technological and economic concerns, and reliance on the market to correct inequities brought on by laissez-faire policies. In the coming chapters, this inquiry will discuss how the subtle shift in the framing of “universal service” provision may be coming to more closely resemble the provision of “universal access.” These two terms have gradually come to be used interchangeably by stakeholders in the VoIP debate. Anyone left disenfranchised by a market-centric VoIP policy may find the market very unsympathetic should regulators and stakeholders concretely morph “service” into “access.”

CHAPTER FOUR

FRAMING THE DEBATE

Given the many stakeholders and many divergent opinions, policy issues in telecommunications continue to change at a “breathtaking pace” (Vogelsang and Mitchell, 1997). There is considerable information specific to policy development in telecommunications. The discussion of the context of telecommunications policy as it pertains to the public interest will address the three key areas of informational analysis cited in Chapter Two: technology, economics, and universal service. This chapter offers a strategic method to evaluate rhetorical analysis research and offer inquiry about how researchers make claims about the public interest in the rhetoric shaping telecommunication policy. An analysis of the persuasiveness of VoIP stakeholders’ messages can help guide dialogue in future public policy debates by demonstrating where a breakdown in communication may have occurred between stakeholders and the government agency, what if any were the consequences of less than optimal communication, and what changes in message conveyance may have more accurately predicted regulatory outcome. As stated in Chapter One, the purpose of this dissertation is to examine interventions in the VoIP debate as they pertain to the public interest in an attempt to inform the discussion on VoIP regulation. This inquiry attempts to determine how interpretations of the public interest were made, beginning from the time of the December 2003 VoIP Forum through June 2004 stakeholder responses to Federal Communications Commission (FCC) Wire-line Competition Docket 04-36. It includes as topics of analysis the February 2004 “pure VoIP” FCC decision and stakeholder responses to the subsequent NPRM 04-28, In the Matter of IP-enabled Services. The analysis will compare and contrast stakeholder comments concerning how to regulate VoIP based upon considerations of technological innovation, economic competition, and universal service, with the broader purpose of informing discussion on stakeholder issue-framing regarding policy concerns that speak to the public interest. There are over 400 separate documents available for analysis in the official VoIP debate record. To manage the volume of data available from numerous public records on 64

the VoIP regulation matter, the selection criteria for analyzing interventions analyzes comments from stakeholders with direct industry concern regarding the outcome of the VoIP debate. Stakeholder comments were selected to reflect the nature of the tensions between the telecommunications industry and information service industry. Documents presenting these stakeholders’ comments were, perhaps not coincidentally, the documents reflecting the most detailed opinions on the subject of VoIP regulation. Stakeholders whose specific interests lie outside of VoIP debate issues but whose comments provide insights pertinent to the direct industry debate are included when those comments address an area that may not have been addressed by a direct industry stakeholder yet would add unique perspective to the debate. Lists of these stakeholders and the constituencies they represent are included in the Appendices.

Rhetorical Theory

Rhetorical criticism, according to Warnick (2002) is concerned with how messages are framed with particular audiences in mind, and the effect that those messages are intended to have, by considering how language and images are used to privilege some elements of an argument while neglecting others. The utility of rhetorical criticism is that it exposes the institutional power dynamic that exists wherever new policy is constructed. Rhetorical criticism helps make implicit ideologies explicit, Warnick notes. It reveals the uses of ideography, those vague ideas such as the public interest, appropriated by stakeholders to advance a policy position. By considering how messages attempt to position stakeholder constituencies themselves, rhetorical criticism discloses the assumptions that authors hold about their audiences (Althusser, 1972; Butler, 1997). Warnick writes that stakeholders attempt to influence audiences as well as other stakeholders whose rhetoric they are trying to counter. According to Warnick, a component of persuasion in predictive discourses – such as that exemplified by the VoIP debate – is an appeal to society’s tacit desire for economic and social advancement. By considering the Utopian narratives and moral relativism that frequently characterize the U.S. government’s pro-technology discourse, this inquiry applies rhetorical critical methods to mediated debate relevant to VoIP regulatory issues framed in the public interest. 65

This inquiry applies the component of rhetorical criticism represented by frame analysis to examine the ideological subtext implied in the metaphors, narratives, and patterns of emphasis and neglect in discourse concerned with new communication technology. Though most often applied in mass media discourse analysis, frame analysis is appropriate to a discussion of policy making, such as that concerning VoIP. Frame analysis helps to uncover some of the underlying myths, stereotypes, and assumptions that have colored public understanding of the issues involved in the regulation of VoIP. It helps examine how stakeholders in the VoIP debate frame regulatory issues in an attempt to shape FCC decision-making. It provides a basis for analysis of stakeholder contextual and symbolic language to offer a more complete understanding of the nature of the VoIP policy debate. This inquiry suggests that the methods of frame analysis offer the most comprehensive means of revealing and analyzing the agendas of stakeholders engaged in policy debate. Frames are “principles of selection, emphasis and presentation composed of little tacit theories about what exists, what happens, and what matters” (Gitlin, 1980). Warnick writes that frame analysis clarifies the tacit messages behind stakeholder claims – those with respect to the public interest, for example. Issue framing facilitates stakeholder attempts at influencing public debate at such times when stakeholders deconstruct and represent an issue to policy-makers without deferring to the manner in which policymakers initially presented the issue to stakeholders. Stakeholders opposing any form of regulation can undermine popular pressure for reform – in VoIP policy, for example – by framing their rhetoric in “culturally sanctioned suspicions about government’s ability to successfully regulate the private sector” (Conrad, 2004, p. 314). Conrad observes that through lobbying and building political relationships with regulatory agencies, business elites can tap established connections and relationships to dominate decision-making, often by stipulating that socioeconomic components of an issue – such as universal service – are “private sector” concerns, not matters for governmental policy, thus taking the issue out of a discussion forum.

“To frame,” according to Entman (1993) “is to select some aspects of a perceived reality and make them more salient in a communicating text in such a way as to promote a particular problem definition, causal interpretation, moral evaluation, and/or treatment 66

recommendation.” Jordan (1999) contemplates how framing an issue with the use of certain metaphors, (e.g., “the new frontier”) has naturalized certain implicit understandings about the Internet and its applications, VoIP, for example. Stakeholders who predict phenomenal developments in technology often address their audiences as if similar future developments are inevitable and even foreordained. According to Warnick, noticeable patterns exist in the ways stakeholders frame appeals to their audiences whom they address as one addresses true believers – those who already subscribe to the premises on which the stakeholders base their presentments. She suggests that in issue framing, the use of epideictic, speech that celebrates consensually held values, rather than deliberation, speech that critically examines important issues, can only succeed in situations where an audience is inclined to be of one mind and disinclined to weigh opposing points of view or alternate courses of action. Warnick’s rhetorical analysis considers how stakeholders can frame messages constructed for audiences around a given text. What beliefs, values, and assumptions, she asks, have they assumed their readers hold? What sorts of received wisdom and commonplace “truths,” she questions, can they take for granted in their message design? How do authors build their credibility through textual cues? How do they construct and shape their audiences through strategic use of shared beliefs and premises? This inquiry addresses these issues in its VoIP debate analysis and shows how stakeholders use ambages – indirect appeals – and rhetoric to gain control of the dialogue surrounding VoIP in an attempt to circumscribe what is considered and what is excluded during the FCC decision-making process.

Methods of Analysis

This inquiry’s application of Denzin and Lincoln’s (2003) narrative approach to frame analysis provides the reader with a rich understanding of stakeholder discourse throughout the VoIP debate. Narrative examination might show, for example, a summary of former U.S. District Court Judge Harold Greene’s’ opinion concerning the 1982 Modified Final Judgment (MFJ) as a comparison against a summary of William Kennard’s remarks concerning the Telecommunications Act of 1996. Another type of frame analysis which this inquiry employs looks for metaphors and shifts in content to 67

suggest how the text circles through a network of ideas around which an argument is framed (Agar and Hobbes, 1985). This inquiry will consider, for example, what is fore- grounded and what is presented as background when stakeholders frame their policy agendas. Vonage might argue to the FCC that technological diffusion of VoIP is in the public interest without revealing how the resultant disenfranchisement of poor or rural telecommunication customers would correspondingly go against the public interest. Likewise, SBC Communications might submit evidence to the FCC suggesting that the non-regulation of VoIP would jeopardize an entire industry, but not reveal the ways in which the current regulatory scheme benefits SBC as it acquires devalued telecommunications firms. Frame analysis can help researchers discern the perspective of the interested parties and perhaps how their agendas diverge when the framing is compared across texts. An analysis of public policy documents surrounding VoIP might show how stakeholders might not frame Internet voice services as functionally equivalent to telephony. The word “telephone” connotes a dated, perhaps quaint, device with its roots in a staid old industry. “Voice services” connotes a future-oriented technology unique enough from the telephone that it deserves policy treatment outside of the current regulatory paradigm, such as the 2002 decision to treat cable providers not as common voice carriers but to focus on the “services” part of the name and thus regulate cable as a service. “IP-Enabled services” – those under current FCC debate – are even more future- oriented, two technological generations removed from falling under the telephone regulatory rubric. Frame analysis might show how a new industry’s policy rhetoric concerning the public interest attempts to guide new policy decisions regarding regulation, even as the rhetoric of legacy voice service providers attempts to reign in “activist regulators.” In a frame analysis of claims made by VoIP stakeholders, especially valuable are the techniques of Stone (1988), who helps readers understand how symbols are used in policy rhetoric to invoke images consistent with the agenda of the stakeholder. Stone refers to synecdoche – the whole of an object as represented by one of its parts – when explaining how stakeholders use one part of a problem, universal access by rural consumers, for example, to define the corruption of the entire system of universal service and frame on-going arguments around this presumption. Stone writes of how metaphors 68

allow the jump from “description to prescription” (p. 118), so that, for example, if a VoIP provider is framed as an Internet Service Provider, it must then be regulated, stakeholders would claim, like a service provider, not a telecommunications provider. Stone speaks of how policy metaphors frame issues, the market, for example, as “containers” which have finite capacity and must be kept from overflowing. An example might be when a VoIP stakeholder claims that VoIP is pushing traditional telecommunications providers out of the consumer market. Similarly, Stone discusses how issues are framed in policy rhetoric like diseases that must be contained. VoIP stakeholders, for example, might suggest that the unregulated spread of small service providers is “infecting” the entire industry. Best (1987) expands upon this theme, stating that when issues are framed as epidemics, the metaphor implies that more people will become infected if the issue at hand reaches no resolution. The “rectitude of rhetoric” Best introduces as the argument that a country’s values or morals require that a problem – such as regulating VoIP in the public interest – demand that policy-makers bring an issue to the fore. Best discusses how interventions couched in what stakeholders frame as “facts” – what he calls “socially constructed knowledge” – can only be viewed as contingent upon the framework in which stakeholders frame the interventions. In the VoIP debate, the issue of dwindling universal service might be framed such that all society will come to harm if even a small percentage fall behind the VoIP diffusion curve (Rogers, 1995). Best calls these “atrocity tales,” which serve to crystallize the intensity of an issue and lead the uninformed to infer that the worst-case scenario is imminent. Kronig (2004, p. 2) calls frames the “basic cognitive structures which guide the perception and representation of reality.” Stone (1997) asserts that use of the frame will direct efforts at exploring conflicts and tensions in stakeholder claims when directing responses to policy questions. Stone (1988) addresses policy debates from the perspective of liberal and conservative rhetorical language, showing how any issue can be framed according to one’s political inclinations while using the same evidence for both sides of an argument. She cautions against the rhetorical uses of Hobson’s choices, where Either/Or options are framed as the only solutions to a dilemma. An example of a Hobson’s Choice might be when a VoIP stakeholder suggests that the FCC must either regulate the technology as a telecommunications service or risk losing future provisions 69

of universal service to poor or rural populations. Stone (1988) suggests looking at what stakeholders allege as facts to evaluate how a stakeholder might frame the facts to elicit a pre-determined response from the reader. She introduces the concept of teleological fallacy – assuming that the effects of an action were its intended purpose – an example of which might include claims that a telecommunications firm offering less service to poor rural customers than it did previously had switched to providing solely VoIP services so that it would not have to serve poor or rural customers with no access to VoIP. Stone (1988) even shows how numbers can be framed in rhetorical fashion, a tactic this inquiry will explore throughout the VoIP debate. One device that might be added to Stone’s rhetorical evaluation is that of metonymy. Stakeholders can use metonymy, a metaphor that identifies an article with a portion of the article with which it is associated, to frame their own or reframe their opponent’s position. For example, stakeholders might use the term “Liberal Left” as a rhetorical frame around all those who support universal service as a right of all citizens. In like manner, stakeholders may use the term “Wealthy Elite” as a rhetorical frame around all those who support a laissez-faire approach to VoIP regulation. Snow et al. (1986, p. 464) write that “by rendering events or occurances meaningful, frames function to organize experience and guide action.” What this means for the VoIP debate is that a stakeholder can frame its discourse on VoIP policy-making to depict how the audience will experience the new technology – either as a disruptive or a progressive innovation, for example – and guide regulatory action toward a desired outcome. Snow et al. (1986) outline four ways in which frames can be used for issue shaping: bridging, amplification, extension and transformation. Typically used for examination of discourse in social movements, framing analysis offers a unique perspective on policy-making with respect to the fast-changing realm of communication technology. This inquiry shows the usefulness of framing analysis when examining attempts at circumscribing the public interest, particularly when stakeholders find themselves at cross-purposes when enacting regulatory changes affecting industries that constitute key components of the U.S. economy, such as telecommunications. The first way in which frames can be used for issue shaping, bridging, links two or more ideological constructions that, although previously linked, were not suggestive of 70

a need for unified response. In the VoIP debate, for example, stakeholders might bridge the frame of universal service access with the frame of consumer choice to encourage the conclusion that with the former comes the latter, with both presented as noble goals. Bridging two frames subdues the opposition’s attempt at laying claim to the cause and effect of a decision or policy. The second way in which frames can be used for issue shaping is termed frame amplification. Frame amplification, Snow et al. (1986) write, has two components, stakeholder value amplification and belief amplification. Snow et al. define values as “modes of conduct or staes of existence that are thought to be worthy of protection and promotion” (p. 469). By amplifying values, stakeholders attach to them a sense of urgency that is then appended to the policy issue that stakeholders wish to influence. In the VoIP debate values might include notions that everyone in society is worthy of having telephone service in the home. Amplification of these values might manifest as a prescriptive: everyone should have telephone service in the home. Frame amplification of beliefs refers to how “ideational elements that cognitively support or impede action” become “sociologically axiomatic” (Snow, et al. 1986, p. 470). The first type of frame amplification is amplification of beliefs about the target of influence. A stakeholder might amplify beliefs, in the case of VoIP, for example, about the FCC as a pro-technology, industry biased agency to influence other stakeholders as to the necessity of ensuring universal service guarantees despite what stakeholders have framed as the FCC’s reliance on the market to meet the needs of society. The second type of frame amplification of beliefs is amplification of efficacy of action. Efficacy of action represents a belief amplification as one that takes on more importance as a stakeholder finds less traction for an issue. Network externalities work against the stakeholder when increasingly more individuals perceive an issue no longer to have regulatory relevance. In the VoIP debate, the belief that universal guarantee of enhanced services will lead to higher taxes can lead stakeholders to inflate the degree to which taxes would rise such that any suggestion by opponents that taxes will not necessarily rise becomes obscured. A stakeholder might amplify beliefs about the efficacy of action for ensuring universal service if the stakeholder feels the issue might lose resonance with an audience without ever increasing rhetorical momentum. 71

The third type of frame amplification is amplification of the belief of the necessity of an action. Amplification of the belief of necessity of action includes amplification of values; the necessity of an action turns on the values that a society holds dear. In the VoIP debate, a stakeholder might amplify the belief of the necessity of creating policy that requires all voice communication providers to contribute to universal service because society has already determined that everyone is worthy of telephone service in the home. The third mechanism Snow et al. identify in issue framing is frame extension. When a stakeholder is unable to employ bridging or amplifying to create a constituency sufficiently large to garner attention, and thus legitimacy, from the target of influence or other stakeholders, the stakeholder can use frame extension in an attempt to expand its sphere of influence beyond the initial target audience. Intended audience members with beliefs not ideologically identical to yet congruent to the stakeholder’s core issue may be corralled by frame extension. An audience’s newly internalized frame should be “of considerable salience to the potential adherents,” according to Snow et al. (1986, p. 472) that its members feel no dissonance with their current frame as compared with their former frame. On occasions when a stakeholder’s existing set of frames no longer have saliency for the intended audience, the stakeholder may deploy the fourth framing mechanism suggested by Snow et al. (1986), frame transformation. Stakeholders will not abandon an issue for one with a larger constituency, rather, stakeholders will advance an issue from a frame in which they perceive their intended audience will take a more active interest concerning a particular policy under debate without changing their core values and beliefs. In the VoIP debate, for example, a stakeholder might transform the issue of universal service to one of universal access that includes most of the provisions of universal service. Keum et al. (2005, p. 342) summarize framing as “the application of certain heuristics or the exploitation of cognitive biases” to provide a set of standards with which society can base evaluations and judgments. Overall, each of the aforementioned researchers offers valuable perspectives on the rhetoric of policy-making highly useful to VoIP regulatory discussion. In the VoIP debate, framing attempts are made in discussion of technological innovation, economic competition, and universal service as pertains to 72

the public interest. This inquiry examines whether any changes over time have occurred in representations of the public interest in telecommunications policy-making. It considers the degree to which attempts at circumscribing the public interest will have implications beyond solely the telecommunications arena. This analysis will be useful in future policy discussions to inform debate that frames the public interest with rhetoric intended to influence regulatory outcomes. Following are examples of treatments of similar data by researchers examining VoIP policy and public interest.

Research Examples

In the 1995 study by Haeryon Kim cited in Chapter Two, the researcher examined stakeholder interventions concerning the deregulation of Direct Broadcast Satellite (DBS). Kim reminds us that the FCC is under federal mandate to serve the public interest, but that the parameters of the public interest remain vague. In his study, Kim asserts that during public policy-making, groups vie with one another to gain the attention of political agencies such as the FCC to ensure favorable treatment by regulators. Kim’s paper analyzes stakeholder interactions with the FCC in DBS rule making. His study utilized three data sets specific to guiding this research endeavor: 1) FCC public notices and public comments on the DBS rule making docket, 2) Congressional records, and 3) Court decisions. Research in this dissertation on the FCC rule making process will include all of these data set types when examining how stakeholders frame the public interest when attempting to influence FCC VoIP policy making. A monograph by Warnick (2002) addresses the public interest of maintaining a balanced perspective of new technologies and their applications. Warnick discusses her rhetorical criticism of Wired magazine issues, dating from 1994 to 2000, with a focus on issue framing and image shaping language and stakeholder goals for seeking “a rhetorical middle course. . . between uncritical enthusiasm for new technologies and bleak rejection of them” (p. 125). Warnick’s studies reveal what groups were included and what groups were excluded in the publications’ discourse, and how the discourse accomplished its implicit or explicit rhetorical objectives by framing both the study’s issues and its participants. Warnick’s Wired magazine study lends itself to this dissertation by showing how framing a technology’s features and benefits to certain populations – in this case, 73

women just beginning to become conversant with personal computing – privileges the intended applications of some users, e.g., corporate women, and engages in diminution of other users’ intended application, e.g., stay at home mothers. Warnick’s inquiry is noteworthy because it shows how one population of technology users seems to have more attention given to its needs than another, even to the degree that the technology’s uses by some populations are openly denigrated; Warnick questions how this can be in the public interest. This inquiry explores similar treatments of technology’s users in the VoIP debate by some stakeholders and examines whether the to which rhetorical framing can shape policy outcomes. A Lakoff (2003) case study on migrant workers exposes the frames stakeholders employ to construct the terms of debate within pre-conceptions of morality, which Lakoff suggests the anti-migrant worker stakeholders were able to define. Lakoff notes how the pro-migrant worker stakeholders were stymied in their attempts to reframe discourse around morality as they define it, and thus engaged in debate delineated by their adversaries’ frames. In VoIP policy making, if a stakeholder can construct the limits of morality as inclusive only of consumer choice as represented by universal access and marginalize universal service as a goal representative of society’s values, that stakeholder will have created a moral power base which will be difficult for antagonists to counter. A study conducted by McDowell and Buchman (1997) directly speaks to policy- making in telecommunications. In the mid-1990’s Canada found itself in a similar situation as does the U.S. today with regard to regulating technology in the public interest. High capacity telecommunications and information technologies were rapidly outpacing the regulatory guidelines appropriate for the prior generation’s technological capabilities. The McDowell and Buchman study evaluated the receptiveness of the Canadian governmental agencies charged with creating new policy for these advanced technologies to interventions from public interest groups. The study observed that “Canadian federal government and political elites have been seen by many non-profit and public interest groups as increasingly serving an economic and social agenda that does not represent the concerns and aspirations of wide numbers of Canadians” (p. 718). This inquiry examines, among other issues, whether a bias exists among what some would term U.S. political elites with respect to VoIP policy-making. The McDowell and 74

Buchman (1997) study is important because it offers an historical precedent to “gauge the receptivity of the government to questions and issues that were not on its agenda, and of the willingness of the government to engage in substantive and significant consultation with a range of groups in Canadian society” (p. 718). Society can apply the lessons of this case to today’s U.S. VoIP policy-making debate where it becomes evident just how much of the public interest political officials consider when making decisions concerning emerging technology, and how those decisions speak to “the perceived legitimacy both of governing bodies and of public telecommunications carriers that were in the past often assumed to be working in the general public interest” (p.719) or “surrenders public policy decisions to a narrow set of interests” (p. 719). Concerning frame analysis, Goffman (1974) – who first introduced frame analysis to luke-warm reviews – writes that “definitions of a situation are built up in accordance with principals of [an] organization which govern events.” Gramsci (1971) points to a hegemonic process in policy-making that maintains the status quo of power distribution. Carragee and Roefs (2004) similarly observe how asymmetries in power due to societal position or political prejudice the framing process. Those in power co-opt the rhetoric such that dissenting opinions are filtered out before they reach the public sphere, and issues under regulatory investigation never develop a grass roots constituency. If one never hears about an issue, one cannot offer comment. Only those with access to policy information have the privilege to shape policy outcomes. It is for these reasons that frame analysis is appropriately applied not only to mass media issues, but to analysis of policy making discourse among stakeholders, such as those exemplified by the VoIP debate, with sometimes overlapping and sometimes mutually exclusive regulatory goals.

Research Questions

This dissertation examines records submitted in response to the FCC’s 2004 request for comments addressing Notice of Proposed Rulemaking 04-28, In the Matter of IP-enabled services. Lincoln and Guba (1985) distinguish documents from records on the basis of whether or not a text was created to give evidence to official documents. Records include sanctioned texts generated expressly to attest to a formal transaction, while documents are prepared for personal rather than official reasons (Webb, Campbell, 75

Schwartz, and Sechrest, 1966). This dissertation uses the terms documents and records interchangeably to reflect that many stakeholders also used references to documents and records interchangeably. To provide a reference benchmark for evaluating FCC policy-making procedures, analysis will include a brief examination of the Telecommunications Act of 1996 and how its rulings drive today’s VoIP policy agenda. Evaluation of records will include a framing analysis of VoIP Forum contributions, the relevant text of the NPRM, and stakeholder Comments and Reply Comments in response to Public Notice WC 04-36, the submission made to the Public Register indicating that the NPRM 04-28 is open for comment. This analysis employs theories from Communications and Economics as examined in Chapter Three to examine the following research questions:

RQ1). What interpretation of the public interest is reflected in stakeholder claims concerning VoIP regulation and technology? RQ2). What interpretation of the public interest is reflected in stakeholder claims regarding VoIP regulation and competition? RQ3). What interpretation of the public interest is reflected in stakeholder claims regarding VoIP regulation and universal service? RQ4). How has interpretation of the public interest changed from the inception of the telecommunication industry through the VoIP regulatory debate?

The first question examines stakeholder claims concerning what impact any regulation of VoIP would have on forthcoming technological advances in the industry. The discussion uses elements of framing analysis highlighted in this chapter to evaluate the effectiveness of the arguments used by the stakeholders in persuading the FCC to rule in their favor on VoIP regulation. Analysis focuses on source factors of the stakeholders’ comments, message factors of the stakeholders’ comments, the nature of the public interest the messages represent, and the salience of the evidence and appeals made by stakeholders to the FCC’s stated agenda. It is important because helps to ascertain where stakeholders, including the FCC, place economic value concerning the advancement of

new technologies versus assuring an ongoing place in the market for existing technologies. The second question examines claims made by VoIP stakeholders concerning how VoIP regulation would affect economic competition in the industry and what regulations should therefore be applied to the new technology. Analysis includes seemingly counter-intuitive claims made by stakeholders from the service provider and telecommunications industries, as well as claims made by industries ancillary and tangential to these industries, regarding competition. This analysis is important to investigate the various effects different VoIP debate outcomes might have on the voice provider segment of the economy and how these outcomes serve the public interest. The third question examines the claims made by stakeholders regarding how to regulate VoIP service providers, either as telecommunications providers or information service providers with regard to universal service. Analysis addresses the technology under girding VoIP and examines claims made by stakeholders as to whether the technology renders VoIP a telecommunication service whose providers must therefore follow the dictates of the 1996 Telecommunications Act concerning universal service fund contributions. This topic is important because it will help show how the public interest is represented through analysis of how stakeholders frame universal service. The fourth question examines changes over time, from the origination of telecommunications regulatory policy beginning with the ICC in 1887 through 2004 and the FCC’s stand on the regulating of VoIP providers. Analysis will include the ways in which regulation reflected claims about the public interest had on the public interest across time as pertains to the above three questions. It will examine what if any changes over time in attempts at circumscribing the public interest are apparent from when regulation of telecommunications began though to the VoIP regulatory issue. This analysis is important because it helps inform future analysis of policy-making both within the field of communications and in fields outside the communications discipline as stakeholders attempt to influence policy-making by circumscribing notions of the public interest such that they reflect the stakeholder’s regulatory agenda.

The Data

The data set examined in this inquiry includes all submissions to the VoIP Forum, VoIP-related remarks from December 2003 through November 2004 by the four FCC Commissioners, the Chair, and the FCC several staff members, and Comments and Reply Comments to FCC NPRM-04-28. The number of presenters at the VoIP Forum totaled 18; the number of comments submitted to the Forum totaled 70, inclusive. Within the data set were also over 400 separate interventions regarding the NPRM 04-28 In the Matter of IP-enabled Services. These interveners, combined with the 70 VoIP Forum contributors, represent the interests of 435 individual stakeholders, as some interveners submitted comments on behalf of consortia of stakeholders. During the time in which this study was conducted some stakeholder names have changed. This study will refer to all stakeholders using the names under which they submitted their comments to the FCC. From the over 400 submissions to the FCC for both the VoIP Forum and NPRM 04-28, the stakeholders comments selected for analysis in this dissertation were chosen for the impact that the VoIP regulatory outcome will have on their specific interests. Many of these stakeholder interests are at odds with one another. The tensions arising from stakeholders competing interests drives this dissertation’s analysis of issue framing in the VoIP debate. The tension is derived from stakeholders attempting to frame the VoIP regulatory dialectic in ways that reflect how they have elected to frame the public interest. The stakeholder comments chosen for analysis include those who presented at the VoIP Forum. They also include comments from AT&T, MCI, and Sprint, as representative of inter-exchange carrier concerns. Comments from Verizon and SBC Communications were selected as representing Incumbent Local Exchange Carrier (ILEC) concerns. Verizon and SBC were chosen over Qwest and Bell South to represent the concerns of ILECs because they are the largest of the four remaining ILECs, their comments are largely echoed by the other smaller ILECs, and Verizon and SBC would go on to acquire MCI and AT&T, respectively. Comments from Covad and Level 3 were chosen as representing Competitive Local Exchange Carrier (CLEC) concerns. Covad and Level 3 were chosen to represent the concerns of CLECs because they are the two

largest CLECs and own facilities that reach the end-user. Comments from Pulver, Vonage, and Net2phone were chosen as representing VoIP provider concerns. Pulver was chosen to represent the VoIP providers’ concerns because the company he created, pulver.com, developed “Free World Dialup,” the application which the FCC decision as to how to regulate resulted in NPRM 04-28, In the Matter of IP-enabled Services. Vonage and Net2phone, were chosen because they are the largest VoIP providers. Comments from Cisco, Global Crossing and Broadband Service Providers Association were chosen as representing broadband provider concerns because they represent the interests of the industry’s largest broadband and broadband equipment providers. Comments from Nextel and CTIA were chosen because they represent the interests of the largest wireless carrier concerns. Although there are larger wireless providers, such as Verizon and MCI, these firms chose to submit their comments to the FCC under one banner. Comcast, Cox and Time Warner were chosen to represent the concerns of the cable industry because they are the largest cable providers. Numerous industry organizations representing unique constituency concerns provided comments that were selected for analysis, including USTelecom, National Exchange Carrier Association, Independent Telephone and Telecommunication Alliance, National Association of Regulatory Utility Commissioners, Computer and Communications Industry Association, United Telecom Council, United Power Line Council, and Communication Workers of America. Comments submitted by industry think tanks were selected for analysis, including New Millennium Research Council, Heritage Foundation, Citizens for a Sound Economy, U.S. Internet Industry Association, TeleNomic, and the Cato Institute. In summary, this dissertation will explore whether interpretations of the public interest have changed over time – either across telecommunication’s 125-year history or over the course of the VoIP regulatory process – with regard to technological innovation, economic competition, and universal service, and based upon evidence as interpreted from stakeholder comments throughout the VoIP debate, beginning in December 2003 and concluding in June 2004. Conclusions will explore the degree to which any changes have occurred, the trends the changes might predict, and how the changes affect stakeholders’ interests and the public interest, as defined by the various VoIP stakeholders. 79

CHAPTER FIVE

THE VOICE OVER INTERNET PROTOCOL FORUM AND THE NOTICE OF PROPOSED RULEMAKING

Thus far, this discussion has examined the importance of studying the Voice over Internet Protocol (VoIP) debate and stakeholder claims made to the public interest. Discussion has included the significance of technological innovation, economic competition, and universal service in terms of VoIP policy-making. This section introduces the proceedings from the December 1, 2003 VoIP Forum and provides analysis of each of the commissioners’, politicians’, and panelists’ stated positions on the three areas of inquiry here. The VoIP Forum is important because it marks the first time in FCC history that the Commissioners have called for a meeting outside of the customary requests for input from stakeholders from which the FCC usually makes decisions when wrestling with regulatory issues of this nature. Any other time the FCC elected to make policy, it would simply solicited written comment from any stakeholders who wished to add their opinions to the record, whereupon the FCC would render a decision based upon the comments it received and any appropriate regulatory precedent. Never before has the FCC called upon telecommunications industry leaders to give formal presentations in a public setting concerning how to regulate a new technology.

Setting the Stage

The primary issue facing the FCC in VoIP policy-making is how to categorize VoIP for regulatory purposes, whether as a telecommunications service or as an information service. Analysis from earlier chapters indicated the challenge of applying current policy models to distinguish a telecommunications provider from an information service provider when both offer businesses and consumers nearly identical, and often overlapping, services. This chapter introduces the VoIP debate and provides analysis of stated policy perspectives of the FCC, members of the U.S. Senate, and representatives from the telecommunications and information services industries whom the FCC invited to participate in the VoIP Forum on December 1, 2003. This chapter also includes

analysis of comments submitted to the VoIP Forum that were not included as part of the Forum discussion but are included in the public record. Inquiry in this chapter seeks to understand the perspectives of the VoIP Forum participants and comment submitters concerning regulating in the public interest as it relates to the three areas of inquiry of this dissertation. The proceedings of the VoIP Forum are available for review at the FCC website. Following this chapter will be an investigation of the interventions stakeholders offered in response to FCC Notice of Proposed Rulemaking (NPRM) 04-36, In the Matter of IP-enabled Services, for which this chapter provides a basis for understanding claims made by stakeholders as they respond to FCC inquiries and each other.

The VoIP Forum

Chapter Three illustrated how the regulation of telecommunications has a very complex history, with the definition of how regulatory policy would best represent the public interest only occasionally evolving in tandem with new communication technology innovation. This inquiry has shown that, more often, telecommunication regulatory policy lags behind technological innovation. The introduction of VoIP brought numerous regulatory challenges, not the least of which involves whether to regulate those offering the new technology as telecommunications providers or information service providers. To help guide its thinking in policy-making concerning VoIP, on November 24, 2003, the FCC announced in a Public Notice that it would hold in the FCC Commission Room in Washington, DC, beginning at 10:30 am on December 1, 2003, a Forum “to gather information concerning advancements, innovations, and regulatory issues related to VoIP services” [DA: 03-3777]. To open the VoIP Forum, FCC Chair Michael Powell welcomed the panelists, participants, and audience members to what he termed the beginning of “an important process which should have as its goal the empowerment of consumers and entrepreneurs.” Powell’s remarks showed his preference for VoIP regulatory policy that would encourage entrepreneurialism, a term that serves throughout the VoIP debate as proxy for the intersection of innovation and competition:

As one who believes unflinchingly in maintaining an Internet free from government regulation, I believe that IP-based services such as VOIP should evolve in a regulation-free zone. ... Innovation and capital investment depend on this premise. The entrepreneurs seated before us depend upon this premise. In my view, we should come to this forum with a sense of regulatory humility - mindful that it is entrepreneurs, not governments, who came up with the idea of making high-quality, inexpensive phone calls over the Internet. (Michael Powell, VoIP Forum opening remarks, 2003).

Following Chairman Powell’s opening remarks, FCC Commissioner Michael Copps went on record with his statement to those in attendance. Copps focused on innovation and the public interest:

The long-awaited convergence of voice, data and video onto Internet-based networks is on the verge of turning the pipe dreams of just a few years ago into new commercial reality. We are dramatically changing the way we communicate in this country, and we are challenged to adjust our policies not only to accommodate, but to facilitate, this process of change. Indeed, it is difficult to think of an area of telephony that won’t be affected by what we do here— consumer-wise, business-wise, regulator-wise. We are all enthused about this technology. I thank the Chairman for assembling this forum today, … reaching out to stakeholders all across America as we attempt to … protect the public interest. Our motto ought to be, ‘Leave no Stakeholder Behind.’ (FCC Commissioner Michael Copps, VoIP Forum, 2003).

Commissioner Copps spoke of protecting the public interest as a goal of the VoIP Forum with his insisting that no stakeholder in VoIP is left behind. This inquiry will explore whether stakeholders speaking for a representational cross-section of the telecommunications services and information services industries who sought inclusion in the Forum were invited to participate, and whether all stakeholder concerns were aired. FCC Commissioner Kevin Martin spoke after Commissioner Copps. His comments showed how tightly coupled are the concepts of new services – or innovation – and competition:

When confronted with such fundamental questions as those raised by VoIP, the Commission’s paramount task is to facilitate market certainty and stability … to spur investment in facilities-based local competition and encourage the deployment of new services. As we approach these issues, we should be cautious so as not to unintentionally place economic regulations on these new services, ...

[instead] encouraging local competition and promoting greater access to these services for all Americans. The deployment of VoIP services raises difficult questions regarding its potential to displace traditional telephony services, as VoIP moves towards becoming a substitute for traditional telephony services (FCC Commissioner Kevin Martin, VoIP Forum, 2003).

Commissioner Martin, in a nod to universal service, acknowledged the need to promote greater “access” of services to consumers. This dissertation will examine in Chapter Eight the nuances between universal “service” and what Commissioner Martin termed universal “access.” It was Commissioner Jonathan Adelstein whose focus seemed most squarely on innovation and universal service as relates to the public interest:

VoIP technology offers huge promise for revolutionizing our nation’s telecommunications infrastructure. We need to encourage new, more efficient technologies. We must protect the underpinnings of universal service. Congress clearly stated that all Americans, whether urban or rural, should have access to high quality services at reasonable rates. If VoIP providers are not required to contribute [to Universal Service], it creates an opportunity for regulatory arbitrage and further undermines the already troubled funding mechanism. If VoIP is the future, then the steps we take must protect universal access to the best services available. As these issues show, fundamental public interest considerations are at stake. I hear the arguments that allowing this technology to move forward free of any regulatory constraints would encourage its development, availability and use. On the other hand, such “hands off” treatment could mean we are undercutting the … integrity of the underlying network and the universal service funding mechanism. We must draw a careful balance in assessing the public interest. I look forward to working with each of you to find the path that best serves the public interest (Commissioner Jonathan Adelstein, VoIP Forum, 2003).

Commissioner Adelstein’s remarks reflect not only an emphasis on the public interest concerning universal service, but also the first reference to “regulatory arbitrage,” a term stakeholders in the VoIP debate invoke as they frame their policy arguments to the FCC in response to NPRM 04-28 In the Matter of IP-enabled Services. Commissioner Kathleen Abernathy had gone on record as a supporter of universal service, but had been willing to evaluate new options for collecting contributions. In her comments to the VoIP Forum, Commissioner Abernathy’s emphasis showed concern for the intersection of innovation and competition:

Regulators should exercise restraint when faced with new technologies and services. Such restraint should facilitate the development of new products and services without the burden of anachronistic regulations, and in turn promote the goal of enhancing facilities-based competition. Any regulatory regime for VoIP must promote … entrepreneurial … investment (Commissioner Kathleen Abernathy, VoIP Forum, 2003).

After the Commissioners’ remarks, submissions made by members of the US Senate via letter were entered into the VoIP Forum record. Senator George Allen (R-VA) is co-chair of the Nanotechnology Working Group. In prior writings and statements to Congress concerning VoIP regulation, Senator Allen stressed a pro-technology, pro- competition stance. In his letter to the VoIP Forum, Senator Allen relied on a fear appeal in an effort to sway the Commissioners toward a VoIP policy that supports innovation and competition:

We risk losing important IT jobs to foreign markets if we do not act accordingly. VoIP is an example of new technologies that can be harnessed for the national good. I urge you to stay the course in setting policies that encourage entrepreneurship and investment (Senator George Allen, VoIP Forum, 2003).

Senator Allen and Senator John Sununu (R-NH) co-sponsored the Internet Tax Non-Discrimination Act of 2004, which “extends and broadens” the 1998 Internet Tax Freedom Act until the year 2007. Senator Allen’s letter to the VoIP Forum placed little emphasis on universal service. Senator Ron Wyden (D-OR) appeared to have a concern for universal service more in line with that of Commissioner Adelstein’s, linking innovation and universal service. Senator Wyden, co-Chair of the Democratic High Tech and Innovation Working Group, wrote to the VoIP Forum, suggesting that:

As a strong supporter of universal services, … in my view uniform treatment of VoIP would help the technology serve consumers.

John Sununu is among the senators most interested in Internet technologies and the link between innovation and competition as contributors to the economy. In April 2004 Senator Sununu, along with Senator Charles Pickering (R-MS) sponsored the VoIP Regulatory Freedom Act, which called for near complete deregulation of all Internet

applications in order to foster competition for nascent industries. Included among the senators’ concerns regarding Internet regulation is that innovation and competition would suffer if regulation were applied to Internet technologies. The bill was defeated in June 2004. Senator Sununu’s comments to the VoIP Forum include:

undue regulatory burdens … would stem digital migration … and undermine the ability of this new technology to develop and succeed.

Senator Sununu, neither in his comments to the VoIP Forum nor in his sponsored attempt at legislation, expressed concern for universal service. Senator John McCain (R-AZ), along with Senator John Ensign (R-NV), introduced Broadband Investment and Consumer Choice bill on August 2nd, 2005 which “aims to encourage widespread investment, innovation, and competition across today’s diverse communications landscape.” The bill’s provisions for universal service are in line with those of the 1996 Telecommunications Act (the 1996 Act). Senator McCain’s stated in his letter to the VoIP Forum that:

“VoIP holds great promise for consumers. Regulatory uncertainty over the treatment of these services threatens to quickly create an unhealthy environment for continued investment and development of competition in this area.”

Senator McCain’s letter included no reference to universal service. Senator McCain and Ensign’s bill had not gone up for vote as of January, 2006. Senator Ensign’s comments to the VoIP Forum included some of the terms encountered throughout this dissertation:

“As you examine important (VoIP) issues, it is my hope that the commission will do so in a competitively neutral manner. It is important that we move away from the government picking winners and losers and instead look to market based solutions to provide the best services at the best prices for consumers.”

The Senators who wrote to the VoIP Forum clearly had more than a passing interest in the VoIP debate. The legislation they have sponsored makes them stakeholders in the VoIP debate. Following the readings of the Senators’ letters into the VoIP Forum record, FCC Wire-line Competition Bureau staff members gave a presentation to the panelists, presenters, and attendees on the topics to be covered during the Forum. The FCC staffers 85

gave a general overview of the three Computer Inquiries, the definitions of telecommunications services and information services, the 1996 Act, definitions of basic and enhanced services, implications of the Stevens Report (1998), and the then-pending Pulver proceedings. At the conclusion of the Wire-line Contribution Bureau staff presentation, the first VoIP Forum panel addressed technical and market issues surrounding VoIP service. It consisted of presenters Kevin Werbach, founder of Supernova consulting and former FCC staff member; Jeff Pulver, President & CEO of pulver.com; John Hodiluk, Managing Director, Communications Group, UBS; John Billock, COO, Time Warner Cable; and panel member Charles Giancarlo, SVP & GM of Cisco Systems. Panelists were asked to describe the technology and capabilities of VoIP, and how VoIP could be used to offer end-users lower-cost, innovative services with capabilities previously unavailable in voice communications. Panelists addressed how the FCC might distinguish among the numerous services employing VoIP, and whether it could feasibly distinguish between VoIP and other IP-enabled applications facilitating communication (ranging from e-mail to instant messaging to videoconferencing to interactive online gaming). The first presenter, Kevin Werbach, founder of Supernova and former General Counsel for New Technology Policy to the FCC, spoke of voice data as no longer merely a part of telephony, but as a discrete component, just as are broadcast, cable, and wireless. “A packet is a packet,” Werbach opined – with a rhetorical phrase encountered throughout this inquiry – and “innovation happens.” Werbach suggested that policy must therefore respond, but he admitted to a pro-competition, pro-technology bias with respect to regulating Internet-based applications such as VoIP. According to Werbach, “voice does not equal Plain Old telephone Service.” Drawing from his seven years of having worked at the FCC, Werbach offered the VoIP Forum an insider’s view of the evolution of Internet voice services. As early as 1997, when he was still with the FCC, Werbach wrote on VoIP regulatory policy addressing many of the issues that the VoIP Forum found itself addressing six years later. In a working paper he authored in 1997 on the subject of VoIP policy-making, Werbach advised the FCC that, “the movement toward deregulation and local competition in telecommunications in the U.S. may be the single most significant 86

development for the future of the Internet” (p. 82). To help show the history of VoIP regulatory policy and the significance of issues pending in the VoIP regulatory debate, a portion of this chapter’s VoIP Forum analysis will draw from Werbach’s 1997 working paper, “Digital Tornado: VoIP Regulation,” which examines “some of these emerging issues at the intersection of technology, law, economics, and public policy” (p. i). Werbach’s 1997 working paper was written for and presented to the FCC and serves as a primary document from which the FCC can draw guidance on VoIP regulatory best practices with respect to the issues this analysis discusses: innovation, competition, and universal service. The issues Werbach addressed in 1997 remain important central themes in the VoIP debate when stakeholders frame arguments around regulation, innovation, and competition. The 1997 paper shaped issues that, six years later, served to guide the tenor of debate concerning how to regulate VoIP. In his 1997 working paper, Werbach notes that the Internet “was designed to route around obstacles, such as failures at central points of the network, and it may respond in unexpected ways to pressures placed on it” (p. ii), an idea taken up by stakeholders throughout the VoIP debate with respect to innovations working around technological obstacles of the Public Switched Telephone Network (PSTN). Werbach tells the FCC that the “Internet functions as a series of layers” (p. 1) that, in telecommunications, enables the decoupling of the voice application from voice transmission. Under the PSTN model, voice transmission was a unified concept. (This inquiry will delve more deeply into the distinctions between VoIP and the PSTN in Chapter Six.) Werbach’s use of the term “layers” in describing the Internet is a concept whose level of significance to VoIP regulation stakeholders incorporate throughout their responses to the NPRM. An important distinction Werbach makes concerning the Internet is that “new services (such as Internet telephony) can be introduced without necessitating changes in transmission protocols” (p. 2). The issue of changes in transmission protocols will become important in evaluating stakeholder claims concerning VoIP and its designation as an information or telecommunication service. Analysis addresses protocols and their importance in Chapter Six. Werbach also links the issues of competition and innovation, writing that, “[c]ompetition enables both the dynamic allocation of capital and talent, as well as the 87

constant innovation in technology that leads to deep convergence and falling prices; in a competitive market, companies must constantly invest and innovate, or risk losing out to competitors” (p. 7). Issues of innovation linked to competition appear in nearly every aspect of the VoIP debate as stakeholders attempt to frame policy arguments around aspects of each in ways most favorable to their desired regulatory outcomes. Werbach’s 1997 working paper references U.S.C. Sec 160 where the FCC is required to forbear from regulating certain Internet services if regulation would not be necessary to prevent anticompetitive practices, and forbearance would be consistent with the public interest. The issue of regulatory forbearance requirements with respect to VoIP becomes important in examining the ways stakeholders frame innovation, competition and universal service around what the stakeholders deem to be in the public interest. Werbach references Computer II, where the FCC is given authority to regulate enhanced services, defined as “services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information” [47 C.F.R. 64.702(a)]. Basic services are classified by Computer II as “pure transmission capability over a communications path that is virtually transparent in terms of its interaction with customer supplied information.” The 1996 Act allows for equivalent definitions of basic versus enhanced services as telecommunications services or information services, respectively. Although the FCC has the authority to do so, Computer II cautions the FCC that regulating enhanced services does not serve the public interest. The distinction of how to define the public interest using as guidance language from Computer II has meaning for the VoIP debate as stakeholders invoke the Computer Inquiries to frame their respective positions on what VoIP regulatory regime would best serve the public interest. The distinction of telecommunications versus information services is significant because information services are not subject to regulation under Title II of the 1934 Communications Act, as amended by the 1996 Telecommunications Act, which would classify them as common carriers and thus compel them to, in addition to other regulatory requirements, provide open and reasonable access to the PSTN and its network facilities, 88

and to contribute to universal service. The classification as a common carrier – and issues of the access to and support of the PSTN – affects stakeholders in all three areas of this dissertation’s inquiry – innovation, competition, and universal service – as stakeholders debate the appropriate regulatory classification for VoIP. In his 1997 working paper, Werbach points out that, “[c]ommunications regulation has traditionally been justified by the presence of dominant firms [or] by overwhelming public interest imperatives, … justifications [that] simply do not exist in the Internet realm” (p. 29). Related to the issue of traditional communications regulation and its appropriateness for VoIP services, Werbach (1997) observes that under the 1996 Act, common carriers may not unreasonably deny requested services to, or unreasonably discriminate against, any entity that would connect to a facilities based network. This inquiry explores how in the VoIP debate stakeholders reference this portion of the 1996 Act differently, depending on their chosen interpretation of the terms “dominant” and “public interest,” especially with respect to competition in the VoIP space. Werbach further foreshadows the VoIP debate when he references in his working paper the portion of the 1996 Act where telecommunications in all its iterations is defined:

The term "telecommunications" mean the 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 Sec 153(43)]

The term "telecommunications carrier" means any provider of telecommunications services.... A telecommunications carrier shall be treated as a common carrier under this act only to the extent that it is engaged in providing telecommunications services. [47 USC Sec 153(44)]

The term "telecommunications service" means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available to the public, regardless of the facilities used. [47 USC 153 (46)]

Werbach’s working paper asks the important questions around which much of today’s VoIP debate issue centers: “To what degree do Internet-based services meet the … definition of ‘telecommunications’?” (p. 30). Werbach asks, and stakeholders debate, whether we can “regulate some services and not others” (p. 31), and if so, which ones and how much. Analysis will reveal this theme in VoIP policy discourse as stakeholders argue for differing regulatory regimes that either endorse or disparage the validity of 89

applying traditional communications regulation to VoIP services. When Werbach addressed the VoIP Forum, his expressed opinion remained consistent with his prior writings in that, with respect to IP-enabled voice services, “competition will enable companies to explore the true economics and efficiencies of different technologies.” Werbach’s confidence in the power of competitive markets becomes apparent in his comments to the VoIP Forum where he states that, “the optimist recognizes that technology and markets have proven their ability to solve problems; as long as there is a market for high-speed connections to the Internet, companies will struggle to make those high-speed connections available in an affordable and reliable manner.” According to Werbach, and as analysis has shown in Chapter Two, citing Horwitz, “monopolies provide certainty of returns that, by definition, cannot be achieved in a competitive market.” Werbach feels that, when it comes to Internet technologies, “uncertainty can be a virtue” and that “the Internet is dynamic precisely because it is not dominated by monopolies or governments.” Werbach’s VoIP Forum comments suggest that expansion of the Internet and computer industries – ostensibly by means of a laissez- faire, or hands-off, regulatory policy – offer greater access to technology, including VoIP than achievable were telecommunications-type policies to be applied. In all his remarks, Werbach emphasizes the impact that the Internet will continue to have on access to innovation and competition with respect to voice communication. However, the caution here may be that “access” may have largely replaced “service” with respect to universal service of voice communications. Werbach’s paper and his VoIP Forum remarks contained far fewer references as to how innovation and competition could work to increase voice service options for low income or remote locations than to how rapidly technology can advance voice service options in general. In 2004 Werbach produced a paper for the FCC concerning competition in the Internet industry, entitled “Breaking the Ice: Rethinking Telecommunications Law in the Information Age.” Werbach offers ideas on ways to regulate the technology of IP-enabled voice services using a “layered approach” toward VoIP regulation to reflect the architecture of the Internet. As earlier indicated, this approach to VoIP regulation will become a central theme in the VoIP debate, and one that will be explored at length in Chapter Six of this inquiry. 90

Following Werbach’s VoIP Forum presentation, Jeff Pulver spoke. He is founder of pulver.com, the firm offering Free World Dial-up, an innovation making use of a technology that has come to be known as “pure VoIP” which uses only computer-to- computer connectivity to enable voice calling. Pulver introduced his ideas on VoIP to the Forum by focusing on themes of innovation and competition, echoing much of substance of Werbach’s presentation. In an example of Entman’s (1993) observations on framing as a means for promoting a particular treatment recommendation, Pulver said that, as pertains to IP-enabled voice services, “we need room to innovate and experiment and in effect a regulation free zone for the Internet. VoIP can be an engine for competition.” Pulver addressed an issue for ILECs with respect to facilities based competition; “We need to build for an “Always-On” generation,” he said, claiming that, “nothing is stopping the ILECs and Cable companies from also offering their own hosted voice over broadband services.” Pulver chastised local exchange carriers when he stated that “I can tell you that we [at pulver.com] have continually focused on the requirements to support PSTN solutions, but until recently, the PSTN community has not been focused on VoIP.” Pulver clarified his ideas further in his responses to the NPRM, where he incorporates universal service into his thoughts on VoIP policy-making. Pulver concludes his remarks to the VoIP Forum by alluding to the idea of continuing laissez-faire policies toward Internet voice service innovation and competition, “Give voluntary standards a chance.” John Hodulik, Managing Director of UBS Investment Research, spoke next. Hodulik began his address to the VoIP Forum by asserting the need to define the topic of VoIP, and used the framing technique outlined by Warnick (2002) of a strategic use of shared beliefs to shape audience perceptions. Hodulik claimed that VoIP “specifies both a technology and a service” with the technology as Internet protocol and the service as voice transmission. His language took on a forewarning quality when Hodulik remarked that VoIP presents the Incumbent Local Exchange Carriers (ILECs), those who own access to the PSTN, “with their greatest challenge yet” because their “dominance” in the consumer market will “erode at a faster rate” as VoIP is deployed across the ILECs respective markets where they already compete with wireless and satellite aggressively priced substitutes for the ILECs’ PSTN service. Hodulik claimed that VoIP services have the potential to become a much larger competitive factor than either of these technologies 91

and therefore a much greater threat to the incumbents. He pointed to the open standards of IP technology, which make transmission infrastructure available to any firm that wishes to enter the VoIP market, in making the connection between the VoIP innovation and telecommunications market competition. Hodulik believed that the ILECs have enjoyed the advantage of ownership of the PSTN network, and that “de-coupling” of application such as voice from transmission infrastructure such as Internet protocol “dramatically lowers barriers to entry” for voice services competitors. Hodulik predicted that IP technology will also lower costs and service prices in the voice services industry, claiming that it “largely lifts the constraints that have protected local voice service from the effects of Moore’s Law” – named for Gordon Moore, Chairman Emeritus of Intel Corporation (Intel, 2005) – which hypothesizes that the amount of chip processing speed one can purchase at a given price doubles every 18 months. Stated another way, Hodulik believed that with the onset of IP- enabled voice services, a business or consumer can purchase the same amount of processing speed as they did 18 months earlier, but that the processing speed will cost half as much. This discussion will become important in the analysis of stakeholder comments in the VoIP debate with respect to whether innovation makes technology more affordable to more individuals, thereby affecting greater universal service. Hodulik predicted that, under the current regulatory regime, the “universal service funding mechanisms [will be] untenable.” Hodulik concluded that “[n]ew, higher value services will be introduced as funding flows into the developer community once the user base has reached critical mass.” What Hodulik seemed to believe is that higher value services will flow effectively into existing communities where critical mass for these services does not already exist. What the flow of Hodulik’s technological trickle down theory did not address, however, is how universal service will wash up on the shores of those communities where providing advanced services might not be so obviously profitable. Time Warner Cable was the last VoIP Forum presenter of the morning. Level 3 Corporation participated in the morning’s proceedings as a panel member but did not present. John K. Billock, Vice Chairman and Chief Operating Officer of Time Warner Cable addressed the VoIP Forum. Billock predicted that market penetration of cable- based IP voice services will continue to grow, resulting in increased efficiencies that will 92

enable support of the goals of universal service, to which Time Warner pledged ongoing contribution from the firm’s facilities-based local phone and services. Billock applied Snow et al.’s (1986) framing technique of issue bridging when he coupled innovation and competition with the implied result of improving universal service. Billock claimed that, “regulators should do all they can to encourage the rapid deployment of these services so that consumers can realize the full benefits of a competitive marketplace.” What Billock did not address is how remote consumers to whom the deployment of VoIP services is not competitively justified will realize the benefits of his plan. Billock concluded with, “the deployment of IP voice services by cable operators [like Time Warner] presents an exciting opportunity to provide facilities-based residential local phone competition on a national scale.” Following these presentations the VoIP Forum broke for lunch. In the afternoon, the second panel was introduced as Michael Gallagher, Acting Assistant Secretary, Department of Commerce; Commissioner Carl Wood, California PUC; Commissioner Charles Davidson Florida PSC; James Crowe, CEO, Level3; Tom Evslin, CEO, ITXC; Jeffrey Citron, CEO, Vonage; and Dr. Gregg Vanderheiden, University of Wisconsin. Panelists were asked by the FCC to address “what, if any, regulatory obligations currently imposed upon traditional circuit-switched voice service providers should be placed upon VoIP providers and whether from either legal or technical perspectives such obligations are feasible.” Charles Davidson from the Florida PSC opened his remarks by stating that “the fate of this industry rests squarely in the palm” of the FCC’s hand, and that “our country is at a crossroads” represented in part by VoIP technology – an example of Best’s (1987) “rectitude of rhetoric” that will be seen throughout his VoIP policy framing attempts. Davidson claimed that policymakers must choose either to “let the market work for the benefit of consumers or subject vibrant new technologies to legacy regulation.” This is a Hobson Choice rhetorical tactic. Davidson left no room for discussion of VoIP policy alternatives that are either wholly market based or regulated as common carriers. Davidson also used “legacy” as a rhetorical term to indicate those regulations that he deemed to be no longer applicable to voice communications and therefore outside of consideration as VoIP policy. 93

In his presentation, Davidson stated that, “the environment of VoIP is very…VERY different from the environment of nascent wire-line telephony.” He claimed that competition is building out the IP voice network and bringing new offerings to consumers. Tying innovation to competition, Davidson encouraged those at the VoIP Forum to “Salute Capitalism.” In a competitive market, Davidson declared, regulation “is a disincentive to the investment that will be required to build-out the IP networks of the future.” Davidson capitalized on the rhetorical tactic of using prescriptive in the normative when he claims that because VoIP is an “emerging, competitive technology,” VoIP providers “should not be subject to rules designed to forge competition in established, monopoly markets.” Davidson’s presentation continued with the point that “Competition Benefits Consumers.” Here Davidson’s claim leveraged the rhetorical tactic of using opinion in the normative. In his next comment, Davidson applied basic economic principles as if they were universal truths. Davidson asserted that “[t]he most basic principle holds that in a Capitalistic society where there is a competitive market, economic regulation is a disincentive to investment.” This assertion has not been proven, however. It is, as is most economics, a theory. Economic regulation can be a disincentive to investment, or, as in the case of CLECs, economic regulation can encourage investment in a competitive market by enabling the purchase of wholesale infrastructure access and reinvesting the resale profit into facilities based services as Level 3 did. Davidson continues that “[p]olicy should recognize [and] respect that inter-modal competition (i.e., phone vs. cable vs. VoIP vs. wireless) benefits consumers.” The term inter-modal competition – and its rhetorical antecedant, intra-modal competition – are employed throughout the VoIP debate in making distinctions between competition at the application level and competition at the transmission level. This inquiry will explore these distinctions and their implications in Chapter Seven. Davidson concluded his presentation with remarks on universal service, rhetorically asking about the role of the Universal Service Fund (USF) in the 21st Century, whether it is to “ensure service until competition arrives.” His argument “presume[d]” that the goal of universal service is not to “maintain an ever-increasing fund” but, rather, to “effectuate a reallocation of costs across the changing pool of 94

participants.” Davidson ended his presentation stating that the voice services market is no longer a regulated monopoly, and that the FCC should “let the market work.” Following Davidson’s presentation, Tom Evslin, VON Coalition chair and CEO of IXTC addressed the Forum. Like Davidson, Evslin also employed a rhetorical framing technique recognized by Snow et al. (1986) when he bridged the issues of innovation and competition to frame his position that “[l]ongstanding policy in the U.S.” advanced by the FCC led to “greater competition, innovation and improved quality of life for millions of people.” Evslin did not define how he measures the evidence for his claims. It is unclear whether he was using hyperbole for effect or if he actually had a rubric measuring quality of life as a function of FCC policy. He also did not define the “longstanding policy” to which he attributed the benefits enjoyed by millions. Is it the half-century policy of supporting monopolies “in the public interest,” or is it the more recent trend of laissez-faire policies promulgated by the FCC? Analysis will explore how stakeholders answer these broad questions in Chapter Seven. Evslin stated that “[t]he Internet’s growth and the innovations it has spurred were only possible due to FCC and like regulatory agencies’ forbearance,” presumably a reference to forbearance from regulation that the 1996 Act stipulates should reflect the public interest. In a comment that appears to agree with Davidson’s laissez-faire policy preferences, Evslin claimed that with respect to VoIP, the FCC should “continue policies that permit entities that do not have significant market power to deploy VoIP free from traditional telecom regulation.” Like Davidson, Evslin advanced the notion that VoIP “[r]egulation will slow investment, slow deployment and slow the growth of competition.” Evslin quoted Qwest’s CEO as saying, “VoIP is going to increase competition and that’s a good thing.” Evslin did not explore the possibility that VoIP might have no impact on competition, much less result in decreased competition, either of which could turn out to be an equally good thing. Evslin claimed that, “VoIP has been the engine for “demonopolization” around the world because it has reduced barriers and capital costs that make new market entrants’ challenge of monopolists nearly impossible.” What Evslin overlooked were all the other variables other than demonopolization – such as government investment in private infrastructure deployment, eradication of state-owned utilities (a government monopoly), or the myriad other 95

technological innovations, environmental interventions, or individual investments – that may have contributed to a monopoly provider’s obsolescence. Also, Evslin’s “around the world” remark overestimated global VoIP penetration rates. According to ITU (2005), most countries, if they have deployed VoIP, are in the experimental stage. Perhaps Evslin meant “around the developed world.” Evslin used an if/then analogy that lacked for evidence in his argument against VoIP regulation, claiming that “[s]ince there is no history or existing VoIP monopoly, there is no need for regulation of any such provider that does not have significant market power.” Perhaps the paucity of Evslin’s evidence was due to the limited time of the Forum. Evslin spoke in absolute terms, claiming that, “[r]egulation always has a cost in lost opportunity, lost innovation, and discouragement of private capital, unmatched by any public benefit where there is no market power which requires regulation.” Analysis of Davidson’s remarks to the VoIP Forum showed how absolute statements made to support equivocal data can leave room for misinterpretation. Evslin seemed a bit more optimistic toward universal service’s future, believing it to be a concept still worthy of sustainable investment. However, Evslin claimed that VoIP providers “already contribute to universal service both directly and indirectly.” The differences between direct and indirect universal service contributions, and their significance in the VoIP debate, is discussed in Chapter Eight. Evslin hinted at the idea of including broadband in the universal service equation, which it is not at present, when he states that, “if one of the goals of universal service is to provide affordable voice communications to rural America, then no technology is better equipped to do that than VoIP, to rural and all America.” Chapter Eight explores the perspectives stakeholders have on a universal service future inclusive of broadband deployment. After Evslin spoke, Jeffrey Citron, CEO of Vonage gave his statement to the VoIP Forum. He opened by using what Jordan (1999) called framing metaphors, saying that in the 1996 Act and since, Congress created and codified a “regulatory safe-harbor for the Internet and Internet applications,” with the rhetorical implication that if something needs safety, then it is something worthy of protection. Citron used the image of forward motion concerning VoIP with the phrase that credits the current regulatory environment with “helping drive economic growth by encouraging the development of 96

new applications.” Citron anthropomorphized common carrier regulation, calling it a “specter” that would “open Pandora’s box” to “devalue and slow the growth of VoIP.” According to Citron, this specter would also “detrimentally impact future innovation of new Internet communications applications.” Citron used a debate tactic of diminishing an adversary’s understanding of an issue when he stated that those who advocate for common carrier regulations to apply to Internet application “unwittingly” advocate consequences of their position. Citron’s commentary of VoIP, metaphorically and sympathetically termed as “the delicate ecosystem of the Internet itself,” implies fragility and imbuing VoIP with value equivalent to that of the ecological environment. Citron invoked the slippery slope fallacy when he claims that regulation of VoIP would “commence a cycle that could lead to the decline or perhaps the destruction” of the Internet. He asserted that, “should the cycle begin with VoIP regulation, it will undoubtedly spread to other applications, perhaps e- mail, instant messaging, Internet conferencing, Internet video and “radio” programming.” Citron conjures an image of regulation’s purposeful stalking of VoIP, predicting that, “endless other Internet applications would also soon fall prey to similar regulation.” Citron waved the rhetorical flag around the sanctity of Yankee ingenuity claiming that “[a]s the cycle of regulating applications progresses, the Internet, a once fertile ground for American innovation, would undoubtedly become increasingly barren of creativity or investment.” He appealed to any jingoistic sentiments that might exist among Forum participants in claiming that the result of VoIP being regulated as a telecommunications carrier “would not only lead to a fundamental devaluation of the Internet and Internet applications but would, as a more practical matter, likely lead VoIP providers to offer their services from offshore locations at the expense of American jobs, tax revenues and outside of the control of domestic legal authority.” Any calls for “inappropriate regulations,” Citron claimed, “threaten not only to slow domestic deployment of innovative technologies, but also retard America’s unmatched leadership in the field.” Citron ended his predictions of economic apocalypse, stating “[a]s regulation reduces the availability of innovative Internet applications the value of the Internet to subscribers will decrease; ultimately they will unplug themselves – not only

threatening the ubiquity of the Internet itself, but also any undermining demand for the growth or deployment of future wire-line and wireless broadband networks.” Citron addressed the issue of universal service with an implication of inflexibility among stakeholders who advocate for VoIP regulation. Citron claimed that “[p]roponents of VoIP regulation argue that in order to preserve the USF fund, all forms of VoIP must somehow be characterized as telecommunications carriers.” Citron argued against requiring universal service contributions from VoIP providers, claiming that Vonage pays “virtually equivalent amounts to USF as an indirect contributor as it would if it were required to contribute directly,” and suggests that wholesale buyers of PSTN access contribute as much to universal service as direct retail sellers, a claim this inquiry will explore in Chapter Eight. Citron uses inflammatory rhetoric worthy of the Senate floor when he refers to VoIP contributions to universal service as “a perversion of the statutory dichotomy between information and telecommunications services.” Describing the copper lines of the PSTN in the somewhat pejorative “narrowband,” Citron indicates that, historically, universal service was meant, “to bring telecommunications capabilities to rural and underserved areas.” This inquiry has shown that universal service was originally intended by Theodore Vail – the first president of American Telephone and Telegraph (AT&T) – to unite all telecommunications networks under one provider. Ostensibly universal service would eliminate network redundancy, but more importantly it would affirm AT&T as an FCC-protected monopoly. Citron continued with a rhetorical tactic that prescribes an outcome and assumes its legitimacy by using directive verbs and subjective modifiers in the affirmative: Citron asserts that “the advent of new broadband technologies and Internet applications,” including VoIP, “require” that funds be “appropriately” shifted away from the maintenance of legacy infrastructure to facilitate deployment of broadband networks and applications. Citron closed by coming full circle to his original metaphor of a “regulatory safe-harbor” created by Congress, and adds hyperbolic descriptors: “which has supercharged innovation, efficiency, economic growth, as well as the ubiquity of the Internet itself.” Citron finalized his remarks with an entreaty to FCC to “reject calls to regulate the Internet and thereby ignore Congressional intent.” Citron advised the FCC that it “has a tremendous opportunity not only to reaffirm this Nation’s policies 98

concerning the development and deployment of the Internet and Internet applications – but also to provide a new catalyst for investment in broadband infrastructure and Internet communications applications and further ensure the delivery of new technology and features to consumers.” He encouraged the FCC to do so by ruling not to regulate VoIP. The Dr. Gregg Vanderheiden from the University of Wisconsin, who was the last presenter, spoke to the idea of ensuring continued universal service, but his remarks primarily addressed the needs of the disabled. While the needs of the disabled are important and worthy of considered discussion, these issues are not part of this dissertation’s analysis of the VoIP debate. Simply stated, there is very little debate among stakeholders that the needs of the disabled must be considered in any policy concerning VoIP, and that any needs currently filled by present regulation certainly must not be lost in any VoIP regulation. At the end of the VoIP Forum, the FCC Commissioners signed off promising to take everyone’s comments with equal regard. But there still those who were not part of the discussion. The topic of regulating VoIP is important to many stakeholders, and as such they might have a sense of entitlement with respect to participating with the Forum. However, some stakeholders’ submissions to the Forum were not admitted. This analysis will evaluate the claims not included as part of the VoIP Forum but submitted into the record that speak to the issues of technological innovation, economic competition, and universal service.

Stakeholders Not Included in the Forum Proceedings

With the VoIP Forum, for the first time in its history, the FCC elected to forego its usual rulemaking procedures by convening a public meeting to discuss policy matters under regulatory consideration. The FCC had no precedent from which to draw for guidance on Forum protocol, so it was able to decide how long the Forum would be, who would be called upon to participate, how long speakers could take to make their presentations, and which stakeholders would not be invited to make presentations. The FCC decided that those stakeholders who were not included in the Forum proceedings

would have any written commentary they wished to submit entered as part of the record after the proceedings concluded. Although the country’s largest telecommunications provider for nearly 100 years, AT&T did not receive an invitation from the FCC to present at the VoIP Forum. Rhetorical analysis from Gitlin (1980) might suggest that AT&T was tacitly removed from the VoIP discussion to keep any of what matters to AT&T and its stakeholders outside of the discussion framework. In the statement AT&T submitted to the FCC which was included as part of the record reflecting VoIP Forum proceedings, AT&T opened its brief remarks by claiming that “[i]n an appropriate regulatory environment, IP-enabled services will bring enormous public interest benefit.” AT&T stated that currently “[l]ittle investment other than maintenance is being made in circuit switching,” represented by the PSTN. AT&T asserted that VoIP is not the cause for telecommunications policy concern, only that it “highlights the urgent need for regulatory reform.” AT&T agreed with other stakeholders who suggest that the FCC should encourage the transition from circuit switched to packet-switched, IP-based voice services. AT&T used rhetoric taken from the NPRM when it claimed that VoIP has the potential to “revolutionize communications.” AT&T claimed that that these revolutionized communications will necessarily “speed advanced services to all Americans,” yet AT&T did not address how low income Americans will pay for the revolution. The VoIP Coalition, the arm of Alliance for Public Technology dedicated to IP- enabled voice service issues, also submitted comments to the VoIP Forum that were not heard. The VoIP Coalition declared that “[n]ot subjecting VoIP to regulation has been a stunning success,” illustrating an example of Keum et al’s (2005) exploitation of the audience’s cognitive biases about the benefits of the Internet to society. It suggested that the FCC “should regulate, if at all, as lightly as possible by encouraging … market driven solutions to areas of concern.” Still using the “drive” metaphor to connect innovation and competition, the VoIP Coalition claimed that, “new entrants have driven and will continue to drive the innovation in VoIP offerings,” but that VoIP providers that do not own access to the PSTN lack market power compared to that of established ILECs. The VoIP Coalition introduced two terms that will be seen throughout this inquiry, facilities- based and non-facilities based competition, the former referring to those firms that own 100

network access and latter referring to those firms that lease access from the network owners. Even while claiming that the market will best determine competitive outcomes in the VoIP arena, the VoIP Coalition insisted that the FCC “should not let ILECs re- monopolize the field” by advantaging their ownership of the network layer against competitors without network layer ownership. The VoIP Coalition suggested that, with respect to VoIP, “[a] hands off policy with regard to new entrants will help ensure the continued successful development of a still nascent industry.” The VoIP Coalition seemed content to have the market “do its job” – up to the point that it helps the firms that compete with VoIP Coalition members. The VoIP Coalition did not explain how the FCC can continue to call the policy the VoIP Coalition advocated one of a hands-off nature yet requested that the FCC lay hands on those firms representing the largest segment of the VoIP market. The VoIP Coalition seemed to want its have its layered cake and eat it too, one that allows the market to prevail so long as it does not prevail over VoIP Coalition members. The VoIP Coalition forewarned of “disastrous effects on the state of competition” if the network ownership issue were not resolved. Perhaps, though, the state of competition would be disastrous merely for VoIP Coalition members. The VoIP Coalition proposed that “[b]y freeing new entrant service providers from having to comply with multiple regulatory regimes, the [FCC] has fostered an atmosphere of innovation.” The VoIP Coalition claimed that with respect to VoIP, the FCC’s current approach to Internet policy of not applying telecommunications regulatory requirements to Internet-driven information service providers “is necessary to ensure the development of a still nascent industry and continued success of innovative new entrant service providers.” The VoIP Coalition did not acknowledge that its effort at framing innovation via competition in the VoIP arena privileges new entrants over traditional telecommunications providers. The VoIP Coalition claims that the FCC should endorse “the continued ability of new entrant service providers to bring innovative, next generation services to market.” What the VoIP Coalition does not address is that new VoIP entrants are not necessarily at the mercy of the ILECs – they could invest in facilities. Analysis will explore how stakeholders addressed this issue in Chapter Six. 101

The Organization for the Advancement and Promotion of Small Telecommunications Companies (OPATSCO) introduced into the VoIP Forum record the suggestion that without appropriate regulation, consumers will not be able to “enjoy any of the advantages of VoIP” reliable network infrastructure, bridging OPATSCO’s regulatory preferences to consumer advantages. OPATSCO used its claim to set up the argument centered on universal service concerns that disparate regulatory policy favoring one means of providing voice service over another “not only violates the principles of technological and competitive neutrality, it can place at risk the reliability of carriers’ underlying networks.” OPATSCO noted that most VoIP providers would at some point access the PSTN, calling it “the highly reliable public switched telephone network.” PSTN usage by VoIP providers concerns OPATSCO because, according to the organization, “voice providers using VoIP technology offer little or no financial support for the growth and upkeep costs of the PSTN.” OPATSCO claimed that current “favorable” regulatory practices that VoIP providers “enjoy” exempting them from universal service fund contributions will, over the long run, “undermine the reliability of the nation’s ubiquitous telecommunications network” if no policy change is enacted. OPATSCO acknowledged that non-facilities based VoIP do providers pay into universal service, although at the wholesale level, which it claims does not approach the contribution level of facilities-based providers. OPATSCO’s argument did not allow for a time when technology might somehow route VoIP connections around the PSTN. OPATSCO cited the 1996 Act and the 1998 Report to Congress in support of its claim that VoIP providers should be equally responsible as telecommunications carriers for universal service contributions. OPASTCO claimed that its members are “among the industry leaders in bringing new, innovative services to consumers in rural areas,” portions of the country typically most reliant on universal service provisions. OPATSCO advised that if the FCC were to continue to encourage infrastructure and voice service deployment to rural areas, then “it must ensure that the underlying networks ... remain reliable” and, quoting the 1996 Act, that “a specific, predictable, and sufficient” universal service fund, along with “equitable regulatory treatment of service providers,” are necessary to ensure that rural consumers continue to have access to “ubiquitous, affordable, …and reliable telecommunications infrastructure.” OPATSCO invoked 102

language from Commissioner Adelstein, warning against letting “the rise of VoIP to undercut the very networks that carry it.” Net2phone offered brief remarks to the VoIP Forum, framing its claims around a patriotic appeal - freedom. According to Net2phone, “Freedom from regulation for VoIP services promotes the FCC’s goals.” Net2phone claimed that freedom from VoIP regulation “promotes greater investment in infrastructure and networks,” presumably a comment directed at the issue of facilities-based providers, especially when viewed in conjunction with the comment that freedom from VoIP regulation gives providers “[i]ncentive to offer competitive alternatives to traditional providers.” Net2phone stated that it is “an empirical matter” that within the IP-enabled voice services industry, a strong endorsement for a laissez-faire approach to VoIP exists due to “the level of competition, innovation, investment, and growth in the enhanced services industry over the past two decades,” and urged the FCC to stay that course. The National Telecommunications Cooperative Association (NTCA), an industry group representing the interests of Competitive Local Exchange Carriers (CLECs), urged the FCC in remarks entered into the VoIP Forum record to declare VoIP a “telecommunications service” regulated under Title II of the Communications Act of 1934, as amended, and therefore subject to universal service fund contributions. According to NTCA’s framing of the issue based on language from the 1996 Act, “[i]f the customer can receive nothing more than a pure voice transmission for a fee, the service is a ‘telecommunications service’ … from the customer’s perspective VOIP service is identical to traditional circuit-switched voice service.” NTCA refers to a regulatory option for VoIP mentioned in the NPRM as a “functional equivalency” approach. Functional equivalency stipulates that if the consumer cannot tell the difference between a PSTN call and a VoIP call based upon how the consumer executes and receives voice calls, then the technology would be the functional equivalent of a telecommunications service and thus regulated accordingly. NTCA used the rhetorical phrase “regulatory arbitrage” to describe what would happen if the FCC did not require VoIP providers to contribute to universal service. By regulatory arbitrage, stakeholders mean that voice service providers will choose not the best application over the best transmission medium to offer to customer, but the best combination of application and 103

transmission that will avoid triggering a regulatory fee based upon a voice technology’s technological categorization. The issue of regulatory arbitrage is raised by stakeholders, and addressed by this inquiry, throughout the VoIP debate.

VoIP Forum Summary

This inquiry has presented many issue-framing attempts concerning VoIP policy by participants of the VoIP Forum and stakeholders whose remarks were entered into the record. Senator Allen raised the specter of job loss to foreign nations if regulation were to touch VoIP. Senator Sununu envisioned a loss of innovation accompanying any VoIP regulation, despite his colleague Wyden’s opinion that uniform treatment of VoIP and telecommunication services would stimulate technological advancement. Senator McCain introduced us to the rhetoric of concerns for FCC policy picking technological winners and losers, rhetoric heard from stakeholders from both sides of the policy isle throughout the VoIP debate. Werbach’s rhetoric swirled with references to tornadoes and routes around obstacles, presumably those regulatory in nature. Pulver called the VoIP generation the “Always On” generation. Hodulik introduced the theory of Moore’s Law into VoIP predictions, Billock saw exciting opportunity in VoIP deployment, specifically for facilities-based providers. Davidson introduced the concepts of inter and intra modal competition and spoke very highly of competition in general. Citron was shown to hold quite a Hobbesian view of VoIP in a regulated environment, predicting dire consequences arising from anything less than regulatory policies scripted by the hand of Adam Smith himself. AT&T referred to the FCC’s terming VoIP as revolutionary. The VoIP Coalition requested that the FCC not re-monopolize the telecommunications industry and keep its hands off VoIP except in a few, non-facilities based cases, guiding the FCC toward VoIP policy that seems quite laissez un-faire. OPATSCO used physical rhetoric –“violate,” “place at risk” – to engage the reader against disparate VoIP policy, then followed-up using with a concurring statement from Commissioner Adelstein, warning against letting “the rise of VoIP to undercut the very networks that carry it.” NTCA referenced a rhetorical, yet technological, distinction that numerous stakeholders reference throughout 104

this dissertation – that of the functional approach to regulating VoIP. Whether discussion the impact of VoIP on new technological applications and services, the competitive influence VoIP will have on the telecommunications industry, or the disposition of universal service, in discussion over the course of the VoIP Forum, one commonality that stakeholders shared was their certainty that their position will serve the public interest. In the following chapters analysis will consider how stakeholders both affirm and refute one another’s framing attempts concerning VoIP regulation on all three of this dissertation’s areas of inquiry, technological innovation, economic competition, and universal service.

The Notice of Proposed Rule Making

The VoIP Forum was held on December 1, 2003, and comments to the FCC regarding Forum discussion topics were received and included as part of the record through December 15, 2003. On February 12, 2004, the FCC issued Notice of Proposed Rulemaking 04-28, In the Matter of IP-Enabled Services (the NPRM). An NPRM is a request from the FCC to stakeholders in a particular issue to comment on the issue on which the FCC has resolved to create policy. The FCC has 12 months following the closing of the comment period to create this policy. The FCC closed the comment period for NPRM 04-28 In the Matter of IP-enabled Services (the NPRM) in July, 2004. As part of the NPRM, the FCC for the first time stipulated that Pulver’s Free World Dial-up (FWD), a VoIP application that does not use the PSTN for end-to-end call connectivity, will be regulated as an information service (p. 22). The difference between Pulver’s FWD and the IP-enabled services addressed in the NPRM is that Pulver’s FWD enables voice communication between or among computers and does not utilize the PSTN for transmission of its voice calls. The FCC released its decision to regulate Pulver’s FWD, or what has since come to be called “pure VoIP” not as a telecommunications service but as an information service along with the NPRM to the Federal Register March 10, 2004. The distinction allows Pulver’s FWD to avoid the regulatory requirements with which telecommunications providers are held, especially issues of interconnectivity requirements and universal service contributions. In the NPRM, the FCC sought comment from stakeholders on regulatory treatment of IP-enabled services, with particular attention paid to VoIP and whether it 105

should be regulated as a telecommunications service or an information service, for reasons outlined above. The FCC admitted that it has no formal definition of VoIP, but that it uses the term “generally to include any IP-enabled services offering real time, multi-directional voice functionality including but not limited to services that mimic traditional telephony” (p. 4). The FCC indicated that although it is considering in the NPRM comments on all IP-enabled services, its primary focus will remain on voice applications, or VoIP. Correspondingly, the overwhelming response to the NPRM by stakeholders fell within the context of IP-enabled voice services, or VoIP, on which this discourse will focus. Any non-voice IP-enabled services, such as IPTV, interactive gaming using voice as a component, or instant messaging, will be addressed within the context of their relationship to VoIP. In the NPRM, the FCC indicated that when it refers to “IP-enabled services” it includes under that heading “applications.” Stakeholders provided comments on IP-enabled “services” and “applications” in like fashion, as will this inquiry. This section will examine the text of the NPRM to determine the specific topics within the broad issue of VoIP regulation the FCC requests input from stakeholders. It will help frame the context of up coming chapters and help readers understand the policy perspectives from which the stakeholders offer their comments. In the NPRM, the FCC noted that with the growing sophistication of VoIP, the application’s delivery occurs predominantly over broadband services. The FCC defines broadband as “advanced telecommunications capability and advanced services … having the capability to support both upstream and downstream speeds in excess of 200 kbps in the last mile” per its Third Section 706 Report, 17 FCC Rcd 2844, 2850-51. The FCC stated in the NPRM that “while a century of PSTN development has given rise to relatively few opportunities for user customization, … a mere decade … has produced a dizzying array of IP-enabled services” (p. 5). The FCC’s characterization of IP-enabled services as representing a “dizzying array” of that which is under investigation as part of the NPRM set the stage for the VoIP debate from the standpoint of pro-innovation, and rendered the FCC a stakeholder in its own policy-making endeavor. The FCC continued in a similar manner, linking innovation to competition in its claim that “IP-enabled services in general – and VoIP services in particular – will encourage consumers to demand more broadband connections, which will foster the development of more IP- 106

enabled services” (p. 5). These FCC concerns spoke to the VoIP debate topic of technological innovation and will be explored in Chapter Six. In the NPRM, the FCC indicated that it must examine the new communications environment brought about by VoIP and “whether it can best meet its role of safeguarding the public interest by continuing its established policy of minimal regulation of the Internet and the services provided over it … [as] providers offering VoIP services are beginning to challenge traditional telecommunications carriers” (p. 3). The FCC asked in the NPRM whether the changes in the provision of voice services from an environment where carriers offered “one size fits all” connectivity to a “revolutionary” environment where the rise of VoIP challenges instilled assumptions about use of and access to communications networks, “may permit competitive developments in the marketplace to play the key role once played by regulators” (p. 5). Answers to this question form the crux of all stakeholder arguments, and stakeholders’ answers vary, predictably, depending on their relative position in the marketplace. Chapter Seven discusses these issues at length. In the NPRM, the FCC acknowledged that Quality of Service (QoS) issues can arise when investigating VoIP as a reasonable alternative to, or parallel service alongside, the PSTN. The advantages of reduced cost and bandwidth savings of VoIP are associated with some QoS issues that are unique to the technology. Delay, or “latency,” due to processing issues or network issues can cause an “echo effect,” that of hearing one’s own voice echoed back during a conversation, or a talker overlap, when callers speaking at the same time cannot be heard at the same time due to the discrete, digital nature of VoIP. The issue of latency is compounded by connection “jitter,” which produces sounds not generated by human voice that endure over a conversation to varying degree, and is resultant from variations in timing of packet delivery due to latency issues. Removing jitter requires the collection and queuing and holding packets in proper order until the slowest packets arrive, at which time the packets are played in the correct order. Chapter Six discusses packet delivery in greater detail. Among the QoS issues associated with VoIP, “packet loss” is of greatest concern to most users. Packet loss occurs when too much traffic traveling across the network causes the network to “drop,” or lose, packets, and therefore portions or all of a call. In 107

the NPRM, the FCC suggested that innovation resulting from competition will force VoIP providers to resolve QoS issues sufficiently that VoIP is seen as a near perfect substitute for PSTN connectivity, so much so that it concluded that “many manufacturers are concentrating most, if not all, new development and marketing on IP-capable alternatives while merely providing maintenance support for legacy circuit switched equipment currently in place” (p. 10). In the NPRM, the FCC maintained that since VoIP’s earliest commercial offering in 1995, when QoS issues deterred investment and consumer adoption, the technology, due in part to market demands, has “overcome prior quality and reliability concerns” which prevented wide scale penetration of VoIP services (p. 11). The FCC envisioned continuing improvement in VoIP to a point that IP-voice service will one day eclipse PSTN voice service as the primary mode of voice connectivity in the U.S., even among wireless VoIP providers. The FCC predicted that “as the use of IP expands, the technology’s transformative effect on the communications landscape will likely only become more prominent, giving rise to a ‘virtuous circle’ in which competition begets innovations which in turn begets more competition” (p. 17). Chapters Six and Seven consider how VoIP stakeholders addressed the issues off innovation and competition – and how they availed themselves of rhetoric such as “virtuous circle,” provided courtesy of the FCC. The FCC took the opportunity in the NPRM to underscore a key component of the VoIP debate, that the telecommunication service definition arrived at by Congress in the 1996 Act “was intended to clarify that telecommunications services are common carrier services,” important to the VoIP debate because “various entitlements and obligations set forth in the Act – including, for example, access to an incumbent’s unbundled network elements for local service – attach only to entities providing telecommunications service” (p. 19). The FCC maintained that it has exercised its ancillary authority under Title I of the Act to apply regulatory requirements to information services. This authority was upheld in a decision mentioned in Chapter Four as critical to the VoIP debate, Brand X, but at the time of the NPRM the case was still under appeal in the 9th Circuit. The NPRM determined that Pulver’s FWD “pure” VoIP service is not a telecommunications service but an information service because it does not require PSTN 108

connectivity to complete a voice call. Because much of the resolution of the VoIP debate depends on the decision of whether to regulate VoIP either as a telecommunications service or an information service, the FCC endeavored to define service that “bears the characteristics of ‘telecommunication services’ as drawn from the 1998 Stevens Report: that (1) it holds itself out as providing voice telephony or facsimile transmission service; (2) it does not require the customer to use customer premises equipment different from that necessary to place an ordinary touch-tone call or facsimile transmission over the PSTN; (3) it allows customers to call telephone numbers assigned in accordance with the North American Numbering Plan, and associated international agreements; (4) it transmits customer information without net change in form or content” (p. 20). These distinctions are important to note, as they will become part of the VoIP debate from stakeholders on both sides making claims as to what constitutes a telecommunication service versus information service. In the coming chapters, analysis will consider how even the verbiage of how the FCC defined what is telecommunications, and hence defines what is not telecommunications, is open to interpretation according to some stakeholders. The FCC suggested a “functional approach” in the NPRM for determining how to regulate VoIP. The FCC asked stakeholders to consider the appropriateness of regulating VoIP as a telecommunications service if “consumers might consider a telephone replacement [by] an IP-enabled service very much like traditional telephony” (p. 26) such that the VoIP application is invisible to the end-user. The FCC also suggested that stakeholders consider the appropriateness of regulating VoIP using what has been termed a “layered” approach. Per the NPRM, “under the layered approach, regulation would differentiate not among different platforms, but rather among various aspects of a particular offering – distinguishing for example among the regulation applied to (1) the underlying transmission facility, (2) the communications protocols used to transmit information over that facility, and (3) the applications used by the end-user to transmit and receive information” (p. 26). The FCC noted that under a layered approach, a provider’s ownership of facilities, such as the PSTN, might sustain the regulation of the facilities layer but not the layer where applications traverse those facilities. The FCC asked for stakeholder comment on how to regulate those networks involving end-to-end 109

combinations of dissimilar layers, such as those exemplified by the PSTN coupled with an application VoIP riding on broadband transmission infrastructure. Stakeholder responses to these questions will be discussed at length in Chapter Six. The FCC stated that much of VoIP is “delivered over network infrastructure that has traditionally been supported by universal service” (p. 45). In the NPRM, the FCC requested that stakeholders consider “how the regulatory classification of … VoIP would affect the [FCC’s] ability to fund universal service” (p. 43). It also requested stakeholders to comment on how any potential user “migration” from the PSTN to VoIP would affect the FCC’s “statutory obligation to support and advance universal service” (p. 45). It does so because, in the VoIP proceeding, the FCC broadens its investigation by asking stakeholders also to consider whether, if VoIP were classified as an information service, the FCC should “require non-facilities-based providers of such services to contribute to universal service, pursuant to its permissive authority” (p. 44). The FCC classifies facilities-based providers as entities that own the portion of the physical facility that terminates at an end user location. Those facilities can constitute the PSTN, cable, fiber, satellite, Broadband over Power Lines (BPL), or any other type of infrastructure that brings communication connectivity to the end user (FCC, 2006). Non-facilities based service providers are resellers of communication connectivity, such as Competitive Local Exchange Carriers (CLECs). Non-facilities based providers of VoIP contributing to universal service would, for example, involve a universal service fund obligation attached to application layer providers but not transmission layer providers. Vonage, as a provider of the VoIP application, would, for example, pay into universal service but Global Crossing, as a broadband provider, would not. This inquiry addresses the issues surrounding universal service in Chapter Eight. In the NPRM, the FCC specified that it has no desire to regulate more than is needed “to further national policy goals” and that it will “tailor as narrowly as possible” any rulings it makes in deciding VoIP policy (p. 24). What makes investigation of VoIP policy-making so interesting is that the distinction between whether a relatively new voice application that allows voice transmission represents a telecommunications service, and therefore beholden to all the responsibilities of a Title II common carrier, or an information service, and therefore largely free from telecommunication regulation, is as 110

nuanced a distinction as are the definitions of what furthers the public interest. The reasons for disagreement on both these topics make for a compelling debate around a new technology that will help inform future decisions on policy-making in the public interest as technological advances continue to change the communication landscape. In summary, the primary debate concerning VoIP centers on whether to classify it, and therefore regulate it, as a telecommunications service, an information service, or some other regulatory classification entirely. However, this inquiry has so far shown that the VoIP policy debate is not as esoteric as might be implied by the question of regulatory classification. What one notices is that the FCC had as equal a hand in framing VoIP characteristics in the NPRM as the stakeholders had in framing arguments to the FCC. The rhetoric that the FCC used to describe VoIP technology as well as itsotential in the marketplace is as important to this discussion as are the claims that the stakeholders concerning how VoIP should be regulated. This inquiry investigates the ways in which stakeholders frame the answers to FCC questions in the NPRM as issues that their version of VoIP regulation will best resolve. It seeks to understand if the concept of the public interest as it pertains to voice communication has changed over time, whether over the course of telecommunication’s 125-year history or over the course of the VoIP debate. In all, this dissertation considers how VoIP stakeholders debating the issues of technological innovation, economic competition, and universal service square off as they attempt to circumscribe the public interest.

111

CHAPTER SIX

STAKEHOLDER FRAMES AROUND VOICE OVER INTERNET PROTOCOL AND TECHNOLOGY

Literature in the communications, technology, and economics fields indicated that certain assumptions are often made concerning technological innovation and the public interest; among these assumptions are that innovation creates efficiency, that innovation improves the economy, and innovation benefits society. Chapter Two presented the idea of “creative destruction,” which suggests that as new technologies supplant the old, innovation spurs creative uses for new technology and strands the old technologies in markets where they can no longer technologically compete. This chapter examines the degree to which stakeholders in the VoIP debate address the comparative technologies of the Public Switched Telephone Network (PSTN) and VoIP, and the degree to which innovation enters the dialogue. It explores how stakeholders make claims, and ask readers to make assumptions, concerning technological innovation and the public interest. It concludes with an analysis of the ways in which stakeholder framing of the public interest reflects the stakeholder’s own specific organizational interests.

FCC Issue Framing

In the Federal Communications Commission (FCC) Notice of Proposed Rule Making 04-28 In the Matter of IP-enabled Services (the NPRM), the FCC claims that “changes wrought by the rise of IP-enabled communications promise to be revolutionary” (p. 5). The FCC predicted that VoIP will “spur innovation … giving rise to a communications environment in which offerings are designed not to fit within the limitations of a legacy network but rather to provide each end-user … customized services delivered in the manner of his or her choosing” (p. 5). “VoIP in particular,” the FCC stated, “will encourage consumers to demand more broadband connections, which will foster the development of more IP-enabled services” (p. 5). Here the FCC is framing the debate with pro-technology rhetoric – a policy standpoint, the reader will recall, referred to as technological determinism. Technical decisions, Volti (2001) said, are

112

made in accordance with vertical relationships whereby those at the top can merely give the appearance of seeking 360-degree feedback. Explain more fully. In the NPRM, the FCC solicited comment from stakeholders on a full range of regulatory issues pertaining to VoIP, yet the FCC stated in the NPRM that its “aim in this proceeding is to facilitate the transition [from] … the limitations of a legacy network” to an IP-enabled “communications environment” (p. 5). With a stated “aim,” the FCC positioned itself as a stakeholder in its own inquiry. As a stakeholder in the VoIP debate, the FCC set the tone of the discussion as pro-technology biased with a pre-determined agenda toward forwarding the interests associated with innovation. The FCC claimed that as IP-enabled services such as VoIP become more widely deployed, they drive up user’s reliance on broadband and drive down reliance on the PSTN. As VoIP expands, the FCC envisions that “competition will force more innovation and lower prices resulting in more individual choice and hence even greater competition” a scenario the FCC terms a “virtuous circle in which competition begets innovation which in turn begets more competition,” (p. 17). Tie this back to creative destruction, but that the FCC leaves out the destruction part more utopian. An interesting component of what the FCC termed the “virtuous circle” is the FCC’s having given primacy to competition as the sought after outcome, with innovation as the driver – not to innovation as the sought after outcome with competition as the driver. In Chapter Three this inquiry discussed how FCC policy has mandated the pursuit of innovation in telecommunications. Chapter Four discussed how stakeholders attempt to frame claims about technology around a shared set of societal beliefs, which the FCC has done in ascribing virtue to innovation and competition. Chapter Five examined issue framing in the VoIP Forum wherein the FCC indicated its intent to encourage technological innovation through FCC regulatory policy and thus encourage, through innovation, competition. Analysis in this chapter explores how stakeholders in the VoIP debate present assumptions of a shared set of beliefs about technological innovation. This chapter examines rhetorical applications (introduced in Chapter Four) by which stakeholders frame arguments using concepts of pro-technology discourse, the degree to which stakeholders in the VoIP debate frame innovation as foreordained, and the ways stakeholders interpret the FCC’s charges to innovate. This inquiry will evaluate how 113

stakeholders claim the FCC should write policy to promote VoIP diffusion, one of the FCC’s stated goals in the NPRM, and examine how stakeholders form what they perceive to be the technological issues connected with creating VoIP policy in the public interest. In the NPRM, the FCC took the opportunity to remind stakeholders of some policy precedents upon which the FCC would rely in making its determination on VoIP regulation. The FCC indicated that it will not necessarily be bound in its decision-making by what this dissertation terms the “dichotomous approach” to VoIP policy-making; that is, the agency will not feel bound by any strictures of the 1996 Telecommunications Act (the 1996 Act) that might imply that VoIP be regulated either as a telecommunications service or as an information service. The FCC seemed to understand that this represents a Hobson’s Choice. The agency indicated that it would therefore consider all potential VoIP regulatory constructs that fall along the telecommunications / information service continuum. The FCC cited the Stevens Report (1998) which underscored that “computer-to- computer IP-telephony is not classified as a telecommunications service” as defined by the 1996 Act [13 FCC Rcd 11501]. Another policy area where the FCC sought to add clarity via the NPRM was in referencing the Non-Accounting Safeguards Order (1996), where it determined that “certain protocol processing services that result in no net protocol conversion to the end-user are classified as basic services; those services are deemed telecommunication services.” [11 Rcd 21985] To further clarify its position on a service provider’s regulatory classification, the FCC determined in the NPRM that, “the protocol processing that takes place incident to phone-to-phone IP telephony does not affect the service’s classification, under the [FCC’s] current approach, because it results in no net protocol conversion to the end-user …Moreover … the [1996] Act and the [FCC’s] rules impose various requirements on providers of telecommunications, including contributing to universal service mechanisms” (p. 21). Curiously, in the Non- Accounting Safeguards Order, the FCC predicted that it would need to engage in a debate such as the one surrounding VoIP policy, specifically to determine regulatory requirements of VoIP providers if the FCC were to conclude that said providers are telecommunications carriers.

114

Telephone and Transmission Technology

This section opens with a brief explanation of telephone technology. It explains how VoIP differs technologically from traditional PSTN telephone service and why these differences matter for the regulation of voice communications. The technological explanations are meant to provide a basic level understanding of VoIP and telephone technology to ensure a fuller appreciation of the policy issues under debate. Technical descriptions are intended to be, as Einstein said, “as simple as possible, but not simpler.” For a more detailed explanation of VoIP and telephone technology, please see Camp’s IP Telephony Demystified (2002). This inquiry begins with a brief description of telephone voice conveyance. Air traveling across vibrating vocal cords creates sound waves that travel 340.29 meters per second at sea level (NASA, 2005). Ohm’s law tells us that when an individual speaks into a telephone handset, the relationships between voltage, electrical resistance, and varying air pressure convert sound waves into electrical impulses thus enabling an electrical signal to move along a circuit, such as one represented by the twisted copper pairs of wires that constitute part of the Public Switched Telephone Network (PSTN). Within the telephone handset of the users at either end of the PSTN a transducer converts sound waves into electrical impulses and then electrical impulses back into sound waves (IEEE, 2005), thus enabling voice conversation. With the help of repeaters and amplifiers placed at intervals along the PSTN to push an electrical voice signal along a network and maintain its strength, a signal can move across a pair of wires with minimal sound quality degradation (NASA, 2005). The formula to calculate the number of discrete paths needed to connect a given number of end-users, or nodes, each to one another across a network is: n(n-1)/2. This means that it would take 4,950 twisted copper pairs of network infrastructure to interconnect telephone service for just 100 households. Directly connecting all end-users across a network becomes exponentially more unmanageable with the addition of every user. To make the PSTN more efficient, end-user locations on the network are connected by the twisted copper pairs to a central office via a “trunk line” from where the voice signal will be sent, or “switched,” to the next portion of the network toward its ultimate destination. The portion of the PSTN between the end-user location

115

and the central office, or “local exchange” is called commonly referred to as the “local loop.” This inquiry will consider framing attempts in the VoIP debate by stakeholders who refer to the local loop as the “last mile” or a “bottleneck” and discuss why the language difference is important. Firms that provide the local loop portion of PSTN connectivity are called local exchange carriers. From the local exchange, a voice signal might be sent to another local exchange across a grouping of twisted copper pairs – or another infrastructure medium, fiber – called an inter-office trunk. It is then sent to its end-user destination from the second local exchange, or to another exchange outside the local serving area called an interoffice exchange if the end-user is making a call outside its local area, or a long distance call. A firm providing long distance service is called an inter-exchange carrier. The inter-exchange carrier designation was a telecommunication provider classification created in the Modification of Final Judgment (MFJ) in 1982 that separated out for competitive purposes those firms that provided long distance from firms that provided local service. Following the 1996 Act, telecommunications firms could be classified as both local exchange and inter-exchange carriers. In addition to twisted copper pairs, a number of other networking infrastructure options exist to provide telecommunications connectivity. A twisted copper pair has only two wires approximately .05 inches in diameter, but telecommunications cable has thousands of wires of the same thickness (NCTA, 2005). The diameter of wire network infrastructure is important because the greater the thickness the greater the conductivity or signal carrying capacity. The term “broadband” came from the idea that thicker, or “broader,” bandwidth networks can carry more data along a network than can broadband’s PSTN counterpart, occasionally referred to “narrowband.” Another telecommunications industry term for network infrastructure is “pipes,” perhaps in reference to another type of infrastructure bringing to a type of resource into the home, the copper pipes used for indoor plumbing. In telecommunications the term “fat pipes” refers to the comparative carrying capacity of broadband connectivity as compared with that of a twisted copper pair. The diameter of a wire connection is not the only way to increase network transmission rates. To make voice traffic travel across a network more efficiently, digital 116

technology was introduced in the 1950’s to convert an analog voice signal into a stream of zeros and ones – called binary code, with “bits” being the zeros and ones of the binary system that runs all computers. This binary code enables digital transmission from one central office to another across a trunk line. Transmissions along a circuit remain a dedicated connection for the duration of a call, but a digital technology called time- division multiplexing (TDM) provides the capability for multiple digital voice signals to be sent over a single PSTN trunk line after having been converted from an analog signal into digital bits at the central office. TDM breaks a single digital stream into multiple streams at pre-programmed time intervals and assigns them to pre-specified segments of trunk lines between exchange offices for transmission. This process is called inter- leaving. The telecommunication designations T1, T2, T3, and T4 (etc.) lines are derived from TDM interval speeds, which are 1.55 megabits per second (Mbps), 6.32 Mpbs, 44.736 Mbps, and nearly 300 Mbps per second, respectively (AT&T, 2005). Telecommunication data transmission rates have become more important in recent years due to the number of new communication services that have become available thanks to advancing technology such as the Internet. No longer do end-users rely strictly on the PSTN to transmit data across communication lines, as was the case when telecommunications was first offered. Telephone lines now connect to the Internet enabling not just voice communication but many forms of digital data via connections using telephone lines. To allow digital connectivity across telephone lines not just at the central office level but all the way to end-user premises, a technology called Digital Subscriber Line (DSL) enables digital connectivity using the telephone company’s local loop copper wires. A digital signal can be sent across a local loop and to end-user premises similar to the way TDM can send more than one signal over a trunk line to connect two offices. The connection splits the data being sent to an individual’s home Internet address, for example, from any incoming voice calls, thus enabling both an Internet connection and voice communication to operate simultaneously on the same copper line (Lucent, 2005). Advancing technology has improved not only transmission rates across wire- based network infrastructure, but also an infrastructure technology this inquiry mentioned briefly earlier. The use of fiber optics enables a voice service provider to connect across a 117

network employing not electrical signals via a wire circuit, but rather light pulses via an optical fiber. This network technology is known as fiber optic because of the use of extruded glass or plastic fibers, about the diameter of a human hair, to transmit laser light pulses (IEEE). Fiber optic networking provides very high capacity broadband connectivity – network connectivity rates as defined by the 1996 Act as exceeding 200 kbps – and it has changed the telecommunications industry in dramatic ways. In addition to TDM technology, fiber optics adds another dimension to the capacity of a network by allowing signals to be transmitted not just on the white light frequency but through a technique known as Wave Division Multiplexing (WDM) up to 4 different signals can be transmitted over a single fiber on multiple frequencies in the light spectrum, simultaneously. A single optical channel, or wavelength, is capable of transmitting data at approximately 10 Gbps. This is x times the rate of the 200 kbps rate of FCC bbd, x times the capacity of cable, and x times the capacity of DSL. Thus, an optical network utilizing wave division multiplexing can transmit data at 40 Gbps (4 wavelengths x 10 Gbps.). Wave Dimension Multiplexing can be further enhanced with techniques called Dense Wave Dimension Multiplexing (DWDM) or Coarse Wave Dimension Multiplexing (CWMD) that can utilize many more frequencies in the light spectrum thus achieving even greater transmission rates (Cisco, 2004). Transmission speed across a network is important for managing large flows of data, typically when a data file is sufficiently complex as to require large volumes of instructional code in order to execute the purpose for which the data was sent across the network. Voice applications, for example, are substantially more complex than a simple text document and therefore require adequate transmission capacity, or “bandwidth,” to reasonably execute the call. A backlog of data can occur when transmission speeds are too slow to deliver a large amount of data in a reasonable amount of time to maximize the communication session. Encountering slow data transmission speeds when attempting to deliver large data applications, such as a VoIP call, is akin to attempting to deliver through a drinking straw the amount of water coming from a fire hose. Today’s fiber optic technology can deliver data at speeds of 40 gigabits per second, fast enough to deliver voice, data, and video from one user to another. This inquiry will consider how data delivery speeds are used by stakeholders in the VoIP debate to argue both why a 118

communications provider should be and why a communications provider should not be classified as a telecommunications provider when one of the communication services it provides is voice.

VoIP Technology

The issue at hand in the VoIP debate is that the VoIP application can be provided by a communications firm without the firm utilizing any part of the PSTN – the traditional, highly regulated voice network – at any point along the transmission. As a technology, VoIP is an application that works similarly to digital voice, by first converting the analog voice signal into a digital format. Converting an analog voice signal into a digital signal does not constitute VoIP, however. Rather than a stream of bits, in VoIP the digital voice format is known as a packet, which is comprised of two sets of four bits. A set of eight bits represented as two clusters of four bits each is called a byte. A VoIP data “packet” is typically 20 to 40 bytes, not including “header information,” instructions for the packet on what to do, where to do it, and how to get there. A packet forms a digital representation of voice data that can be sent across high- speed network infrastructure such as the cable network mentioned above, or the Internet (Franklin, 2003). One key difference between VoIP and digital voice on the PSTN is that IP enabled voice is “packetized” into bits and bytes to allow a break in the digital voice stream enabling transmission infrastructure to carry more than one communication signal at a time in either instead of just a dedicated point to point connection for an entire call. By breaking the voice into packets, data can be sent in any order at any time. The VoIP application contains instructions directing the data on where to go and how to assemble upon arrival, as well as what data to “wait,” for or queue for, prior to presenting itself in appropriate format to the end-user. The following is a brief explanation of the configuration of the Internet, and gives us a background for how the VoIP debate is framed by stakeholders from a technological standpoint. An understanding of Internet architecture is important when examining stakeholder claims as to where along this architecture the FCC should apply VoIP regulation.

119

Internet Architecture

The Internet can be thought of as having seven “layers,” a term used regularly throughout the VoIP debate. The seven layers model of the Internet is called the Open Systems Interconnection (OSI) reference model. Within the OSI model, Layer 1 is the “Physical” layer. The physical layer is the set of operating rules that provide data transmission capabilities across a network, such as the fiber optic network discussed above. It is what converts the fiber optic network into a medium that can transmit data from one point to another rather than just remaining a bundle of glass hairs with nothing to do. Layer 2 is the “Data Link” layer, which provides error correction in data transmission between “nodes,” or points along the network. Layer 3 is the “Network” layer, which connects packets of data across the Internet. It is at the Network layer that Internet Protocol resides. Here packets are routed from node to node using the addressing scheme mentioned above to ensure the packets get to the right place in the right order. Layer 4 is the “Transport” layer. This is where Transport Control Protocol, or the TCP portion of the TCP/IP configuration – also referred to as the TCP/IP “stack” – resides. Whenever two or more Internet protocols are configured together, that configuration is commonly referred to as a “stack.” TCP is responsible for network error control from end point to end point, much like the data link layer corrects for network errors from node to node. TCP allows only error free packets to make it from one end of the network to the other. Error-containing packets are discarded then resent upon receipt of an error acknowledgement. If not, a time-out error occurs at the receiver end of the connection. TCP keeps the IP portion of the stack honest. Unfortunately, for an IP voice application, TCP is too precise. The time it takes TCP to figure out that an error exists within one of the packets, discard the packet, send an error acknowledgement to the origination point, then await a resend of the packet is a delay that VoIP application developers have found is too long for normal voice conversation tolerance levels. End- users get annoyed when there are noticable gaps in a conversation. Fortunately at the Network layer there is another protocol not as particular as TCP with respect to which packets get by. User Datagram Protocol (UDP) has a much greater tolerance of packet error. UDP pays less attention to the quality of the packets going across the network than

120

does TCP. UDP is more of a “big picture” protocol. As TCP’s less reliable cousin, UDP places more importance in getting the packet to its final destination rather than to the shape the packet is in when it gets there. This works well for VoIP packets because the human ear is more tolerant of the nearly imperceptible errors in a very few of the millions of packets transmitted during a voice call than it is of communication delays during the call. The network application layer of VoIP is probably more accurately referred to UDP/IP stack. Layer 5 of the OSI Internet model is the “Session” layer. The session layer manages individual user sessions, such as when a user initiates a VoIP call from one computer to another without accessing the PSTN. The Session Initiation Protocol (SIP) enables this action. Layer 6, The “Presentation” layer, tells the data how to show itself to the user during a Internet session, such as what colors, graphics, and movement to display on the user’s computer screen. Layer 7, the “Application” layer, is where end-user interface occurs and is where VoIP resides. The application layer is important to our innovation discussion because, given that it provides separate functionality from all other layers – for example, the transmission layer – a program can be written for the application layer without concern for the underlying architecture of any other layer, such as the transmission layer. VoIP is an application that enables voice communication to occur over the Internet, with the voice packets having cleared the gateways of each of the Internet’s layers before reaching the end-user. Unlike the PSTN, the layered configuration of the Internet allows de-coupling of the application from transmission. This inquiry introduced in Chapter Five how the concepts of a layered approach to regulation and a functional approach to regulation are offered among the alternatives to regulating VoIP. Both the layered approach and the functional approach to regulation are derived from the technology that differentiates VoIP from the PSTN. The Internet enabled the innovation of VoIP. With the layered approach to regulation, the argument as to which, if any, of the layers of the Internet’s technology should be regulated that drives VoIP policy debate. The functional approach stems from the layered approach, both of which are discussed in this section.

121

In advocating their respective positions on VoIP regulation, many stakeholders refer to the state of technological innovation prior to the 1982 Consent Decree breaking up the AT&T monopoly. Telecommunication innovation, many stakeholders observe, happened much more slowly prior to deregulation, begun in 1982. Stakeholders suggest that the choice of communication policy-makers not to regulate the Internet drove innovation to the point where they claim society finds itself now – with innumerable choices of communication media, devices, transmission channels, and enhanced service offerings. Stakeholder claims in the VoIP debate surrounding technological innovation speak to the bringing forth of new services, such as VoIP, not re-engineering legacy infrastructure such as the PSTN. The distinction is key to this inquiry’s analysis because some stakeholders claim that regulation of information services, such as that which they deem VoIP to include, would slow the progress of innovation much in the way innovation progressed slowly before competition entered the telecommunications industry in 1982 with the breakup of AT&T. Stakeholders both supporting and rejecting the VoIP policy layers model make claims as to the nature of competition in telecommunications with technology as the argumentative foil. Competition is framed by some stakeholders as occurring at the intramodal level, which this inquiry discussed earlier represents competition among stakeholders at only one layer of a network, such as the transmission layer. VoIP policy issues of innovation and competition are intertwined at the transmission layer, where the facilities-based spell out ILECs are regulated with the goal of providing the non- facilities-based spell out CLECs wholesale access to transmission technology, ostensibly thus encouraging innovation then to take place at application level. Examples of non- facilities based application innovation might include Caller Identification, Call Waiting, or Call Forwarding. Competition is framed by other stakeholders as occurring at the inter- modal level, which, as discussed earlier, represents competition among stakeholders across several or all layers of a network, where physical transmission choices are as open to competition as applications. VoIP policy issues of innovation and competition are intertwined among all levels. For example, broadband providers inter-modally competing against one another to provide not only transmission access but to provide a VoIP application as well. This can be either bundled with the transmission technology or sold 122

separately to end-users who procure their transmission from another competitor. Inter- modal competition allows innovations to occur at any layer of a network without regard for innovation occurring at other layers. VoIP stakeholders innovate and thus compete not only in, for example, the applications market but in the facilities market as well. This inquiry explores the regulatory implications of VoIP’s status as a “disruptive technology,” one that changes not just a way of delivering voice communication but an entire industry paradigm. The following section examines stakeholder comments on the VoIP debate to reveal where different industry stakeholders stand on the issue of VoIP regulation, and the various technology-based models – a layered model or a functional model, for example – they claim should be appropriately applied to VoIP policy-making. This section examines how stakeholders use public interest appeals to the FCC in an effort to sway policy decisions. These decisions could determine a communication provider’s future in the industry.

Stakeholder Technology Claims

Stakeholder comment analysis in this chapter include claims made by industry groups, Inter-exchange carriers (IXCs), Incumbent Local Exchange Carriers (ILECs), Competitive Local Exchange Carriers (CLECs), broadband and equipments providers, VoIP provides, wireless providers, and industry organizations. This section analyzes stakeholder comments as to whether a technological innovation, VoIP, that has spurred regulatory debate, should or should not have the components of that innovation separated out for regulatory treatment. It examines the issues that stakeholders choose to place in the foreground and in background in forwarding their respective regulatory agendas, and it explores the claims stakeholders make about the public interest in responding to any FCC innovation-centered framing of the VoIP debate.

MCI

This inquiry introduces analysis of stakeholder comments concerning VoIP technology with an evaluation of how MCI chooses to frame the regulatory debate. MCI is classified as an Inter-exchange carrier (IXC) under 47 U.S.C. Sec. 153(47). MCI owns

123

broadband long distance lines that interconnect with the PSTN, which MCI does not own but to which MCI purchases access to provide local call connectivity. In its response to the NPRM, MCI proposes a policy framework for VoIP based on the concepts it introduced in a working paper it submitted to the FCC in 2002 outlining a layered approach to VoIP regulation. As part of its primary thesis on preferred VoIP regulatory policy, MCI alleges that a monopoly provider ownership, or “bottleneck,” exists at the junction between the PSTN and the Internet. The concept of a bottleneck is one that the FCC has acknowledged persists at the network junction between the PSTN and the Internet and which the FCC has regulated since the 1996 Act. FCC regulation of the PSTN has been maintained to mitigate the competitive effects of the bottleneck by requiring owners of the PSTN to provide access to their competitors to increase competition among common carriers. The bottleneck is an issue for firms without direct access to transmission technology into a customer’s premises because VoIP provision requires Internet inter-connectivity with the PSTN if an end-user wishes to place a VoIP call using a standard phone and phone line. A company with eminent domain over the transmission technology that enters the customer’s premises largely controls which other firms, if any, will have access to the customer’s home to enable the provision of, among other communication innovation, VoIP. MCI claims that the transmission technology at the PSTN required for VoIP provision “is not competitive and needs to be regulated” (p. 7). What one notices is how MCI frames the regulating of a technology as being closely tied to the components of the technology. The firms that own the PSTN access are typically Incumbent Local Exchange Carriers (ILECs). Chapter Three showed that the FCC and Congress decided in the 1996 Act that the ILECs could, if left unregulated, charge PSTN access fees prohibitive to a competing firm’s business practices. Data from the FCC indicates that over 95% of all calls placed in the first half of 2005 using VoIP required access to the PSTN at some point to complete the voice carriage (FCC, 2005). MCI claims that because the ILECs – Verizon, SBC, Qwest, and Bell South – enjoy monopoly ownership of the transmission technology of the PSTN, without appropriate regulation of IP-enabled voice service, the ILECs could demand prohibitively high access charges to any firm wishing to enable VoIP provision to end-users. MCI suggests that it has come up with a technologically- 124

based mechanism to manage any policy concerns that might arise in the provision of VoIP services. In a 2004 policy paper independently delivered to the FCC during the NPRM’s open comment period but outside of the response protocols of the NPRM, MCI policy analyst Robert Whitt endorsed a layered approach to VoIP regulation. This inquiry showed in Chapter Five that the layered approach to VoIP regulation was introduced at the VoIP Forum by former General Counsel for New Technology Policy to the FCC, Kevin Werbach, who has written extensively on the topic. Whitt’s 2004 MCI paper proposes that VoIP be regulated at the physical layer, that is, the layer represented by twisted copper pairs of wire, coaxial cable, fiber optic cable, cellular towers, satellites, and broadband over power-lines. MCI bases it responses to the NPRM on the 2004 Whitt policy paper. MCI suggests that, to ensure fair treatment of the VoIP technology, the FCC should mandate “the layered approach” to the regulation of IP-enabled voice services. MCI notes that wire-line communication networks such as the PSTN are still regulated under Title II of the 1934 Communications Act, as amended by the 1996 Act, that wireless communication networks are regulated under Title III of the 1996 Act, and that cable communication networks are regulated under Title VI of the 1996 Act. MCI suggests that this “vertical” method of regulating by industry has become “outmoded” and does not take into account convergent communications technology, where voice, data, and video travel across the same network yet are regulated differently based on the industry from which the communication originated. MCI calls a vertically-oriented approach toward regulating communications such as that in the 1996 Act “rigid” and “doomed to fail,” claiming that the forcing of “legacy” regulations on VoIP services and IP networks “stifles the creativity and innovation that is the essence of the Internet” (p. 8). With these atrocity tales, MCI suggests that regulating differently industries that make use of the same technology – the Internet –to provide voice communication, is not sustainable policy, and that “the layered approach avoids unsupportable legacy distinctions between services, networks and industries” (p. 9). In its comments, MCI asserts that “the legacy telephone network is designed to provide ordinary voice telephone service” (p. 6), framing the telephone network’s functional principles that Entman (1993) would suggest give saliency to VoIP policy making. MCI 125

continued to refer to “legacy” technology in an apparent attempt to ensure current policy is framed as “outmoded,” much in the same way that in the computer industry – an industry ancillary to the communications industry – refers to “legacy systems” as those combinations of computer hardware and software in need of replacement, or at least updating. Calling the PSTN “ordinary” while using the FCC’s language of calling VoIP “revolution[ary],” MCI frames VoIP as “breaking the link between services and transmission technology” (p. 7). MCI claims that the layered approach to regulating VoIP focuses on the function of each layer in the network, whether administered at applications, service, transmission, or other layers. Perhaps to head off any claims by opposing stakeholders that in its layered approach MCI recommends regulating, and by implication taxing, the Internet – from which any agency is enjoined through December 31, 2007 based on the Internet Tax Non-Discrimination Act of 2004 – MCI goes on record admonishing the FCC: “Do not regulate where it is unnecessary” (p. 10; italics MCI’s). MCI claims that the layered approach to VoIP regulation is an extension of the FCC’s policy approach in Computer II, where the FCC “regulated only with respect to basic services but not the enhanced services that ride on those basic services.” [77 FCC 2d 384] MCI’s stated goal in presenting the layered approach to regulating VoIP is for the FCC to “[a]ssess market power separately for each layer” (p. 11; italics MCI’s). The reason for MCI’s strident advocacy of its layers approach to regulation, seen not only in their response to the NPRM but in the Whitt policy report, has implications beyond MCI’s concerns about “stifled innovation” and creativity. MCI justifies its advocacy for FCC guardianship over competition in the VoIP space by invoking concerns about innovation and creativity, claiming that “[l]everaging of market power into the higher layers would, for example, slow the pace of innovation in IP-enabled services” (p. 16). MCI claims that if downstream transmission markets, those that enter the customer’s premises, are “subjected to common carrier regulation, then technologies like IP will foster competitive markets in applications that ride on those common carrier services … [and] the result will be … more innovation, more output, and lower prices” (p. 2). MCI claims that, with respect to technological development, “the proliferation and innovative applications” such as VoIP “depend on the ability of those providers to obtain 126

access to lower layers, including the physical and logical layers” (p. 7). MCI cautions that “[t]he potential that firms with physical access layer market power could leverage their market power into the higher layers represents an enormous risk, [and] leveraging of market power into the higher layers would … slow the pace of innovation in IP-enabled services” (p. 16). MCI references a 2002 letter that Vint Cerf, then a Senior Vice President with MCI, wrote to the FCC, where Cerf states that because of the Computer Inquiry rules “literally thousands of players were free to unleash their creative, innovative, and inspired product service ideas in the competitive information services marketplace, without artificial barriers erected by the local telephone companies.” Cerf continues that he is “firmly convinced that [the FCC’s] foresight in this area contributed strongly towards the commercial introduction, rise, and incredible success of the Internet.” During the time of the comment period for the NPRM, Vint Cerf, current Vice President and Chief Internet Evangelist of Google – and then Senior Vice President of Technology Strategy for MCI – spoke before the United Nations Global Forum on Internet Governance concerning a layered approach to VoIP regulation. In his March 2004 speech, Cerf – largely recognized as the “father of the Internet” for his contributions at ARPANET of the TCP/IP protocol – asserts that “a layered structure is a very open tool for thinking about where and how we should apply regulations and where and how laws might apply.” He explains that the “silo” regulatory model currently applied to telecommunications “divides up a lot of telecommunications services into different classes depending on not only the application but also the underlying transport medium.” Cerf discusses how he believes that IP-enabled voice service “just destroys that whole model because it can carry anything, including voice and video, over Internet packets and Internet packets don't care what the underlying transmission medium is.” Cerf shared his feeling that the current telecommunications policy model “is in great conflict with the fundamental architecture of the Internet,” and should therefore have a new, layered approach to regulatory policy applied instead. MCI, through its own comments and by referencing policy papers, correspondence, and testimony by industry leaders, makes a case to the FCC for a layered regulatory policy concerning VoIP. MCI suggests an approach to regulation that would specifically 127

“guard against” firms being able to control higher layers just because they might control lower layers. What MCI overlooks is its history as an innovator that formed a telecommunications David that took on the AT&T Golith in the middle of the last century and won. MCI innovated its way around what then was an economic bottleneck of the highest order, a single monopoly owner of the entire PSTN who controlled product, price, and access in exchange for the guarantee of universal service provision. Now MCI wants the FCC to protect certain layers, claiming that it is “essential” to the Internet that the FCC guard against the possibility that a firm with market power would use it as “leverage” at a higher level, such as the application level where VoIP resides, to “harm competition.” MCI follows up with the claim that insufficient competition would slow the pace of innovation. This is a curious claim to make given that competitive MCI’s history, this inquiry has shown, would not bear out MCI’s threat of diminishing innovation. The following stakeholder claims offer a contrast to MCI’s policy recommendations. This section explores how these claims reflect the disparate opinions held by stakeholders regarding VoIP policy, and how policy claims with regard to the same issue and in discussion of the same regulatory framework can differ substantially.

The Think Tanks

An interesting component of the VoIP debate concerning technological innovation is the commentary among advocacy group members. For the first time in FCC policy- making history, the agency held a Forum to discuss the regulatory future of a technology, and, for the first time, discussion as to that regulatory future has not exclusively occurred within the discursive confines of the NPRM. Advocacy groups with expressed interests in how VoIP is to be regulated have provided responses to MCI’s layered approach outside the framework of the policy-making protocols associated with the NPRM comment period. Their intention seems to be to influence FCC decision-making without becoming part of the public record. Elaborate here why this is important. The industry groups do not offer explanation as to why they did not respond to MCI’s response to the NPRM as part of public record within the confines of the NPRM reply comment protocol. Still, these industry group stakeholders offer remarks worth considering as counter arguments to MCI’s suggested layered approach to VoIP regulation. 128

The New Millenium Research Council (NMRC) was created in 1999 to “develop workable, real-world solutions” to issues of policy-making (NMRC, 2005). The rhetoric of NMRC’s mission statement implies that policies not developed by the NMRC exist outside of real world paradigms and therefore fall under a non-workable framework. In a July 2004 policy paper responding to MCI’s layered approach to VoIP regulation, the NMRC claims that although the layers model of regulation offers engineers a good framework within which to categorize network interoperability, there has been little evidence that a layers model would succeed as a regulatory framework. The NMRC alleges that telecommunications revenues have fallen since the dot-com era. The NMRC does not, however, provide evidence to support its claim of decreases in those revenues, nor does it reveal how it concluded, as it claims, that FCC requirements for CLEC wholesale access to the PSTN “have eroded incentives to invest in new wire-line networks” (p. iv). The NMRC cautions policy makers that it might be imprudent “to embark on a sweeping and potentially disruptive overhaul of telecommunications laws” that the MCI plan represents, which could potentially “deter the investment community from making much-needed investments in communications at this critical time” (p. v). The NMRC seems to be using the term “disruptive overhaul” as an echo of how the FCC and other stakeholders have termed VoIP as a “disruptive technology.” The NMRC claims that the MCI model “[over] simplifies complex network inter- connections, transfers the current regulatory model for traditional telecom networks to future broadband networks, does not work economically and discourages technological innovation and network investment, and ignores the benefits that vertical integration can provide for the industry and consumer” (p. vii). The NMRC’s claims seem to imply a suggestion for driving innovation and broadband penetration through investment in telecommunications, yet it does not offer any counter solution to MCI’s plan beyond a call for “letting market forces produce real competition” (p. vii). The NMRC simply calls MCI’s network layers model “fatally flawed as a framework for new regulation or legislation” (p. viii). The Heritage Foundation, a conservative think tank that publishes research on, among other topics, technology and economic policy (Heritage, 2005) sponsored a paper by James Gattuso on VoIP regulation. Gattuso claims that the current telecommunication 129

regulatory system was constructed “piecemeal” with regulation. He suggests that the precepts of the 1996 Act, to a large degree, were based not on function or market structure, but on the technology used. Gattuso references the different regulatory controls of the 1996 Act applied to telecommunications carriers, cable operators and wireless providers as evidence of his assertions – not the first of their kind made in the VoIP debate – that “regulators often treat firms providing essentially the same services completely differently,” a frame that Conrad (2004) might suggest sanctifies “culturally sanctioned suspicions about government’s ability to successfully regulate the private sector” (p. 314). In challenging the MCI layers approach to VoIP regulation, specifically the paper written by Whitt, Gattuso asks questions challenging the wisdom of the MCI approach. Gattuso asks whether with this new regulatory model would be “hurting” consumers by limiting opportunity for vertical integration; would it put a “freeze” on innovation; is layered regulation the answer or would it be “a step backward”; and would a layered approach simply be exchanging one system of “arbitrary” regulatory categories for another by “re-hashing long-standing debates over telephone competition in a new guise?” (p. 3). Gattuso draws on a technique occasionally used by stakeholders who cannot provide answers for challenging topics. A stakeholder may pose the questions and leave the tough solutions to others, with the anticipation by the stakeholder that others will thus see the stakeholder as understanding the issue end-to-end. Wayne Brough writes as the Chief Economist for Citizens for a Sound Economy (CSE), a “conservative think tank and grassroots lobbying powerhouse” (CSE, 2005). CSE is co-chaired by Representative Dick Armey (R-TX) and C. Boyden Gray, White House Counsel to President H.W. Bush, and has as its mission statement to “fight for lower taxes, less government and more freedom for all Americans.” In a policy paper addressing VoIP regulation, Brough asserts that the layers approach to VoIP regulation “would continue to impose regulatory impediments that inhibit critical infra-structure investment and limit growth in the telecommunications sector.” Because of what he frames as vertical integration’s limitations under a layers model, Brough suggests that a “more prudent” solution to today’s problems would be to encourage capital investment and facilities-based competition, which he claims was “envisioned” in the 1996 Act. 130

Brough claims that, “[t]o suggest that [the] physical layer must, in all likelihood, remain regulated is to ignore the current market realities of inter-modal, facilities-based competition” (p. 5). Brough quotes Hazlett (2003), who, like Horwitz, wrote of ironies in telecommunications regulation, that all telecommunications markets “feature entry by companies that own their own infrastructure and now steal customers from the ‘natural monopolies’ that preceded them.” Brough speaks to the issue of innovation in the voice communications space, claiming that “it is unclear how the physical layer would be able to change if it is initially locked into a static vision of transport based on current conditions” (p. 5). He notes that elsewhere in the telecommunications sector, a regime of price regulation can drive out investment and leave only few players with the incentives or resources to invest in innovation at the physical layer. Brough expresses his concern that under a layers approach to VoIP regulation no incentive is provided to invest in facilities based service provision so the technology would stagnate at the inter-modal level where little application innovation occurs. He notes that:

The Incumbent Local Exchange Carriers have no incentive to invest in new infrastructure that they must lease to their competitors at rates that do not allow costs to be recovered. Consequently, broadband deployment by ILECs has been slow relative to less regulated providers. Cable companies, which are not subject to open access mandates, have become the dominant providers of broadband, outpacing DSL providers by a 2-to-1margin. With VoIP bringing voice communications to broadband, cable will expand even further, providing additional competitive pressure at the physical level (p. 6).

Calling telecommunications and technology “dynamic” and “rapidly evolving” markets – as compared with his earlier use of the term “static” applied to current “vision” of transport technology – Brough claims that an “arbitrary” system of VoIP regulation such as that exemplified by the layers model, which he claims would “ban” vertical integration, makes the higher layers less efficient. The implication is that inefficiency would drive up costs while driving down innovation. Brough concludes that the layers model “continues to rely on the worst of the old model while establishing a new regulatory framework that will continue to hinder broadband deployment” (p. 7). Braden Cox, technology counsel for the Competitive Enterprise Institute, “A pro-market, public policy group committed to advancing the principles of free- enterprise and limited government” (CEI, 2005), calls the layers approach to VoIP 131

regulation “seductive.” Cox claims that the layers model “assumes that the physical network is a natural monopoly that requires extensive regulation” (p. 8), using Kronig’s (2004) observations that frames can guide reality. Cox expresses skepticism that changes in technology will drive changes in law, as expressed by Whitt’s citation of Solum and Chung (2003), who wrote that regulation, such as the layers model proposed for VoIP, “can only be as effective as is permitted by the architecture of the Internet,” and that “the layers principle is only as valid as the network engineering concepts that inform it.” Cox claims that the layered approach to VoIP is untenable because, quoting Huber (1987), “as networks expand horizontally the companies that manage them grow vertically,” in response to consumer demand for a single provider of integrated service packages.” Cox claims that instead, “[a]dvances in technology often result in the increasing commoditization of products” (p. 9), which he believes serves the public interest.

Cox claims that the “largest ‘prospect holder’ [what this inquiry terms a stakeholder] under the layers approach is the FCC.” Calling Whitt’s layers approach “a regulatory wolf in layered sheep’s clothing,” Cox makes a play on the words of Whitt’s policy paper, that the layers approach is neither “a horizontal leap forward for the telecommunications market” nor for the public interest (p. 9). Cox concludes that, although its advocates believe that the layered model reforms communications policy with the Internet at the center, discussion should center on communications policy that puts market forces, instead of government regulators, at the center of the debate. Cox tells the FCC not to ‘micromanage the market.” He claims that “layering is an object-to- think-with but not a model-to-regulate-with; [while] the layers principle may excel at respecting the integrity of TCP/IP, it fails at respecting the integrity of market forces” (p. 10, italic’s Cox’s). David McClure, President and CEO of the US Internet Industry Association, “the national association for Internet commerce, content and connectivity” (USIIA, 2005), metaphorically writes that “[l]ike the wooden horse of Troy … the ‘Layers Model’ has a hidden agenda – the perpetuation and expansion of legacy telephone regulation to all forms of Broadband Internet in a form that would give a small handful of nevertheless large companies a powerful competitive advantage in the marketplace; …[it is] less a productive policy tool than a blunt competitive weapon to be used against MCI competitors and suppliers” (p. 11). McClure’s use of the term “blunt” frames the layered approach as a crude implement used without precision. McClure quotes former FCC 132

Chairman Powell (2003a) concerning non-facilities based competition in the telecommunications arena, where Powell calls those firms that have not built their own networks but who continue to rely on wholesale PSTN access to resell connectivity, “competitors on life support.” Speaking to the idea of technology policy as an innovation driver, McClure claims that, “the ‘Layers Model’ is neither new nor innovative,” but rather an effort “to dress up in new language the failed competition policies that … have stymied investments in telecommunications infrastructure [and] inhibited the deployment of broadband services in the United States” (p. 11). McClure’s image of dressing up a regulatory approach suggests an attempt to re-package old ideas without offering any substantive changes to their policy concepts. Making the connection between technological innovation and competition, McClure claims that the layers model “criminalizes competition” by punishing competitors who invest more in innovation, serves as “disincentive for Internet infrastructure investment” with artificial barriers between layers preventing technology growth, and “inhibits rural deployment of broadband” by encouraging investment only in high volume urban areas (p. 12). Concluding his remarks about MCI’s layered approach to VoIP regulation, McClure asserts that regardless of how the model might simplify understanding of the Internet for policy purposes, “it is difficult to escape … the underlying competitive advantages it would provide to a select few companies; nor is it possible in the short term to define a model of the Internet that adequately resolves major policy issues in the long term” (p. 14). Stephen Pociask, President of TeleNomic Research, an “economic research firm focusing on the information technology, Internet, postal and telecommunications markets” (TeleNomic, 2005) uses irony for framing effect. He claims that concerning MCI’s layered approach to regulation, “Ironically, MCI is proposing to have … its primary competitors … the owner[s] of telecommunications infrastructure, locked up in regulation and unable to compete by service differentiation [with] … no control over the services offered on its network, since applications and content layers work independently of the physical layer” (p. 21). Highlighting what he believes to be the key component of technological innovation in the VoIP debate, Pociask states simply that “innovation 133

appear[s] more vibrant where regulations have interfered the least” (p. 20). He continues by predicting the harm that would come to innovation should VoIP technology be regulated differently at different layers: the jeopardizing of investment in transmission technology. Pociask concludes that MCI’s plan would allow the firm and others like it to be “free to ride on someone else’s network, a network that remains regulated, … and protect companies that have not invested in telecommunications infrastructure” (p. 21). Pociask seems to count on an overall societal aversion to any entity being given a “free ride” in any capacity. Adam Thierer directs telecommunication studies for the Cato Institute, a “nonprofit public policy research foundation [that] seeks to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets” (Cato, 2005). Theirer claims that, “policymakers should not proscribe layer-jumping and should be agnostic with regard to the intelligence of broadband networks in general [and], while the [layers] approach may have great merit as a business model and eventually become the approach many BSPs adopt over time, it should not be enshrined into law as a replacement regulatory regime” (2004, p. 22). Thierer’s framing of the layered model as one “enshrined” suggests an overly lofty regard for a layered regulation model and that to codify a layered approach to regulation would be to give it more weight than it is due. Thierer writes in a policy paper addressing general VoIP regulation that, “[layered] models make for poor public policy” (2004a). In addressing how a layered approach to VoIP policy would affect technological innovation Thierer states that, “[c]onsumers will gravitate to pipe providers that do not restrict their activities…. Any pipe provider who tries to restrict uses of the pipe to favored services (voice, video or data) in a ‘walled garden’ will likely be at a severe or impossible disadvantage, with consumers leaving for other pipes.” This argument assumes a competitive market where other pipes are available. Thierer claims that concerning MCI’s layered approach to VoIP regulation, “[s]ome scholars and policymakers appear to be moving in [the] direction … that a layer breaker should be considered a law breaker … [and] insist that providers essentially stay put in their primary layer of operation” (2004, p. 22). Thierer expresses concern for “the prospect of the layering model becoming a series of formal regulatory firewalls or 134

quarantines on some firms to encourage or even mandate a [layered] approach to the provision of communications and broadband services in the future, meaning that broadband service providers should generally not provide any integrated content or applications over the lines they own for fear of discrimination against independent suppliers” (p. 23). Thierer uses the slippery slope fallacy when predicting that a regulatory model could “become a series of regulatory firewalls.” He presumes that reasons for broadband decision-making are founded in “fear” rather than business strategy. Thierer’s primary concern with a layered approach to VoIP regulation involves “[i]f a Net neutrality/layered mandate is put in place, carriers might struggle to find ways to recoup their significant fixed costs of doing business and be discouraged from further innovating” (p. 24). Using his reference to agnosticism again, Thierer claims that policymakers should be “fundamentally agnostic with regard to network architecture” (p. 25). Thierer concludes that for reasons in support of the public interest, “the network layers model and corresponding regulatory requirements suggests that greater FCC regulation of the Internet and the broadband marketplace is in store, and for that reason alone the plan to codify into law the network layers model and dumb pipe theory should be rejected” (p. 26). In summary, this section shows that the layered approach to VoIP regulation was the issue around which stakeholders framed their comments. MCI successfully drove the discussion by using Snow et al.’s (1986) bridging of technological innovation and economic competition. Competing stakeholders were unable to gain traction in attempting to assert their own policy constructions and instead found themselves responding to MCI’s rhetorical lead. Still, MCI’s framing of VoIP policy as one appropriately applying the layers approach suggests a role for the FCC that renders policy with the precision of Seurat, one which regulates precisely at the points along the Internet hierarchy most favorable to MCI’s business plan. Analysis below further explores how competing stakeholders regard MCI’s Regulatory Pointillism approach to VoIP policy.

The Inter-exchange Carriers

AT&T became a long distance carrier in 1982 following the Consent Decree that settled an anti-trust suit against the company in exchange for breaking up AT&T to allow 135

competition at the local level. In 1996, AT&T regained the right to resell local service under wholesale guidelines outlined in the 1996 Act. Concerning VoIP and technological innovation, AT&T refers back to the NPRM and bridges competition with innovation, using language from the FCC that states, “competition from multiple VoIP providers will create a “virtuous cycle in which competition begets innovation which in turn begets more competition” (p. 1), but adding the caveat that this will only occur as long as all VoIP innovators and competitors have access to the local loop. AT&T claims that VoIP has the potential to “finally” eliminate the local telephone monopolies. The potential for eliminating a need for PSTN access for voice transmission is the issue to which AT&T refers when it quotes former FCC Chairman Powell (2004), who said that in his opinion, that the “big incumbent[s] … ought to be terrified of VoIP.” AT&T reflects on the MCI layered approach to VoIP regulation, claiming that the FCC “must be careful to distinguish those regulations that apply to the ‘applications layer’ … and those that apply to the network ‘layer’,” noting that the FCC must “always be alert and ready to act against … dominant firms” exercising discriminatory practices at the “last mile” (p. 4). AT&T claims that in an “appropriate regulatory environment, IP- enabled voice services will bring enormous public interest benefits” (p. 10). AT&T uses the rhetorical technique of suggesting that taking an action deemed “appropriate” will result in benefits beyond the expected – in this case “enormous.” AT&T discusses what it sees as the many ways that increased broadband deployment resulting from “voice telephone functionality” will bring ever more sophisticated services to consumers. AT&T uses the example of an architect discussing drawings with a client while simultaneously making modifications as illustrative of the capabilities VoIP technology will bring to the market, while at the same time making calling cheaper. AT&T reminds the FCC of its resolve in the 1996 Act to protect the providers of the application technology against abuse of market power over network technology. Concerning the debate over whether to regulate VoIP as a telecommunications or information service, AT&T claims that most VoIP services “offer the capability for net protocol conversion … which place[s] them squarely within the information services classification” (p. 15). The reader should note that this is exactly the same argument that AT&T presented to the FCC in the AT&T Petition for Declaratory Ruling, which 136

essentially was AT&T’s attempt to codify for itself what has been called “regulatory arbitrage” and have itself reclassified as an information service. AT&T argues that since it uses the Internet as part of its service offering, and the Internet is classified as an information service rather than a telecommunications service, then AT&T would thus morph into an information service, shedding all the rights and responsibilities of a telecommunications provider, only to emerge as an information service provider. The FCC remained unmoved by this metonymical attempt and struck down AT&T’s petition. The telecommunications provider remained a telecommunications provider but lived to parse another day. AT&T takes the opportunity in responding to the NPRM to attempt once again to reframe itself as an information service provider, claiming that its “VoIP offerings are plainly information services,” – and illustrating just how important regulatory arbitrage is to the VoIP debate. Like AT&T and MCI, Sprint is classified as an Inter-exchange carrier under the 1996 Act. Sprint, AT&T, and MCI own fiber optic broadband transmission lines for long distance service provision and purchase PSTN access to provide local loop calling capabilities. In Sprint’s response to the NPRM, the firm states that it supports the Pulver FWD decision, and “supports the NPRM’s proposal to preserve the outcome of … the AT&T Declaratory Ruling” classifying AT&T as a telecommunications service. Sprint claims that VoIP “promises significant advancements including the ability to deliver services with more efficient use of bandwidth at lower costs” (p. 1). Sprint frames VoIP as “a disruptive technology,” comparing it to innovations such as analog-to-digital service, wire-line-to-wireless service, and coaxial cable to fiber optic service. “At least until now,” Sprint asserts, “there has never been a question of whether a new technology [by] which the service was being provided would somehow transmogrify voice service” into an information service (p. 8). Sprint claims that “voice services, however they may be provided, remain the essential communications service” (p. 17). Referring to the PSTN, Sprint notes that VoIP “still makes use of the extensive national investment in the physical layer of the network infrastructure” (p. 4). Sprint states that “VoIP is the latest innovation in the evolution of voice service” (p. 2). “It is an innovation in the provision of voice telephony,” Sprint observes, “it is not a new kind of service” (p. 8). Sprint notes that technologically, “VoIP does not enter the market with a tabula rasa, [that] there is a 137

history of complex and extensive regulatory mechanisms” – many of which this inquiry discussed in Chapter Three – “that have governed the provision of wire-line voice services” (p. 3). Sprint references the 1998 Universal Service Report to Congress in noting that “the FCC has previously observed [that] ‘the classification of a service under the 1996 Act depends on the functional nature of the end-user offering” (p. 8). Sprint focuses less on MCI’s layered approach to VoIP regulation and more on the functional approach, which follows that if a voice providers offers voice service to the end-user that the end-user cannot distinguish as either telecommunications or VoIP, then the two services should be regulated alike – like telecommunications services. Sprint considers VoIP to be a “direct substitute for traditional circuit-switched … wire-line voice services and thus implicate the framework now in place for the provision of voice communications” (p. i), … “VoIP services are functionally indistinguishable from circuit switched … voice services” (p. 2). “There is no policy basis or legal analysis that would allow misclassification of these services,” Sprint claims (p. 8). Referring to FCC directives in the NPRM, Sprint claims that “even where net protocol conversion occurs, both the (1996) Act and the [FCC’s] precedent indicate that VoIP services should be treated as telecommunications” services (p. ii). Sprint suggests that if not “treated in reference to this framework,” VoIP threatens to undermine the Public interest goals that current policy is intended to address (p. 3). “Discriminatory regulatory treatment based upon the accident of technology,” Sprint claims, “displaces consumer choice and market outcomes with governmental bias” (p. 10). Sprint seems very clear that it believes that the VoIP application itself should be treated as a telecommunications service based upon the function it provides to the end- user. Sprint insists that “no loophole through which VoIP may slip into the category of information services” (p. 14). Noting that VoIP requires broadband transmission facilities for connectivity, Sprint cites 47 U.S.C. Sec. 153(46) when claiming that “the term ‘telecommunications services’ itself is defined by the nature of the service ‘regardless of the facilities used’”(p. 15; italics Sprint’s). Sprint also cites Computer II, [look up] claiming that, “the decision itself expressly stated its intent as to treat as basic ‘real-time human-to-human oral conversation’ irrespective of whether some processing might be 138

involved” (p. 17). Sprint continues that “for consumers, fixed voice calls provided over IP-platforms are no different than voice calls being provided over the PSTN; in each case, there is nothing inherently different about the specific service being provided to consumers” (p. 19). Sprint concludes that the FCC must “assure that its treatment of VoIP services” is consistent with the public interest.

The ILECs

Verizon is classified by the 1996 Act as an Incumbent Local Exchange Carrier (ILEC). Verizon owns access to the PSTN facilities, its own wireless network, as well its own fiber optic broadband infrastructure. Verizon, originally formed by the merger of GTE and Bell Atlantic following the breakup of AT&T, disagrees with MCI’s proposal for a layered approach to regulation. Among its opening statements concerning technological innovation and VoIP, Verizon claims that the FCC “should reject any regulatory approach – including MCI’s so-called ‘layers framework’ – … that would result in inappropriate economic regulation at the ‘physical layer’ of the IP architecture” (p. 4). Calling MCI’s proposed regulatory framework “flawed,” Verizon claims that there is “no need to differentiate among specific IP-enabled services or to place each of them in a particular regulatory category, … the [FCC]’s goal in this proceeding should be to encourage technological innovation with respect to all IP-enabled services” (p. 18). Verizon cites 47 USC Sec. 157, from the 1996 Act, which encourages the FCC to foster technological development of telecommunications services “without regard to any transmission media or technology.” Verizon suggests that “[t]o achieve this goal, the [FCC] should reject the recent attempt by MCI to justify discriminatory regulatory treatment through its so-called ‘layers’ framework” (p. 19). It is interesting to note that Verizon refers to MCI’s layered approach to regulation as a “so called” layers framework in an attempt to diminish the layered approach’s legitimacy as a viable option. Verizon references Whitt’s policy paper on a layered approach to VoIP regulation, claiming MCI argues that “unique and burdensome regulations should be imposed on incumbent LECs (and no one else) in the ‘physical layer’” (p. 20). Verizon suggests that MCI’s layered approach, or any “requirement to separate transmission components from other service functions,” could result in the industry “needlessly duplicating 139

infrastructure facilities” (p. 23). Verizon offers instead that “[t]he so-called ‘physical layer’ should be just as free of economic regulation as the ‘application’ or ‘content’ layers,” believing that the FCC should “reject MCI’s approach, which attempts to use its ‘layers framework’ to justify discriminating against some providers of IP-enabled services in favor of others” (p. 21). Verizon also rejects MCI’s proposed reliance on Computer Inquiry regulatory guidelines in differentiating basic services from advanced services, claiming that the Computer Inquiries rationale applies only to narrowband telecommunications services, “the local exchange network” (p. 22; italics Verizon’s), and not to broadband reliant, IP- enabled voice services where there is no need for a “measure of bottleneck control” against which the Computer Inquiry guidelines were intended to guard. Verizon chooses to focus on the competitive nature of a market, broadband, whose level of competition nearly all stakeholders agree is open, rather than on the competitive nature of a market, the local loop, that nearly all stakeholders agree is a bottleneck. It seems that Verizon believes that if it can distract attention from the area where a lack of market competition and a solution for it is being debated, and instead reframe the discussion of competition around an area where competition is agreed to exist, then it can successfully conflate broadband competition and local loop competition and convince the FCC to treat the two transmission technologies equally – by applying no regulation to either. Addressing the connection between technological innovation and competition, Verizon asserts that no bottleneck exists in the provision of IP-enabled voice services and focuses on the theme of technological innovation to deride MCI’s layered approach to VoIP regulation. Verizon claims that “extending burdensome and costly regulations” to IP-enabled voice services will “stifle innovation and investment, and harm consumers,” resulting in “significant real world costs ... reflected in lost opportunities to provide services more efficiently to customers … [and] in turn, affect[ing] the options and prices of high-speed services that are ultimately made available to consumers” (p. 23). Verizon uses language such as “burdensome,” “stifle,” “costly,” and “harm” to frame an overall adverse effect on the telecommunications industry, and seems to suggest that few aspects of the industry would remain adversely untouched by a layered approach to VoIP regulation. 140

Verizon claims that “the layers ‘theory’ that MCI and others have advocated – which distorts the layers framework to argue that the ‘physical layer’ should be subject to persistent and invasive regulatory obligations – is fatally flawed” (p. 13), and therefore deserving of no regulatory consideration. Verizon uses quotation marks around the term “theory” as a way of using sarcasm to discredit the plan that the term represents. Verizon stipulates that the FCC “should reject the ‘layers’ theory as a bald effort to subject certain providers of IP-enabled services to discriminatory and extensive regulation while allowing others to compete unhampered by regulatory obligations” (p. 2). Verizon again uses sarcastic quotation marks, this time around the term “layers” to suggest that the term is somehow artificial in nature. Concerning VoIP, Verizon claims that, “[t]he competition made possible through this new technology will give rise to additional innovations that will, in turn, increase and enhance further competition” (p. 3). Verizon feels correspondingly that with respect to technological innovation in the VoIP arena, “to impose common carrier regulation under Title II would harm consumers by undermining incentives for continued innovation that will, in turn, limit the choices that consumers will have” (p. 5). Verizon claims that the imposition of common carrier regulation would “undeniably harm the public’s interest in continuing to promote the development and use of technology to support advanced services” (p. 30). Verizon believes that “Title II regulation of IP-enabled services is inconsistent with, and harmful to, the public interest” and would “discourage would-be providers from taking full advantage of the IP platforms to offer new and diverse services” (p. 31). Verizon believes that by declaring ILECs to be non-dominant and “deregulating them accordingly,” the FCC could encourage wider deployment of broadband services. Verizon claims that consumers have benefited from the regulatory “light touch” the FCC promised in the NPRM that has made the growth of IP-enabled services possible. To reverse course now, according to Verizon, and to impose common carrier regulation under Title II “would harm consumers by undermining incentives for continued innovation that will, in turn, limit the choices that consumers will have” (p. 30). Verizon claims that this Title II imposition would, in turn, affect the technology options and prices of high-speed services that are available to consumers. Verizon claims that “[r]ather than 141

saddling emerging technologies and services with complicated rules that may prove entirely unnecessary” the FCC should revisit the issue “only where there is a demonstrated need for specific protections and use of technology to support advanced services,” claiming that Title II regulations are “too inflexible to keep up with the innovations that will inevitably take IP-enabled services into completely new directions” (p. 31). In its reply comments, Verizon claims that “[e]nsuring that particular technologies are not singled out for uneven regulatory burdens will allow competition to drive decisions about the products and services that providers will offer which, in turn, will encourage technological innovation with respect to IP-enabled services and further benefits to customers” (p. 13). Verizon “anticipates that a policy of technological neutrality will foster the development of competition” (p. 22). Like Verizon, SBC is an ILEC with PSTN ownership resulting from the AT&T breakup, broadband fiber optic transmission ownership, controlling interest in a wireless company (60% of Cingular) and a VoIP application offering. SBC uses language nearly identical to that used by Verizon when dismissing the idea of a VoIP policy incorporating a layered regulatory approach, claiming that, “it is far from certain that a layered model, which is a network engineering abstraction, is an appropriate model for a regulatory regime” (p. 4; italics SBC’s). SBC’s use of the term abstraction suggests a concept that cannot be applied in real world circumstances, a technique outlined by (Hyman, DiNapoli, and Toole, 1997) as ascribing nomenclature to frame a subject. SBC questions the validity of using MCI’s layered approach to VoIP regulation, claiming that “wholly apart from the flawed market power claims upon which they rest their layered model … it is far from certain that a such a layered model is an appropriate paradigm for regulation in the IP environment,” recommending instead its use more as an evaluative tool rather than a regulatory guideline (p. 40). SBC notes that “any standards fashioned for IP- enabled services must leave room for continued technological development and innovation, and should not cramp such development in order to fit within the framework of a technologically outdated or limited system (p. 69). In assessing the layered approach’s value to policy-making, SBC asserts that “there is no consensus about how to define the ‘layers’ of Internet-related communications for either regulatory or engineering purposes” (p. 61). This assertion is true, but requesting input on how to build consensus 142

for regulating Internet communications is part of what the NPRM asks stakeholders to do. SBC claims that “the increased availability of intermodal alternatives reduces any need for regulation at the facilities level, a fact that even proponents of the layered model have been forced to concede” (p. 42). SBC, like Verizon, attempts to distract from the PSTN bottleneck issue with the axiomatic claim that no competition exists for broadband. “In any event,” SBC claims, “even if there were a duopoly in last-mile access (and there is not), it would be indefensible to impose disproportionately greater regulation on the provider with the much smaller market share, thus, if anything, the layered model argues in favor of decreased regulation of ILECs at the physical layer” (p. 42; italics SBC’s). SBC claims that “the general theory underlying this view is that VoIP is the “functional equivalent” of traditional voice telephony, and thus must be regulated in precisely the same way as circuit-switched telephone service (p. 24). IP-enabled services are not the functional equivalent of traditional telecommunications services” (p. 26). SBC cautions the FCC not to fall back on the fall back on their “quacks like a duck” argument — the notion that because IP-enabled services can be used to provide functionalities that resemble traditional circuit-switched telephony, they should be regulated the same way; moreover, IP-enabled services do not, in fact, quack like a duck; rather, they completely transcend the functionality provided by traditional telephony, and will increasingly do so in the future (p. 14).

The CLECs

Covad is a facilities-based Competitive Local Exchange Carrier (CLEC) that owns its own fiber optic broadband infrastructure. A CLEC is a firm that competes with ILECs like SBC and Verizon by reselling access to the PSTN that the CLEC purchased at a wholesale rate, the calculation of which is set out in the 1996 Act. A facilities-based CLEC, Covad is one that began as a competitor to the ILECs in PSTN service provision but has since built its own infrastructure to compete in the high-speed voice and data transmission arena. As a medium for digital communications connectivity at a rate greater than 200 kbps, Covad’s service is categorized by the FCC in the 1996 Act as “broadband.” As a CLEC, Covad still relies on the PSTN for local loop connectivity 143

where its own broadband lines do not reach all the way to a customer’s premises. Covad claims that “[t]o date the transmission layer for broadband services has been entirely dominated by the two incumbent facilities based providers, the cable companies and the incumbent telephone companies (“ILECs”), by virtue of their control of bottleneck last mile facilities (p. 1). Covad bridges the connection at the beginning of its response to the NPRM between innovation and competition. Covad claims that “we are witnessing the first glimmerings of new voice service competition and innovation originating in the ‘applications layer’ of IP based services,” and borrows rhetoric from the medical profession, claiming that “first by ‘doing no harm’ to IP based data services in the application layer, the [FCC] has supported and spurred tremendous innovation, and vigorous competition” in the market for VoIP services (p. 2). Covad seems to believe it to be in the ILECs best interests to advocate for similar non-regulation of the physical, or transmission, layer – and suggests that the ILECs are keenly aware of this. Covad speaks to the issues of innovation and competition at the PSTN level, calling the ILECs “sorely conflicted by the potential loss of revenues from legacy voice and data services” (p. 3). Covad challenges the ILEC’s dedication to infrastructure innovation, claiming that “large incumbents with substantial investments in existing facilities are unlikely, left to their own devices, to be aggressive innovators in disruptive technologies like VOIP; clearly, the incumbent telephone companies have every incentive to avoid cannibalizing their core circuit-switched voice businesses with VoIP services” (p. 9). Covad also questions the cable companies’ advocating of intra-modal competition, claiming that “[w]hile cable companies have made much of their plans for VOIP, a duopoly [between the ILECs and cable providers] will necessarily limit their incentives to aggressively compete and innovate” (p. 4). A duopoly is used in this case as representing a market where only two competitors exist, appropriate in the VoIP debate because other potential local loop competitors such as satellite providers or Broadband over Powerlines (BPL) have not yet demonstrated an ability to compete against the ILECs, which still retain 85% of local call market share (FCC, 2005). Covad predicts that “large incumbents with substantial investments in existing facilities,” without policy regulating them, will function either in duopoly with the cable providers, or, in remote areas, as a monopoly. Covad suggests that retaining the PSTN requirements laid out in the 1996 Act that ensure 144

access to “legacy monopoly loops and capabilities in the nation’s telecommunications infrastructure, provides the means for many smaller, and often nimbler and more entrepreneurial, companies to marry innovations in the transmission layer with innovative application layer offerings, to drive an ever more rapid spiral of innovation [and that], with this competitive spur, the incumbents are far more likely to deliver on their promises of future investment in advanced IP based transmission facilities.” (p. 4). By calling smaller companies nimble and entrepreneurial, Covad implies that by comparison the larger companies, e.g. the ILECs, might be plodding and staid. Covad charges that the ILECs “monopolies were slow to deploy Digital Subscriber Lines precisely because it threatened to cannibalize lucrative, legacy monopoly services such as ISDN, T1, and second line telephone service” (p. 10). Here Covad brings up the possibility that the ILEC’s PSTN investment could be “stranded” – become obsolete – should broadband usurp the PSTN as the primary voice transmission provider and leave PSTN connectivity for places where broadband chooses not to reach. According to Covad, “years after cable modem services had entered the Internet access marketplace, incumbent phone company DSL deployment remained extremely limited, and was priced at around $69.95, … residential ADSL deployment stood at only 115,000 lines when the [FCC] enacted line sharing in 1999, [and] only when the [FCC] opened the incumbent monopoly networks to data competitors through line sharing did prices drop, availability increase, and residential DSL deployment begin to take off” (p. 10). Covad claims that DSL penetration rates increased nearly 7000 percent in the years between 1999 and 2003. Covad claims that “the only way to ensure rapid rollout of VoIP and other IP enabled services, and to maximize innovation, is to ensure continued robust competition … unburdened by the need to “protect” a legacy core business in … circuit-switched voice” (p. 11). Covad credits entry in the VoIP marketplace to the 1996 Act requiring ILEC’s wholesale pricing of transmission facilities for competitive access, a policy which Covad believes “work[s] as intended – by promoting real facilities-based competition” (p 14). To provide its service to its customers, Covad purchases access to the PSTN from the ILECs to reach its customers and provide VoIP over its own broadband facilities, and in turn provides wholesale broadband to independent ISPs. Profits from originally simply reselling transmission purchased at wholesale from ILECs enabled Covad, as this inquiry 145

explained in Chapter Five, to direct profits into building its own facilities. Covad claims this as evidence that its “entry into the VoIP marketplace shows that unbundling rules truly do work to promote facilities-based innovation and competition” (p. 14). Like Covad, Level 3 is a facilities-based CLEC “with approximately 23,000 miles of broadband fiber optic connectivity in North America” (Level 3, 2005). In the VoIP debate, Level 3 connects the concept of open competition driving innovation, claiming that, “regulators should not interfere unnecessarily with the operation of free markets or the introduction of new technologies” (p. 36). Level 3’s James Crowe said in an address to federal regulators that, “[i]nnovation comes from competition; the faster the pace of change, the more we need the entrepreneur backed by risk capital” (PFF, 2004). Level 3 explains its position thusly, that “[t]he Internet and IP technology facilitate the growth of inter-modal service competition by separating control of a physical transmission infrastructure from the ability to offer a retail service over that facility, [but the FCC] must take care to ensure that it does not permit providers of physical transmission to reverse that separation by ‘tying’ transmission to their own IP-enabled services” (p. 27). Level 3 claims that “by obliging providers of innovative communications offerings to determine whether those services are “telecommunications,” the regime creates substantial business uncertainty, results in opportunities for regulatory arbitrage, and penalizes carriers that do not ‘push the envelope’ in classifying their offerings as non- telecommunications” (p. 22). Level 3 cites the NPRM in support of their position, “where ‘functionalities . . . must be created internally by the network,’ … providing innumerable opportunities for innovative offerings’” (p. 28). By framing functionality as that which provides opportunity for innovation, Level 3 attempts to bridge a specific regulatory approach – an approach that it endorses – to innovation, rather than simply bridging competition in the abstract to innovation, a bridge that would not forward Level 3’s VoIP policy agenda.

The VoIP Providers

As discussed in the VoIP Forum analysis, Jeff Pulver is the founder of pulver.com, the firm whose technology, “Free World Dial-up” set precedent in FCC rule-making when it was determined that the firm’s computer-to-computer VoIP service was to be 146

regulated as an information service. In the NPRM the FCC referred to the service as “pure VoIP.” Jeff Pulver, as the founder and chairman of pulver.com, remains one of the primary discussants of VoIP policy issues. This inquiry will refer to comments offered by the firm pulver.com as issuing from chairman Jeff Pulver. Concerning a layered regulatory model, Pulver claims that the FCC must put in place VoIP policy that applies regulation where control at the physical, or facilities, layer exists but not “where competitive forces guarantee choice and innovation … to ensure [VoIP] … providers have reasonable access to and can make full use of last mile transmission facilities” (p. 11). Stated another way, Pulver recommends that the FCC protect non-facilities based providers such as CLECs from the monopoly control of the PSTN enjoyed by the ILECs. What is interesting about Pulver is that the firm is a “pure” VoIP provider that freely gives away its service yet that cares in which way transmission facilities are regulated. Pulver believes that “all applications delivered via higher protocol layers [e.g. Layer 7] rely on the bottleneck physical transport [and] competitive access to a multiplicity of applications (be they video, data, or voice) must be guaranteed either by market forces or through some degree of regulation over the physical transport layer” (p. 41). Pulver uses the same language as the Whitt policy paper, and thus the MCI model, when it contends that the FCC “must logically move to a unified framework that regulates along horizontal network layers, rather than legacy vertical silos” (p. 11). Pulver continues by offering the opinion that the FCC “might have to abandon some of the convoluted regulatory quilt that currently exists as a result of divergent legacy regulations that govern historically distinct services and technologies” (p. 11). Pulver does not specifically include as part of the convoluted regulatory quilt any legacy regulations from the 1996 Act that ensure CLECs have reasonable access to and can make full use of the last mile access protected from ILEC dominance, but rather chooses to leave any inferences to the reader. Pulver does not seem to view a layered approach to VoIP regulation as merely an engineering model, separate from and inappropriate for real world application. Instead, Pulver notes that telecommunications engineers have established standards and rules called protocols specifying how voice communication is transmitted through physical media. Pulver recommends support for a layers approach to VoIP regulation, claiming that “[t]hese transmission protocols have been separated into 147

various 'layers’ to permit engineers to develop compatible communications technologies” (p. 12). Pulver sees the layered approach as providing a remedy for the seeming regulatory necessity of treating voice “as unseverable from the physical telecom transmission layer,” claiming that “with IP technology, it now becomes clear that voice is separated from the physical layer and is more accurately categorized in the application layer, and need not be subject to the host of regulations that should be applied to the physical layer” (p. 13). Framing VoIP technology as a “positive … disruptive communication,” Pulver suggests that a layered model for VoIP policy, where the physical transmission and application components of voice communication are broken out for separate regulation as would be appropriate for either a telecommunications provider – regulation at the physical layer under Title II common carrier obligations, and regulation at the application level as an information service with no common carrier obligations – would let “IP-based providers …self-select whether they choose to subject themselves to the more onerous responsibilities of telecom carriers in an effort to avail themselves of the superior rights; [for example] if an entity holds itself out as an ASP, it would not be subject to Title II obligations, but it could not avail itself of Title II protection or advertise itself as a telecom carrier” (p. 16). Pulver seems not to have any concern that encouraging providers to self-regulate could create a regulatory morass, which the FCC might find somewhat discouraging. He claims that a layered approach of self-selection by providers as to which regulatory model they would choose to follow would best ensure that physical layer bottlenecks are not exploited, and that both “the Computer Inquiry rules and the 1996 Act are built on the same premise: deregulation of telecommunications markets, and of markets that depend upon telecommunications inputs, is possible only with regulation of bottleneck telecommunications facilities. In that sense, [and] as the [FCC] has continually stressed, both the Act and the Computer Inquiry rules are deregulatory” (p. 42). Pulver sees the layered model as one best able to manage the regulatory requirements of an application that manifests the convergence of telecommunications and information services, VoIP. Net2phone is a VoIP applications provider whose customers use their own broadband and PSTN connections to operate their subscription to Net2phone’s VoIP service. In the VoIP debate, Net2phone claims that “the layered approach will not 148

promote the further development of IP- enabled services” because it “provides an overly simplistic answer to a complex question and does not resolve the threshold issue of whether regulation of any type of IP-enabled service is required” (p. 12). By framing a layers approach to VoIP policy “overly simplistic” concerning “a complex question,” Net2phone uses the technique of claiming to have a truer understanding of the issue at hand than does the opposition in an attempt to diminish any policy input from competing stakeholders. This framing technique is used to discredit an opponent’s ideas while at the same time implying that the ideas a stakeholder presents are both refined and analytical. Net2phone’s analysis cautions that without very specific guidelines, “[d]eveloping a layered approach could lead to arbitrary and artificial line drawing between like services and discourage providers from deploying broadband facilities” (p. 13). Net2phone frames the layers approach as “arbitrary,” a technique used to suggest an idea not well researched and therefore just as reasonable as any other idea. Arbitrary is not how a firm would wish to have categorized an idea it is presenting to the FCC for policy shaping. Net2phone recognizes that regulation at the application layer is a layer of regulation with which they do not currently have to contend and forwards VoIP policy recommendations to maintain the status quo. Net2phone claims that the FCC’s history of a laissez-faire approach toward Internet and Internet-based products regulation “has been central to Net2Phone’s continued investment in VoIP technologies and the development of new and innovative packet-based services” (p. 3). Net2phone claims that it is the Congress’s “practice of refraining from regulating the Internet to allow the market to self- regulate and to encourage new technologies to flourish and to encourage new technologies to flourish” that has enabled Net2phone’s VoIP technology to thrive (p. 4). Net2phone invokes the visual metaphor of the common graphical depiction of the Internet when framing VoIP regulatory efforts as attempting to apply regulation to its applications “is like trying to lasso a cloud” (p. 4). Net2phone cites Computer II when claiming that the FCC’s goal in separating enhanced services – subsequently information services following the MFJ – from basic, or telecommunications, services “was to foster competition through technological development in the computer industry by keeping it free from regulation” (p. 5). Net2phone recalls that the FCC indicates in the NPRM that VoIP “blurs the line” between the two distinctions, claiming that classifying VoIP “as 149

telecommunications services is not in the public interest; such a classification would restrict IP-enabled services to the confines of that definition and curtail any incentive for future growth, evolution, or expansion of those services” (p. 7). Net2Phone claims that without regulation akin to that of information services, VoIP providers like themselves “would be forced to adapt and limit their new dynamic technologies to fit into a regulatory system designed for outmoded circuit-switched services … [and] would therefore be required to re-engineer their Internet-based networks to resemble circuit- switched networks rather than to update existing legacy networks to function in the Internet environment as Congress envisioned by keeping Internet technologies free from legacy regulation … [with] … consumers los[ing] both the current and potential promise of enhanced functionality that IP-enabled services provide” (p. 8). Net2phone credits the FCC for choosing not to “regulate VoIP by accident.” Net2phone claims that “[t]he present panoply of VoIP products and applications are the direct result of an open environment free from needless regulatory restraints” and that “premature regulation would stifle the future of Internet voice, [while] a hands-off approach permits the [FCC] to monitor the industry without hindering its development while retaining the ability to review regulation when appropriate (p. 8). In response to stakeholders who advocate for technological neutrality in regulation, Net2phone points out that “different types of voice providers routinely have been regulated differently; … competitive local exchange carriers (LECs) are subject to less regulation than incumbent LECs, while wireless and commercial mobile radio service providers are subject to different regulations than both competitive and incumbent LECs even though voice services may be offered by all of these providers” (p. 9). Net2phone claims that “[i]t follows that VoIP, as a new and fundamentally different service, does not and should not automatically fall under legacy common carrier regulation based on misleading parity arguments” again quoting Chairman Powell in his enthusiastic commentary (2004) on VoIP, noting that “[he] said it best when he stated that [t]he creativity and innovation of the marketplace has been breathtaking and dynamic, bursting at the seams with entrepreneurial spirit. . . . There is little compelling evidence that heavy economic regulation of these vibrant services is warranted” (p. 9).

150

Vonage is a VoIP applications provider whose end-users acquire their broadband and PSTN connections independently and use them as a platform for Vonage’s service, for which they must buy or lease Vonage’s Customer Premises Equipment in order to make VoIP calls. Vonage points out that the U.S. ranks number 11 in the world in broadband subscribers per 100 people (p. 2), and then quotes Michael Copps lamenting broadband delivery and cost in the United States, “[t]he USA—Number 11! What more of a wake-up call do we require?” (p. 3). Vonage predicts that “inappropriate” VoIP regulatory policy will impede ongoing innovation of IP-enabled services and quash the interest of broadband subscribers in VoIP services. A layered approach will allow the [FCC] to apply different regulation to different layers and ensure “[technological] neutrality” (p. i). Bridging competition and innovation, Vonage suggests that “any regulatory rubric that does not factor in the economic structure of a particular market will distort rather than enhance its operation” in bringing new technologies to the market (p. 6). Vonage claims that VoIP “[r]egulations should be narrowly crafted to achieve the relevant public policy goal with primary emphasis placed on free market forces to discipline market participants” (p. 6). In underscoring the bridge between open competition and innovation, the firm cautions the FCC that, “VoIP is still in its infancy and is a dynamic, …. rapidly evolving, and emerging technology that is used in providing a variety of services …Whether VoIP will succeed as a technology or whether it will gain significant market share is still an open question [but] premature regulation of a fledgling technology will certainly inhibit its growth and threaten the viability of the technology as a potential competitor to traditional providers of telephone service” (p. 35). Vonage frames VoIP technology with the term “fledgling” to imply that VoIP is something young and fragile and in need of care, preferably in the form of policies that Vonage endorses. Showing the connection between innovation and universal service, Vonage claims that regulation that “fail[s] to be cognizant of the important differences between the circuit- and packet-switched network will inevitably result in hamstringing VoIP’s development and deployment” (p. 36). Vonage claims that with the high quality of service it provides, coupled with features that are not provided by other companies, its application helps to promote the continued deployment of broadband services, since a 151

broadband connection to the Internet is a prerequisite to receiving service from Vonage. Suggesting that poor regulatory policy would harm VoIP deployment, while framing their service as “information,” Vonage claims that “consumers are excited about the unique possibilities that Vonage’s service offers, and appreciate Vonage’s commitment to its customers; [the FCC] should ensure that information services like Vonage continue to thrive and should either act or refrain from acting in a manner that encourages the continued deployment of a nascent technology with immense potential” (p. 36).

The Industry Organizations

Although industry organizations would not feel a direct impact from an FCC ruling on VoIP policy, their comments are important to this inquiry’s analysis. Industry organizations represent collective interests of the respective coalitions they represent, coalitions whose memberships have interests in guiding industry policy yet whose financial interests do not necessarily hinge on VoIP policy outcomes. Some industry organizations focus more on certain aspects of the VoIP debate than on others. This inquiry provides as complete a record of industry organizations’ comments as is available and relevant to each portion of the VoIP debate. It explores the comments of these industry organizations to provide a foil for claims made by stakeholders whose interests involve technological innovation as relate to VoIP policy-making process. It describes the nature of each industry organization as it is introduced. USTelecom (USTA) is a self-described “Washington powerhouse … that brings together lobbying, regulatory affairs and public relations expertise to deliver value that can be measured on the industry's bottom line.” (USTA, 2005). USTA bridges innovation and competition specifically in an intermodal capacity. USTA, endorsing facilities-based competition for IP enabled voice services, claims that innovative products and market alliances did not occur under a regulated communications regime. Concerning innovation, the VoIP debate, and competition, USTA claims that “[t]he public interest is served by efficiency, innovation, and consumer choice, all of which will occur if the [FCC] does not strangle the IP marketplace with Title II economic regulation” (p. 24). USTA seems to trump the “bottleneck” metaphor with a term like “strangle.” USTA calls up some of the more highly charged language from deliberations surrounding the 1996 152

Act, quoting Senator Pressler, chief Senate sponsor of the 1996 Act, where he states that “regulatory apartheid …no longer makes sense” [141 Cong. Rec. S7885]. Language that refers to one of the most oppressive peacetime social structures of the 20th century seems a bit strong when discussing new ways of making a phone call. In referencing the innovation resulting in an increase in Quality of Service (QoS), an issue raised by the FCC in the NPRM, and ease of use of VoIP that has emerged in the few years since VoIP’s retail launch, USTA claims that “VoIP services are now competitive with traditional circuit-switched networks, providing more functions and flexibility, usually at lower consumer prices” (p. 27). USTA seems to be suggesting that a competitive environment can in some respects ensure that technological issues such as QoS will be resolved if allowed to respond to market demands. Linking innovation and competition, USTA claims that asymmetric regulations – those that regulate similar industries differently – “risk causing less efficient or less innovative companies to prevail because of artificial competitive advantages – they encourage inefficient arbitrage: companies will adopt certain technologies not because they are more efficient, but rather because that will allow them to avoid a regulatory obligation (such as support of universal service) that their competitors must bear” (p. 10). By framing a firm’s attempts to positively leverage VoIP policy as “regulatory arbitrage,” USTA allows the audience to infer malevolence from what in many industries is considered a normal business practice. The Independent Telephone and Telecommunications Alliance (ITTA) “was formed … to serve as a voice … in Washington … for midsize local exchange [ILEC] companies” (ITTA, 2005). ITTA's ILEC member companies provide a broad range of wire-line and wireless voice, data, Internet and video telecommunications services to customers in 43 states. ITTA sums up the nexus between innovation and competition in the VoIP arena with a minimum of flourish, “The technological divide between legacy service provisioning and IP-enabled service provisioning requires a similar divide in regulatory thought and action” (p. 12). The National Exchange Carriers Association (NECA), representing the interests of a coalition of small CLECs, claims that “to the extent that IP-enabled services functionally replicate, and compete directly in the marketplace with, traditional telephone 153

services, it is unclear how the [FCC] can rationally apply traditional regulatory mechanisms to one type of provider but deregulate others simply on the basis of the technology employed to provide services” (p. 2). FCC rules mandate that all incumbent local telephone companies must belong to NECA, a non-stock corporation formed in 1983 to administer the FCC's access charge plan following the breakup of AT&T and the Bell System. In its brief comments, NECA claims that the FCC “should ensure that like services receive like regulatory treatment regardless of the technology used to provide the service.” The National Association of Regulatory Utility Commissioners (NARUC), in making its arguments concerning technology and VoIP regulatory policy, relies on the predicates of the functional theory of voice communication regulation. NARUC claims that “[t]he fact that any service uses IP technology rather than some other technology to deliver its voice telecommunications service is immaterial to a proper classification of the service (p. 6). NARUC claims that with regard to VoIP regulation, Congress did not intend that “real time point-to-point voice communications offerings advertised as a substitute for, competing directly with, and in every key aspect functionally equivalent to existing voice services offered by traditional common carriers to be subject to a different regulatory classification” (p. 3). NARUC cites 47 USC Sec. 153(46), claiming that Congress clearly stipulated that technological distinctions in the deployment of voice communication transmission are not relevant in classifying a service as a telecommunications service. NARUC claims that “[c]ategories of services should not be based on technology. Digital switches and fiber rings are profoundly different than cord boards and a single strand of copper, but the core service used by customers remains fundamentally the same. ” (p. 6). The functional approach, according to NARUC, suggests that the [FCC] “should apply the same Title II scheme to those VoIP services that, from the perspective of the end-user, are similar in functionality to and serve as substitutes for traditional telephone service, i.e., applied to services that enable the end- user to engage in the real-time transmission and reception of voice messages” (p. 5). NARUC reminds the FCC that the PSTN “has constantly evolved since the first phone was put into service over 100 years ago” (p. 6). NARUC cites the1998 Universal Service Report in which, according to Congress, “the classification of a provider should 154

not depend on the type of facilities used… Its classification depends rather on the nature of the service being offered to customers; … a telecommunications service is a telecommunications service regardless of whether it is provided using wire-line, wireless, cable satellite, or some other infrastructure [and] depends on the functional nature of the end-user offering.” NARUC claims that “the IP technology used to transmit the voice transmission is completely transparent to the calling and called parties and functionally equivalent to existing phone service,” (p. 7) and therefore should be regulated as such. Addressing the functional approach to VoIP regulation, NARUC claims that “[a]ny other approach runs the risk of the regulator effectively choosing technology winners by allowing … regulatory arbitrage – rather than allowing markets to sort out the most efficient competitors (p. 5; Italics NARUC’s). NARUC asserts that “regulators should not intervene in markets by favoring one technology over another” (p. 12). NARUC references the 1998 Universal Service Report in explaining the difference between an AT&T and Vonage service – a difference which NARUC claims is transparent to the customer – claiming that “the translation or conversion between digital formats takes place on the customer’s side of the network with Vonage, and within the network with AT&T” (p. 9; Italics NARUC’s). As such, the services – within NARUC’s suggested policy framework – are functionally equivalent. NARUC claims that the 1998 Universal Service Report did not intend to classify one service differently from another based upon the technological distinction of where upon the network a digital conversion takes place. NARUC claims that “an approach that treats services that are substitutable for [or] functionally equivalent to existing telephony services differently is inconsistent with Congressional intent” (p. 12). NARUC sums up its contribution to the NPRM comment process with a quotation from a 2001 Local Competition Report, where Chairman Powell states that “Government is at its worst when it attempts to pick competitive winners over losers, or worst when it tries to pick a technology.” FERUP, The Federation for Economically Rational Utility Policy, is co-chaired by Charles Davidson of the Florida Public Services Commission, one of the speakers at the VoIP Forum. FERUP refers to itself as “bipartisan coalition of state regulators who believe in reform.” FERUP refers to VoIP as a “nascent” technology that has “made it increasingly difficult to distinguish in a meaningful way between a telecommunications 155

service and an information service” (p. 5). FERUP frames VoIP as representing “a disruptive technology that is driving innovation and forcing greater cost effectiveness among all providers that will greatly benefit consumers” (p. 3). FERUP attempts to position VoIP as forcing providers to move to advanced service provision over broadband networks that enable combinations of voice, information, multi-media and networking applications, which FERUP claims drives investment in broadband infrastructure. FERUP bridges broadband investment to competitive and innovative positive externalities, which it claims would be harmed by irrational policies. FERUP claims that “[r]egulation has not kept pace with innovation” (p. 5), and frames VoIP as a “vibrant new technology … that promises competitive alternatives for our consumers” (p. 8). With respect to the way in which technological considerations should drive VoIP regulation, FERUP moves from the descriptive to the prescriptive when attempting to frame its preferred policy implementations. It claims that “as a normative principle, technological parity should result in regulatory parity” (p. 11). After presuming to define the normative, FERUP calls upon the FCC to send an “unambiguous signal to the market that the U.S. is receptive to emerging communications technologies” (p. 8). Advocating against opportunity for regulatory arbitrage, FERUP claims that “VoIP’s true competitive worth should be determined by the consumer, and policies that allow VoIP and other emerging technologies to vie for that consumer as an alternative to POTS, unencumbered by outdated regulatory shackles, should prevail” (p. 10). FERUP uses “regulatory shackles” to suggest that any form of regulation would hobble technological advancement. FERUP frames VoIP as an “emerging technology” compared with “traditional” PSTN technology, which, when juxtaposed against VoIP FERUP depicts as “exotic.” Perhaps ironically, the florid language FERUP uses in its comments may have its genesis in the VoIP Forum; one of the signatories of the FERUP FCC comments is also one of the VoIP Forum presenters whose language there was equally elaborate. The Computer and Communications Industry Association (CCIA) advocates for “open markets, open systems, and full, fair, and open competition” (CCIA, 2005). CCIA claims that although “VoIP’s rapidly growing capabilities suggest that large numbers of businesses and consumers will drop their circuit-switched services for unregulated VoIP … [t]here may be a temptation to move present regulation into the new world of VoIP” 156

(p. 4). CCIA frames the FCC’s measured approach to policy making as resisting temptation, and insists it should continue doing so. It claims that “VoIP in particular is a force for increased competition, a platform for innovation, and a driver of broadband deployment” and cites the Computer II decision which CCIA asserts “aimed to foster growth of new technologies via minimal regulation” (p. 11). CCIA claims that concerning technological innovation, “The 1996 Act was a realization that regulations could be harmful as well as helpful [and] Congress therefore, directed [the FCC] to forebear from regulating, consistent with the public interest, wherever such regulation is not necessary to ensure the charges are just and reasonable” (p. 15). CCIA waves the flag, claiming that “all Americans will soon need broadband and VoIP in order to function as full participants in our national democracy; [the FCC], we trust, will reach the same conclusion; innovation that springs from the market, coupled with a light touch from government, will fill that need best” (p. 23). What CCIA means by “all Americans” is the full complement of U.S. citizenry, not merely all Americans who can afford to be “full participants in our national democracy.” The Communications Workers of America (CWA) members “work in all segments of the telecommunications industry, including local and long-distance telephony, cable, wireless, and Internet access” (CWA, 2005). CWA opens its comments by calling upon the FCC to regulate VoIP “in the public interest” (p. iii). CWA openly endorses functional equivalency in VoIP regulation, claiming that, “A VoIP call starts as voice and ends as voice [therefore] VoIP is not an information service. VoIP is a telecommunications service” (p. iv). CWA predicts that, “[t]he explosion of IP-enabled services will stimulate demand for access to high-bandwidth Internet networks, which in turn will serve to jumpstart the depressed telecommunications and information sectors of our economy,” that regulating VoIP “as a telecommunications service promotes the public interest” (p. 1). In discussing the functional equivalency method of regulating VoIP, CWA claims that, “VoIP services that are functionally equivalent to traditional voice telephony are telecommunications services” (p. 6), particularly because CWA sees VoIP as substitutes for traditional telephony. CWA cites the 1998 Universal Service Report in support of its assertion where the FCC deems that, “the classification of a service under the 1996 Act depends on the functional nature of the end-user offering.” 157

CWA insists that “[t]here can be no question that VoIP is ‘telecommunications’ - it transmits a voice conversation without any change in the form or content from the sender to the receiver” (p. 9). CWA points to the Computer Inquiries where the difference between basic and enhanced services decided the difference between telecommunications and information services, and cites the Non-Accounting Safeguards Order in arguing that VoIP “categories of protocol conversion result in ‘no net’ protocol processing and thus are exempt from classification as an information service” (p. 13). CWA concludes that, “[c]lassification of VoIP as a telecommunications service not only complies with the legal mandates of the 1996 Act, it also serves the public interest” (p. 14). The VON (Voice on the Net) Coalition, like pulver.com, was founded by Jeff Pulver. The VON Coalition claims that VoIP can help overcome price barriers “by dispersing the cost across both products – voice and broadband,” indicating that “although broadband penetration rates currently drive VoIP adoption, VoIP could become the application to drive future broadband adoption” (p. 10). Cautioning against what it frames as “differential regulation” of VoIP and broadband services – a distinction that not all stakeholders make – the VON Coalition points out that innovation will respond to regulation. Predicting that future IP innovation will develop around regulations applied to VoIP, the VON Coalition cautions the FCC not to adopt any VoIP policy that could encourage regulatory arbitrage, claiming that “consumer demand and not regulatory classifications should drive the evolution of these new IP-enabled products and services” (p. 20). The VON Coalition claims that the openness of VoIP which rides primarily on the Internet and encourages entrepreneurs to innovate with the application in mind, whereas “the PSTN operates as a closed system on which it is impossible for innovative developers to build new applications” (p. 29). The United Telecom Council (UTC) “represents international electric, gas, and water utilities; natural gas pipelines; other critical infrastructure companies and other industry stakeholders, [and is] … a global trade association dedicated to creating a favorable business, regulatory, and technological environment for companies that own, manage, or provide critical telecommunications systems in support of their core businesses” (UTC, 2005). The United Power Line Council (UPLC) is “an alliance of utilities and technology companies working together to drive the development of 158

Broadband over Power Line (BPL) - broadband services over the existing distribution electrical grid and in-home electrical wiring – in a manner that helps utilities and their partners succeed” in developing and deploying broadband over power line technology (BPL) in North America (UPLC, 2005). Together, UPLC and ITC (collectively UTC/UPLC) believe that “IP-enabled services should generally be classified as information services to promote further development of the technology” (p. 4) With respect to innovation UTC/UPLC claim that “[m]inimizing economic regulations of IP- enabled services will stimulate continued growth and development of the technology and the availability of services to all Americans … IP-enabled services reduce capital costs, operate more efficiently and provide enhanced capabilities compared with legacy systems” (p. 5). UTC/UPLC positions their framing attempts for market-based competition by bridging innovation and competition. UTC/UPLC advocate on behalf of their constituents for minimal regulation applied against a technology its constituents may incorporate in a business offering as facilities-based providers of a third pipe into the home.

The Broadband and Networking Providers

The Broadband Service Provider Association (BSPA) is a facilities-based, local loop providers industry organization that “represents most of the companies that the [General Accounting Office] referred to as wire-based competitors to incumbent cable operators in its most recent study on cable rates and competition” (Johnson, 2004). With respect to technological innovation, BSPA “is concerned about VOIP being understood as something that it is not; [u]sing the terms “IP” and “Internet” should not automatically transform voice service from telecommunications into something that it is not, in order to create opportunities for regulatory arbitrage” (p. iii). BSPA suggests that technologically neutral regulation of VoIP services would ensure that no regulatory arbitrage occurred – the frame a stakeholder gives to any favorable applications of policy principles made by competing stakeholders. BSPA claims to be concerned that a kind of “mass hypnosis” regarding VoIP has occurred similar to that demonstrated by what former Federal Reserve Chairman Greenspan referred to as the “irrational exuberance” archetypical of the “dot-com” era. 159

This reference to a time when companies were selling what was disparagingly referred to as “vapor-ware” gives an indication that BSPA may see VoIP not as an application that revolutionizes an industry, as some stakeholders have claimed, but more as a simple application that resonates within a select demographic. BSPA’s “mass hypnosis” frame around VoIP suggests that some stakeholders will wake-up when the irrational exuberance wears off. BSPA claims that, “[j]ust as in 1999 when people said ‘the Internet changes everything’ to justify billion-dollar capitalizations for companies with no income,” similarly in the VoIP debate some stakeholders would have the FCC believe that VoIP changes everything when it only changes some things. BSPA claims that in the VoIP debate “some parties today invoke the terms “IP” and “Internet” in an attempt to magically transform voice service from telecommunications into something that it is not, in order to create opportunities for regulatory arbitrage … unfair to competitors, and destructive to telecommunications markets and thus to consumers” (p. 3). The use of the term magically shows the disdain BSPA has for the intelligence behind some stakeholders’ VoIP proposed policy designs it sees as coming from nowhere. BSPA invokes the term arbitrage to illustrate what it predicts can happen when asymmetric regulation favors one technology over another. BSPA forwards the concept that regulation stifles innovation and encourages policy-centered reactive innovation rather than consumer-centered proactive innovation. BSPA claims that, “regulating only where necessary encourages investment in facilities that are responsive to customer demand; this approach allows the market to function at its best, and allows customers, rather than regulations, to determine the services and features that they want” (p. 4). BSPA claims that the FCC should use minimal regulation – what stakeholders throughout the VoIP debate, including the FCC, have framed as a “light touch” – in any VoIP policy-making. BSPA suggests that “[a]pplication of these principles should result in IP-enabled voice services that are substitutes for “plain old telephone service” (“POTS”) being regulated as telecommunications under Title II, but with a light touch manner similar to the current regulation of CLECs” (p. iii), who function under a business model similar to that of BSPA members, who themselves are small cable operators competing regionally against large cable providers like Comcast and Time Warner. 160

Referring to how the FCC has traditionally issued rulings, not by holding a Forum but by drawing from recorded regulatory precedent, BSPA claims that “[t]he record in this proceeding shows that IP is a technology not a service, and the use of IP technology to provide voice service should not by itself alter the technology-neutral application of statutory requirements and pre-existing FCC policies” (p. 6). BSPA asserts that “[t]he absence of regulatory parity creates harmful distortions of service markets, by encouraging the construction of facilities and the provision of services based on artificial regulatory distinctions in pricing, i.e., regulatory arbitrage” (p. iii). The uses of the terms harmful distortions and artificial shows what BSPA regards as the spurious nature of the claims made by some stakeholders concerning VoIP regulatory policy. BSPA uses the term “technology-neutral” to suggest that a VoIP policy approach created without the benefit of any stakeholder in mind “is necessary to promote regulatory parity among competitors, and to prevent uneconomic regulatory arbitrage” (p. 1). BSPA claims that a non-technology neutral policy would “violate [the 1996 Act’s] principle of competitive parity” (p. 18). And gives what it believes to be an example of regulatory arbitrage as “encouraging the construction of facilities and the provision of services based on artificial regulatory distinctions in pricing” (p. 4). Global Crossing, an “integrated, global IP-based network … designed for the convergence of voice, video and data” (Global Crossing, 2005), claims that continued competitive development of IP technologies will effectively deliver IP-enabled voice services to the broader consumer market. Global Crossing claims that comments to date in this proceeding “vividly illustrate the broad range of innovative services made possible by IP technology that are available today and will be available in the future” (p. 5). Global Crossing’s use of the term vivid suggests that VoIP’s potential is abundantly apparent. Global Crossing states outright that investment in new VoIP technologies “has powered the continuing innovations in IP-enabled services … to foster the continuing development of a diverse, competitive market” for IP-enabled voice services (p. 6), something it accuses the ILECs of not having done. Global Crossing claims that “[t]he abundance of new services is the result of competitive investment in IP technologies and IP network infrastructure – Verizon admits the Bell companies are not the investment leaders. Instead, they are the followers” (p. 5). Having created a bridge as evidence that 161

there exist positive externalities between innovation and competition – which Global Crossing frames as good for the industry and the consumer – Global Crossing’s chastisements next suggest that a bridge exists between a lack of investment in innovation on the part of the ILECs and a lack of competition in their industry space. Global Crossing allows the reader to infer that a lack of competition in the telecommunications industry reflects what the ILECs would desire as leverage against the CLECs. Cisco is a “supplier of networking equipment & network management for the Internet… include[ing] routers, hubs, Ethernet, and wireless networking” (Cisco, 2005). Cisco claims that it “believes that … as the [FCC] begins to explore the appropriate regulatory environment for a communications sector that is rapidly moving to IP networking, it must be cautious in its approach and take one step at time – lest it inadvertently interfere with the extraordinary innovation and competition that has characterized” IP-enabled voice service (p. 1). A conflation of innovation and competition becomes understandable when one considers that a stakeholder such as Cisco would likely sell more of the “gear” that makes packets “go” across the Internet backbone if its customers competed against each other to deploy newer innovations making use of Cisco’s Internet hardware for IP applications. Intramodal competition derived from innovation and occurring, for example, at the PSTN level would likely not be as compelling for Cisco as would intermodal competition where there exists a much more dynamic medium around which to innovate – the Internet. The PSTN is not seen as a network around which communication network firms typically innovate. Cisco offers far more products compatible with Internet technology than PSTN technology, where Verizon’s “investment followers” reside. Cisco quotes the NPRM when recommending that the FCC decision to allow the Internet to be free of traditional regulatory obligations has resulted in “one of the greatest drivers of consumer choice and benefit, technical innovation, and economic development in the United States in the last ten years” (p. 2). From this statement one might infer that Cisco advocates for VoIP to be categorized as an information service, unencumbered by telecommunication regulatory obligations of traditional voice services.

162

Speaking to the connection between technological innovation and competition, a bridge stakeholders have framed throughout the VoIP debate, Cisco claims that “the bottlenecks and market distortions may prevent rollout of IP voice services to compete” with the PSTN, and that the FCC should regulate in keeping with “the statutory goals of competition, innovation, and deregulation” (p. 10). Using language descriptive of one tending over a landscape (perhaps competitive), Cisco asks the FCC “to ensure that actions taken in this proceeding do not stunt innovation and growth” (p. 2). Cisco claims that the FCC must “clear away the underbrush of legacy regulation” (p. 18) because “IP voice service providers will bring needed competition” to the PSTN (p. 10). Cisco uses the term “lingering” to describe its view of PSTN bottlenecks and their concomitant “market distortions,” the implication being that they are on their way out, only slowly.

The Cable Companies

Comcast cable is “the nation’s largest facilities-based provider of residential telephone service (serving over 1.2 million customers), [but with] … circuit-switched phone service available to less than one-quarter of all of the households in [its] cable systems, in contrast to the over 90% of households to which [it] can offer high-speed Internet service” (Comcast press release, 2004). Comcast employs the traditionally well- received tactic of framing something as good for American, claiming that “[t]he advent of VoIP services heralds a new age of competitive communications that will bring immense benefits to American consumers [and], in fact, VoIP services can bring true, sustainable, ubiquitous, facilities-based competition to the residential voice market” (p. 1). Referring to its status as a CLEC due to the necessity of it purchasing PSTN access to connect to many local loop markets, Comcast claims that “[b]y contrast, we expect that VoIP service will enable us to offer a competitive voice service throughout most of our entire cable footprint and to market voice-related services much more aggressively than we do our current, conventional, circuit-switched voice offerings” (p. 2). Comcast reports that 95% of its plant will be VoIP-ready by year-end 2005. Comcast claims that “the best public interest result can most promptly and efficiently be achieved by classifying VoIP services … as information services” (p. 12). Comcast encourages the FCC to move, with respect to VoIP, to a “regulatory environment most conducive to facilities-based 163

investment, innovation, and deployment” claiming that, “[t]he more that environment looks like the largely deregulated wireless marketplace or the completely unregulated Internet, the more likely it is that capital can be raised, imaginations unleashed, and deployment spurred (p. 2). Pointing to VoIP’s potential for what the NPRM referred to as spurring increased innovation, Comcast claims that, “VoIP services are almost certain to encompass features, functions, and capabilities that go well beyond those available with traditional circuit-switched telephone services” (p.12).

The Wireless Providers

Nextel is a wireless provider that was acquired by Sprint in 2005. Nextel relies on ILECs for over 90% of its dedicated transport and termination services (i.e., special access), which connect its approximately 17,000 radio towers to its mobile switching centers (Nextel, 2005). Nextel opens its response to the NPRM by advocating for a technologically neutral VoIP policy, stating that, “[o]ne area of potential concern, however, is that any light-handed regulatory framework not become an open invitation for entities to arbitrage technology simply for the purpose of avoiding perceived undesirable regulatory obligations” (p. 1). Nextel notes that the FCC’s “public interest obligation is to ensure that all technology platforms—wire-line, wireless, power lines, satellite, cable— have a fair and unfettered opportunity to reach consumers with the package of service offerings they demand so there is a vibrantly competitive retail market for those services” (p. 2). Nextel cautions the FCC that in setting its regulatory framework, it “must avoid policies that have the “unintended consequence of embracing too quickly any one technology or service” over another or that entrench those network platform providers that have dominant reach, and thus adversely affect the opportunities of other parties” (p. 5). Nextel advises the FCC that in the VoIP proceeding, it “should differentiate between the appropriate regulation of essential facilities and transmission services, and the appropriate regulation of IP applications that ride on those facilities and services; the IP applications, the essential facilities, and transmission services each require their own independent analysis” (p. 10). Nextel advises that the FCC should “distinguish between the physical facilities used for access to IP-enabled services and the IP applications that are delivered to end-users 164

over those facilities; [the FCC] should not simply determine that the promise of facilities- based broadband competition allows the [FCC] to withdraw prematurely from its traditional role of safeguarding developing markets – traditional market power analysis over facilities cannot simply be abandoned by assuming the existence of a “new” IP market where Vonage is the competitive equal of Verizon, and where every competitor is a “new entrant” with no history and no potential to leverage pre-existing market power into this new market” (p. 17).

Summary

Rhetorical Overview

This chapter explored the ways stakeholders use language and framing devices to circumscribe the public interest such that their respective policy agendas will hold sway with the FCC in the VoIP regulatory process. It explored in the ways the FCC introduced the discussion points in its IP-enabled services NPRM to frame the VoIP debate such that it addressed the issues the FCC saw as most pertinent to policy-making from a technological standpoint. This chapter introduced how technology and competition are tightly coupled as policy topics, which gives stakeholders the opportunity to employ Snow et al.’s (1986) framing technique of issue bridging. It presented the ways stakeholders claim the various technological components of the VoIP debate should be applied to VoIP’s regulation, an example of Stone’s (1997) observation of stakeholders moving from description to prescription. The FCC began by framing its own position on the VoIP regulatory debate using a tactic Jordan (1999) disclosed, that of “naturalizing certain tacit understandings about the Internet.” The FCC makes claims that IP-enabled services will “spur innovation” and “foster the development of more IP-enabled services” as though these statements were axiomatic. Warnick notes (2002) that those who portend remarkable developments in technology often address their audience as if such future developments are “inevitable” or “foreordained.” The FCC clearly knows its audience, it requests comment from these stakeholders on other topics routinely, and appears to experience no doubt that phrases like “virtuous circle” are appropriately applied to VoIP technology. 165

MCI and other inter-exchange carriers make use of Hyman, DiNapoli, and Toole’s (1997) observations concerning the context of nomenclature when referring to the PSTN as a “legacy” network with “legacy” regulations to differentiate it as a dated concept. These network contexts are contrasted against broadband networks on which the “revolutionary” VoIP rides. In referring to the current context of regulation in the communications industry Vint Cerf (2002) used Jordan’s (1999) metaphorical applications when he framed the current 1996 Act’s Title classifications within the context of vertical “silos,” contrasted against the horizontal “layers” – an approach more conducive, Cerf and other stakeholders claim, to flexible regulatory policy required when “incredible” new technology replaces “rigid” older technology. Collectively, the think tanks tap what Conrad (2004) observes as established political connections, such as relationships with Senators and former White House attorneys, to lobby the regulatory agencies – in the case of the VoIP debate, the FCC – for favorable policy decisions that reflect the think tanks’ socioeconomic concerns, which they frame as representing the public interest. When AT&T observes that VoIP will have the ability to “finally” eliminate ILEC monopolies, it illustrates what Stone terms “teleological fallacy” – framing the issue as though the elimination of the PSTN were not a byproduct of VoIP but what the creators of VoIP originally intended. The ILECs, as well as the CLECs, display what Warnick (1997) observes as “noticeable patterns” in their appeals to the FCC, with the ILECs presenting a united front in opposing a layered approach to VoIP policy and the CLECs uniting in support of a layered approach. In similar fashion, the VoIP providers use epideictic to celebrate the “consensually held values” it claims that it and the FCC share regarding how VoIP will drive ever newer technologies. The VoIP providers appear certain, based on the FCC’s pro-technology stance taken in the NPRM, that as its audience, the Republican majority of the FCC Commissioners, is “inclined to be of one mind” with regard to VoIP policy. Warnick indicates that they must be of one mind for epideictic to be effective. The VoIP providers evidently do not consider the other stakeholders to represent an influential part of the audience to whom comments are addressed.

166

The following section summarizes examples of the technological approaches – the “layered approach,” what this dissertation terms the “dichotomous approach,” and the “functional approach” - that stakeholders took to framing their debates around the central theme of this chapter, technological innovation as relates to public interest representations. It recaps the three technological framing devices that stakeholders used to define the issues surrounding VoIP as narrowly as possible in an effort to dictate policy terms most favorable to their technology interests, all while claiming their respective regulatory schemas best correspond to the public interest.

The Layered Approach

The “layered approach” is one that suggests the VoIP technology should be regulated at some places along the network but not others. The ways the telecommunications providers such as ILECS, and others, counter MCI’s layered approach are highlighted in this section. Beginning with MCI, the reader notices a very interesting framing technique. The first thing MCI does in describing how it would have the FCC regulate VoIP would be to use the layered approach to policy-making. MCI is the only stakeholder to use the definite article with respect to layers and regulation. Frieden (1998) and Werbach (1998), as policy makers leaning more toward favoring layers and VoIP regulation, as well as others who strongly oppose layers as an approach to VoIP regulation, all use the indefinite article when referring to MCI’s approach as a layers model. Using the definite article with regard to layering suggests that MCI’s version of layered regulatory model is the only one available, that MCI has defined the model. MCI then adds urgency to its claims by putting them in italics. MCI chooses to foreground the PSTN bottleneck to frame its VoIP policy debate. MCI predicts that the industry is “doomed to failure” if MCI’s policy model is not followed. The usage of “doomed,” rather than a lighter term such as “destined,” conjures horrors more befitting of a Poe novel rather than a response to an NPRM. MCI’s calling a vertical approach to policy-making “rigid” connote that, by contrast, a horizontal layers represent a “flexible” approach to overall policy-making, when perhaps it is only flexible among layers. Any particular policy applied to any particular layer would most likely be “rigid” at the layer it affects. If not, it is not a policy. It is merely a loose guideline. 167

MCI’s stated concerns about innovation and creativity seem to serve as themes intended to counterbalance MCI being seen by other stakeholders as having an agenda, specifically MCI’s forwarding of the idea that “the owners of the physical broadband networks continue to exercise substantial market power at the physical access layer” (p. 15). Although MCI claims that “it is unlikely that the development of the Internet, and subsequent rapid innovation, would have occurred had the Computer II rules not ensured that the underlying transmission facilities were available to networking researchers and pioneering ISPs” (p. 16), it is nevertheless apparent that MCI’s central theme in discussing its layered approach to VoIP regulation is that “the physical access layer is not competitive” (p. 13). MCI is claiming, irrespective of its own history as a competitive entrant into a monopolistic field – the firm’s foray into long distance provision with the St. Louis to Chicago microwave line ultimately led to the 1982 MFJ requiring competition among long distance carriers – that competition, perhaps through innovation, cannot come out of a monopolistic industry situation without some form of regulation. Despite the fact that MCI opened the door to competition in telecommunications by developing technology that worked outside of an AT&T industry paradigm, MCI now claims that technological innovation will be stifled if the FCC does not intervene at the transmission layer. MCI exists because it challenged an entrenched industry giant, the AT&T monopoly, and won. But now MCI claims that the next generation giants cannot likewise be challenged on the technological front. Verizon calls MCI’s approach “discriminatory.” Verizon does not use the definite article when referring to MCI’s layers approach. Verizon calls it the “so-called” layers approach. Where MCI claimed that not regulating with its layered approach would “stifle” innovation and creativity, Verizon conversely claims that the “burdensome” and “costly” regulations suggested by MCI’s layers approach would “stifle innovation and investment, and harm consumers.” In Chapter Four, examples of Warnick’s (2002) writing explained how stakeholders would rely on epideictic to suggest universally held values, i.e., “regulation helps innovation,” or “regulation hurts innovation.” Chapter Four analysis suggested that stakeholders might makes diametrically opposed claims concerning the same subject. In MCI’s case, they did it by discussing regulation from the standpoint of the level of innovation at each layer being affected by the level of 168

competition that exists there. In Verizon’s case, they did it by discussing innovation from the standpoint that MCI’s layers approach “disallows” innovation that requires “separate transmission components from other service functions.” Verizon claims that MCI’s approach would result in the opportunity cost of duplicated infrastructure at the expense of advancing services and applications. Verizon picked up on MCI’s use of the term bottleneck, but only to place it in the debate’s background. Verizon insisted that a bottleneck does not exist. Verizon tried to metaphorically put words in MCI’s mouth, claiming that a bottleneck does not exist at the broadband layer, “contrary to MCI’s argument.” MCI never claimed that a bottleneck exists at the broadband layer. MCI only ever claimed that the bottleneck exists at the PSTN, an issue that Verizon deftly ignores in favor of its own more favorable issue frame. Again, this inquiry shows stakeholders framing the issue of a bottleneck as to whether, in MCI’s case, it exists at the PSTN, and, in Verizon’s case, whether it exists at all. Verizon claims that the component of the Internet that MCI would regulate should be “just as free” from regulation as the component that MCI’s layered approach would not regulate, the implication that somehow MCI is perhaps attempting to curtail industry freedom. Verizon claims that this lack of freedom from regulation would result in “lost opportunity to provide services,” services being a proxy for innovation, especially VoIP services. Verizon draws upon the tactic of “persistence of memory” in calling MCI’s layers approach a “bald” effort, knowing that many people fill in the term “faced lie” following the descriptive “bald.” Often the reader can be counted on to mentally complete the sentence: “The FCC should reject the layers theory as a bald faced-lie” without Verizon having to call MCI a liar. SBC takes up Verizon’s argument, panning MCI’s layers approach as “an engineering abstraction,” an attempt to minimize it among the FCC’s VoIP policy considerations. SBC calls MCI’s market dominance claims simply “flawed,” knowing that rhetorically, often the less said the greater the impact. SBC breaks down MCI’s layers approach, accusing MCI of engaging in “rhetoric,” specifically the type discussed in Chapter Four, where this inquiry discussed how Stone (1988) cautions readers to look for “description” becoming “prescription,” – what SBC seems to accuse MCI of attempting to accomplish through its regulatory layers approach. SBC claims that MCI 169

equates the terms “layers” and “markets” such that the only “markets” to be examined for their competitiveness would be “markets” that occupy one of the “layers.” The layered approach then becomes the only prescription for ensuring competitive markets, a description outside of which all non-Internet based markets such as those based upon geography or demography would fall. SBC claims that MCI “perpetuates the unfounded argument that ILECs exercise ‘market power’ at the facilities level of IP-enabled services and therefore [the FCC] should adopt a layered model of regulation to constrain this putative market power” (p. 4). Much like a politician calling for bipartisanship following a debate along party lines, SBC calls for “the best thinking across the industry” to resolve the VoIP debate after implying that MCI’s plan takes no one else’s interests into account but its own. SBC’s sentiments concerning a layered approach to VoIP regulation echo those of Verizon, although perhaps at a somewhat higher decibel level. Covad is a CLEC with challenges concerning a layered approach unique from those of the ILECs. Because it is a facilities-based fiber optic service provider, it has a stake in ensuring its investment is used, but it still must ensure that it can access the PSTN. Covad chooses to foreground the bottleneck issue. Stopping short of endorsing MCI’s layers approach, Covad uses the indefinite article, indicating a preference for a layered “regulatory model” over a fully laissez-faire, status quo regulatory policy it claims is suggested by the ILECs. Covad conjures metaphors of cannibals when suggesting how the ILECs would have to behave toward their own PSTN markets if they were to fully embrace VoIP. Covad’s suggested ability of VoIP to “unlock the promise of IP-enabled voice services” allows the reader to infer that the innovation had been “locked” under the ILEC’s disinclination to innovate beyond their PSTN facilities, lest they “strand” their “legacy” infrastructure. Covad leaves the impression that the ILECs would not choose to have VoIP technology “disrupt” their current service model unless the FCC adds to the ILEC’s “own devices” regulation that would “provide the means” for the ILECs to “deliver on their promises” of innovations at the applications and transmission layers. Suggesting that a layers approach is just the thing to insure ongoing innovation, Covad invokes the term “diversity,” an idea that Americans claim to champion.

170

The Dichotomous Approach

The “dichotomous approach” – as defined by this dissertation – represents an either/or choice between regulating VoIP as a telecommunications service or an information service. The manner in which VoIP providers, as exemplified in Net2phone’s comments, treat the dichotomous approach is highlighted in this section. Net2phone is a VoIP provider. It and the other VoIP providers have distinctly different opinions on a layered approach to VoIP regulation from those of the telecommunications providers. Net2phone chooses neither to bring to the foreground nor push to the background the bottleneck argument. Net2phone simply ignores it. Net2phone can do so by calling the layered model “insufficient” and thus unworthy of consideration. Net2phone labels the layered approach “overly simplistic and congratulates the FCC on its “practice of refraining” from regulating, while purposefully refusing to consider of any form of VoIP regulation. The success of this avoidance technique relies on Net2phone’s security in its belief that the VoIP innovation is an information service and therefore outside of the 1996 Act’s Title II regulatory purview. Net2phone’s contextualizing of VoIP exploits an implied Hobson’s Choice inherent in the VoIP debate: is VoIP an information service or is it a telecommunications service, what this dissertation refers to as the “dichotomous approach.” Net2phone, and nearly all other VoIP providers, count on the FCC not inserting a regulatory continuum between two currently discrete regulatory classifications. Net2phone’s and the other VoIP providers’ gambit does not leave much room for influencing FCC decision-making should the agency decide to, as it left room to do, consider placing VoIP into a “discrete” regulatory category all its own. The FCC asked in the NPRM whether “appropriate” policy concerning VoIP might be to treat the technology as a regulatorily discrete entity and create a new set of rules that would apply only to IP-enabled voice services. The FCC’s suggestion of compromise might imply that the agency understood how the VoIP debate would largely reduce to two camps, telecommunications service providers and information service providers. Net2phone, whose comments represented here reflect the vast majority of opinion held by information service providers – not to regulate VoIP at all – suggests that

171

the FCC may have correctly predicted the course of the VoIP debate but for counsel to the stakeholders to “think outside the box.”

The Functional Approach

The “functional approach” is one that suggests if an innovation provides a communications function similar enough to a telecommunications service such that its technology is transparent to the end-user, then that innovation must be regulated like a telecommunications service, irrespective of its underlying technology. The ways that Sprint and others treat the functional approach is highlighted in this section. Sprint, an inter-exchange carrier, led the call for a functional approach to VoIP regulation. Sprint chooses not to let MCI dictate the grounds for debate, and elects to respond to the FCC’s mention in the NPRM of the functional approach to deciding VoIP policy. Sprint opens its section on addressing the functional approach by challenging the FCC on a principle of consistency – that “until now” a new telecommunications technology did not thread a telecommunications provider through a metaphorical “loop-hole,” only to come out as an information service provider. Sprint argues that simply because a providers describes itself as an information service, this should not prescribe that it be regulated as such. Sprint insists that the “method” of a service does not alter the “nature” of the service. Recalling Chapter Four’s discussion of Hyman, Dinapoli, and Toole’s (1997) observations on rhetorical framing, no matter the nomenclature applied to a voice call, Sprint might argue, its function remains the same.

Conclusion

The general claim among stakeholders in the VoIP debate is that the FCC should not regulate to achive a market outcome by choosing to effectuate competition through government intervention. Rather, that the FCC should allow technology to drive the market where it will go, irrespective of competitive pressures on one industry or another. Stakeholders differ, however, on what constitutes government intervention. Vertical integration is another way of terming what the ILECs hold out as freedom to bundle services that incorporate more than one layer of the Internet. Curiously those who lobby 172

against MCI’s layered model say that they want the option to bundle various services using Internet technology. They never state that if the Internet is regulated differently at different layers it would be just as hard to bundle uniquely regulated service offerings as it is under the current regime. These would seem like a simple enough way to frame an argument, but stakeholders supporting the argument, like Covad and the ILECs, prefer to use the rhetorical tactic of re-naming something to make it sound harmless so that one’s opponent should have no issue making the concession. In the case of VoIP, Covad and others refer to the model it prefers as a “dumb pipe” model, where the consumer buys bandwidth and has the option of then buying add on services provided either by the broadband provider or a firm such as a VoIP service provider, an IPTV provider, an interactive game provider, etc. Stated differently, “A pipe is a pipe is a pipe,” as former FCC Chairman Michael Powell has been known to opine. Covad agrees. The VoIP providers side with Covad, but for different reasons. As Rene Magritte in another context might have argued, “ce n’est pas une pipe” issue, but rather a service issue. Net2phone attempts to use VoIP’s innovation as a service to reframe the concept of facilities, claiming, “the definition of ‘facilities’ is changing as services and technologies develop; similar to the way in which the definitions of a phone and computer are blurring” (p. 14). Net2phone attempts to reframe FCC Computer II language, stating “we [the FCC] are not foreclosing enhanced processing applications from being performed in conjunctions with [traditional] ‘voice’ service.” However, Net2phone replaces the word “applications” with the word “facilities” to make its argument. Net2phone claims, “under its Computer Inquiries, the [FCC] recognized that traditional facilities and enhanced facilities can both be used to provide data and voice services” (p. 13). This inquiry has shown that the terms “facilities” and “applications” have two separate meanings in the VoIP debate. Still, the tactic of interchanging terms in hopes that an interchange of ideas will follow has been used effectively in debate of many forms. Countries have gone to war on the interchange of the terms “may have” and “does have.” By comparison, it may not be that much of a reach for Net2phone to morph applications into facilities. When viewed as the Stevens Report urges, technological innovation would likely not suffer if the transmission capability of VoIP at the PSTN level maintained its telecommunications distinction. Innovation would be free to continue unhampered at the 173

application, i.e., VoIP, level, but it would not necessarily carry over to the PSTN. No VoIP stakeholder lamented, they only observed, the lack of innovation at the PSTN level. The connectivity rates of the PSTN are not sufficient to fully enable VoIP without capacity upgrade. Stakeholders opposing MCI’s layered regulatory framework assert that the MCI model puts market power the center of the VoIP policy discussion when, they claim, it should be the Internet – the technology – that is at the center of the discussion. SBC claims that MCI “perpetuates the unfounded argument that ILECs exercise ‘market power’ at the facilities level of IP-enabled services, and therefore the [FCC] should adopt a layered model of regulation to constrain this putative market power” (p. 4). What this chapter demonstrates is MCI’s ability to drive the technology discussion based upon the agenda it set forth with the VoIP regulatory model it proposed. As much as this chapter illustrated that other regulatory approaches such as a dichotomous approach or a functional approach exist, MCI was able to frame the debate around its layered approach agenda. This chapter showed that the manner in which a stakeholder frames an issue enables the stakeholder to select in and select out those issues that will be addressed throughout the debate, thus defining the set of conclusions from which the policy makers can draw policy options. It revealed how rhetorical framing devices can applied to each of the technological approaches to VoIP regulation offered by stakeholders such that each stakeholder’s framing of VoIP as an innovation works toward circumscribing the public interest most precisely around their desired policy outcomes. This chapter set the stage for Chapter Seven, where this inquiry explores stakeholder issue framing in the VoIP debate with respect to issues of competition.

174

CHAPTER SEVEN

FRAMING VOICE OVER INTERNET PROTOCOL AND COMPETITION

Make a dramatic opening line to address the significance of competition, maybe using quacks like a duck analogy. So far this inquiry has examined claims by stakeholders in the VoIP debate concerning technological innovation and regulation in the public interest. This chapter examines claims made by stakeholders in the VoIP debate concerning what effect varying forms of VoIP regulation would have on communications industry competition, and continues discussion of the nexus between competition and innovation. Stakeholder comments examined in this chapter include Inter-exchange carriers, Incumbent Local Exchange Carriers, Competitive Local Exchange Carriers, VoIP providers, broadband and equipment providers, industry organizations, cable companies, and wireless providers. This chapter is important because it examines how the differing interests of stakeholders shape their claims for regulating in the public interest with respect to defining, and in some cases regulating for, market competition. It explores how stakeholder positions in the market may explain their respective preferences for VoIP policy – a preference for more laissez-faire type policies, or a preference for more directed market intervention by the Federal Communications Commission (FCC). This chapter examines how different approaches to VoIP regulation – a layered approach, a dichotomous approach, or a functional approach – reflect the stakeholders’ respective positions in the VoIP marketplace. It considers the way in which stakeholders frame arguments that would support competition as they define it, and how stakeholders attempt to circumscribe the public interest concerning market competition to advance their respective VoIP policy agendas.

The FCC

In Notice of Proposed Rulemaking 04-28, In the Matter of IP-enabled Services (the NPRM), the FCC states that much of its regulatory decision-making “had its roots in seeking to control monopoly ownership of the Public Switched Telephone Network

175

(PSTN)” (p. 5). The FCC claims that, “as communications migrate from networks relying on incumbent providers enjoying monopoly ownership of underlying transmission facilities to an environment relying on numerous competing applications, traversing numerous competing platforms, power over the prices and terms of service necessarily shifts from the provider to the end-user” (p. 24). In the NPRM, the FCC asks for comment on “the extent the market for [VoIP] is not characterized by such monopoly conditions, … there is a compelling rationale for applying traditional economic regulation to providers of IP-enabled services” (p. 5). The FCC did not, perhaps intentionally, indicate which part of the VoIP market is not characterized by monopoly conditions. As this inquiry showed in Chapter Six, the VoIP application in 95% of its connections to the end-user requires two separate facilities markets working in tandem to complete a VoIP call, the PSTN and a broadband transmission facility. For policy precedent – one that would seem to guide stakeholders toward commentary favoring a laissez-faire approach to VoIP regulation – the FCC cites 47 U.S.C. 230(b)(1) that “it is the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services.” The FCC affirms its justification for this laissez-faire approach, and jurisdiction over VoIP regulation, by citing the 1982 Computer and Communications Industry Association v. FCC ruling, wherein it was decided that “because the [FCC’s] judgment on how the public interest is best served is entitled to substantial deference, the [FCC’s] choice of regulatory tools [will stand] unless arbitrary or capricious” [693 F. 2d 198, 213]. This ruling gives the FCC a great deal of latitude in deciding regulatory matters.

Framing the Claims

Whether to categorize VoIP as a telecommunications service or information service has a significant impact on the issue of economic competition in the VoIP regulatory debate. Categorizing VoIP as an information service would preclude VoIP providers from having to remain bound by the 1996 Telecommunications Act (the 1996 Act) incorporating tenets of the 1982 Modification of Final Judgment (MFJ), which settled the long-standing anti-trust suit by the Department of Justice against AT&T and 176

stipulating the sharing of some PSTN facilities and elements among competing local exchange providers. This inquiry discussed in Chapter Three how the 1982 Consent Decree between AT&T and the Department of Justice resulted in the MFJ breaking up the AT&T monopoly into then seven Regional Bell Operating Companies that could only compete at the local level and only provide telecommunications service within a specified region. Ultimately the Regional Bell Operating Companies began to merge, leaving four large regional firms that have come to be known as the Incumbent Local Exchange Carriers, or ILECs. Following the MFJ, AT&T was categorized as an inter-exchange carrier and permitted only to provide long distance in the telecommunications service market. Although the PSTN began as a national network owned by AT&T but subsidized by the U.S. government, the ILECs were able to reap the benefit of government investment in the PSTN without any initial investment on their part. Improvements to the network following the AT&T breakup are, however, a result of subsequent investment by the ILECs. The ILECs provide telecommunications service in local markets against rival Competitive Local Exchange Carriers (CLECs), who were permitted by the 1996 Act to purchase at specified prices wholesale access to the PSTN lines owned by the ILECs. Because the ILECs are categorized as telecommunications providers according to Title II of the 1934 Communications Act, as amended by the 1996 Telecommunications Act, they must abide by specific rules governing the behavior of common carriers, the definition of which includes telecommunications providers, as stipulated by the 1996 Act. The 1996 Act gave very specific conditions – or a check list – to the ILECs under which they would be able to compete in the long distance market. The Computer II framework – where basic and enhanced services were defined (definitions which run parallel to telecommunications and information service definitions, respectively) – gave the FCC jurisdiction under Title I of the 1934 Communications Act, as amended, to require ILECs to follow Title II provisions ensuring access to their transmission services – the PSTN – to any entity, such as a CLEC, that sought connectivity. According to Title II, this connectivity must be of equal quality as that which the ILECs themselves offered their retail customers, extended at reasonable, nondiscriminatory wholesale prices as defined by the 1996 Act. Connectivity must include 177

access to unbundled network elements that did not tie a CLEC to purchasing more of an ILEC’s offering than they wished to incorporate into their business plan, to be provided at any technically feasible point in the ILEC’s network and allow the CLECs to collocate their equipment at the ILEC’s location. All these Title II stipulations were meant to ensure telecommunications competition at the local level. Any service-offering classified as telecommunications under Title II is not beholden to these regulatory requirements. Unlike local telecommunications services, information services can be offered to customers without Title II regard for marketplace competitive implications. A central theme of the VoIP debate is whether to classify VoIP as a telecommunications service or as an information service. The differing requirements placed on telecommunications providers and information service providers – and the resulting competitive implications for VoIP provision – constitute a significant part of stakeholders’ responses to the NPRM. The stakeholder issues rendered in this chapter speak to the VoIP regulatory classification as it pertains to economic competition and how those issues are tied to innovation in the VoIP debate. This chapter evaluates stakeholder claims concerning the impact that categorization of VoIP as an information service versus telecommunications would have on industry competitive parity. It examines how stakeholders frame the ways in which the layered approach, the dichotomous approach, the functional approach, and the concept of competitive neutrality would affect communication industry competition. Stakeholder claims in this chapter will be examined with respect to how stakeholders frame the claims they make concerning VoIP policy in the context of the public interest, and how representations of the public interest change depending on the stakeholder’s VoIP policy agenda.

Stakeholder Competition Comments

The Inter-Exchange Carrier

This chapter first analyzes MCI’s comments and the layered approach to regulation as it relates to competition. MCI is the United States' second-largest long- distance company for residential customers (MCI, 2005). MCI’s initial foray into the long distance market ended in the toppling of the largest single monopoly in U.S. history. In 178

its response to the NPRM, MCI offered that it believes VoIP should be treated as a telecommunications service at what it terms the “application layer” of the Internet, as VoIP is simply an application that permits transmission of voice communication in “packetized” format. MCI claims that “[s]o long as transmission was made available on a common carrier basis, any and all communications services could develop and prosper on IP platforms in an unregulated marketplace” (p. 2). MCI’s concern for transmission access seems reasonable because, according to the FCC’s June 2003 Industry Competition Report, the most relevant assessment of competition at the time of the NPRM, CLECs controlled on average only 15% of the US local telecommunications market and in 2003 only 1% of all VoIP communication was “pure” VoIP. Nearly all VoIP traffic came in contact with the PSTN at some point in its transmission. In its comments, MCI accuses the ILECs of bottleneck control of the PSTN and cautions the FCC that “[a]s long as the carriers that own the broadband transmission networks can exercise market power because transmission is not yet available on a competitive basis, they will exercise that market power by controlling downstream markets, markets that enter the end-user premises, that depend on those transmission services, [which] in turn, will result in calls for regulation of those downstream markets” (p. 3). MCI claims that without regulation in place that forces ILECs to provide PSTN access to CLECs in the manner dictated by the 1996 Act, the ILECs will be able to drive PSTN connectivity price so high as to constitute a barrier to entry for VoIP services offered by CLECs. MCI claims that, “[o]ver the last twenty years, the most successful of the [FCC’s] deregulatory initiatives has been the so-called Computer Inquiry Proceedings [where] the [FCC] Commission[ers] concluded that … mandated open access to bottleneck transmission services would spawn competitive markets in enhanced services that flowed over those transmission services” (p. 1). MCI suggests that Computer II is the best guide for economic regulation of competition, where MCI claims it shows that “the physical access layer is not competitive and needs to be regulated, but that with appropriate regulation of that layer, the other layers are competitive and need not be subject to economic regulation” (p. 3). MCI refers to Computer II where, it claims, the FCC “recognized that enhanced services are dependent upon the common carrier offering of basic services … [and] for 179

that reason, the [FCC] found it was necessary to ‘provide a structural constraint on the potential for abuse of the parent’s market power through controlling access to and use of the underlying transmission facilities in a discriminatory and anticompetitive manner’” (p. 12; elipses’s MCI’s). MCI accuses certain firms in the telecommunications industry of “continu[ing] to exercise bottleneck control over the last-mile physical links needed for access to end-user customers” (p. 11). MCI frames the infrastructure entering the customer premises not as the “local loop” but as the “last mile” to convey that, with all of the thousands of miles of transmission facilities across the country, it is the ILEC’s control of just one mile that impedes competitive access to the entire physical network beyond the PSTN. MCI claims that regulation of the physical layer is “essential” to the future of VoIP, and calls for “continued application of rigorous safeguards… to ensure that firms do not leverage their physical access layer market power into the higher layers” (p. 13). MCI clearly is not advocating for a laissez faire approach to VoIP regulation. MCI claims that “[i]f a firm enjoys market power at the lower layers, the [FCC] should safeguard against the potential for that carrier to leverage its market power to harm competition in one or more higher layers (e.g., the application and/or content layers)” (p. 11). The use of the term “safeguard” suggests that there may be something nefarious about a purely competitive communications market. But the term only references the “harm” that allegedly comes with an unregulated intra-modal communications market. MCI, the first company to innovate around AT&T’s PSTN monopoly using microwave transmission among its offices, does not for some reason account for the possibility of an inter-modal competitive market. Regulations still stand that prevent ILECs “from using their [incumbent] local exchange market power to engage in improper cost allocation and unlawful discrimination” against those accessing their network (Computer III, 1994; the Telecommunications Act, 1996). MCI’s comments to the FCC suggest a “layered” approach to regulation of the VoIP market, where “last-mile Physical Access Layer facilities with market power, such as ILEC-provisioned DSL, should allow nondiscriminatory access by other networks and applications” (p. 3). Originally the dominant provider, and in many markets the monopoly provider, of local and long distance calling, AT&T asserts that until concentration of ownership at the PSTN level has been 180

dissipated, the risk of anti-competitive behavior remains and regulation at the facilities layer will be necessary. Ironically, AT&T, the former owner of the PSTN, must pay an ILEC to be able to complete one of its own local, long distance or VoIP calls. AT&T claims that the decision to regulate VoIP is “straight-forward.” AT&T claims that, “the relatively low barriers to entry and the existence of multiple providers of VoIP … strongly counsel against regulation of these developing services (p. 15). AT&T further claims that “economic regulation is appropriate only for services where the supplier can exercise market power” (p. 16). AT&T states that “[a]s long as regulation adequately protects against the abuse of market power in the network layer, and ensures that market power arising as a result of control over facilities cannot be translated into power at the applications level, the competitive conditions surrounding IP applications should generally be adequate to protect consumers without need for regulation” (p. 15). AT&T references the 1997 LEC Classification Order, which defines market power as “increasing its rivals costs or by restricting its rivals’ output through the carrier’s control of an essential input, such as access to bottleneck facilities that its rivals need to offer their services” [12 FCC Rcd 15756]. AT&T claims monopoly conditions fulfilling the definition set out in the LEC Classification Order are absent at the application layer, and that as long as the FCC “appropriately regulates the underlying facilities … there is every reason to expect that multiple carriers will vigorously compete to offer … a wide array of VoIP … applications” (p. 17). The “intense” competition AT&T envisions, the firm claims, should meet the 1996 Act’s requirements for services that are “just, reasonable, and non-discriminatory.” Making use of language in the NPRM, AT&T insists that the FCC “should not pick winners and losers between VoIP providers and traditional LECs,” but rather should allow “the market, not disparate regulatory treatment to determine which service provides the most efficient and useful applications and innovations” (p. 24). AT&T reminds the FCC that it has “repeatedly recognized [that] absent regulation, vibrant retail competition cannot emerge where dominant firms control bottleneck transport facilities” (p. 48). In support of its position, AT&T cites Computer II, which states that “the importance of the control of local facilities cannot be overstated” [77 FCC 2d 384]. AT&T claims that because wireless, satellite, and Broadband over Power Lines (BPL) have yet to establish themselves as 181

viable alternatives to DSL and cable services, “most relevant geographic markets are characterized (at best) by duopoly competition” (p. 49; parantheticals AT&T’s). AT&T quotes the 2002 EchoStar-DitecTV Merger Order as indicating “duopolies to be generally insufficient to assure competitive market outcomes” [17 FCC Rcd. 20559]. Framing the competitive structure of the telecommunications market as a duopoly enables AT&T to forward its case for a VoIP policy that does not rely solely on market vagaries to control those firms that control transmission facilities. Sprint is an inter-exchange carrier competing directly with MCI and AT&T. Sprint claims that “VoIP can be expected to have a significant… tectonic impact on the traditional voice market” (p. 1). Sprint’s dramatic language suggests that it envisions a dramatic shift in the metaphoric foundations upon which the communications industry depends. Spring believes that this imminent seismic shift, coupled with the claim that as VoIP service offerings at the broadband last mile level are competitively offered, renders VoIP services as fully substitutable with PSTN services because “they all address the same consumer demand for interconnected voice telephone service” (p. 2). Sprint notes that Title II bears out its claim that “packet switching used to provide basic data transmission did not alter the ‘basic’ nature of the service” and therefore, similarly, Sprint claims that “for VoIP services, the modality used to deliver conventional voice service should not dictate the FCC’s” regulatory decision (p. 9). Sprint overreached, however, in its example of Title II application of packet switching to basic data transmission by not citing where the FCC or Congress in Title II expressly interchanges “data” with “voice.” It specifically does not. Earlier in its comments, Sprint wonders at the legitimacy of stakeholder attempts to “transmogrify voice service” into ancillary (data) service (p. 8) in an effort to alter the regulatory nature of the service. One wonders then how Sprint can legitimately transmogrify data into voice, unless it concedes that doing so could likewise alter the regulatory nature of the service. Sprint claims that the FCC should “classify VoIP as a telecommunications service” because, Sprint asserts, “the suggestion to classify VoIP as an information service, no doubt intended to safeguard VoIP from unnecessary regulation, may very likely preclude the [FCC’s] ability to do just that” (p. 2). Sprint claims that “from the perspective of dynamic efficiency, disparate regulatory treatment of fully substitutable 182

services based solely on the choice of technology inevitably skews market outcomes” (p. 3). Sprint recommends that VoIP, “as another means of delivering voice service, should be subject to the same principles that have governed the FCC’s choices to regulate for the past three decades” (p. 4). Sprint offers that “at a minimum, the [FCC] should ensure that VoIP providers are not subject to any Title II regulation from which other competitive voice service providers are exempt” (p. 6). Sprint claims that where a service provider’s pricing is “disciplined by market mechanisms,” there is no need for most regulation (p. 5). Sprint does not seem to believe, however, that service providers exhibit much discipline in pricing decisions unless discipline is visited upon them by regulation. Sprint states that there is “no contest” that “last mile” broadband delivery of VoIP is a competitive market with no need for regulation. Sprint cites 47 U.S.C. Sec. 160(a)(3) that indicates that the FCC is “required” (Sprint’s italics) to forbear from applying regulation when “forbearance from applying such provision is consistent with the public interest.” Sprint suggests that where last mile competition is contested, “minimal regulation of VoIP will stimulate competitive entry and facilitate an environment in which competition can eliminate the need for any retail level regulation of any provider, including ILECs” (p. 5). Sprint notes that “regulatory schemes that arbitrarily impose varying costs on services competing directly with one another damage allocative and economic efficiency” (p. 9). In the case of current local loop market conditions, Sprint claims, “reducing barriers to entry is plainly in the public interest” (p. 6). Sprint claims that “[c]central to the enactment of the 1996 Act was Congress’s intent to ensure increasing development of competitive modalities” (p. 9). Sprint links technology and competition, claiming that the FCC should follow “the tenets of the 1996 Act and long standing precedent and continue to adhere to a policy of technological and competitive neutrality” (p. 11). Sprint cites the 1999 Advanced Services Order on Remand, which claims that, “the 1996 Act is technologically neutral and is designed to ensure competition in all telecommunications markets” [15 FCC Rcd. 385]. Sprint follows up that “[c]onsistent with the 1996 Act’s mandate, the FCC has refused to dictate technology choices” (p. 10). Sprint seems to hope that by reminding the FCC that it has in the past refused to dictate technology choices by way of regulation, the FCC will 183

continue not to regulate technology choices when contemplating VoIP policy options. Sprint supports its position by using language the FCC employed in the NPRM – Sprint claims that “the problems inherent in governments explicitly ‘picking technology winners and losers’ also occur when the government implicitly ‘picks’ by arbitrarily applying uneven regulatory treatment” (p. 11). Framing government intervention in the VoIP policy-making as arbitrary serves Sprint’s laissez-faire policy agenda by drawing on Conrad’s (2004) thesis which views with skepticism a government’s ability to adequately regulate the public sector.

The ILECs

Verizon, an ILEC with business interests in broadband, wireless, and local call markets, challenges MCI’s premise of an ILEC bottleneck at the PSTN. Verizon cites Computer III when making the claim that bottleneck regulation should no longer apply to them: “the [FCC] justified imposing these requirements on the grounds that they would prevent the Bell companies from using their control over “the local exchange network” [emphasis added by Verizon]. Yet when claiming that “[t]his rationale does not apply to IP-enabled services … [t]he Bell companies not only lack ‘bottleneck control’ over the networks used to deliver IP-enabled services, but they are not even dominant carriers” (p.25) [13 FCC Rcd 6040, 6067-68], Verizon does not provide evidence for its assertion of competitive parity in the telecommunications market. Verizon frames the ILECs as non-dominant and claims that treating ILECs as non-dominant would free them “from price-cap regulation for their IP-enabled and broadband services.” However, the dominance distinction does not apply to these services. Verizon seems to understand quite well where exactly the dominance distinction applies because in the very next sentence Verizon asserts that “[r]elieving incumbent LECs of dominant-carrier obligations with respect to IP-enabled services, broadband access, and transmission services” (p. 28; italics author’s) will ensure fair competition. Verizon adds transmission services to the non-dominance frame as regulatorily equivalent to IP-enabled – or, interchangeably, information services – and broadband, when the dominance regulation applies solely to transmission services, under which category the PSTN falls. Were non-

184

dominance applied in PSTN transmission, exactly the opposite of what Verizon asserts would result at the PSTN bottleneck, that is asymmetrical competition. Verizon refers to 47 U.S.C. Section 230(b)(2) and the policy mandate “to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services” (p. 17) to support its position that a “vibrant and competitive free market” also exists at the local level. Upon closer evaluation, this statute appears misapplied, because what Verizon and others claim would preserve competitive free markets in the VoIP industry overlooks the portion of the VoIP connection that remains regulated, the last mile. The reference to competitive free markets in Verizon’s citation is to the Internet. The FCC has not yet deregulated the last mile because doing so would not preserve the regulated competition that exists between ILECs and CLECs over the local loop. Concerning the lack of competition MCI claims would result from an unregulated local loop environment, Verizon accuses MCI of enjoying the benefits of a lack of regulation in its own market, pointing out MCI’s ownership of vast amounts of broadband as evidence of a lack of competition in MCI’s industry. Verizon finds “MCI’s mantra-like references to ‘bottleneck’ broadband transmission networks” as having “no basis in reality” (p. 13). But MCI does not claim a bottleneck at broadband transmission, it claims a bottleneck at the PSTN, to which the ILECs hold title. Verizon chooses not to distinguish broadband from the PSTN, even though the FCC defines the two quite differently, and regulates them differently – the key competitive distinction which Verizon keeps managing to blur. In its initial comments, Verizon claims that “MCI is simply wrong when it suggests that DSL facilities are “bottlenecks” and should therefore be singled out for regulation,” and cites the 2002 United States Telecom Ass’n v. FCC decision where the FCC “confirm[s] both the robust competition, and the dominance of cable, in the broadband market” (p. 20) [290 F.3d 415, 428-29]. Here it appears that Verizon may again be applying broadband logic to local loop issues. To support its claim of competition in the information services, and therefore VoIP, market, Verizon references the 1999 Inquiry Concerning the Deployment of Advanced Telecommunications Capability, which states that “preconditions for monopoly appear absent” (p. 20)\ [14 FCC Rcd 2398]. 185

Verizon’s evidence for a lack of competition in broadband is clear, but the evidence for a lack of competition in the local loop is murky. Verizon claims that, “no provider, including incumbent local exchange carriers that are new entrants in [the VoIP] arena, is in a position to exercise power over other competitors” because “the incumbent local exchange carriers are not ‘incumbents’ with respect to IP-enabled services” (p. 28). Verizon implies that MCI’s layered approach unfairly targets ILECs by calling for “unique and burdensome regulations … imposed on incumbent LECs (and no one else) in the ‘physical layer’ … [and] stating that the ‘last-mile Physical Access Layer facilities with market power, such as ILEC-provisioned DSL, should allow nondiscriminatory access by other networks and applications’” (p. iv). What Verizon chooses to overlook is that MCI’s model does not call for any regulation of the ILECs IP-enabled voice services, and that where the PSTN is involved, common carrier regulations still apply to the ILECs and no one else. Verizon points to Congress’s recognition that competitively neutral rules “ultimately provide consumers with the greatest benefits” (p. 20). Verizon asserts that, “The FCC’s primary goal should be to ensure that IP-enabled services are not stunted by unnecessary regulation and that the competitive market is not skewed by lopsided regulations that apply only to a subset of market participants” (p. 6). Verizon requests that the FCC do just what they reference Congress as wishing to avoid, initiating actions appropriating competitive advantage by one provider over another by lifting regulatory rules protecting the local loop. Verizon continues with “a declaration” that as a designation, “non-dominance is fully justified because local telephone companies lack any market power with respect to either IP-enabled or broadband services” (p. 28). Again, however, Verizon inaccurately attempts to frame itself as non-dominant in the telecommunications market. The fact that the ILECs are incumbents, and therefore are the dominant carriers under FCC rules, seems an untenable position. Control of some equals control of all in the case of completing a voice connection over any network that touches the PSTN, which the ILECs like Verizon and others own. Verizon, without FCC regulation requiring CLEC connectivity at fair and reasonable prices, would likely not become merely the dominant provider of VoIP across PSTN local loops, but the monopoly provider, with the ability to charge access prices to CLECs so high as to create 186

if not a barrier to entry then a competitive environment with access charges so onerous as to drive out competition at the local loop level, a scenario they acknowledged in their comments as evidence of market power. Verizon’s framing attempts concerning competition seem to rely on conflating the broadband market with the local loop market. The two are regulated differently and therefore operate in different markets, specifically broadband is a competitive market while the local loop is a regulated market. Verizon, however, continues to assert that no competitive advantage exists in VoIP service provision. Verizon claims that, “[w]hile many incumbent LECs have plans to introduce [VoIP] services in the near future, they will enter the market behind the established cable companies and other providers” (p. 29). Few would dispute this claim. However, until facilities-based competition becomes the norm at all levels of the network, the local loop will remain the point of contention in VoIP competition. Verizon persists, claiming that, according to the AT&T Non- Dominance Order, “the issue is not whether [a particular carrier] has advantages, but ‘whether any such advantages are so great to preclude the effective functioning of a competitive market’” (p. 27) [11 FCC Rcd at 3307]. As evidenced by competitive regulations that remain at the local loop, it would appear they are. Verizon continues that “[t]here are virtually no barriers to entry in the provision of IP-enabled services” (p.30). This is an incorrect statement when one considers the local loop, which one must since at the time of Verizon’s comments, 99% of all VoIP calls were completed using at least a portion of the local loop, a fact noted in a report generated in collaborative effort by the ILECs (VoIP Fact Report, 2004). Verizon claims that Title II regulation is not necessary in an environment as highly competitive as environment as Verizon suggests exists in the VoIP market. Verizon asserts that in the VoIP arena, “[m]arket forces ensure that rates are kept at reasonable levels and that the terms and conditions under which IP-enabled services are offered are reasonable and nondiscriminatory” (p. 32) and that Title II provisions are therefore unnecessary in the VoIP arena. According to Verizon, Title II is “inconsistent with” and would “undeniably harm” the public interest with respect to VoIP services “[g]iven that the ‘low barriers to entry’ and ‘competitive forces’ … will ensure that consumers are treated fairly and will guard against potential abuse” (p. 33). Verizon cites the 2004 VoIP Fact Report, which it co- 187

authored with its ILEC contemporaries, to support its claim that VoIP services are “thriving” and that there is no need to impose economic regulation on any provider in this competitive environment. Verizon references the NPRM when applying a definition to the term economic regulation: “The term ‘economic regulation’ is intended to encompass the broad range of regulatory requirements that were originally intended to apply generally to incumbent franchised local exchange carriers using their networks to provide services to a public that is without significant power to negotiate the rates, terms, and conditions of those services.” Verizon claims that “such economic regulation is entirely inappropriate in markets that are competitive” (p. 5), referring to VoIP markets. What Verizon does not address is the definition of a competitive market within the context of an application that relies both on Internet connectivity and the PSTN for completion of a customer initiated voice communication. In the first instance, the portion of VoIP that relies on the Internet is considered competitive because VoIP providers have no regulations applied to their core service provision that dictate in any way price, service provision, market entrants, or facilities access. By comparison, the telecommunications industry still abides by regulations related in some fashion to each of these components of competition. According to Verizon, “[e]conomic regulation is both unnecessary and affirmatively harmful where competition is thriving” (p. 19), but this inquiry has shown the ways in which competition is less than thriving as pertains to Verizon. The difference in how stakeholders frame competitive markets will become important when CLECs offer their views on competition and the potential need for regulation in the VoIP arena. If, as Verizon claims, the FCC “must eliminate burdensome regulations that inhibit full and fair competition” (p. 19), then the inverse of this argument would be that the FCC and Congress must maintain regulation when competition is not – as they have determined that regarding the PSTN it is not – “full and fair” without regulation. Verizon claims that the Bell operating companies that provide VoIP “derive no advantage from their ownership of circuit-switched equipment” (p. 13), and yet acknowledges that VoIP providers such as Net2phone “offer calling to the PSTN at rates that are competitive with those for circuit-switched service” (p. 13) – service that Verizon neglects to mention that a company like Net2phone must buy from the Bell operating companies, such as Verizon.

188

In its reply comments, Verizon claims that MCI’s layers framework is simply “an engineering model that describes the Internet and IP networks” and as such “should not be used as a basis for legal or policy decisions” (p. 13). Verizon continues, claiming that the Computer Inquiries are inappropriate regulatory models for VoIP policy, asserting that “[c]ontrary to MCI’s argument, there is already robust competition for broadband services, and in any event, there is no basis for concluding that providers of physical networks will impede the free flow of traffic at the higher layers of the network because these providers, including the ILECs, lack market power in broadband network services” (p. 2). Verizon claims that Internet backbone providers such as MCI, “operate at the transport layer … and dominate the Internet backbone” (p. 17). Verizon purposefully chooses the word dominate as a counter to the claim by non-ILEC stakeholders that the ILECs enjoy market dominance and therefore should be regulated with the goal of encouraging competition. Verizon states that “the claim that the operators of the physical layer [such as itself] should suffer discriminatory regulation because they supposedly have some unique ability to disrupt or control the flow of information at the other layers is wrong” and that “the layered nature of the IP architecture means that any theoretical concerns about discrimination or disruption of packet flows apply equally at any layer” (p. 16). Verizon plays the discrimination card, counting on society’s belief that “discrimination” is bad, and that therefore anything connected with it is “wrong.” Verizon suggests that MCI has the same “theoretical ability” to discriminate at the layer which Verizon suggests MCI dominates – and which MCI suggests Verizon dominates – and that the MCI layered approach to VoIP regulating only the physical layer discriminates against ILEC companies such as Verizon. Verizon claims that “all companies have a stake in making sure that traffic flows freely [and] any failure to work constructively with other providers and network equipment managers at other layers would damage the interests of companies and consumers alike, thereby subjecting the perpetrator to enormous pressure to act cooperatively” (p 17). MCI elects not take these claims on faith, preferring instead that the FCC regulate the outcome that Verizon suggests is inevitable. SBC Communications, an ILEC in its own territory and Verizon’s direct competitor as a CLEC in Verizon territory, becomes a bit vociferous in its claims about a 189

layered approach to VoIP policy, stating that “[i]n a classic case of elevating rhetoric over substance, some [stakeholders] claim that the [FCC] should adopt a layered model of regulation to prevent the alleged exercise of ‘market power’ from hindering the development of IP-enabled services” (p. 40). SBC disparages the MCI layered approach to VoIP policy by claiming that it “broadly assum[es] in all instances that the appropriate ‘market’ to be studied is one of the layers in their model, but by effectively equating the terms ‘layer’ and ‘market,’ this approach completely ignores important criteria (e.g., product, geography, customer class) for properly determining the contours of the relevant market” (p. 41; italics and parantheticals SBC’s). SBC suggests that MCI’s layered approach to regulation is MCI-centric with respect to defining where layered regulation should be applied, and that the approach reflects regulatory concern only for MCI’s interests. SBC refutes MCI’s claim of SBC’s dominance at the physical layer, choosing instead to focus on what it deems a highly competitive VoIP market with numerous players each with a small fraction of the available market. With this premise in mind, SBC argues that if there were a bottleneck “in last mile access (and there is not), it would be indefensible to impose disproportionately greater regulation on the provider with the much smaller market share, thus if anything, the layered model argues in favor of decreased regulation of ILECs at the physical layer” (p. 42; italics and parantheticals SBC’s). Instead SBC advocates for “voluntary efforts [that] promise to produce a response that reflects the best thinking across the industry and that has buy-in from all players” (p. 67). MCI may no more wish to count on SBC’s “promises” than to take Verizon’s claims on “faith.” SBC in its comments calls the 1996 Act a “policy of unregulation” (p. 1). SBC admits that legacy circuit switched networks make up the bulk of society’s communication network, but refutes MCI’s “layered approach” as “flawed” because, SBC claims, in VoIP provision, “no provider is dominant at any layer” (p. 62). SBC frames MCI’s and AT&T’s claim of bottleneck issues in the local loop market as “self- interested protectionism” (p. 63). Accusing opposing stakeholders of “hyperbolic attacks” on its VoIP categorizations, SBC claims that with regard to VoIP, the functional equivalence test – or substitutability – are subjective and could be seen as overly or under-inclusive. 190

The concept of functional equivalency states that if the end result is a phone call over the PSTN then the portions of the VoIP call that connect to the PSTN should be beholden to or benefit from telecommunications regulation as it applies to the PSTN. Or, as stakeholders colloquially frame the functional form of regulation, “if it walks like a duck and quacks like a duck, it should be regulated like a duck.” In its reply comments, SBC claims that “IP-enabled services do not, in fact, quack like a duck” (p. 14). SBC suggests that the FCC adopt “an approach that is competitively neutral approach among all providers such that no provider … will experience any regulatory advantages or disadvantages by virtue of the historic regulatory classifications of the non-IP-enabled legacy services it offers” (p. 21). What SBC “stated in another way” is that “providers of IP-enabled services should not be forced to carry their legacy regulatory baggage into the new competitive market for IP- enabled services” (p. 21). What SBC does not state in any way is that IP-enabled services have no legacy regulatory baggage, they are information services, and therefore have no regulatory legacy at all. SBC claims that it would be too regulatorily challenging to attempt to force providers “to offer IP-based voice functionality as a separately regulated component subject to different requirements from those to which other applications that might be part of a single integrated service offering are subject would impose additional costs on providers solely for regulatory purposes, undermining competition and harming consumers” (p. 26). SBC’s predicts that “[a]s those various functionalities become ever more intertwined, singling out the voice application for specialized regulatory treatment will become less and less feasible” (p. 25). SBC’s claim that “application of a functional equivalence or substitutability test proposed by some [stakeholders] will become increasingly awkward, and its results less precise, as these services develop over time” (p. 26) discredits the abilities of the FCC to adapt to changing times. To date the FCC has been unwilling to commit to one form of regulation because of potential future regulatory challenges. Like Verizon, SBC also attempts to conflate the broadband market with the local loop market, claiming that the market for VoIP is “intensely competitive and characterized by low barriers to entry” (p. 6). What the ILECs try to obviate is that they remain dominant in the bottleneck of the local loop and that ultimately, control of any 191

portion of a network necessary to complete connectively gives the company that controls the portion de facto control over the whole. SBC continues to mirror Verizon’s comments, stating “[i]n any event, even if a layered approach were appropriate, ILECs are not remotely dominant with respect to broadband transmission networks, but instead face robust competition from cable modem providers and the major inter-exchange carriers” such as MCI (p. 4). One questions SBC’s certainty that a layered approach is not regulatorily appropriate if SBC feels the need to back pedal with statements such as “even if …” and proceed to explain how a layers approach should not apply to SBC as a non-dominant provider. Like Verizon, SBC states that any proposed “layered approach” to regulating VoIP with the express purpose of “restrain[ing] the ILECs’ alleged market power with respect to the facilities over which IP-enabled services are provided” constitutes “arguments [that] should be rejected” (p. 38). SBC’s phraseology suggests that a layered approach toward VoIP regulation would be with the express purpose of restraining alleged ILEC market power. In a departure from its sister-ILEC Verizon, SBC specifies that if an end-user originates a VoIP communication, and that communication is converted to circuit- switched format after leaving the customer’s premises and remains so until it utilizes a service provider’s network, the communication is not to be regulated as an IP-enabled service. According to SBC, in order for any communication to be regulated as an IP- enabled service, the entire communication must be in IP-enabled format to be outside of the telecommunications regulatory framework. Citing 47 U.S.C. Section 160(a), SBC acknowledges that Congress authorized the FCC to forbear from applying any regulation that is not in the public interest and that the FCC deems not necessary to protect consumers. SBC claims that applications of Title II to IP-enabled services “would be contrary to the [FCC]’s undeniable public interest obligations under section 706 of the Act” (p. 42). SBC points out that Sections 201 and 251 of the 1996 Act give the FCC authority to address the rates that ILECs and others may charge for access to the PSTN, and address the rates that others must pay ILECs and others to access the PSTN. SBC cites 47 USC Sec 52 (20) in coming to the conclusion that an information service, and therefore its defined equivalent IP-enabled service, is based on the “capability offer[ed].” SBC also cited the FCC’s Report to Congress (1998) to support the firm’s position that 192

“if the end-user can receive nothing more than pure transmission, the service is a telecommunication.” SBC adds that when transmission “is only sent to or received by an end-user in IP format” that this distinction is applied. SBC notes that even the FCC acknowledges that forbearance “might be appropriate” in VoIP regulation.

The CLECs

In the VoIP debate, the CLECs argue that a bottleneck, or lack of competition, at the PSTN level would leave consumers with a situation approximating an ILEC monopoly that would soon resemble pre-MFJ days when a dominant owner of a transmission line has no incentive to maintain prices at reasonable levels, either for consumers or for resellers. CLECs argue also that when there is only one player in a market, for example in rural locations where the PSTN is the only voice connectivity, then because the consumer cannot switch carriers there again is no incentive for the dominant, or only, provider to invest in innovation and keep competition at bay. The counter argument is that competition would not go to remote locations. Covad is a facilities-based CLEC and a self-described “facilities agnostic” VoIP provider in the small and medium business market, meaning that Covad does not require an end-user to purchase Covad’s broadband transmission service in order to purchase Covad’s VoIP application. Covad opens its comments by speaking to the issue of competition, claiming that “the ‘transmission layer’ for broadband services has been entirely dominated by the two incumbent facilities based providers, the cable companies and ILECs, by virtue of their control of bottleneck last mile facilities” (p. 1). Covad claims that because broadband VoIP services require PSTN connectivity in order to serve those 95% of customers who use a broadband/PSTN combination to enjoy VoIP connectivity, then by implication there exists a bottleneck specifically surrounding the VoIP technology. Covad reminds the FCC of the investment made on the ILECs’ behalf, claiming that “[n]ot surprisingly, incumbent owners of facilities comprising the ‘transmission layer’ of IP based services, which were built under various state granted monopolies, will proclaim that the only way to ensure innovation is to deregulate the transmission layer entirely, so that these companies are ‘freed’ to invest in the advanced facilities needed to support innovation in IP based voice and date services” (p. 3). Covad 193

has already freely invested in its own broadband facilities, but still require PSTN connectivity to complete a VoIP call. The incumbents’ rhetorical use of the word “freed,” as cited by Covad, paints the picture that CLECs and other non-facilities based providers are shackled to the PSTN. The ILECs attempts to frame wholesale access prices as sufficiently low that facilities- based service development makes no economic sense for the CLECs and their peers. The ILECs thus determine, albeit speciously, that any funds going toward purchasing wholesale access of the PSTN are invested at the opportunity cost of investing in innovative new facilities. CLECs and their peers argue otherwise, that they clearly are under no obligation to purchase PSTN access, and that, through independent business decisions – not in reaction to FCC policy – they have elected to leverage PSTN wholesale prices for profitable resale to consumers enabling investment in new transmission technology at a time when they deem it optimal to do so. Covad sees the voice services industry moving to one where providers offer not simply discrete services along lines owned by firms wishing to remain solely in the physical layer provision business. Covad envisions that CLEC broadband providers like themselves will ultimately offer VoIP, and that ILEC firms, like Verizon which is building out its own infrastructure, will ultimately provide VoIP across its own broadband lines to compete with Covad. Although it never specifically rejects nor endorses a layered regulatory VoIP model, Covad’s address the competitive nature of the telecommunications industry overall. In a fully integrated VoIP services market like the one anticipated by Covad, Covad would not likely endorse a regulatory model where one of the layers would have different regulatory policies applied to it than it another. Covad bridges competition and innovation, crediting the FCC with having “supported and spurred tremendous innovation, and vigorous competition” in the VoIP space (p. 2) that in the 1990s has brought innovation past what the Bells were ever able to provide. Covad credits the Computer Inquiries’ minimal regulation of enhanced, or information, services, with the proliferation of Internet applications, specifically VoIP. Concerning “unregulated information services” versus “significantly regulated telecommunications services and facilities,” Covad claims that the regulatory model of opening the PSTN to competition at the local loop “continues to offer the paradigm most 194

favorable to ensuring competition” (p. 3). It suggests that “[t]he distinction between regulated underlying telecommunications services and unregulated information services has ensured that [the FCC’s] competition and economic regulations are limited to telecommunications services offered over bottleneck transmission facilities, where such regulation continue to make a great deal of sense” (p. 17). In making the case for innovation stemming from competition, Covad “respectfully submits” that when combined, “advanced facilities in the transmission layer, along with innovation in the application layer, hold the potential to revolutionize telecommunications services over the next decade,” and that “[w]hether motivated by a desire to limit competition or a rational calculus of the best means to maximize their own business opportunity and revenues, incumbents have not traditionally been the best leaders of revolutions, and are unlikely to be the best leaders of the IP revolution” (p. 3). Level 3 Communications is a facilities-based CLEC that takes its name from the Network level, or layer, of the Internet, which connects packets of data across the network. The network level, level 3, is where IP is enabled. Level 3 Communications offers its broadband services to VoIP providers at the wholesale level. Unlike Covad, it does not offer its own retail VoIP service. In speaking to the need for regulation of VoIP services, Level 3 cites an FCC comment in the NPRM that regulations “designed to respond to the dominance of centralized, monopoly-owned networks” have no place in the competitive IP arena and follows up that it “agrees with this deregulatory framework, provided that the [FCC] does not assume that historical monopolies lack market power, particularly with respect to last-mile transmission and interconnection” (p. 26). Level 3 points to the European Union model when suggesting to the FCC that they “should retain economic or pro-competitive regulation but only where necessary to address lingering concentrations of significant market power” (p. 2; Level 3 emphasis). It tells the FCC that they “must address ILEC market power derived through control over scarce last-mile transmission facilities [and] market power stemming from control over Interconnection” (p. 27). Level 3 adds analysis of the state of competition at the local level that could be compromised with a lifting of PSTN regulation, claiming that “[m]arket power over the local loop can jeopardize these opportunities” (p. 28).

195

Level 3 addresses SBC’s petition to the FCC, filed in concert with SBC’s comments on IP-enabled services regulation, to forbear from applying Computer II regulations to VoIP, and claims to find the petition “troubling.” Level 3 notes that “SBC defines the term “IP platform services” to include both transmission and applications, and its petition is not limited to circumstance in which SBC lacks market power in broadband transmission” (p. 28). Level 3 observes that if the FCC were “to grant SBC’s petition, SBC (or presumably any ILEC) would no longer be required to make available the underlying basic transmission associated with its enhanced services, even when it possesses market power with respect to the underlying physical transmission” (p. 28; parantheticals Level 3’s). Level 3 suggests that the FCC should resolve what it frames as “this problem” by determining that “the Computer II separate offering requirements will continue to apply to facilities-based providers that have market power with respect to the basic transmission component of that provider’s enhanced service offering” (p. 29). It further suggests that “[a]s with all forms of economic regulation, the need for rules in this area will fade as competition continues to emerge” (p. 29). Level 3 offers that the FCC “should immediately eliminate Computer II separate offering requirements for all transmission providers without market power. A plethora of carriers provide IP private line services, for example, and no regulatory requirement remains necessary to ensure that information service providers can purchase underlying basic transmission services in a competitive wholesale market” (p. 30). Level 3 acknowledges that some markets may already reflect conditions sufficient to ensure competition without price or access discrimination, but that in other markets “competition may be limited or nonexistent, and removing the safeguards prematurely could leave IP-enabled service providers without access to the last-mile transmission facilities necessary to reach consumers” (p. 29). Level 3’s comments show the tightly coupled nature of VoIP technology with stakeholder perceptions of market competition levels. In the next section this inquiry examines claims from VoIP providers concerning the nature of VoIP technology’s market competition.

196

VoIP Providers

Pulver is the first VoIP provider to obtain the designation “pure” VoIP, which the pulver.com FCC ruling (2004) declared constitutes an information service because it never touches the PSTN in VoIP transmission. Still, Jeff Pulver, the company’s founder and Chief Executive Officer, does provide comment on the nature of economic competition in VoIP space and what regulatory regime he felt would be most appropriate. Pulver claims that “Dial-up, DSL-based, wireless, and cable modem Internet access services all utilize bottleneck local network facilities and infrastructure, [and] until we find a technology that affords open access to limitless capacity for all consumers and service providers, there will always be some degree of imperfect competition in last-mile access” (p. 12). In his comments, Pulver does not express an interest in entering the space that uses PSTN connectivity. His VoIP service remains an application that rides on the customer’s broadband connection of choice. Pulver does, however, express an understanding for the situation in which those VoIP providers who still require PSTN transmission to complete a call. Pulver claims that “[w]e may have a virtual infinite supply of applications and content, but these applications and content are only guaranteed if consumers can access them through the physical transmission facilities upon which every communications application must ride” (p. 12). Pulver follows this claim with an economic framing of the company’s policy position: “While there are conceivably an infinite number of IP application providers, economics and technology logically limit the number of last-mile access providers. Therefore, competition, alone, would be an insufficient check on an entity’s market power or monopoly control over an essential choke point in the network. Thus, regulatory oversight becomes, at times, a necessary substitute for a competitive market” (p. 17). Pulver invokes the North American Free Trade Agreement (NAFTA) to support his argument, wherein the United States is compelled “to ensure that a telecom carrier cannot wield monopoly control over last-mile bottlenecks to preclude the provisioning of competitive enhanced services” (NAFTA, Article 1305). Pulver calls VoIP “arguably, the first great driver of broadband” (p. 15). Pulver supports the layered approach to regulating VoIP, stating that “[f]or regulatory purposes, 197

voice, to date, has largely been treated as unseverable from the physical telecom transmission layer, [but] with IP technology, it now becomes clear that voice is separated from the physical layer and is more accurately categorized in the application layer, and need not be subject to the host of regulations that should be applied to the physical layer” (p. 13). Pulver seems to be able to identify with concerns of industry members whose concerns are not the company’s own. Pulver claims that “[t]here are obvious distinctions and disparate degrees of bargaining leverage between dominant and nondominant carriers and ASPs, which, if left unchecked, could stymie innovation … [thus the FCC] must ensure lighter regulatory treatment of non-dominant providers and guard against unfair abuse of market power or facilities or consumer control by dominant providers” (p. 16). Pulver speaks to economic competitive challenges in industries where facilities-based competition seems in the somewhat distant future, predicting that there will never exist a fully competitive last mile, remarking instead that “[i]f an entity wields control or market power over a bottleneck or other transmission layer facility, regulators must guard against an entity’s understandable but unacceptable desire to leverage that power into control over the applications that would be available to consumers; [s]imilarly, laws – antitrust or regulatory – must ensure that an entity that wields market power in the content or application layer cannot freeze out its would-be competitors” (p. 18). Pulver references telecommunication’s monopolistic history in pointing to “the reach of the Bell monopoly [that] began to diminish only when the Commission began to require Bell to allow other companies to access the Bell network and to deploy alternate equipment, technologies and applications” (p. 28). Pulver seems not to envision a completely unregulated telecommunications market with VoIP applications without threat of market failure – briefly, a market that does not reflect product or service pricing based upon the theory of supply and demand. Pulver claims that “there will always be some need for government oversight to ensure fair access” and that “there is still a need for continuing regulation of bottleneck facilities” (p. 28). Like Pulver, Net2phone originally developed its VoIP service for computer-to- computer communication, but instead “has developed services that enable customers to make VoIP calls using traditional phones as well” (p. 1). Net2phone claims that the FCC “properly concluded that IP voice applications fit within the definition of enhanced or 198

information services” and, citing the 1998 Report to Congress, adds that “Congress intended to maintain a regime in which information service providers are not subject to regulation as common carriers merely because they provide their services via telecommunications” (p. 7). Net2phone feels this justifies their premise that VoIP services “should not be hampered with legacy regulations merely because they may use a legacy network to transmit some part of a voice call” (p. 9). Net2phone does not speak to the other reason that regulations framed as “legacy” might yet be appropriate – namely because without these regulations, its current offering would not be able to access the PSTN, which they still need for nearly all consumer calling plans. Perhaps Net2phone’s is a more farsighted thinking, were they to build facilities. Net2phone hints at a future facilities option in its comments: “providers like Net2Phone are developing new services to meet customer demand that are information services or are more akin to information services. While these services may share characteristics of traditional telephony services, their current functionality and future promise far exceed those traditional services” (p. 7), perhaps understanding the FCC’s inclination toward facilities-based service provision. Net2phone suggests that “[i]n the event of market failure in a particular segment of the communications industry, such as the regulation of bottleneck facilities, effective government regulation can level the playing field” (p. 20). It asserts that “[u]tility regulation is only necessary to provide protection for consumers in the event of market failure” and that “failure occurs when the market is unable to counteract inefficient distortions and anticompetitive behavior resulting from monopoly conditions.” Net2phone claims however, that “monopoly conditions do not provide a rationale for regulating VoIP services [because the] information services market is fully competitive [and no] single provider or limited number of providers can be said to have market power in any given area of IP-enabled services” (p. 20). Vonage offers “an Internet application that allows its customers to communicate in real time with each other and the service is backwards compatible with the PSTN. Customers must use specialized customer premise equipment in order to utilize the service and the Company’s service is only available to those that have a pre-existing, third-party provided, broadband Internet access connection” (p. 1). Despite the fact that Internet voice providers such as Vonage “can compete in the local voice market without 199

duplicating the incumbents’ facilities or relying on the incumbents’ facilities” (p. 3), Vonage still must obtain access to the PSTN when any of its customers places a call that is not “pure VoIP.” The bottleneck issue of PSTN ownership would still apply to a firm like Vonage irrespective of the openness of the Internet itself, which Vonage seems to understand the consequences of the bottleneck, given comments like, “the Internet allows innovators to decouple voice from the physical copper telephone network, making it potentially available over any IP-enabled network” (p. 3). The operative word is “potentially” because PSTN access is not a controllable variable from Vonage’s standpoint. Vonage’s statement that “unlike the PSTN, where service providers must either build their own or rely on the incumbents’ infrastructure, the Internet allows new competitors to swiftly emerge because they do not need to own or construct any infrastructure” (p. 6), is entirely true, provided bottlenecks at the local loop do not exist. Vonage agrees with MCI and AT&T that a “layered approach” would be the best way to regulate VoIP, but chooses “not to repeat the lengthy examination of the layered approach in these [firms’] comments” (p. 8). Vonage suggests that it is “appropriate to regulate markets that are distorted … because certain market players are able to exert power over the marketplace such that competition is no longer the governing force” (p. 6). Vonage asserts that the current VoIP markets – those framed as “distorted” – consist of networks that are “controlled by a few firms that provide last mile connectivity” and that therefore the FCC “should narrowly tailor regulations that prohibit such firms from using their control over bottleneck facilities to engage in unfair practices in order to obtain market share in content and application layers” (p. 9). Concerning local loop market competition, “Vonage believes that any regulatory rubric that does not factor in the economic structure of a particular market will distort rather than enhance its operation” (p. 6). In a nod to a non-Hobson regulatory choice, where many other stakeholders seem to either reflect a telecommunications or information service designation for VoIP, Vonage indicates that, to ensure the spirit of the NPRM proceeding – which Vonage perceives to be ensuring competition – Vonage shows the FCC where precedent exists for more than simply classifying a new technology under an old paradigm. According to Vonage, the 1934 Act “defined two separate categories of regulated services: Title II 200

common carriers and Title III users of radio spectrum, and when a particular service did not meet the existing categories, like cable television where wired and broadcast elements were combined, Congress and the [FCC] established a new horizontal category with new rules, Title VI” (p. 7). Vonage insists that VoIP “can be classified as a telecommunications service,” or that the FCC can opt to evaluate regulatory policy outside its bifurcated, telecommunication – information service paradigm, and “recommend changes for Congress to consider … to justify regulation” (p. 5). Vonage frames itself as “a believer in free markets and does not advocate premature, unnecessary government intervention in any aspect of the Internet economy” (p. 9).

The Broadband and Infrastructure Providers

BSPA is the Broadband Service Provider Association. The members of BSPA are facilities-based providers of competitive broadband networks in communities across the U.S. These companies compete directly with incumbent cable operators and local exchange carriers with facilities-based competition to the national markets for broadband video, telephony, and data services (BSPA, 2005). BSPA stipulates that although “resellers of traditional telephony services are not subject to the regulations applicable to “dominant” carriers, they are still subject to other ‘non-dominant’ regulations mandated by Title II of the Communications Act [and that] MCI’s proposal would skew the market by creating a lack of regulatory parity between IP telephony resellers and traditional telephony resellers” (p. 16). BSPA frames arbitrage as unfair and destructive to telecommunications competitors and markets. It references the AT&T Declaratory Ruling to show that the FCC has set precedent agreeing with BSPA’s assertions, quoting the FCC that, “we see no benefit in promoting one party’s use of a specific technology to engage in arbitrage” (p. 9). BSPA claims that, “[t]he record in this proceeding shows that VoIP is a technology not a service, and the use of IP technology to provide voice service should not by itself alter the technology-neutral application of statutory requirements and pre-existing FCC policies” (p. iii). BSPA continues, charging that the definition of telecommunications in the 1996 Act makes no “regulatory distinction between analog and digital transmission technologies, or between different digital transmission technologies,” and reduces the 201

debate over VoIP regulation to the idea that “[s]tripped of the hype, voice service provided with IP technology is essentially a transmission service, and the [FCC] cannot ignore its statutory mandate to treat that transmission service as a telecommunications service” (p. 7). BSPA members accuse those who suggest that there is a difference in application and services in the 1996 Act of having no basis for their argument. The members, continue saying that the suggestions that the bundling of advanced services “with an IP voice telecommunications service does not transform the voice telecommunications service into something else, just as the bundling of traditional voice mail with POTS does not transform POTS into an information service” (p. 13). BSPA surmises that their opponents believe that a VoIP transformation from telecommunications into services must happen “magically.” BSPA takes on those who invoke Section 230 just as unceremoniously, noting that some stakeholders urge the FCC to “misread Section 230(b)(2) of the Communications Act to support the false assertion that Congress opposes any regulation of the Internet, and thus that the [FCC] should regulate IP voice services as information services, if it regulates them at all” (p. 13). Concerning claims made by stakeholders that suggest VoIP is anything but a telecommunications service per language cited in Sec. 230, “BSPA urges the [FCC] not to be fooled” (p. 15). It advises the FCC that “[a] fair reading of Section 230 in its entirety provides no substantive basis for such an assertion, [that] … Section 230, the text of the entire section, and the legislative history show that the sole purpose of Section 230 is to limit regulation of the content of Internet access services” (p. 14). BSPA is correct when it asserts that voice telephony is not mentioned Section 230 – nor is telecommunications, as it points out. To those stakeholders who assert otherwise, BSPA responds that “there is no evidence that Section 230 was intended even to apply to voice telephony or telecommunications services, much less to deregulate such services, [and that] the inaccurate view of Section 230 appears to have taken on the status of an ‘urban legend’: an incorrect statement that is recited so often, that people believe it must be true” (p. 15). Global Crossing provides integrated, global IP-based broadband networks (Global Crossing, 2005). Global Crossing claims it is appropriate for the FCC, under the ‘M’ in Global Crossing’s telecommunication policy “REFORM” agenda to “Maintain authority 202

over bottleneck facilities,” applying telecommunications regulatory guidelines to VoIP services connecting to the PSTN rather than allowing market forces to take over. In its comments, Global Crossing tells the FCC that “unbundling and interconnection requirements must continue to adhere to Title II carriers … and if a new bottleneck materializes in the IP universe, the FCC should … ameliorate the ill effects of such a bottleneck” (p. 16). Global Crossing indicates that antitrust regulations would also be relevant were such a market scenario to arise in the VoIP space. Framing PSTN ownership as a bottleneck works to Global Crossing’s advantage whether it decides to bundle VoIP services with its broadband offerings or sell transmission access to VoIP providers. In either case Global Crossing would not want to contend with restricted access to the last mile of connectivity resulting from market asymmetries that it feels the FCC could correct with regulatory intervention. Cisco, a firm that provides the hardware enabling the packet-switching required for VoIP call completion seems have taken a different approach to the issue of regulating VoIP. Cisco claims that current competition-forwarding regulations in telecommunications “were designed primarily to constrain” what Cisco frames as “government-created monopoly forces that pervaded traditional wire-line service” (p. 18). In a claim that indicates a bias toward facilities-based competition, a market model that would likely complement Cisco’s business model for supporting digital networks, Cisco suggests that were telecommunications regulations to be applied to VoIP, “[p]roviders will bear the cost of adopting mandated procedures, and will be stuck with these procedures rather than more effective alternatives that competitive forces would produce in response to consumer demand” (p. 9). Cisco does not say specifically which procedures it finds most egregious. It is left for the reader to infer which portion of the 1996 Act Cisco references, and might object to.

The Cable Companies

Time Warner Cable designs and provides high-speed voice, data, and video services across a network of fiber-coaxial technology. Concerning VoIP regulation, Time Warner points out that the FCC “must ensure that firms with market power over inputs

203

needed to provide IP-enabled services are not able to exploit that market power to control their competitors’ ability to provide … IP network connections and IP services,” claiming that in the cable industry “this is an extremely serious problem” (p. 2). Time Warner suggests that with respect to bottleneck market power in VoIP provision involving the PSTN, “SBC [and others] are attempting to gloss over this issue … by misleadingly describing all IP-based services and networks as subject to the low entry barriers and fierce competition that characterize the Internet” and that dominant firms such as ILECs have “powerful and well understood incentives to refuse to deal and raise its rivals costs in downstream markets” (p. 2). Time Warner alleges that “SBC and others have clear incentives to deny, delay and degrade access to the IP-enabled high capacity loops” and that any claims to the contrary are “simply empty rhetoric” (p. 3). By framing competing stakeholder claims as “empty rhetoric,” Time Warner relies on Kronig’s (2004) thesis that frames guide perceptions of reality. Time Warner intends that by calling a competing stakeholder’s claims empty rhetoric, the FCC will view those claims as empty and therefore not worthy of consideration. Comcast – a cable company and direct competitor of Time Warner – offers that the FCC “scarcely needs to be reminded that the biggest expected benefit of the 1996 Act – explosive growth in local phone competition – has yet to be achieved” (p. 4). Comcast notes that the local competition in telecommunications that does exist is predicated upon government regulation that mandates wholesale offerings to resellers to ensure a non- monopoly, uncompetitive, telecommunications arena. It cites the FCC, Local Telephone Competition: Status as of June 30, 2003, Tables 1 & 3 (Dec. 2003) which show that “less than 4% of the 183 million lines are provided over CLEC-owned ‘last-mile’ facilities” (p. 4). Yet Comcast deviates from its seeming position of supporting the CLECs (although a CLEC itself) and the disadvantages they encounter in the marketplace by stating that “In our view, the best public interest result can most promptly and efficiently be achieved by classifying VoIP services … as … information services” (p. 12). Comcast claims that the FCC’s goal of “[f]acilities-based competition better serves the goal of deregulation because it permits new entrants to rely less on incumbent LECs’ facilities and on regulated terms for access and price” (p. 5). Comcast’s comments almost seem to reprove CLECs for not building facilities and instead using ILEC infrastructure, and broadband 204

provider, resale as their business model – a position that suggests Comcast predicts a favorable outcome to the Brand X litigation. Comcast recommends to the FCC that when it comes to deciding on how to regulate VoIP, that it “take the information services route” that Comcast claims would have “the virtue of making the services presumptively free of any regulatory burdens other than those that the FCC specifically imposes” (p. 14). Comcast frames the limits it recommends for VoIP regulation as “virtuous” employing what Best (1987) terms the “rectitude of rhetoric” and relying on what Best call “socially constructed knowledge” to sway the FCC to do what Comcast implies the FCC knows to be the best course of action. In its conclusion Comcast stated that “In sum, although the ‘telecommunications services’ route could ultimately lead to the same destination, the ‘information services’ path provides a more direct approach” and quoted Michael Powell, then FCC Chair, “I want to build from a blank slate up as opposed to from the myriad of telecommunications regulations down. We might agree we want to be in the same place, but it is a nasty, entangled, [and] litigious exercise to start from a phone company world of regulation and work your way down this way, rather then to try to say, no, this is something new” (2003). Comcast almost seems to paraphrase Hobbes’s notion that life, perhaps for the CLECs, is about to become nasty, brutish, and short.

The Wireless Industry

Nextel is a wireless firm that was purchased by Sprint in 2005. Concerning competition, Nextel observes that “one area of potential concern is that any light-handed regulatory framework not become an open invitation for entities to arbitrage technology simply for the purpose of avoiding perceived undesirable regulatory obligations” (p. i). “Nextel urges the [FCC] to largely maintain a policy of light regulation for IP-enabled services … to promote the widespread telecommunications competition Congress envisioned in the 1996 Act” (p. 4). Here Nextel curiously bridges two frames, arbitrage with light-handed regulation, in an attempt to guide FCC decision-making toward policies that at once reign in ILEC control of the PSTN while ensuring that market- correcting regulation not adversely impact other facilities based providers. Nextel claims that “ILEC control of bottleneck local exchange facilities … gives the ILECs the 205

opportunity to engage in anticompetitive behavior” (p. 18) since, when it comes to PSTN connectivity, “the ILEC is the only game in town” (p. 19). Nextel wants to enter the VoIP game, just on a level playing field. CTIA-The Wireless Association, argues against FCC intervention in the VoIP market to prevent market failure at the local level. CTIA explains that although “a market may work imperfectly ...[this] does not imply that regulation is desirable [and that] like competition, regulation is never perfect” (p. 4). CTIA reminds Chairman Powell of his remarks at the 2001 National Summit on Broadband Deployment, that “market failure might demand a government response, but market challenges should be left to market players” (p. 9). CTIA believes that a bottleneck exists at the local loop, but notes that, even though a bottleneck represents market failure, the market will somehow manage the correction in the long run. CTIA indicates that a bottleneck at the local loop might exist in VoIP provision, and predicts that “as networks migrate to packet-based architecture and IP-enabled services increasingly supplant circuit-switched ones, it is important that carriers not be able to create unreasonable advantages for themselves, and disadvantages for others, solely through arbitrage” (p. 17). Again the frame of regulatory arbitrage is proffered to suggest that firms would modify their business models to correspond to VoIP policy. Like other stakeholders who employ this frame, CTIA neglects to note that as all business will conform their operations to regulatory conditions, they would logically be expected to do so in their own best interests. CTIA notes that “market failure is necessary in an argument for government regulation, but is insufficient without a convincing case that regulation will itself produce net consumer benefits”(p. 9). CTIA does not explain, however, how it defines “net consumer benefits,” a definition that likely varies depending on the perspective of the stakeholder.

The Industry Organizations

USTelecom Association (USTA) represents service providers and suppliers for the telecommunications industry. The USTelecom Association's 1,200 member companies offer local exchange, long distance, wireless, Internet and cable television service. USTelecom's members provide local telephone service across the country, ranging from the very largest telecommunications providers, like Verizon, BellSouth and 206

SBC, to companies with only a few hundred customers (USTA, 2005). When addressing the issue of VoIP competition at the local loop, USTA invokes 47 USC 230(b)(2), claiming that “providers such as Vonage can compete without owning or leasing any of the underlying facilities. This is thus a competitive market in which competition can ensure that charges remain just and reasonable” (p. 23). USTA continues the argument against imposing regulation to protect against bottlenecks at the PSTN by citing the Access Charge Reform Order, “as the Commission has previously found in analogous circumstances, it would be contrary to the public interest to impose unnecessary regulatory costs and burdens on a competitive market” (p. 24). Concerning last mile competition, USTA claims that “it would be particularly contrary to the public interest to impose such unnecessary obligations asymmetrically on only some providers of IP- enabled services” (p. 24). USTA agrees with the claims of SBC that “Title II regulation would distort the workings of these market forces by imposing new costs on some participants but not others, interfering with the cooperative business relationships of the various market participants, and discouraging some types of new entrants from taking advantage of the openness of IP platforms to enter or offer new and diverse services” (p. 24). But USTA seems to make the same misapplication of Title II as did SBC when citing its own Petition for forbearance from Title II in February, 2004 (WC Docket No. 04-29, p. 5) that imposition of “new costs on some but not others” is an attempt at calling a telecommunications provider that is also an VoIP provider just an Internet service provider because they provide Internet services – and thus should be regulated strictly as an Internet service provider. It may be, however, that a change in designation from telecommunications provider to information service provider is not a case of new costs on some participants but not others, but rather a case of applying current costs to current telecommunications providers who have bottleneck control over PSTN access points so that new VoIP providers are not discouraged from entering the market due to monopoly rents charged by ILECs for PSTN connectivity. USTA claims that “ILECs have no market power in the IP-enabled services market, including VoIP services, or in the broadband transmission market, and are therefore non-dominant in both the retail and wholesale markets” (p. 26). USTA believes 207

that a preponderance of competitors in the IP-enabled services market makes it clear “that ILECs lack any appreciable market power in the VoIP market or the market for IP- enabled services” (p. 27). Yet this inquiry has shown how competition among VoIP players is very different from competition among players who require connectivity to the PSTN from other VoIP or telecommunications providers who own the network. Despite acknowledged differences in definitions of competition, USTA asserts that “ILECs that provide retail or wholesale VoIP should not be subjected to dominant carrier regulation for those services,” misapplying the Access Reform Charge citation when attempting to define a non-dominant carrier specifically in the VoIP space but making no distinction between retail and wholesale (p. 27). USTA overreaches when citing 9 FCC Rcd 1411, 1421 (1994) by suggesting that “any dominant carrier requirements currently applied to them for the provision of VoIP services should be eliminated” (p. 27). USTA claims that “traditional wire-line ILECs do not even arguably have “bottleneck” control over the facilities used to provide these services” (p. 1). USTA continues its defense of a highly competitive VoIP market claiming that “[r]ules that place regulatory burdens on some providers, but not on their competitors, hurt both competitors and consumers” (p. 10). Based upon arguments this inquiry has evaluated concerning bottlenecks at the PSTN, this framing attempt by USTA would more appropriately support the opposing viewpoint rather than USTA’s own. The Independent Telephone and Telecommunications Alliance (ITTA) represents twelve midsize incumbent local exchange carriers (ILECs) and the more than 10 million access line customers they serve (ITTA, 2004). ITTA speaks to the bottleneck issue with claims that in areas outside the rural and non-urban locations – where ITTA claims the PSTN will remain the primary telecommunications network – due to new market entrants such as satellite, wireless, cable and broadband, that “inter-modal competition is an established fact” (p. 4). However, the FCC does not necessarily agree that inter-modal competition is sufficient in quality of service to guarantee strong competition in the local loop. ITTA references the FCC’s requirement not to apply legacy competitive regulations on an industry where, ITTA claims, “monopoly threat no longer exists, as part of the NPRM’s (awkward) allusion to a three-legged stool” (p. 36, 37, 74) consisting of legacy economic regulation, namely “(a) monopoly ownership (b) of bottleneck facilities, (c) as 208

to which consumers lack the power to negotiate rates, terms and conditions for services.” ITTA claims that the “three legged stool” supports their conclusion that economic regulation cannot be justified “because these factors are wholly absent” in the context of VoIP (p. 8). ITTA suggests that what it perceives as evidence of inter-modal, local loop competition “undercut[s] any basis for the scattered allusions to ‘dominant’ carrier regulation contained in the Notice” and that concerning the small to mid sized carriers ITTA represents, that “Congress has already established that small and midsize companies are to be afforded substantial regulatory flexibility in the context of legacy regulation” set out in 47 U.S.C. §251(f)(1) and (f)(2), (p. 9). In its reply comments, ITTA notes that “the failure to symmetrically spread” the burden of economic regulation in the public interest would directly harm consumers, who may be deprived of “competition by conferring artificial cost advantages on some service providers at the expense of others” (p. 2). ITTA asserts that “[t]hose favoring the imposition of economic regulation … do not inherit a case. They must build one” (p. 6). ITTA may be correct with respect to competition in the VoIP arena, but it appears that it is ITTA and other ILECs who must build a case for justifying the lifting of economic regulation of PSTN connectivity that remains in place to ensure a competitive market for CLECs. ITTA claims that “as inter-modal alternatives expand in the marketplace, traditional connections to the PSTN contract,” pointing to an 8% decrease in incumbent carrier access lines in the one year period prior to the VoIP Forum (2001-2002), a fact which does not, ITTA claims, “make out a case for bottleneck facilities” (p. 7). Following these statistics on the numerous competitors entering the IP-enabled voice market, and citing the FCC’s recognition of “a dizzying array” of networks operated by “hundreds of thousands of people” – actually not a reference to the local loop but to VoIP services – ITTA claims that “the conditions of monopoly facilities and markets which justified historical dominant regulation are absent from the IP-based marketplace” (p. 8). Earlier in its comments, ITTA claimed that the CLECs that insist that regulation is required to maintain competitive parity in VoIP provision have no case, yet these statements by ITTA make the CLECs case for them. The FCC acknowledges competition in the broadband market, and requests comments about how to regulate where competition issues render the market unfair to some VoIP providers, acknowledging “that traditional 209

economic regulation designed for the legacy network should not apply outside the context of the PSTN, and therefore will be inapplicable in the case of most IP-enabled services (NPRM, p. 25). Where VoIP touches the PSTN seems clearly within the PSTN context. In its reply comments, ITTA claims that there is “no factual basis for imposing dominant economic regulation in the IP marketplace” (p. 8). However, they continue with “The legacy regimes of the past existed because of the factual conditions of the past, [and] if new conditions exist, then new structures and new regimes are required” (p. 9). ITTA did not mention an Internet protocol connection to the PSTN as representative of new conditions. According to ITTA, the Act’s “prohibition on de jure monopolies, the forced access to incumbent networks, and the multiple consumer alternatives to incumbent carriers in terms of competitive services and inter-modal facilities” all represent “subsequent developments which remove the factual premises underpinning traditional economic regulation” to which the FCC should not attach what ITTA frames as “reflexive application of legacy regulation” (p. 10). A respondent to ITTA’s reply comments pointed out that “we cannot plan based on hope for the future,” meaning that the FCC cannot regulate based on hopes for future market conditions but must regulate in response to current market conditions. Concerning ILEC dominant carrier regulation ITTA points out in its reply comments that, “[t]he basic assertion that ‘we have always done it this way’ has no independent legal or policy weight” (p. 9), but not once in any of the comments did any stakeholder assert historical default as a reason for economic regulation. The National Exchange Carrier Association (NECA), representing primarily rural carriers, concurs with ITTA, asserting that although someday VoIP “may serve to transform the fundamental nature of the service offerings in ways that have dramatic implications for the Commission’s traditional Title II regulatory regime, this is not the case [today] with respect to providers that offer services that ‘look and feel’ like plain old telephone service, and that are marketed to the public in direct competition with services provided by traditional common carriers” (p. 5). NECA believes that so long as VoIP traverses the PSTN, it should be regulated as are other voice calls across the PSTN. NECA claims that “[t]he fact that these services use Internet Protocol during some portions of a call simply makes no difference from the end-user’s perspective, and 210

shouldn’t make any difference from a regulatory perspective. There is nothing special about Internet Protocol, compared to other protocols, when it is being used to provide basic telephone service over the PSTN” (p. 6). NECA’s frame of “basic” to describe Internet Protocol actively contradicts the definition of basic telephone service as laid out in the 1996 Act. NECA intends that with a new frame of “basic” around that which has already been deemed an enhanced – or information – service, that the FCC will attribute to VoIP those regulations that correspond to basic services. Specifically, NECA intends that the “basic” frame will ensure VoIP’s treatment as a telecommunication service, with all VoIP providers held to the same regulatory requirements as are all exchange carriers. The VON Coalition “consists of companies that are developing and offering voice products and services for use on the Internet and IP networks (VON, 2005). Since its inception, the VON Coalition has consistently advocated that federal and state regulators maintain current policies of refraining from extending legacy regulations to Internet services” (p. 2, 3). The VON Coalition claims that “[b]ecause of the openness of the Internet, service providers do not need to own any infrastructure to offer service, [which] drastically reduces barriers to entry and increases competition” (p. 3). As this inquiry has shown, the Internet in and of itself does not necessarily guarantee increased competition, especially when the access to the Internet, still required for VoIP connectivity, is owned by a handful of ILECS. Recalling the FCC’s desire for all voice services to be facilities based, the VON Coalition suggests that VoIP would increase the demand for broadband, because if the PSTN connections were to remain under limited ownership with limited access rules, broadband demand would likely increase at the provider level to be able to bypass the PSTN, lest VoIP providers remain at the mercy of ILECS. However, in the short term, until a facilities based VoIP provision becomes the standard, those providers that require PSTN access for VoIP delivery will see competition benefiting the ILECS. The VON Coalition claims that “[t]he cost savings achieved by converging voice and data applications in one network make VoIP attractive for enterprises that have already deployed an IP network” (p. 11), a stipulation that applies to very few providers at the time of the NPRM response writing.

211

The VON Coalition’s assertion that “VoIP is enabling a host of new non- traditional competitors to enter the local voice market, spurring competition with the incumbent local exchange carriers” (p. 8) does not acknowledge the ILECs’ bottleneck advantage, which can forestall competition so long as the new VoIP providers need an ILEC’s PSTN connection to complete a typical VoIP call. The VON Coalition claims that, “[h]istorically, …the existence of monopoly providers and an infrastructure … made it nearly impossible for competitors to compete. In contrast, a provider of a VoIP service has no need to own or build the infrastructure on which the service is delivered and, since there are no historic or even nascent VoIP monopolies, there is simply no basis for such economic regulation of any such provider that does not have significant market power” (p. 29). Yet the VON Coalition does not explicitly indicate a belief that the bottlenecks are de facto monopolies, a claim which could have strengthened their argument. Rather, the VON Coalition claims that “[r]egulation is only needed when entities can exercise market power to limit competition, something that is not present in the IP-enabled services industry” (p. 8, reply comments). By framing the IP-enables services industry as sufficiently competitive as to preclude a need for market correcting regulation, the VON Coalition is attempting to set up the case for the FCC to regulate ILEC access charges but not to regulate VoIP as a telecommunications provider. The VON Coalition’s claims in its reply comments do however suggest a slippery slope fallacy, that “the specter of legacy access charges and other regulations may persuade IP-enabled service providers to avoid offering this particularly beneficial form of IP-enabled service” (p. 9). More likely, competitors and innovators would just find another workaround technology to skirt cumbersome regulations, a topic this inquiry explored in Chapter Six. In its Reply Comments, the VON Coalition openly disagrees with those stakeholders who argue that “IP-enabled services that touch the PSTN … should be regulated differently than those that do not” (p. 9). The VON Coalition claims that use of the PSTN is not “the sine qua non of whether a service qualifies as a “telecommunications” service or should otherwise be regulated. Regardless of whether a particular IP-enabled service touches the PSTN, … the service should at most be classified as an “information” service” (p. 9). The VON Coalition’s reply comments claim that, “a consensus has emerged that economic regulations are unnecessary for the 212

IP-enabled services industry” (p. 13). The VON Coalition then referred back to its original comments, coming full circle that “the historic reasons for economic regulations, such as the existence of monopoly providers and the existence of an infrastructure that made it nearly impossible for competitors to compete, are simply inapplicable to IP- enabled services” (p. 27). The Federation for Economically Rational Utility Policy (FERUP) claims that “[t]he existing telecommunications regulatory regime – an outgrowth of the economic regulation of monopolies and a regime designed to forge competition in the wire-line telecommunications industry – is not suited to IP-enabled services, such as VoIP, and should be scrapped in favor of a new regulatory model that respects basic economic principles” (p. 2). Framing existing telecommunications policies as needing to be “scrapped” demonstrates how strongly FERUP believes nothing about the existing regulatory paradigm should be saved. FERUP assesses the telecommunications regulatory regime at issue in the VoIP debate as “Concerning competition, FERUP claims that, “[t]here is no dominant VoIP provider, and there appears to be low barriers to entry; VoIP is spurring robust price competition and new service offerings by both old and new players” (p. 3). Here FERUP suggests that both old (telecommunications providers) and new (VoIP providers) can compete on price and innovation to a satisfactory outcome for both sets of providers. FERUP stops short of explaining how two industries competing on price and service in a technological arena could reasonably compete under asymmetrical regulatory policies. FERUP claims that current regulations “generally are designed to forge competition in the wire-line telecommunications industry (by encouraging new wire-line entrants, or CLECs) while maintaining certain legacy regulations for the incumbent wireline provider (ILEC) [and that] notably, the competition that the landmark Telecommunications Act of 1996 is intended to spur is primarily ILEC versus CLEC wire-line competition – not competition from other technologies, such as wireless and VoIP” (p. 5). FERUP frames the economic regulation of the 1996 Act as “not rational” with respect to a competitive market such as that surrounding VoIP, claiming that economic regulation is a disincentive to the investment required to build out the “next- generation” VoIP networks. FERUP claims that VoIP was part of an IP-enabled network 213

that is being “built out by inter-modal competition where there is no dominant player, [and] as such, VoIP providers should not be subject to rules designed to substitute for competition in monopoly markets” (p. 10). FERUP objects to the functional theory of VoIP regulation whereby the end-user’s method of engaging with the technology dictates how the technology should be regulated. FERUP tells the FCC to “retire the duck,” – that is, the functional theory is not applicable to VoIP. The Communications Workers of America (CWA) is a labor organization representing approximately 700,000 workers employed in telecommunications, publishing, manufacturing, health care, state and local government, and other public and private organizations. CWA members work in all segments of the telecommunications industry, including local and long-distance telephony, cable, wireless, and Internet access. CWA members are also consumers of telecommunications services (CWA, 2005). CWA claims that, “the full potential of IP-enabled services will only be realized if … that all carriers and service providers have non-discriminatory access to Internet networks” (p. i). In explaining the need for ongoing regulation of the PSTN, CWA predicts that “[e]ventually, all voice, data, and video will travel over IP packet-switched networks, rendering today’s public circuit-switched telephone network (PSTN) obsolete [but] during the transition, voice traffic will travel between the Internet and the PSTN” (p. 2). In referencing the PSTN and potential bottleneck abuses, CWA suggests that the FCC’ VoIP regulatory framework “must treat all carriers of similar services the same so as not to distort the market through arbitrage opportunities” (p. 3). CWA frames the case for classifying VoIP as a telecommunications service this way: “[v]oice telephone calls transmitted completely or partially over the Internet for a fee are the functional equivalent of today’s circuit-switched telephone calls, and should be classified as a “telecommunications service” (p. 4), and by citing the Stevens Report which stipulates that “the classification of a service under the 1996 Act depends on the functional nature of the end-user offering” (p. 9). CWA goes on to point out that the 1996 Act defines a “telecommunications service” functionally, rather than how the provider chooses to format information for transmission, pointing out that a VoIP call enters the network as voice on one end emerges as voice at the receiving end of the network. The IP protocol merely maps the 214

digital bits but the VoIP form or content of the conversation is not changed in the process, CWA tells us. CWA cites the NPRM where the FCC indicates that VoIP generally includes “any IP-enabled services offering real-time multidirectional voice functionality, including, but not limited to, services that mimic traditional telephony,” and goes on to explain where the NPRM differentiates among various types of VoIP service. CWA indicates that the NPRM identifies those VoIP services that are substitutes for traditional telephony, those that interconnect with the PSTN, and those that rely on a provider’s centralized network servers, as compared with offerings that facilitate peer-to- peer IP-enabled VoIP services. CWA, citing 47 U.S.C. § 153(46), shows that “VoIP offerings that meet these tests … are ‘telecommunications services’ as described by the 1996 Act” (p. 8). To bolster its case, CWA references the 1996 Act where an information service is defined 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 U.S.C. sec. 153(20)]. CWA claims VoIP carriers do not meet this definition; rather, according to CWA, they “use data processing to ‘manage, control, or operate’ the telecommunications system or telecommunications service” to “sell voice telephone service” (p. 11). CWA offers further proof of its claims by quoting the FCC’s Protocols Order referencing the Computer Inquiry II description of basic voice service: “functions necessary to route a message through the network are basic, not enhanced” (p. 12). According to CWA, this time referencing the Non-Accounting Safeguards Order, that the VoIP debate “is precisely the situation the Commission anticipated when it concluded … that protocol conversion to make new network technology (IP networks) compatible with the PSTN results in no ‘net conversion’, is therefore not an information service … and therefore “subject to common carrier regulation under Title II of the Act” (p. 14). CWA works hard at framing VoIP as a telecommunications service because CWA workers are employed in the telecommunications field. Any attenuation of the telecommunications definition is seen as a direct threat to the strength of CWA and the future of its constituents.

215

The National Cable & Telecommunications Association (NCTA) is the principal industry organization representing the cable television industry in the United States. In addition to providing multi-channel video programming services, NCTA’s cable operator members also provide high-speed Internet services, and are increasingly offering facilities-based voice services (NCTA, 2005). NCTA asserts that “it would make no sense to read the 1996 Act – which was designed to promote competition in the telecommunications marketplace – in a manner that would preclude the [FCC] from fostering the provision of VoIP simply because it falls within the definition of information service” (p. 28). NCTA claims that, with respect to competition in VoIP service provision, “[a]lthough some markets enjoy the benefits of facilities-based competition from companies who have taken the risk and made the investment, this is atypical” (p. 5). NCTA suggests that “with an appropriately light regulatory environment, VoIP services delivered over broadband cable networks will, over time, provide wide scale residential voice competition that is both facilities-based and sustainable” (p. 11; emphasis added by NCTA). Seemingly in support of the FCC’s NPRM endorsement of facilities-based competition, NCTA offers that the FCC has “explicitly found” that “facilities-based competition serves the [1996] Act’s overall goals... [and that] facilities- based competition better serves the goal of deregulation because it permits new entrants to rely less on incumbent LECs’ facilities and on regulated terms for access and price” (p. 4). NCTA alleges that “the revolutionary nature of VoIP eliminates the need to police the relationship between VoIP service providers and cable operators that has historically been at the root of common carrier regulation of the telephone industry” (p. 48). The revolutionary frame NCTA gives to VoIP Stone’s (1997) writings would suggest is used as a symbol of the need NCTA perceives for a paradigm shift in telecommunications policy. Specifically in the case of VoIP, NCTA attempts to sway FCC decision-making toward laissez-faire policies and away from market-correcting pricing regulation – a revolutionary change indeed. To further its argument, NCTA cites Computer II, claiming that the FCC “determined there that ‘nonregulation’ would benefit the public because under a hands-off policy ‘FCC regulations will not directly or indirectly inhibit the offering of these services, nor will our administrative processes be interjected between technology and its marketplace applications’” (p. 8). In cautioning 216

against VoIP policy that would encourage regulatory arbitrage – a term continually useful to nonregulation proponents throughout the VoIP debate – NCTA warns that when “regulatory consequences, good or bad, are attached to a particular business model, providers are bound to structure their service offerings to account for those consequences” (p. 44), NCTA claims that “VoIP promises to change all of this by providing cable operators and other alternative providers to the incumbent local exchange carriers with a cost-effective and robust technology that enables them to compete head- to-head with the incumbents in the provision of voice services” (p. 5). In its Reply Comments, NCTA remarks that “unlike facilites-based broadband providers,” AT&T, MCI, and Vonage opted for “business models that … depend on no-cost or low-cost access to the facilities of others, [and that] … in order to sustain these business models they demand that facilities owners face increased regulatory scrutiny, and in many instances increased regulation of their facilities” (p. 10). NCTA suggests that the FCC “should explicitly acknowledge [that] legacy regulations of a monopoly era should not be implemented to reward the very companies that have chosen not to invest in the provision of facilities-based broadband alternatives” (p. 11; emphasis NCTA’s). NCTA claims that in comparison to stakeholders “who are actively deploying broadband” the comments of parties seeking FCC sanction for access to the underlying facilities “come across as anachronistic” (p. 10). The frames of “legacy,” “monopoly,” and “anachronistic” Snow et al. (1986) would suggest in their writings are intended by NCTA to amplify the belief that any regulatory regime associated with the PSTN is outmoded and thus out of consideration for VoIP .

Summary

Rhetorical Summation

In the NPRM, the FCC indicates a preference for less regulation rather than more to ensure competition in the VoIP arena. Concerning economic competition, the FCC assumes that competition exists at the application layer, effectively shutting down any debate that would have suggested otherwise by framing competition as intermodal rather than intramodal. MCI attempted to rewrite history when it claimed that no other 217

reasonable alternative exists in VoIP regulation than FCC-enforced, intramodal competition at the transmission layer, practicing selective retention when it neglected to recall its ability 40 years earlier to change a regulatory paradigm by introducing inter- modal competition into a market dominated by one monopoly player, AT&T. MCI’s success in competing intermodally with AT&T using a technology it had applied to a market relying on competitive regulatory protections suggests that even if intramodal competition were enforced in the VoIP market, technology driven by competition could be predicted to, in MCI’s words, “spawn competitive markets” even where intramodal competition had been FCC mandated. This could indicate that MCI’s layered approach to VoIP regulation represents a solution to a competition challenge that is only relevant until the next innovation comes along. Highlight inter/intra modal at beginning of chapter, then refer back. The VoIP providers are divided as to whether economic regulation should be applied to VoIP. The framing attempts by VON coalition and Vonage demonstrate where their interests diverge despite the two stakeholder’s apparent converging interests within the VoIP provider market. AT&T used a rhetorical phrase seen throughout the VoIP debate, telling the FCC that it should not “pick technological winners and losers” but rather “let the market decide” any VoIP competitive outcome. AT&T, and other stakeholders, frame their arguments around what Warnick (2002) calls “commonplace truths” that they perceive society to have about satellite and wireless technology, claiming that the two are not viable contenders at the local loop and that inter-modal competition at the transmission layer exists only as a “duopoly,” with ILECs and cable companies sharing the market. NARUC, which favors a functional approach to VoIP regulation, relies on what Warnick calls a “shared belief” by citing, albeit perhaps out of context, Commissioner Copps’s assertion that competition exists within delivery platforms. BSPA relies on the “shared belief” that the dot-com era was a lot of “hype,” cautioning the audience not to become “irrationally exuberant” in their evaluation of VoIP. BSPN then, having gained the audience’s trust by shining a “rational” light on VoIP, frames the technology in a light most favorable to its agenda – as a telecommunications service.

218

The wireless coalition representative CTIA also relies on a “shared belief,” one used in the NPRM to categorize the wireless providers as non-competitors in the local loop. CTIA seems content to let the ILECs and Cable companies believe that they compete in a duopoly. The more the ILECs and CLECs underestimate a wireless provider as a third competitor, the less, CTIA believes, they will prepare to advertise against it. The BPL players took the same approach, preferring that their constituents not become direct targets of the dominant market competitors before they can perfect their technology. Sprint strategically inserted the term “conventional” in its attempt at framing VoIP market competition to apply the Halo effect of carrying the desirable qualities of one entity over to the entity about which a stakeholder is attempting to sway opinion. In this case, Sprint hoped that the distinction of “conventional” as applied to VoIP would incline the FCC to regulate the technology “conventionally,” like a telecommunications service. As shown in Chapter Six, this chapter also showed that stakeholders perceived the issues of competition and technology as tightly coupled. In the NPRM, the FCC observes a link between competition and technology as illustrated in Chapter Five. As their primary framing strategy, the ILECs attempted to conflate broadband competition with PSTN competition in an effort to persuade the FCC to regulate the two modes of competition in like manner. What this chapter shows is how much effort stakeholders will exert in opposing the ILEC’s position equating intermodal and intramodal competition. The ILECs have taken a metaphorical page from MCI’s policy-making handbook in attempting to frame the overall competition issue such that they can control overall competition discourse. Summary of stakeholder comments shows that the issues of a layered approach, a dichotomous approach, and a functional approach to VoIP regulation with respect to competition all are predicated upon the determination of competition as intramodal or intermodal along the levels of transmission infrastructure. How well stakeholders can frame the nature of competition in the VoIP market will determine how well they can shape policies in their favor.

219

Competition Summation

The FCC’s published statistics on Local Telephone Competition in year 2003 showed that the year of the VoIP Forum (2003), CLECs held a national average of 15% market share in their respective markets, with the highest at 28% market penetration and fully 20% of the states reporting less than 1% average market penetration for their CLECS (FCC, 2003). These statistics beg the question that if there is no lack of competition in an industry that relies on the PSTN, why would the FCC need to track how well the CLECs were doing in market share if it were not a concern. Verizon and SBC nevertheless each cite Computer II to inform the reader of the FCC’s position on regulation and competition as they see the issues applying to their comments, “[r]egulation often can distort the workings of the market by imposing costs on market participants which they otherwise would not have to bear . . . . the advent and growth of competition in a particular market eliminates the need for continued regulation” [95 FCC 2d 1276, 1301]. Yet what these stakeholders choose to infer as mandate is actually a misapplication of FCC verbiage: The operative words are “can,” and “particular.” Regulatory distortion does not always distort the market to the detriment of all participants, else the FCC would not still have PSTN regulation in place – the very regulation the ILECs rail against. While market growth may eliminate the need for continued regulation as the ILECs see it, the FCC has not yet seen enough market growth in the CLEC market to justify laissez faire policies concerning PSTN access. The ILECs overlook the fact that the FCC continues to regulate the telecommunications industry because it sees a concentration in the market remains despite a decade of CLEC presence. To support their claim that competition exists in the VoIP services arena, the ILECs claim that consumers have begun to abandon circuit switched telephony entirely, in favor of VoIP. This claim, however, remains unsubstantiated. A very small portion of VoIP traffic, less than 1% of all consumer voice communications traffic (VoIP Fact Report) at the time of Verizon’s claim, used a VoIP service that did not at some point traverse the PSTN. Verizon references Vonage as a company in a market that is “full of providers that have never been traditional, circuit-switched companies” (p. 12). While this may be true, it overlooks that the VoIP market is even more full, based upon statistics 220

provided by the VoIP Fact Report, of providers that have always been traditional, circuit- switched companies. The NPRM states that “traditional telephony regulation was designed to address market failures and protect customers from monopoly abuse.” Stakeholders that allege the potential for monopoly abuse in an unregulated VoIP market reference this section of the NPRM while those who advocate for non-regulation of VoIP allege that there is no monopoly abuse. When discussing competition in the cable market, ILECs cite the Triennial Order to support their claim that the FCC has found that “robust inter-modal competition” exists among broadband providers, realistically meaning competition between ILECs and cable companies. What they do not reference is that, as of May, 2004, nearly all VoIP traffic that ran on cable broadband required a media gateway, also known as a VoIP gateway, to bridge the PSTN to the cable provider’s infrastructure, again undermining ILEC claims that their industry does not lack for competition and therefore requires no regulation. ILECs rely on the Computer Inquiries to lay the case for the difference between “basic” and “enhanced” services, with VoIP belonging in the second category. They also rely on the gambit that if they can frame the policy issue as one of classifying VoIP as an “enhanced service” – which everyone agrees it is – then no one will question that the application should be regulated as such and the question of bottleneck control will be overlooked. What the ILECs count on is that once everyone agrees to their frame that VoIP is an enhanced – or information, service – by extension any infrastructure on which VoIP travels, including the PSTN, would conform to information service regulations. Such a ruling by the FCC would free the ILEC that offer a VoIP service from having to conform to the comparatively onerous telecommunications regulations set forth in the 1996 Act. SBC and others cite the Cable Modem Order to suggest that the FCC’s application of the statutory definitions rests on the functions the end-user is offered – in the case of VoIP, an information service. The issue is perhaps more appropriately viewed not as how VoIP should be defined, but rather how it should be treated once it reaches the PSTN, i.e., should the ILECs be required to treat some communication that touches their PSTN the way all other communication that touches their PSTN is treated. The ILECs hope that the FCC will ignore the fact that 99% of VoIP traffic is still delivered over the 221

PSTN – which is regulated as a common carrier in accordance with Title II stipulations – and that the ILECs own the PSTN. If the FCC determines to enforce inter-modal competition and allow intra-modal competition to regulatorily wither, then the ILECs will have been given back, in the form of a PSTN bottleneck, the monopoly that the FCC broke up in 1996. In the NPRM the FCC broke out a category just for VoIP and issues concerning its appropriate regulation, placing no “information service” versus “telecommunications” restrictions in its request for comment. The FCC asked for input on how to treat VoIP. It did not say “fit VoIP into one of these two boxes.” Reframing the definition of competition by blurring the distinction between broadband competition and PSTN competition serves the ILECs policy agenda. It is in the interest of the ILECs to force VoIP policy-making into a Hobson’s Choice: classification either as an information service or a telecommunications service. Framing the standard of “net protocol conversion” as described in the Non-Accounting Safeguards ruling to include VoIP as an information service privileges the firm that offers VoIP among its service offerings, allowing the firm to circumvent current telecommunications regulations without regard for regulations attached to underlying infrastructure. The ILECs put great effort into foregrounding issues of competition at the application layer – the layer where VoIP resides – while shifting to the background issues of competition at the transmission layer. SBC even tries to claim that the layered approach “argues for less regulation at the physical layer.” The CLECs, however, refused to be drawn into an argument about the level of competition at the application layer. The market implications of policy guided by a net protocol conversion paradigm are not lost on the CLECs. They stayed on topic with their own issue framing, noting that the transmission level is “completely dominated” by the ILECs and parrying ILEC attempts at reclassifying an old technology – the PSTN – under a new regulation category. Few stakeholders question that the ILECs own the PSTN infrastructure, yet the ILECs continue their no-we-don’t/yes-you-do argument with providers that require PSTN connectivity to enable VoIP transmission as to whether they enjoy a bottleneck-inspired monopoly at the local loop. The ILECs work hard to make their case for regulating everything along their networks as IP-enabled “information services,” repeatedly citing 222

the FCC’s parallel between “enhanced services” and “information services” as codified in the 1996 Act to frame their argument for “information service” classification. Logic might suggest that the ILECs understand quite well the nature of the bottleneck at the PSTN, which they protest to having, and its implications for VoIP, otherwise they would not protest so much. Verizon’s statement about gaining no benefit from legacy networks may one day be accurate. Verizon and other VoIP providers are building out broadband fiber optic networks that completely bypass the PSTN – a service known as Fiber to the Premises, or FTTP – and connect directly to the home. However, as of their response to NPRM 04-28, In the Matter of IP-enabled Services, Verizon had only begun test phases of an FTTP service and only deployed the service in a few test markets. Still, the argument from the ILEC perspective seems to be that since someday the PSTN may not be utilized at all, why not just get rid of all the regulations surrounding it now. The question remains as to how to treat providers or resellers of PSTN access in a locally controlled market. Verizon cites the 1997 Access Charge Reform Order [FCC 97-158] when responding to the NPRM concerning competition in the telecommunications market, claiming that “a market-based approach should minimize the potential that regulation will create and maintain distortions in the investment decisions of competitors as they enter local telecommunications markets” (p. 20). In this claim, Verizon represents “should” as “will” in its issue framing. Attempts at reframing telecommunications providers as information service providers using claims that VoIP is an information service and therefore its providers do not fall under Title II common carrier regulations obfuscates the fact that the FCC need not select from two choices when regulating VoIP. Verizon asks the FCC to classify them and “all providers of VoIP” as VoIP providers, which would render them non-dominant in their field and lift the connectivity requirements the government has placed upon them which allow CLECs to compete in the ILECs markets. If Verizon wishes to be considered a VoIP provider, then perhaps the firm should divorce itself from provision of telecommunications and pursue strictly the “pure VoIP” business model. Verizon cannot be both a VoIP provider and enjoy the unregulated benefit of that distinction and expect the lack of regulation to be applied to their telecommunications side of the business, nor those who share their business space. If 223

Verizon is willing to give up PSTN connectivity rights, and that would be quite a gamble to get a piece of only one percent of the “pure VoIP” business – a business whose competitors do not even charge customers – they can do so. Until that time however, it is unreasonable to expect the non-regulation of one side of their business to be applied to the side of their business that the FCC has deemed requires regulation to maintain competition. As Verizon said, if competition exists there is no need for regulation. Where it does not – as recognized by the FCC, it does not in the telecommunications market – then those businesses that wish to take advantage of the inequities that they control in a market even in the face of regulation perhaps should expect to have that regulation taken away and decrease competition in that arena even further. That the ILECs must not “impose unreasonable or discriminatory conditions or limitations on, the resale of its telecommunications services” [47 USC 251(b)(1)] was written specifically concerning access to the PSTN, because the ILECs owned the PSTN and the only way to accomplish local competition, a goal stated in the 1996 Act by FCC at the Implementation Order, Part II, was to remove the “barriers that protected monopolies” and “affirmatively promote efficient competition” by requiring the ILECs to sell at wholesale prices access to their network. The situation the FCC hoped to prevent in POTS provision is similar to the situation facing providers of VoIP services that traverse the PSTN. The 1996 Act requires access to unbundled network elements. The 1996 Act reads: “In determining what network elements should be made available … [the FCC] shall consider, at a minimum, whether the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.” [47 USC 251(d)(2)(b)] The FCC wants to ensure competition in VoIP provision, and the ILECs wish no longer to be beholden to the 1996 rules. Yet just because Verizon has started selling VoIP services does not mean it has stopped selling telecommunications services and is therefore no longer subject common carrier requirements. The FCC has already decided that monopoly in telecommunications is not in the public interest. As Verizon admits when citing Aeronautical Radio v. FCC [451 US 920 (1981)] “the purpose of economic regulation is to attempt to replicate the effects of free competition by requiring carriers to charge just and reasonable rates when they might otherwise 224

charge monopoly prices” (p. 19). The FCC has determined that Verizon might otherwise charge monopoly prices to the CLECs but for regulation. The issue is not whether there is competition in the VoIP market, few would argue that there is. In the case of competition in local telecommunications, clearly the market failed, else the FCC would not have to apply regulation, and even then reach only 15% competition between ILECs and CLECs. The Stevens Report says that the FCC does not pick winners and losers. Verizon cites the Stevens Report when claiming that, with respect to VoIP, “competitively neutral rules that do not favor one technology over others and ultimately provide consumers with the greatest benefits” (p. 22). However, what Verizon and others are asking the FCC to do is favor ILECs ownership of telecommunications technology over CLECs wholesale access. They appear to know that the battle between ILECs and CLECs continues because they refer to themselves as “DSL facilities,” when the existence of the PSTN connection, not the speed of the PSTN connection is what is at issue. The ILECs really want unfettered total control of that last mile, and who can blame them. In 18 months they are no longer going to have to allow DSL access to their ISP competitors. It would be a boon to their bottom line if they also did not have to sell PSTN access to their VoIP competitors. The issue of bottleneck control seems settled by Title II, but the ILECs would try to unsettle it. After all, they seem to believe, they can charge as much as possible can for what they own and disallow access should they choose. The ILECs would likely force competitors to operate under perilously thin margins, as the CLECs argue they themselves do now, or potentially the ILECs could drive out competition with price prohibitive barriers to entry of the VoIP market and barriers to sustaining the PSTN market that they become de facto monopoly providers of PSTN access for VoIP transmission, an advantage that would last at least until industry-wide facilities based competition became a reality. Time Warner, in its reply comments, noted that “the incumbent LECs apparently have decided that the emergence of IP-enabled services generally and VoIP specifically offers them the opportunity they have been looking for to completely escape economic regulation in all markets” (p. 2).

225

Conclusion

This chapter shows that the distinction between intramodal and intermodal is very important to stakeholders with a competitive interest in the PSTN, and that stakeholders therefore attempt to frame competition to reflect their particular VoIP policy positions. Under either a layered approach or a dichotomous approach to VoIP regulation, competition would be mandated at the transmission layer but not at the application layer. Such an approach would mean that voice services that traversed broadband line would not be regulated as telecommunications but as an information service. Classification as an information service would allow providers, in addition to having no Title II common carrier obligations levied against their application, also not to concern themselves with competition issues surrounding mandated access to transmission infrastructure. The stakeholder who can successfully frame competition would be able both to shut out competitors at the transmission level and have no obligations to universal service. As providers of a technology that merely “rides” atop infrastructure, VoIP providers are not directly affected by issues of competition at the PSTN level. They are indirectly affected, however, if they offer their application to customers who must rely on PSTN connectivity to complete a VoIP call. At the time of the NPRM, this accounted for almost all VoIP calls placed in the U.S. Only “pure” VoIP – computer-to-computer VoIP – need not access the PSTN to complete a call. Still, the VoIP providers are not as directly affected by the intermodal versus intramodal competition debate. Perhaps this is why the VoIP providers allowed the ILECs and the CLECs to engage in most of the heavy lifting in the transmission access debate. Under a functional approach to VoIP regulation, the VoIP providers would have more cause for competitive concern. If the VoIP application were regulated based upon the function it provides, that is, sending voice across a transmission medium to an end user such that the underlying technology is transparent to the end user, then VoIP could be regulated under Title II of the 1996 Act. The one certain impact Title II regulation would have on VoIP providers would be a requirement to pay into the universal service fund. The VoIP providers compete against telecommunications providers on cost. They cannot yet compete on quality or availability of service in most markets. A functional 226

approach to VoIP regulation would require universal service contribution from VoIP providers, thus directly affecting their competitiveness in the voice service market. Anytime an agency applies a “tax” – as some stakeholders choose to frame universal service fund contributions – to a product offering, the cost of offering that product goes up. Stakeholders who do not currently contribute to universal service frame the issue as one of consumer choice as to what an end user would choose to access. Those stakeholders use Conrad’s (2004) framing argument of “culturally sanctioned suspicions about government’s ability to successfully regulate the private sector” (p. 314) to argue for market based competition policies and universal service framed as universal access. The following chapter discusses universal service as it relates to VoIP regulation and explores the implications of stakeholder framing of universal service as universal access. It investigates the copula of technology, competition, and universal service, and how stakeholders circumscribe notions of the public interest as relates to VoIP regulation and universal service in their efforts to sway FCC policy-making.

227

CHAPTER EIGHT

THE UNIVERSAL SERVICE ISSUE

In this chapter addressing universal service and the VoIP debate, this inquiry explores how stakeholders treat the topic of universal service from the standpoint of U.S. mechanisms for defining and administering the Universal Service Fund (USF). The issue of how to define universal service has come under scrutiny since the 1996 Telecommunications Act (the 1996 Act), largely due to changes in technology. The 1996 Act stipulated that connectivity rates of 56Kbps were what universal service policies would ensure every American would be able to access, irrespective of the individual’s location or ability to pay. Communication connectivity rates have, in only 10 years, dramatically exceeded those that universal service would ensure to end-users. Some broadband rates now exceed 40 Gbps. VoIP technology has brought the issue of universal service contribution to the forefront of communications policy debate. VoIP’s ultimate classification – as a telecommunications service, an information service, or another regulatory classification entirely – will dictate whether VoIP providers contribute to the Universal Service Fund, thus affecting their competitiveness in the marketplace. If a provider who competes on price experiences an increase in the cost of providing a service – in the case of VoIP, should a universal service contribution be levied against VoIP providers, for example – that provider will in most cases experience a decrease in its overall market competitiveness. This chapter explores stakeholder attempts to circumscribe claims about the public interest vis-à-vis universal service and VoIP regulation, and examines the ways in which stakeholders frame policy recommendations to the FCC in an effort to influence regulatory outcomes.

The Universal Service Debate

In the NPRM, the FCC asked, “which classes of IP-enabled services, if any, are ‘telecommunications services’ … Which if any are ‘information services’?” Approximately 10% of a telecommunication provider’s gross receipts from inter- and 228

intra-state long distance goes to USF support (FCC, 2005). Information service providers pay nothing toward universal service. The VoIP debate has opened up discussion as to whether, because a new innovation is being considered as a contributor to universal service, should the USF contribution mechanism be re-evaluated to include more, or fewer, contributors. VoIP policy decisions will likely have significant impact on the mechanisms by which low income and remote location individuals are deemed eligible for universal service support, and the services to which individuals will be entitled. This chapter investigates stakeholder comments as they advocate for mechanisms concerning the USF in the face of a technology that outpaces current fund contribution requirements. A quotation long attributed to Bill Gates, but one which is now known to be apocryphal, was that “640k is all the memory anyone will ever need.” Although certainly an urban legend, the idea that technological demands are somehow finite is worthy of exploration. In the NPRM, the FCC indicates that the public interest goals of the 1996 Act “would presumably continue to apply as communications networks evolve … for example [the 1996 Act] has stated that universal service should be maintained” (p. 31). [47 U.S.C. Sec. 255] The FCC opened the subject of USF mechanism review for discussion within the VoIP debate, reminding stakeholders that it is “entitled to amend or revoke its own rules and regulations when the underlying circumstances no longer apply” (p. 31). VoIP policy stakeholders responded in kind, attempting to frame not only the topics of technology and competition, but also the debate topic of universal service and whether its definition might be expected to evolve as technology evolves. This chapter evaluates stakeholder responses to the FCC’s request for “comment regarding whether new and evolving technologies and services might comprise both an information service component and a telecommunication service component” (p. 32), specifically regarding universal service. Stakeholders also debate the funding of and contribution to universal service, including which firms should be required to pay into the universal service fund. These funding topics are important and will be discussed at length. However the primary scope of this chapter is the investigation of changing definitions of universal service mechanism as technology changes, therefore the focus of the universal service portion of this dissertation will remain on defining and administering universal service. Concerns of 229

access charges and funding will be discussed to the degree that they relate to this chapter’s primary area of inquiry, the changing definition of universal service.

Definitions and Contributions

In examining how the concept of universal service has changed over time, it is important to ascertain how different stakeholders with differing agendas treat the issue of universal service, who is eligible, and how universal service should be guaranteed. This section discuses how stakeholders in the VoIP debate frame their perspectives on universal service, the claims they make about which stakeholders contribute, how much they should contribute, and the degree to which they should continue to do so. Inquiry examines how stakeholders address the issues of technology and competition as relate to universal service, as well as how stakeholders attempt to apply a public interest frame around their universal service claims.

The Inter-exchange Carriers

MCI was the first common carrier to compete against AT&T, and was the driving force behind the 1982 Modification of Final Judgment, which opened the telecommunications industry to competition. In its comments on universal service, MCI links the issues of competition and USF contributions, claiming that the growth of IP- enabled voice services “threatens … universal service … [and that] the appropriate solution is reform of the current regimes, which are irrational and lead to uneconomic behavior by all market participants” (p. 5). Bridging the issues of universal service and technology, MCI suggests that “consistent with the layers principles, contributions [to universal service] should be assessed at only the physical layer of the network on top of which broadband-based applications and services ride, but not on the applications layer” (p. 49). MCI claims that universal service “should be directed at the network providers, since it is the cost of providing network connections to rural areas that generate the need for this subsidy” (p. 5). It recommends that support be provided only for the physical layer, not the applications and content layers, because universal service is concerned with getting transmission capabilities, not applications, to underserved areas. MCI claims that

230

because “the purpose of universal service is to build networks and provide service to rural and under-served areas, it is therefore unnecessary to support IP-enabled services, including applications and content” (p. 49). For this reason, MCI asserts that “all providers of broadband access service should contribute to the USF, but that no contributions should be sought from providers who are not telecommunications carriers” (p. 48). MCI’s suggested approach guides the FCC toward a regulatory classification that would place both VoIP and broadband providers on an equal policy footing as that of MCI. MCI uses language to support such a position when it suggests that the current USF contribution method has little standing in today’s VoIP environment. MCI claims that “current revenue-based USF contribution method is nearly impossible to apply in a rational manner,” and moreover, that a USF contribution system applied against network connectivity providers at the point of connection to the network “would associate universal service payments with physical facilities, rather than the provision of service, which advances the goal of universal service in that most of the expense in high-cost areas stems from providing access to facilities, not services” (p. 49). MCI feels no need to define the goal of universal service, counting on the FCC’s reliance on definitions from the 1996 Act to guide policy-making toward the Act’s stated goals. AT&T claims that universal service, “as virtually the entire industry recognizes, is in a death spiral (p. 38). AT&T cites the FCC’s Wire-line Competition Bureau’s estimate that between 2003 and 2007 the universal service fund will grow 16% while the contribution base will continue to shrink at an undetermined rate. Reasons for this shrinkage include consumer migration to services for long distance such as wireless service that have reduced USF requirements, or to IP-enabled voice service that has no USF contribution requirement at all. AT&T calls this shrinkage “unsustainable.” To combat erosion of USF contributions, AT&T recommends a “flat rate” assessed against a provider for each end-user call completed. No longer would rates be attached to time or distance. “Moreover,” AT&T states, “VoIP providers would be fully included” (p. 38). AT&T claims this new universal service regime would “halt the erosion of the contribution base that is a result of migration to non-traditional services” (p. 39). AT&T’s plan requires that the FCC continue to regard telecommunications connectivity as a 231

universal right. Competing stakeholders would prefer to have the FCC reframe universal service as universal access, whereby consumers need only have proximity to transmission facilities and may connect if they so choose. The use of the idea of consumer choice is itself a reframe of a consumer’s ability to pay – the antithesis of guaranteed universal service. Sprint is an inter-exchange carrier, and as such must purchase from ILECs, or CLECs reselling connectivity for a mark-up price over wholesale, access to the PSTN in order to complete traditional telephone calls. Sprint added competitive local exchange carriage to its business model in 2003, also the year the FCC initiated proceedings on how to regulate VoIP. Sprint bridges the three components of this research – technological innovation, economic competition, and universal service – to offer a potential “solution” to what it frames as the “problem” with universal service. Sprint “believes that goals of universal service” as well as others discussed in prior chapters, “are best achieved if VoIP is classified as telecommunications … and/or telecommunications services” (p. ii). It claims that classifying VoIP as an information service would likely leave the FCC without the statutory strength to compel universal service contribution compliance from VoIP providers. Sprint foresees that if, as predicted in the NPRM, there are significant shifts of PSTN traffic “to IP traffic, Congress’s objectives to provide universal service to all consumers … would be thwarted as the number of consumers using VoIP increases” (p. i). Counseling the FCC to include VoIP providers as contributors to universal service, Sprint cautions that without parity across fully substitutable services, VoIP threatens to undermine the public interest “that current [universal service contribution] arrangements are meant to address” (p. 3). Sprint notes that just because a technology is disruptive – as in when analog moved to digital, when wire-line moved to wireless, and when coaxial cable moved to fiber optics – does not mean the technology should thus be considered “free.” Sprint suggests that since the once cutting edge technologies – framed as legacy technologies by some stakeholders – must meet USF requirements, so must any new technology that serves as “another means of delivering voice” (p. 4) be subject to the same regulatory requirements as those technologies for which the new technology serves as a near perfect substitute.

232

Sprint attempts to bridge universal service and competition when it defines VoIP services as “substitutes for traditional circuit-switched and packet switched voice services [that] are the functional equivalents to fixed voice service should be analyzed and regulated – or not regulated – within the same general regulatory framework as their competitors,” continuing that “the services provided, not the technology used to provide the service, should drive the FCC’s regulatory scheme” (p. 8). Sprint remains on topic, this time bridging universal service and innovation, proclaiming VoIP not a new kind of service, but rather just a voice telephony innovation, an example of evolution within an industry that Sprint claims is characterized by change in communication technology throughout its history. With respect to technological innovation and universal service, Sprint claims that in 47 USC Sec 254 (b) “Congress recognized that regulatory policy must keep pace with technology” when it “directed the FCC to promulgate rules that will promote … access to advanced telecommunications and information services in all regions of the U.S. and … reasonably comparable services and rates for telecommunications and information services in rural, insular, and high cost areas” (p. 21). It might seem that Sprint moves toward concluding, as have other stakeholders, most notably those in favor of requiring universal service contributions from VoIP providers, that the above language from the universal service section of the 1996 Act suggests that the FCC should promulgate rules that could include VoIP, whether classified as an advanced telecommunication service or as an information service, among those services to which the universal service fund would support access. The next step would be for Sprint to bridge universal VoIP service with serving the public interest. Sprint does. Sprint calls for VoIP to be regulated as a telecommunications service, and cites the 1996 Act as directing “all providers of telecommunications [to] make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service” 47 USC Sec 254 (b). Sprint concludes, as have other stakeholders, that classifying VoIP as a telecommunications service and thus obligated to USF requirements would render VoIP a service for which the FCC should strive to promote universal coverage. Sprint calls for VoIP to qualify for universal service support when providing connectivity to service challenged areas, citing the FCC’s touting of network 233

externalities as justification for universal service: “increasing the number of people connected to the telecommunications network makes the network more valuable to all its users by increasing its usefulness to them” (NPRM, p. 8). Sprint makes a case for its recommendation that VoIP be included among USF contributors, claiming that those stakeholders who “support universal service will also gain from its development … because VoIP utilizes and accesses national networks by offering interconnectivity with all telephone subscribers, it plainly benefits from access to those networks” (p. 23). It cites Section 254(d) of the 1996 Act where Congress gives the FCC the right to determine whether “any other provider of … telecommunications may be required to contribute to the preservation and advancement of universal service if the public interest so requires.” Sprint claims that “Congress expressed a clear view that the responsibility for maintaining universal service be equitably distributed among all providers,”citing the 1996 Act as stating that “universal service is an evolving level of telecommunications services that the [FCC] shall establish periodically … taking into account advances in telecommunications and information services” (p. 22). Framing the exclusion of VoIP from the USF “potentially disastrous,” and claiming that it “displace[s] much of traditional circuit switched voice,” which Sprint claims would be “legally, socially, and politically unacceptable,” Sprint recommends that, “VoIP providers pursuant [to] Section 214(e) should be able to receive universal service support; … there is no sound reason for treating [VoIP] services differently” (p. 23), therefore VoIP must also be among those providers required to provide universal service.

The ILECS

Verizon is an ILEC that began offering fiber optic broadband network shortly after the NPRM comment period closed in July, 2004. In its response to the NPRM concerning universal service, Verizon recommends that the FCC should require the same USF obligations from all voice service providers – both circuit-switched and VoIP – irrespective of the technology used to provide those services. Verizon frames MCI’s idea that only providers of underlying broadband transmission services should be required to contribute to USF as “fundamentally at odds with the way in which USF contributions are currently assessed” (p. 33). Verizon asserts that, in keeping with the Report to 234

Congress, requiring all VoIP providers to contribute to the USF promotes the “tenet that the class of entities required to contribute to universal service should be broad” [13 FCC Rcd. 11562] and recognizes that “the public interest requires a broad contribution base so that the burden on each contributor will be lessened.” [13 FCC Rcd. 11565] Verizon claims that including all providers of voice services “will preserve universal service and ensure that the funding levels remain predictable and sufficient, even as the use of VoIP services continues to grow” (p. 56). It insists that to exempt voice providers from universal service obligations simply because they are providing IP- enabled voice service rather than PSTN voice service places the entire universal service funding burden on PSTN customers. Verizon cites 47 USC Sec 254, claiming that this section of the 1996 Act is intended to create ways to sustain universal service as competition emerges, which, according to Verizon, VoIP represents. It predicts that a USF contribution base inclusive of all voice service providers will ensure that affordable telecommunications, what Verizon recalls is a stated public interest goal of the FCC, reaches all Americans even in a rapidly evolving voice services marketplace. Verizon seems to attempt to tie its universal claims back to their claims of market competition by stating that “if traditional wire-line carriers are forced to bear USF that are not imposed on VoIP providers, prices for wire-line services will likely rise, and wireline carriers will necessarily be placed at a competitive disadvantage in a highly competitive marketplace,” which Verizon claims would be “inconsistent with the public interest” (p. 57.). In support of its claim, Verizon cites the 1998 Report to Congress, which reads, “the public interest requires that, to the extent possible, carriers with universal service contribution obligations should not be at a competitive disadvantage in relation to providers on the basis that they do not have such obligations” [13 FCC Rcd 11565-66]. Verizon advises the FCC that applying USF requirements to one technology, the PSTN, but not another, VoIP, would incline consumers to choose the technology with fewer cost burdens, which Verizon believes would have the FCC – rather than the market – choosing technological winners and losers, and distort consumer decisions about which technology to use for their voice services. Verizon supports its claims by citing the first Universal Service Order (1998) which states that USF requirements should “neither 235

unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor disfavor one technology over another.” [12 FCC Rcd 8801-02] Verizon notes that the FCC referenced 47 USC 254(d) in the NPRM, indicating that applying USF requirements equally across all voice technologies does not “guarantee the success” of a voice technology supported by universal service but rather ensures that there exists no bias for or against any voice technologies when assessing USF charges. Verizon maintains that merely because a stakeholder contributes to the USF would not necessarily guarantee that the stakeholder can draw from universal service funds to support its endeavors, referencing 47 U.S.C. Sec. 214 (e) when claiming that “[i]n order to qualify as an ETC for a particular service area, the carrier must demonstrate that it is able to meet certain statutory commitments and that its designation as an ETC is in the public interest” (p. 58). It states that under 47 U.S.C. Sec. 254(e) in which the FCC held “that carriers that provide service throughout their service area solely through resale are not eligible for support.” In a statement that recalls Verizon’s position on facilities-based competition and the rights of stakeholders that own the PSTN versus the rights of those that buy access at wholesale, Verizon again references the first Universal Service Order claiming that “to the extent that VoIP providers rely on facilities and infrastructure of other carriers and do not provide such facilities themselves, it would not be in the public interest …to allow these non-facility- based VoIP providers to collect universal service payments, [which] would constitute a windfall, while at the same time diluting the support for the very carriers that are required to bear the high cost of providing the facilities used to carry the VoIP service” (p. 58). [12 FCC Rcd. 8933-34] To further solidify its position as to whether VoIP services, if assessed a USF contribution, would be eligible for universal service support in high cost, low density areas, Verizon cites the Stevens Report which “decline[s] to expand the definition of supported services to include advanced or high-speed services at this time.” The Stevens Report states that all common carriers are required to contribute to universal service, even if they are only resellers, and that “[t]o the extent that a resale carrier is not offering telecommunications on a common carrier basis… and thus does not fall within section 254(d)’s mandatory contribution requirement, [the FCC] would determine whether, pursuant to its permissive authority, it would be in the public interest for the reseller to 236

contribute.” [13 FCC Rcd 11562-63] Referencing the Stevens Report, Verizon claims that “[a] provider’s universal service obligations should not depend on the regulatory classification of VoIP, [the FCC] should impose the same USF obligations on VoIP providers, whether or not those services are classified as telecommunications services or information services” (p. 60). Verizon attempts to make the point that no matter how the FCC classifies VoIP, whether as a telecommunications services or an information service, VoIP providers should contribute to universal service. Verizon claims that since VoIP providers that utilize the PSTN do not actually provide the physical facilities but rather just the applications that ride over the facilities provided by others “it would be inappropriate to subsidize them with universal service support” (p. 35). In the Stevens Report, the FCC held “that carriers that provide service throughout their service area solely through resale are not eligible for support.” Verizon believes that allowing non-facility-based VoIP providers to collect USF support would “not likely be in the public interest” because it would dilute the reserves meant for those for whom the support Verizon claims is intended providers offering basic services in high-cost areas. Verizon claims that under 47 USC Sec 254(d), “[t]o the extent VoIP is classified as a telecommunications service, VoIP providers would be required to contribute to the universal service fund,” and that the FCC also has the authority “to require certain VoIP providers to contribute to the universal service fund if the [FCC] classifies certain VoIP services as information service ... ‘if the public interest so requires’” (p. 61) Verizon again uses its universal service claims to indirectly suggest to the FCC that VoIP providers are telecommunications providers because VoIP providers that “allow” their customers to connect with the PSTN are providing telecommunications. In actuality, the customers are thus far required to do so if they wish to enjoy connectivity that is not considered “pure VoIP.” Verizon continues, claiming that VoIP providers fall within the class of entities that, per 47 USC Sec 254(d), may be required to contribute to universal service should the FCC choose to assert its authority and require VoIP providers to do so. Verizon bridges VoIP with telecommunications by using universal service as a foil, claiming that “[t]he fact that a VoIP provider may be providing telecommunications as part of an information service does not change that carrier’s universal service contribution obligations” (p. 62). 237

SBC Communications, like Verizon, is a provider of PSTN and fiber optic broadband networks. SBC claims that the FCC “can and should” collect USF contributions from VoIP providers offering service across the PSTN because “[a]s traffic migrates to IP-enabled services, collecting universal service contributions from VoIP providers will be essential to preserving the USF base” (p. 6). Unlike Verizon, however, SBC suggests that there may come a time when IP-enabled services such as VoIP may be required to contribute to universal service. SBC observes that the market for voice has steadily migrated “from traditional PSTN-based traffic to information services offered over broadband networks,” but that the FCC’s USF support policies “continue to impose the overwhelming bulk of universal service support obligations on legacy common carriers … even though many of the new providers of IP-enabled services interconnect with, and send traffic to, the PSTN” (p. 81). SBC considers it a “basic unfairness” that IP-enabled services providers who interconnect with the PSTN do not contribute to the USF. SBC cites the AT&T Access Report Order, where the FCC stated, and this inquiry earlier showed, that those who use benefit from the PSTN should contribute to its support. SBC claims that “[t]he communications market has witnessed an increasing shift of traffic and revenues from traditional PSTN-based traffic to information services offered over broadband networks, but the [FCC’s] universal service support policies continue to impose the overwhelming bulk of universal service support obligations on legacy common carriers” (p. 80). SBC observes that stakeholders such as Verizon, Comcast, and CWA support its views, and cites AT&T as a stakeholder who feels that a universal service contribution regime inclusive of IP-enabled services such as VoIP providers “would be ‘much more equitable than the current system’ and would ‘halt the erosion of the contribution base’” (p. 80). SBC notes that a “sparse handful” of stakeholders, such as Skype and Vonage, two VoIP providers, suggest that there is no need to require USF contributions from VoIP providers because the telecommunications carriers who provide transmission services required by IP-enabled services make contributions based on the revenues earned from offering wholesale access to the PSTN and would therefore “yield little if any benefit in terms of universal service support relief” (p. 81).

238

SBC acknowledges that although under the current universal contribution regime, telecommunications transmission carriers “do pay universal service support based on the revenues they earn from providing wholesale transmission service to the IP- enabled services provider, these wholesale revenues are typically low relative to the retail revenues the IP-enabled services provider in turn earns when it bundles that transmission with its own services, [and that] the minimal “indirect” contribution IP-enabled services providers make is far less than the approximately 10% contribution other providers pay with respect to their retail revenues” (p. 82). It cautions that “sparing IP-enabled services providers from this full contribution burden creates an artificial price differential between VoIP and PSTN services and threatens to undermine USF and the PSTN itself” (p. 82). Referring to the NPRM at page 63, SBC asserts that the FCC’s decision to leave universal service reform questions to the separate Universal Service Contribution Methodology (2004) proceeding is “properly decided,” claiming that the FCC must first decide who bears USF obligations and then define how the carriers bearing the obligation will contribute to universal service. SBC suggests that any forthcoming FCC decision on USF contribution methodology “could then be informed by decisions to require contributions from IP- enabled services providers that interconnect with the PSTN and to require contributions from cable modem providers” (p. 83). Citing the 1998 Report to Congress, SBC notes that the FCC has already ruled that non-common carriers can be required to contribute to the USF, which SBC believes the FCC should require of VoIP services because “the migration of consumers from legacy common carriers to IP-enabled services providers has the potential to dramatically affect the funding base for universal service” (p. 85), and that VoIP services should not draw from universal service. SBC observes that, “curiously, Sprint suggests that section 254 somehow precludes the extension of universal service obligations to information services, but the law clearly provides that ‘[a]ny other provider of interstate telecommunications may be required to contribute to the preservation and advancement of universal service if the public interest so requires’” (p. 29). [47 U.S.C. Sec 254d] SBC states outright that the FCC “should require providers of IP-enabled services to contribute to universal service” (p. 79). No where in its comments does SBC leave room for competing stakeholders to frame universal service as universal access. 239

The CLECs

Covad is a CLEC that also offers facilities-based broadband service in competition with the ILECs. Where Covad does not have connectivity directly into a consumer’s home, it must rely on a PSTN connection to complete a call. Concerning universal service, Covad claims that the FCC “must not impose an admittedly broken federal universal service funding mechanism on providers of IP based applications and services who have not heretofore been subjected to such contribution obligations” (p. 30). Covad assures the FCC that “to the extent that consumers and businesses migrate from legacy circuit switched telephony services to combinations of broadband transmission services and IP based services and applications, the sufficiency of the federal USF can be assured by making sure that the underlying providers of the broadband telecommunications services over which IP based services and applications are offered make equitable contributions to the federal universal service fund” (p. 28). Those making equitable contribution would include Covad itself, but Covad may be strategically framing its arguments to include an additional USF contribution over and above what it contributes by reselling PSTN connectivity – which is albeit less than what the ILECs pay to USF based on the differential between retail and wholesale contribution percentages. Covad might perceive that its own incremental increase in USF contributions would be worth the competitive edge it might gain if its plan for securing additional USF contributors – whose costs would go up far more than incrementally if USF requirements became a reality – were adopted by the FCC. Covad cautions the FCC not to “labor under the illusion that the current federal USF mechanism can withstand the onslaught of new services and applications combining information service layers of IP enabled services with underlying layers of broadband telecommunications services” (p. 30). Covad claims that the VoIP providers, “because they have no legacy voice business, … enjoy regulatory arbitrage from which they benefit, namely the ability to circumvent the USF” (p. 6). Covad understands this acutely because it sells transmission access to VoIP providers, which do not pay into universal service. Covad claims that, “[i]n the future, broadband transmission capabilities will become increasingly vital to the economic life of the nation, particularly rural areas” and

240

urges the FCC “not to relegate the new 21st century information infrastructure to 20th century universal service” (p. 30). This is Covad’s way of expressing to the FCC not to allow VoIP providers to carry their 20th century information service USF exemption into the 21st century. Level 3 Communications is a CLEC that has constructed broadband facilities but that also still must rely on the PSTN to provide any voice telephony service, either traditional or VoIP. Level 3 uses metaphoric language illustrative of a dire downward trend when referring to FCC policy on universal service, claiming that the agency “can get out of the revenue-based regulatory quicksand by adopting a competitively and technologically neutral system for collecting universal service fees” (p. iv). Level 3’s framing of a technologically neutral contribution mechanism includes providers of VoIP service, which Level 3 appears to see as a tenuous regime, claiming that reform would “stabilize” universal service contributions against “erosion” due to competition from VoIP competition. Level 3 claims that what it terms a technologically neutral universal service contribution plan inclusive of VoIP providers is “predictable” – and by implication framing the current system as somehow not so – and “equitable, as they have identical impacts on competitors providing similar services” (p. 24), here marrying competition with universal service as did many stakeholders in similar industry spaces. Like other stakeholders reliant on the PSTN, Level 3 believes the FCC “should restructure the universal service contribution mechanism by discarding the current revenue-based system and replacing it with a system based on providers’ connections to public networks or their use of numbering resources managed by the North American Number Plan Administration” (p. 2), which would include all VoIP providers except those offering computer-to-computer voice connectivity. Level 3 also expresses concern for the future of universal service, believing it “a critical necessity” that it remain “sustainable over time,” because Level 3 seems to feel, as do most other stakeholders in its market, that universal service contributions are no longer “stable,” here repeating earlier USF framing attempts, and have become a “shrinking payment base that threatens the USF regime” (p. 24). Level 3’s bleak assessment of universal service echoes language expressed by AT&T, that “[t]he system of collecting universal service contributions is in a death 241

spiral;… IP-enabled traffic moves off the PSTN, while demands for universal service funding are increasing.” (p. 22). To help make its case, Level 3 cites a 2004 letter from the High Tech Broadband Coalition, whose comments were submitted to the VoIP Forum, which claimed that “reform[ing] ... the contribution methodology for universal service ... would eliminate much of the economic pressure to regulate VoIP applications” (p. 23). Neither Level 3 nor the High Tech Broadband Coalition, which could reasonably be said to side with Level 3 in local loop issues, offered evidence in support of that claim. In its final comments on universal service, Level 3 reframes the issue, subtly changing “universal service” to “universal network connectivity” in its remarks. Universal connectivity stipulates that all end-users must be able to connect to the network should they choose, but that the network does not by definition have to be brought to the end-user. This system Level 3 frames as “an important public policy objective and maintaining that connectivity is equally important for IP-enabled services; as a result, fees that support universal connectivity should be drawn from a broad base for specific, targeted goals” (p. 23). Level 3 falls short of actually defining those goals, and of indicating why these goals are important to public policy. Perhaps they are simply important to Level 3.

The VoIP Providers

Jeff Pulver started the company pulver.com, the company by which the FCC decided, with the issuance of the NPRM, that a computer-to-computer voice call connection is an information service. In February, 2004, the FCC decided that Pulver offers a “pure VoIP” service which, because it did not utilize the PSTN in providing end- to-end calling, it would Pulver’s “pure VoIP” Free World Dial-up” service would be classified as an information service. In its response to the NPRM, Pulver suggests that the FCC resolve “universal service proceedings, particularly to ensure that IP-based communications providers are not dragged into existing regulatory schemes that so desperately need to be reformed” (p. 4). Pulver frames the universal service rules – to which he believes VoIP should not be subjected –as “archaic,” “onerous,” “illogical,” “disparate,” and “irreconcilable.” Instead of a service that he feels warrants such vituperative language, Pulver proposes 242

that the FCC “establish a clear regulatory distinction between telecom carriers and ISPs (information service providers) with carriers accorded both more rights and more responsibilities” (p. 17). Title II obligations would be imposed upon common carriers, who also would have the right to be eligible for universal service support. According Pulver, ISPs providing IP-enabled voice services would not have these rights, but neither would they have universal service payment obligations. The provider would remain free to choose what services it offered and therefore what regulatory paradigm it followed. While on its face a reasoned policy offering, Pulver’s solution for VoIP regulation suggests the need for additional policy to guard against the very issues the NPRM requests guidance in resolving – primarily how to equitably ensure the stabilization of the USF while regulating VoIP. Pulver’s answer to USF issues is a proposed self-selection regime that “must ensure lighter regulatory treatment of non-dominant providers and guard against unfair abuse of market power or facilities or consumer control by dominant providers” (p. 17). However, unlike stakeholders whose USF reform plans include suggestions for collections and fair enforcement, Pulver’s plan falls short of defining what would be considered unfair, abusive, or dominant and makes no suggestions as to how the FCC would guard against these issues, stating only that it must. Net2phone is a VoIP network and service provider and was the first to bridge the Internet to the PSTN to enable voice telephony. Net2phone claims that “consideration of universal service … should be deferred” until the FCC takes on the issue outside of the NPRM on VoIP, calling “admirable” the FCC’s goal to ensure that “all individuals have affordable access to basic telephone service” (p. 25). The company dismisses any references to “problems associated with last mile bottleneck facilities” as they pertain to universal service, which it claims are “quickly becoming a thing of the past,” because “VoIP does not depend on any specific types of technologies” (p. 26). Net2phone’s use of the word “quickly” is somewhat relative. Between 2003 and 2005, “pure” VoIP usage, that which does not require PSTN access – representing 95% of Net2phone’s business (Net2phone, 2005) – rose only 4% (FCC, 2005). Predictions of diffusion of VoIP run into the tens of millions of users by the year 2010, but those numbers do not break out how many of those VoIP customers would still use the PSTN local loop as a portion of their call connection. Net2phone’s claims become more imprecise as it attempts to bridge 243

universal service and competition with its proposed VoIP regulatory policy, suggesting that “[t]he need for universal service can … be met through technological development and competition, but only if the providers offering these innovative services can do so in an environment free from unnecessary regulations” (p. 26). How to define unnecessary regulations remains Net2phone’s proprietary information. Vonage, a VoIP provider, uses the universal service portion of its discussion to make another attempt at framing VoIP as an information service, a move that would, not surprisingly, exempt Vonage from universal service obligations. Per Vonage, it is “technically correct” that “non-facilities-based VoIP providers do contribute to the Universal Service Fund indirectly [in that] VoIP products and services are assessed a USF fee when telecommunications carriers pass-through the USF amount” (p. ii). Here Vonage frames its wholesale purchases of PSTN access as constituting indirect contributions to the USF as a result of pass through charges assessed by PSTN common carriers. As Vonage explains it, “the carrier providing telecommunications services to the VoIP provider must report those revenues as end-user sales [and] as such, these carriers typically assess [universal service contributions] on these sales, charging the non- facilities-based VoIP provider a USF pass-through amount [so that] the products and services purchased by these VoIP providers are assessed” universal service contributions” (p. 48, emphasis Vonage’s). Vonage claims that with regard to USF contributions – and based upon definitions for universal service provided in Title II – its VoIP service “qualifies as an information service, … that most other IP-PSTN applications will also qualify as information services and that, on the application layer, such applications should generally be subject only to regulations that are necessary to protect social goods, such as universal service” (p. 24). In a show of concern for dwindling universal service contributions and referencing language from the Computer Inquiries, Vonage claims that “attempts to so segregate services are based, at least in part, on concerns about the sustainability of the federal USF… [however], while maintaining universal service is an important public policy goal, that goal does not justify reversing decades of precedent holding that information service providers are ‘using’ (not ‘providing’) telecommunications” (p. 33, parantheticals Vonage’s). Voange insists that irrespective of the USF contribution system employed, 244

whether it be direct or indirect, VoIP contributions to universal service “would remain relatively consistent, as they are merely a reflection of the underlying telecommunications services purchased by VoIP providers” (p. 49), and punctuates its comment on universal service by stating unequivocally that “universal service should not be the tail that wags the dog” (p. 33). Vonage remains convinced of its position that one USF method is as good as another, offering anecdotal proof of it claims. Vonage uses what it calls “a snapshot” of its own telecommunications purchases to frame how any switch away from the current revenue-based universal service fund regime “would result in only marginal differences” in Vonage’s universal service contribution, and would have “no material impact” on overall fund revenues. “As a result,” Vonage elaborates, “any change in the current [universal service collection] methodology from a revenue-based methodology … should not substantially alter the magnitude of the USF payments made by retail VoIP providers that purchase underlying telecommunications services from other contributors” (p. 49). With only the use of episodic evidence, one might wonder at the verity of Vonage’s claims concerning universal service and also wonder, if the result of a change in contribution method would have no effect on fund revenues, why Vonage works so hard to press the idea of keeping the current universal service regime in place.

The Broadband and Infrastructure Providers

BSPA is a coalition of providers of broadband service over cable that compete with the large cable companies, such as Comcast or Time Warner. The cable providers that BSPA represent must access the PSTN should they elect to deliver VoIP to customers over their broadband platforms. Perhaps more importantly, current customers who purchase the company’s broadband must use the PSTN for any VoIP calls that are not strictly computer-to-computer. BSPA thus believes that it is not overstating when it claims that “[i]n regards to universal service support, such support is critical to maintaining the breadth and reliability of the PSTN, and federal policy is based on the principle that all carriers that use the PSTN benefit from its maintenance” (p. 19). BSPA cites Section 254(b) of the Act when stating that “in enacting universal service regulations the [FCC] inferred the principle of competitive neutrality, which requires that universal support mechanisms ‘neither unfairly favor nor disfavor one technology over 245

another’” (p. 8). BSPA insists that “[t]here is no basis in the Act or in the record of this proceeding for the [FCC] to act in a manner inconsistent with that policy” (p. 9). Referencing the NPRM, BSPA claims that the fairest way to determine which VoIP providers would contribute to universal service would be those “IP voice services that are a substitute for Plain Old Telephone Service, are those that use [the 10 digit North American Numbering Plan] numbers, charge the subscriber for service, and originate or terminate calls on the PSTN; such IP voice services would have the obligations and rights of non-dominant telecommunications carriers” (p. iii). BSPA emphasizes that universal service contribution by these carriers is especially important because, “[b]y definition, such providers are relying on the PSTN at least in part for the provision of their service” (p. 19). BSPA offers that, although it believes that “less regulation is better than more” (p. 3), in cases involving the public interest, “regulation of telecommunications service providers is necessary in some cases, not only to fulfill the explicit requirements of Title II of the Communications Act, but also to promote …social obligations such as … equitable contribution to federal and state universal service support mechanisms” (p. 4). BSPA notes that the FCC “has long recognized that the PSTN is a national asset, and as such it must be supported equitably by all parties that use it, through … contribution to universal service support mechanisms” (p. 19). BSPA claims that as concerns universal service provision, “[t]here is no basis in the Act or in the record of this proceeding for the Commission to act in a manner inconsistent with that policy” (p. 9). Framing the PSTN as indispensable to the national is intended to sway the FCC to ensure that the PSTN remains intact for all those broadband resellers who require PSTN access for VoIP provision and who constitute the majority of BSPA customers. Regulation that detracts from BSPA customer success detracts from BSPA success as well. Global Crossing, an Internet backbone provider, owns an IP network encompassing over 70 gateways with what the industry terms “Five Nines” reliability (99.999% rate of availability). According to the company president’s numerous public statements and the company’s comments to the FCC, the “O” of Global Crossing’s REFORM agenda concerning VoIP is to “Overhaul Universal Service.” Framing the current universal service plan as “dysfunctional,” Global Crossing recommends that the 246

fund be “resized appropriately so that it only supports universal service objectives, … is not used as an earnings support mechanism for carriers, … [and is] broad based and competitively neutral” (p. 13). Bridging competition and universal service, Global Crossing suggests that a competitively neutral universal service policy presents challenges specific to IP-enabled voice services due to the difficulty in determining the nature of a VoIP call once it leaves the PSTN. Traditional facilities-based voice communication providers have substantially more of their calls recorded for purposes of revenue tracking to determine a carrier’s contribution burden to universal service than do VoIP providers. Global Crossing recognizes the challenge of tracking voice transmission for the purposes of USF contribution assessment. It observes that any universal service “taxing” mechanism relying on traditional telephone numbers would be temporary, thus suggesting that Global Crossing predicts a migration to IP-enabled voice communication sufficiently significant as to require future regulatory attention to ensure the USF’s ongoing support. Global Crossing sees the difficulty of universal service funding as stemming from the historic interconnectivity between voice applications and the network upon which they traveled. It credits IP-enabled voice services with offering “a broad range of new and innovative ways to support traditional public interest efforts” (p. 15), such as universal service, but does not provide evidence for these predictions. With the arrival of VoIP, communication applications and networks no longer must function as an inseparable unit. VoIP allows the decoupling of a formerly tightly coupled end-to-end communication protocol by separating the call’s voice component from the transmission component. Global Crossing claims that because VoIP providers have “ample opportunity” to bypass the universal service funding mechanism that relies on “attachments to the network” rather than “network characteristics” in an IP environment, a “tax levied on the full range of information technologies would ensure a stable, broad based support mechanism for universal service” (p. 14). The de minimus scheme proposed by the FCC in the NPRM would mean that every provider would have to contribute a specified minimal amount to universal service, but that providers deemed to have the ability to pay more under a new contribution scheme would be required to do so. What Global Crossing does not specify is which of the innumerable categories of 247

information technology would fall under a new universal service rubric and which ones would be exempt.

The Industry Organizations

USTelecom (USTA) is an industry organization for U.S. telecommunications providers. USTA affiliates have always paid into the universal service fund and claim that “all IP-enabled service providers should help meet important social goals such as in maintaining universal service” (p. i). USTA bridges the concept of technological neutrality to universal service contributions, claiming that all providers, VoIP providers, should be “treated equally regardless of the transmission technology they use or their treatment under legacy regulation” (p. 2). Citing Section 254(b), USTA also bridges universal service and competition by claiming that “[a] central part of a policy of relying on the market to determine winners and losers in IP-enabled services is to ensure that the [FCC], through asymmetrical regulation, does not tilt the playing field against some companies” and that regarding universal service, the FCC’s decisions “should uniformly be grounded in … the imperative of protecting important social goals, including universal service” (p. 3). USTA’s framing of the telecommunications market as a playing field with respect to regulatory arbitrage suggests that some stakeholders might attempt to game the regulatory system by allowing the most favorable regulatory regime to determine their service offerings instead of offering the best services possible to the consumer, thus connecting universal service both to technological innovation and competition. USTA claims that “Congress intended the [FCC] to reach beyond technological categories and apply the same regulations to all services that are functionally alike” (p. 10). It cites the Stevens Report when referring to the FCC’s having “emphasized that universal service obligations should apply equally to avoid artificial competitive advantages,” and reminds the FCC that in the Stevens Report, “it seeks to ‘reduce the possibility that carriers with universal service obligations will compete directly with carriers without such obligations’” (p. 14). USTA predicts that the FCC “will not be able to meet these goals if providers of IP-enabled services that replace traditional voice service do not have the same obligations as LECs to contribute to universal service” (p. 16). USTA cautions that in order to maintain the viability of the Universal Service Fund, 248

the FCC “must broaden the base of contributors to the fund and regulators must rigorously apply the public interest test” by deeming VoIP service providers to be “appropriate” contributors of universal service fund support, and must “broaden the contribution base by requiring … providers of VoIP services … to contribute in a similar manner” (p. 37) as do current contributors. It warns that, without VoIP provider contributions to universal service, “over the next few years, the base of consumers supporting universal service would be whittled away by tens of millions of customers” due in large part to migration “from a traditional circuit-switched service to an IP voice service,” with IP-enabled service providers enjoying “an artificial cost advantage that will make it even easier to siphon off ever more customers from the wire-line providers that are supporting universal service” (p. 16). The use of term “siphon” refers to the adding to one container while taking from another, an application of a rhetorical tactic observed by Stone (1988) and suggestive of a zero sum game where, even in light of technological advances, no additional customers are ever added and stakeholders compete for a finite customer base. USTA uses the word “artificial” twice in referring to some stakeholders’ competitive advantage through application of the current universal service regime – presumably those stakeholders classified as information service providers. USTA claims that “[t]here must be parity in the contribution methodology of all contributors to universal service” (p. 37). Looking toward a time when the PSTN is no longer the primary voice telephony platform, USTA insists that it is “crucial” for the FCC to “ensure that universal service obligations apply to IP voice providers … just as they do for traditional voice providers” (p.16). USTA marries competition, technology, and universal service with the claim that “[r]ules that place regulatory burdens on some providers, but not on their competitors, hurt both competitors and consumers, … causing less efficient or less innovative companies to prevail because of artificial competitive advantages … [a]nd encourag[ing] inefficient arbitrage: companies will adopt certain technologies not because they are more efficient, but rather because that will allow them to avoid a regulatory obligation (such as support of universal service) that their competitors must bear” (p. 10; parentheticals USTA’s). USTA stokes nationalistic fires when it claims that “[t]he importance of providing all Americans with universal access to 249

quality and advanced telecommunications and information services cannot be overstated” (p. 15). USTA emphasizes that “telephone service provides a vital link between individuals and society as a whole” (p. 16), and cautions that without universal service, the costs of “connecting rural and high-cost areas of the country … to the rest of the nation and the world … would be would be prohibitive” (p. 15). Citing the Stevens Report, USTA makes the case for some form of ongoing universal service, noting that “the absence of telecommunications service in a home puts its occupants at a tremendous disadvantage in today’s society” (p. 15). It advances the idea of VoIP service providers contributing to universal service by suggesting that the fund be regarded both “as a means of maintaining current infra-structure and creating a more robust nationwide network that provides the foundation for quality and advanced telecommunications and information services” (p. 15). In its comments USTA begins to open the door for advanced services, such as VoIP, to be considered an essential component of a universal service provision mandate. What USTA does not do is walk through the door it opened with a full endorsement of VoIP deployment as representing the public interest on USTA’s part. USTA asserts only that the FCC “should establish mandatory guidelines for determining when it is in the public interest to designate an additional eligible telecommunications carrier that may receive universal service support” (p. 37), but does not take the next step of claiming that VoIP is as essential a service as is basic service. ITTA, the Independent Telephone and telecommunications Alliance, is an industry organization with members consisting of independent telecommunications providers, or, small CLECs. ITTA claims that “fulfillment of the true public interest requirements attending … universal service and related matters can only be achieved by the (a) full, fair, and equal distribution of these public interest obligations to all IP market participants and the (b) full, fair, and equal enforcement of these obligations” by the FCC (p. 2). ITTA’s use of the word “true” suggests that without a full, fair and equal scheme, any public interest representation would be spurious. ITTA’s language indicates a mandate with sacred implications, claiming that “[a]nything less contravenes congressional concerns for comparability enshrined in section 254.3” (p. 4). ITTA bridges universal service and technological innovation, especially within the PSTN and IP-enabled communication, in claiming that “adherence 250

to these points will improve the climate for investment in the PSTN and will forestall problems in the evolution of the IP-based networks and services of the future — results directly and favorably impacting all communications consumers” (p. 2). Based upon the its frame of infrastructural connection between the PSTN and the Internet upon which VoIP capabilities depend, ITTA suggests that any FCC policies with respect to IP- enabled voice services must “deal effectively with ensuring that the PSTN in such markets remains technologically robust, in tandem with the technologically advanced services which that network must deliver to the public” (p. 6). According to ITTA, the infrastructural delivery mechanism for voice communication should not dictate whether a voice service provider contributes to universal service because “to the extent service providers are exempted or otherwise fail to meet statutory public interest requirements, consumers are directly and adversely affected [because] inadequate contributions to the universal service fund … will strain an already straining mechanism” (p. 10). ITTA refers to 47 U.S.C. Sec. 254 (e) when claiming that an unsustainable universal service fund “contravenes statutory requirements and imperils service to those consumers dependent upon the ‘facilities and services for which the support is intended” (p. 11). It insists that the FCC require universal service contributions from all parties who use the PSTN for voice communication “for multiple reasons directly promoting the public interest, …IP-enabled services which use or touch the public switched telephone network must afford such network providers the opportunity to obtain adequate revenue streams to maintain and enhance their legacy networks” (p. 2). ITTA again bridges universal service to competition, claiming that an unequal burden of universal service obligations among providers could result in unintended competitive consequences and that “[m]arket participants who do not bear their fair share – who are exempted from paying for network use, who do not contribute fairly to universal service support … enjoy an artificial cost advantage over those who do meet their obligations … many of whom may well be in competition with those exempted” (p. 11). ITTA suggests that any universal service policy adopted by the FCC with regard to VoIP must incorporate “technological neutrality” to ensure that “[s]ervice providers similarly situated (from the consumer's perspective) should be brought to the same level of obligation and public interest requirement across the board” (p. 12). ITTA claims that the FCC, in determining 251

universal service policy as applied to VoIP, must “establish common obligations and common treatment for all parties in meeting the common public interest burden” (p.11). APT, the Agency for Public Telecommunications, is a nonprofit organization comprised of public interest groups and individuals addressing the need for ubiquitous deployment of advanced telecommunications services. APT contributed comments to the VoIP Forum specifically concerning universal service under their VoIP Coalition arm. Concerned that any VoIP regulatory policy be technologically neutral, APT offers its response to the NPRM envisioning that numerous universal service issues can be addressed if VoIP is treated equally in accordance with PSTN universal service policy. APT asserts that “[r]egulatory equality among all providers in the broadband market fosters investment in high capacity network services that provide life-enhancing applications to … expand educational opportunities for lifelong learning, create opportunities for jobs and economic advancement, as well as the ability to control one’s own finances, and simplify access to communications technology” (p. 2). APT believes that VoIP as a service “is functionally equivalent to plain old telephone service,” and therefore “IP-enabled voice service providers must contribute to the universal service fund to ensure affordable access to telecommunications services for all Americans” (p. 3). Using language typically reserved for the Internet, APT frames the PSTN as the “backbone” of U.S. communications. APT claims that, “as more consumers migrate from traditional wire-line carriers to VOIP carriers the revenues that are currently assessed to support universal service will decline substantially, [and] without appropriate regulatory measures to include contributions to universal service from IP-enabled voice service providers, universal service support will be severely weakened” (p. 4). APT broadly concludes that IP-enabled voice services “will create vast new possibilities to enhance the way Americans communicate and participate in our political, economic, and civil life” (p. 7) – allowing the inference that these prognostications will only manifest if VoIP providers are included in the universal service equation. The Federation for Economically Rational Utility Policy, FERUP, leaves no room for doubt as to where it stands on the topic of universal service. FERUP frames that the advent of VoIP as having put the “once-ensconced” universal service program into “crisis mode.” Concerning universal service, “decisive change is mandatory,” FERUP declares. 252

Envisioning a grim future for the fund, FERUP expounds on the topic of universal service - “as VoIP and other technologies mixing voice and information services become more prevalent, the needlessly complicated current [universal service] scheme will fall apart (p. 5). FERUP’s concrete claims read like hyperbole, requiring either firmer statistics or a glimpse into the future to justify. FERUP claims that “universal service presents another fundamental policy challenge” stating that although “as a general matter, nascent technologies should not be burdened with old taxes, the country has established universal service policies that require funding” (p. 15). It considers that, “Regardless, VoIP providers would not have to be subjected to the full range of common carrier/telecommunications regulation in order to require VoIP providers to contribute to the USF” (p. 16). FERUP postulates that as end-users increasingly seek out substitutes for what FERUP terms a “taxed service” by not subjecting those substitutes to USF obligations the FCC picks market winners and losers. “Some competitors – but not others” FERUP claims, “would bear the brunt of funding the program” (p. 15). “Ultimately, any extension of USF obligations to VoIP providers (or others) should not constitute new or additional revenue for the government to redistribute, rather it should reflect a reallocation of a burden amongst some group of similarly situated competitors;” FERUP frames the universal service issue as “far preferable” that policymakers should “determine the amount needed to meet a defined universal service goal and charge the pool of participants for their share of the needed amount” than asymmetrically charge stakeholders for USF maintenance (p. 16). FERUP does not consider the option of symmetrically applying USF obligations to all voice service providers. OPATSCO is the Organization for the Protection and Advancement of Small Telecommunications Companies, a national industry organization representing approximately 560 small incumbent local exchange carriers serving rural areas of the United States. OPATSCO believes that the FCC should “expand the base of universal service fund contributors to include all facilities-based broadband Internet access providers” (p. 1). OPATSCO predicts that the long-term sufficiency of the universal service fund will be jeopardized as U.S. voice communications migrate to IP-enabled voice service platforms. OPATSCO observes that currently “only DSL providers to 253

contribute to the Fund, while cable modem and other broadband platforms are exempt” (p. iii). It bridges universal service and competition by suggesting that the FCC require “all facilities-based broadband providers over all platforms to contribute would restore competitive neutrality in the rules and eliminate the potential for marketplace distortions” (p. iii). OPATSCO claims that the base of universal service fund contributors should be expanded to include all facilities-based broadband Internet access providers (p. i). OPATSCO feels so strongly that IP-enabled voice providers should contribute to universal service that it insists that the FCC “should do this expeditiously, irrespective of any decisions it may make regarding the statutory classification of IP- enabled services and/or broadband Internet access services” (p. 9). It claims that “the inclusion of all facilities-based broadband Internet access providers as contributors [to universal service] has become increasingly critical to maintaining a stable and sufficient [fund], as Congress intended” (p. iii). To support its claim for universal service support from broadband providers, OPATSCO references the 1996 Act, noting that the FCC may determine that “any other provider of interstate telecommunications may be required to contribute to the preservation and advancement of universal service if the public interest so requires.” [47 USC Sec 254(d)] OPATSCO emphasizes its position on requiring broadband providers’ contribution to universal service and calls for the FCC to do so promptly, because, it claims, “[p]articularly in light of the rapid growth of IP-enabled services, including VoIP, it is most definitely in the public interest that all broadband Internet access providers over all platforms be required to contribute without delay,” promising that “[a]s the marketplace evolves toward broadband platforms and IP networks, the shift away from more traditional telecommunications services will continue to ‘drain’ the support base for universal service, threatening its sufficiency” and that the “impact is even more pronounced when providers offer voice services over broadband platforms that are the functional equivalent of traditional telephony, but the underlying broadband access provider is not required to contribute to universal service” (p. 10). Like BSPA, OPATSCO uses Stone’s (1998) a metaphorical container to suggest that the universal service fund is being “drained,” an image that conjures a steady stream of contributions flowing away from the PSTN and into the pockets of VoIP providers. 254

OPATSCO cites CC Docket No. 98-146, Third Report, [FCC 02-33 2002] that: “high population density has a strong positive correlation with the presence of high-speed subscribership and low population density has a strong negative correlation,” and reminds the FCC that it is the one of the 1996 Act’s “primary policy goal[s] to encourage the ubiquitous availability of broadband to all Americans.” [17 FCC Rcd 3019, 3021] OPATSCO claims that “there is no need to continue delaying a decision to require all broadband Internet access providers to contribute to universal service under the FCC’s permissive authority, as this issue is separate and distinct from the issue regarding the classification of these services” (p. 10). OPATSCO references a 2002 General Accounting Office report that describes predictions concerning universal service were no changes in current policy made: “[a]s the deployment of IP telephony technologies move forward, and more businesses and consumers begin to substitute IP telephony for traditional telephone service, the question arises as to whether a decline in the funding for universal service could result; ... when some service providers are not required to contribute to universal service, the obligation upon those who are required to contribute is obviously greater [and] spreading support obligations as widely as possible reduces each company’s contribution, which, in turn, reduces the level of universal service assessments that each carrier must ultimately pass on to their customers.” OPATSCO claims that, concerning universal service, “the demand is simply shifting to service packages and service providers in which either the precise portion of revenues attributable to interstate telecommunications cannot easily be identified (e.g., wireless carriers) or the service provider is not currently required to contribute to universal service” (p. 11). Citing 47 U.S.C. §254(b)(3), OPATSCO claims that a plan for the long term sustainability for universal service would allow consumers to have access to advanced services, no matter whether they live in high cost or rural areas, a plan that sounds as though it extends the 1996 Act’s public interest mandate for universal service to include advanced services. OPATSCO suggests that “by extending universal service assessments to all facilities-based broadband Internet access providers would help keep the USF sustainable for the long term, especially even as increasing amounts of voice traffic migrate away from traditional telecommunications carriers … and, in turn, would help to ensure that consumers in rural and high-cost areas continue to have affordable access to 255

telecommunications and information services, including advanced services, that are comparable to those offered in urban areas” (p. 11). This type of framing appears to support an idea of universal service including broadband access, which this inquiry has shown not all stakeholders believe is necessary to comply with the public interest mandate of the 1996 Act. OPATSCO endorses the FCC’s stated goal in the NPRM of competitive neutrality vis-à-vis universal service policy applications because of what OPATSCO reminds the FCC of its requirement that the “Commission’s own universal service principle of competitive neutrality requires that facilities-based broadband Internet access providers over all platforms contribute to universal service” (p. 12). Actually, the OPATSCO citation from the Federal-State Joint Board on Universal Service [12 FCC Rcd 8776, 8801] only defines competitive neutrality, specifically stating at the cite OPATSCO references that “In this context, competitive neutrality means that universal service support mechanisms and rules neither unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor disfavor one technology over another.” It does not state what OPATSCO claims the reference states, that facilities based broadband providers are required to contribute to universal service. OPATSCO observes that “there are valid concerns that the rapid evolution of IP- enabled services might drain substantial amounts of support for the local network providers in high-cost areas that enable rural consumers to enjoy these types of services” (p. 11). It claims that disparate treatment of broadband providers such as cable modem and satellite broadband providers versus DSL broadband providers, the former not having to pay universal service contributions and the latter having to do so, “has created opportunities for regulatory arbitrage – broadband Internet access providers that are exempt from contributing to universal service have a competitive advantage over those who are required to contribute, as they do not need to recover any support payments from their end-users” (p. 12). It cites the GAO report which allows that “IP telephony calls, which do not include universal service charges which, for large companies average between 8 to 12 percent of the total telephone bill can mean a savings of around 10 percent on corporate telephone bill” and which, OPATSCO claims the GAO believed could make IP-enabled voice communication attractive service providers “virtually overnight.” OPATSCO claims that “by expeditiously requiring facilities-based broadband 256

Internet access providers over all platforms to contribute, the [FCC] would eliminate the growing inequity” and the potential for what OPATSCO frames as “marketplace distortions that arise under the current [universal service] rules” (p. 13). The VON Coalition, formed by Jeff Pulver to represent the interests of VoIP providers, suggests that “[o]ne of the goals of universal service is to provide affordable voice communications to rural America, and no technology offers more promise for achieving this goal than VoIP” (p. 26). The VON coalition claims that VoIP “is the application that will drive broadband deployment, including in rural America where access to broadband lags behind the rest of the nation” (p. 11), while asserting that “IP- enabled services have not been demonstrated to have a significant impact on universal service … revenues for VoIP” (p. 15). As evidence, the VON Coalition suggests that “[although] the number of Internet-based phone lines is projected to grow from well under a million in 2002 to more than 5 million by the end of 2004, this represents a tiny fraction of the 113 million households where the traditional phone line will still be the primary line” (p. 7). Further supporting its claim that the broadband deployment needed for VoIP market saturation still falls far behind even optimistic definitions of universal service, the VON Coalition notes that, “[g]iven that only approximately 60 percent of American households own PCs, and only 20 percent have access to broadband, the number of people who can take full advantage of broadband-enabled VoIP applications is still limited” (p. 15), especially in rural and poorer neighborhoods. The VON Coalition claims that it has “long supported the goals of universal service” (p. 26) and will continue to do so, adding a caveat, drawn from 47 USC Sec 254 indicating that the universal service funding mechanism must be “explicit and sustainable.” Yet the VON Coalition in no way attempts to circumscribe the limits within which an “explicit and sustainable” universal service program might be expected to succeed. Even with its stated full support of universal service, the VON Coalition still does not recommend placing a universal service contribution requirement upon VoIP service providers. In a footnote, the VON Coalition claims, as do most other stakeholders in its space, that, “under the current universal service regime, VoIP providers contribute to USF either directly or indirectly [because] when an information service provider purchases an underlying telecommunications input, this generates indirect contributions 257

to universal service support mechanisms” (p. 26). The VON Coalition cites reasons similar to those Vonage claimed have had negative impact on universal service revenues – not falling contributions due to migration to VoIP, but rather that VoIP “[has not] had significant impact on universal service funding because most use of VoIP has been focused on international traffic or enterprise deployment which is outside the funding regime for universal service support” (p. 27). The VON Coalition claims that Title II should not apply to VoIP services because they fall under the Act’s enhanced, not basic, service classification, which would preclude VoIP from having to contribute to universal service. Bridging innovation to universal service, the VON Coalition references ITXC’s Tom Evslin’s presentation to the VoIP Forum, where he stated that “[o]ne of the goals of universal service is to provide affordable voice communications to rural America, and no technology offers more promise for achieving this goal than VoIP” and that VoIP is what will drive rural broadband deployment, all while increasing worker productivity (p. 11). The VON Coalition frames universal service as requiring not policy mandates but “voluntary efforts” to achieve the “pressing social policy objectives” arising from the forces of competition. Demonstrating how closely it sees the issues of universal service and competition to be connected, the VON Coalition claims that “Title II obligations intended to protect consumers … are unnecessary; … VoIP providers must provide these types of basic consumer protections in order to attract or retain customers … [and] if a VoIP provider does not offer such protections, it will lose customers to competitors who do” (p. 29). Where the VON Coalition differs from Vonage is in its suggestion that, per 17 FCC Rcd. 24952, the FCC “move away from a USF contribution methodology based on end-user telecommunications revenues and to instead require carriers to contribute to the USF based on either the number of connections they provide to the public network or the number of working telephone numbers they have” (p. 27). In its reply comments, the VON Coalition references AT&T and MCI, “among others” who support its recommended universal service fund contribution mechanism, that “where IP-enabled services are classified as information services there will be no impact on federal and state universal service funding assuming the current revenue-based contribution scheme is replaced with a connections or numbers-based contribution methodology” (p. 7). 258

Although it offers no evidence, the VON Coalition claims that one of these two USF contribution methods would, unlike Vonage’s claim of their having no net effect, “better ensure the continued sustainability of the USF than any attempt simply to include IP- enabled and other information services in the current revenue-based mechanism” (p. 27). The VON Coalition is safe in making this suggestion because it calls for “carriers to contribute.” The reader will recall that the VON Coalition’s initial premise is that it is not a carrier but a service, and therefore exempt even from the universal service contribution mechanism it agrees is needed but would only apply to upon common carriers. Its proposal does not seem to be a giant leap away from the status quo for a coalition holding itself out as a “thought leader.” Few would expect an organization– and it would be the rare stakeholder – to suggest policy more detrimental to its bottom line than that with which it currently contends. The United Telecom Council/United Power Line Council (UTC/UPLC) are organizations that represent broadband over power line companies and who filed comments jointly in response to the NPRM. In a comment that foreshadows a bridge between innovation and universal service, UTC/UPLC claim that “[r]estrictive regulation” of VoIP over networks “would discourage utilities both from deploying systems and from offering capacity to others, which could impair access and competition in the many rural and underserved areas in which utility entities offer the best, if not only, chance of advanced services to the general public” (p. 7). Here UTC/UPLC suggest that regulating VoIP would lead to less innovation; they further suggest that rural areas might not have access to advanced services if universal service requirements were placed upon broadband over powerline providers. In a curious attempt at employing Snow et al.’s (1986) observation of frame transformation – typically used when a stakeholder is unable to garner a sufficiently salient constituency concerning a key issue– UTC/UPLC reframes universal service obligations as contributing to the impediment, rather than the advancement, of new communication technologies to remote areas – exactly the opposite of what the 1996 Act stipulates that universal service must accomplish. Despite their reframing attempts, UPC/UPLC cannot quite describe how their alchemy of turning universal service into universal roll-back would occur. UTC/UPLC claim that there is a “chance” that advanced services would be adversely affected by regulation. It is 259

reasonable to note that there is also a chance that advanced services would be positively affected by regulation or negatively affected without regulation.

Summary

This chapter illustrates how the topic of universal service was seen by many stakeholders as the “third rail” of the VoIP debate. The most remarkable aspect of stakeholder commentary on universal service was its conspicuous absence. Stakeholders almost collectively back-grounded the universal service issue as a topic for consideration in responding to the NPRM. The stakeholders who fore-grounded universal service were the telecommunications providers, and those who would compete directly against the telecommunications providers, likely anticipating their on-going Universal Service Fund obligations irrespective of any regulatory disposition concerning VoIP. The VoIP providers use what Vint Cerf (2004) refers to as “evangelizing” a technology, and what Warnick (2002) refers to as “utopian” rhetoric, when claiming that IP-enabled innovations are good for universal service. Although some stakeholders claim that VoIP brings more money to the fund, others claim VoIP brings more broadband to end-users, the VoIP providers are unified in their claim that universal service is benefiting from their technology. They are also united in that no one wants to have to pay for it. This chapter shows that while nearly all stakeholders felt that universal service was a noble goal, not all felt that VoIP should be part of the universal service contribution equation. Those stakeholders who framed universal service as supported by contributions from VoIP providers as representative of the public interest fell into two camps – those that believed universal service should be maintained as it is under the requirements of the 1996 Act and those that believed that universal service was better defined as universal access. “Universal access” is a rhetorical term primarily used by stakeholders who do not wish to see the universal service fund continue under its current mechanisms if they have to pay for it. They frame universal access as simply another form of universal service when in actuality universal access does not follow the provisions of universal service as defined by the 1996 Act. Universal access only guarantees that end users will be able to connect to transmission services should they choose to do so. It does not guarantee what 260

the 1996 Act requires of universal service, that end users have guaranteed connectivity and at least minimal service irrespective of where they live or what they can afford. The FCC “maintain[s] that the cost of the PSTN should be borne equitably among those that use it in similar ways” (p. 23). In the NPRM, the FCC refers to the Non-Accounting Standards Order to indicate that universal service contributions are required from all telecommunications providers. Universal access would provide connectivity only to those end users who could afford service. Universal access proponents frame the ability to afford connectivity as consumer choice. These stakeholders, most notably the VoIP and broadband providers, claim that competition will ultimately drive VoIP to underserved areas, and that mandated universal service contribution is an idea whose time has come and gone. What they do not address is how to respond to end-users in-low income or high-cost areas when they realize that their universal service support is gone. In its request for comment, the FCC asked stakeholders whether VoIP should be regulated as a hybrid of telecommunications and information services with a special category carved out for the new innovation much like the Communications Act of 1934 would add a new Title category when a new technology emerged. Pulver suggests allowing providers to decide for themselves how they wish to be regulated – dichotomously – either as telecommunications providers or information service providers. Pulver does not explain how the stakeholders might choose to regulate themselves if the FCC created a separate category for VoIP regulation. Several stakeholders advocate for what they frame as “technological neutrality” as applied to universal service requirements, a rhetorical phrase used throughout the VoIP debate, especially when discussing universal service, to represent a “fair and balanced” approach to VoIP policy by treating all technologies equally. The contextual analysis component of framing offered by Glaser and Strauss (1976) suggests that neutrality is a reasonable concept, but only if applied within the context of the industry. In the case of VoIP policy, context might be interpreted as applying technological neutrality within the information services sector specifically rather than the communications sector as a whole. MCI frames the VoIP policy debate around its own technology, understanding that, as a provider falling under the telecommunications policy definition, it already pays into universal service and from a competitive standpoint would want facilities-based 261

broadband providers that offer a nearly identical product to contribute as well. It chooses to bridge its universal service recommendations to its competitive agenda by using a technology argument. MCI attempts to sway FCC decision-making on VoIP policy with claims that without universal service support, the PSTN and the technology upon which it depends would ultimately deteriorate to a point that it would no longer be able to live up to service provision requirements outlined in the 1996 Act. Sprint states explicitly that “voice services that are offered and function as substitutes for … voice calls are telecommunication services” (p. 7) and advocates throughout the VoIP debate for a “functional approach” to VoIP regulation. To support its framing of VoIP services as telecommunications, and therefore subject to USF requirements, Sprint cites 13 FCC Rcd. 11501 (1998), which states that, “the classification of a service under the 1996 Act depends on the functional nature of the end- user offering.” This inquiry has shown that some stakeholders, most notably those lobbying for VoIP exemption from universal service obligations – perhaps by suggesting that VoIP is an information service – are inclined also to lobby for dismissal of the functional approach to regulating VoIP, and what FERUP calls “dismissal of the duck.” Verizon shows that several stakeholders argued that because non-facilities based VoIP providers contribute to the universal service fund by buying transmission services wholesale, they must therefore not be assessed an additional USF contribution at the retail level. Verizon claims that Vonage uses the argument that it and other VoIP providers buy service on which CLECs have already paid USF contributions. Verizon notes that, “[a]ccording to Vonage, non-facility-based VoIP providers ‘are no different than many non-facilities-based enhanced services, such as Internet access services offered by traditional ISPs, that require significant quantities of telecommunications services in order to provide the application’” (p. 31). Framing wholesale universal service costs as equivalent to retail universal service costs makes sense for a VoIP provider as the ability to do so enables VoIP providers to maintain more of a competitive edge in the arena where they most typically go up against telecommunications providers - price. Verizon points out that Vonage’s claims are misleading, however, because wholesale pricing is so markedly lower than retail pricing that the resulting USF contribution at the wholesale level is significantly diminished. Verizon notes that Vonage 262

“does not contend that it actually makes payments to its CLEC partners that constitute indirect USF contributions, instead Vonage only asserts that, as a general matter, some carriers providing telecommunications services to some VoIP providers ‘typically assess’ a USF pass-through amount” (p. 31). Vonage, Verizon asserts, makes no universal service contribution at the significantly more costly retail level. Verizon goes on to question whether Vonage can point to any contribution that Vonage itself makes to universal service, either directly or indirectly. Verizon asserts that whatever contribution Vonage may be making “is far below what Vonage ought to be paying … and gives Vonage a significant pricing advantage over its competitors” (p. 32). Verizon again frames the universal service discussion around the issue of competition. Verizon explains that it and others in Verizon’s space must make universal service contributions based on calculable revenue from end-users. Verizon charges that Vonage can bill its customers less and still cover any universal service costs that the CLECs may be passing through to Vonage. Verizon predicts that long-term universal service contributions would suffer if the FCC allowed companies like Vonage to avoid direct contributions to the USF, and ultimately lead to USF under-funding. Bringing its argument full circle, Verizon claims that “by shifting more of the costs of the USF to other providers over time, the failure of VoIP providers like Vonage to contribute to the USF will continue to distort competition” (p. 32). Verizon believes that if the FCC finds VoIP to be a telecommunications service, then FCC’s rules would require providers such as Vonage to contribute directly to the USF based on the end-user revenues from these services, because, Verizon claims, “regardless of whether they have facilities … there is no exemption for non-facilities- based carriers” (p. 33). Verizon reflects on its own comments that not every stakeholder that contributes to the USF fund necessarily qualifies for universal service support, or rating a designation that’s what’s called an eligible telecommunications carrier. It is not enough just to qualify as a telecommunications common carrier, but that designation of eligibility is “in the public interest” per 47 U.S.C. § 214(e)(2). Verizon presents a no-win situation to the VoIP providers concerning universal service contribution and support qualification, claiming that “[i]f Title I applies to VoIP services, a VoIP provider would not be a “common carrier” and would not, therefore, be eligible to become [eligible]; if Title II 263

applies, however, VoIP providers would be “carriers,” but designating them as [eligible] would not be in the public interest” (p. 34). Verizon concludes its reply comments with the observation that some stakeholders, specifically Cox and Time Warner, two cable companies, argue that “VoIP providers should be eligible to receive universal service support,” and that most of these stakeholders “appear to assume that if a provider contributes to the USF, it is therefore eligible to obtain high-cost support” (p. 34). Verizon points out that this assumption “confuses obligations to contribute (which apply broadly to “every” provider of telecommunications service) with the ability to receive support (which is limited to a small class of designated carriers for specific types of service)” and that therefore, “the statutory goals for contribution and for receipt of support are different, and so the rules for each are different” (p. 34). Vonage attempts to frame the universal service issue using the often-applied rhetorical tactic of the metaphorical universal service dog wagging the FCC policy tail. Vonage notes that universal service contributions have been declining but claims that “it is not at all clear that the distinction between direct and indirect contribution has any bearing on the decreases in revenue that have occurred in the USF contribution base, [rather] it is because traditional telephony products have been declining in price, and have been increasingly bundled with other services (both information and telecommunications) that are not contribution eligible, that the [universal service] fund has seen the decline in its contribution base” (p. 50). Vonage claims that it unclear whether VoIP providers’ lack of direct universal service fund contribution represents the major cause, or even a “significant factor of a decline” in universal service fund revenues. Instead, Vonage claims, “it is more likely that the current system does not account properly for the current realities in the industry” (p. 50). Vonage claims that VoIP providers cannot be held responsible nor should be held accountable for waning universal service funds, especially when the fund is likely to fail under current mechanisms. This argument is similar to the argument that, given animals are destined to go extinct eventually, why protect the Alaskan wilderness. Vonage uses language such as it “would be of little or no net benefit,” “would not materially increase” and “would likely result only in the most marginal of benefits to the system” (p. 51) to describe the net effect Vonage believes changing universal service fund contributions to include carriers such as itself would 264

have on the overall universal service system. What Vonage does not offer is evidence for these claims, or a way in which Vonage might contribute to universal service, which it earlier deemed necessary to protect the public interest. Concerning universal service, Net2phone questions PSTN providers’ assertions that VoIP threatens USF at all, claiming that despite VoIP’s presence and regulatory treatment as an information service, that the universal service fund remains intact. Interestingly Net2phone chooses not to comment on the health of the fund, only observing that it still exists. Net2phone takes the approach that, with respect to universal service, what has always been will always be and that any challenges it faces are not due to VoIP. Net2phone claims that while “[t]here is no dispute that the existing universal service fund regime is in need of reform … to make universal support subsidies “explicit” and to remove anticompetitive effects resulting from implicit subsidies, … the imposition of unnecessary regulation on nascent VoIP technologies would not accomplish this goal” (p. 25). Net2Phone frames its own “commitment to providing services in rural markets” as “evidence that maintaining the regulatory status quo related to VoIP would better accomplish the goal of universal access” (p. 25). Net2phone does not address how committed it would be to providing rural service if industry pressures made it unprofitable to do so. ITTA asserts that “in many areas, particularly in rural and small-town America, the PSTN will continue for some time as a major pathway over which consumers will obtain IP-enabled services” (p. 4), and will thus require universal service support. It frames universal service not as an outdated subsidy in need of reform, but rather acknowledges the key role it believes the PSTN will continue to play for the “foreseeable future,” a stark contrast to Net2phone and other VoIP providers’ assertions that the concept of universal service has outlived its usefulness and that the PSTN is merely a vestigial organ in telecommunications provision. OPATSCO bridges universal service to competition, framing the lack of requirement for certain broadband providers not to contribute to universal service as “the shift away from more traditional telecommunications services [that] will ‘drain’ the support base for universal service, threatening its sufficiency, [an] … impact … even more pronounced when providers offer voice services over broadband platforms that are 265

the functional equivalent of traditional telephony, but the underlying broadband access provider is not required to contribute to universal service” (p. 6). In its reply comments, OPATSCO claims that “numerous” stakeholders “agree that the base of contributors to the USF should be expanded to include all facilities-based broadband Internet access providers” (p. 6). The numerous stakeholders, however, do not represent all competing interests. Among the voice communication providers OPATSCO lists as its numerous compatriots, not one was a VoIP service provider or broadband service provider. All were from what opponents to universal service charges against VoIP and broadband service providers have called legacy providers – common carriers who rely on the PSTN for any connectivity services they offer, whether basic or enhanced service. OPATSCO continues that “[a]s the marketplace evolves away from traditional telephony, the [universal service] fund’s support base is undermined; voice services are now being offered over broadband platforms, but the underlying broadband access providers are not required to contribute” (p. ii) to universal service. It points to the functional approach to VoIP regulation suggesting that if VoIP walks like a voice service and talks like a voice service then it should be regulated like a voice service. Numerous broadband and VoIP service providers disagreed. OPATSCO notes that a “small minority of stakeholders suggest that the FCC should not address the impact of IP-enabled services on universal service at this time” (p. 6). This minority of stakeholders is understood by OPATSCO to represent broadband providers and VoIP providers. OPASTCO restates its position concerning enhanced services access and the public interest mandate of the 1996 Act, claiming that the FCC “should expand the base of contributors to include all facilities-based broadband Internet service providers expeditiously [because] in light of the rapid growth of IP- enabled services, including VoIP, it is most definitely in the public interest that all facilities-based broadband Internet access providers over all platforms be required to contribute without delay” (p. 7). OPATSCO concludes by seeming to contradict itself. In its initial comments, OPATSCO claimed that the 1996 Act required broadband providers to contribute to universal service. Yet in its reply comments, OPATSCO insists that “all facilities-based broadband Internet access providers be required to contribute to the USF in order to maintain the Fund’s sufficiency, as directed by Congress” (p. 7). OPATSCO’s earlier language points to ways 266

that the 1996 Act stipulates what OPATSCO calls for already exists; OPATSCO’s comments simply tried to reframe what “all” is. In determining who among the VoIP providers would be responsible for the care and feeding of the PSTN, BSPA cites the 1998 Universal Service Report and Order, which calls for competitive neutrality in application of universal service support requirements: “universal service support mechanisms and rules neither unfairly advantage nor disadvantage one provider over another and neither unfairly favor nor disfavor one technology over another” [12 FCC Rcd 8801]. Favorable framing of competitive neutrality is important to BSPA because, as it states, “the principle of competitive neutrality provides that regardless of the technology, if a service provider uses the PSTN to transport, originate or terminate calls, it must contribute to the federal universal service fund” (p. 19). When more stakeholders must contribute the upwards of 10% of annual gross revenue to the Universal Service Fund, there will be both a greater support mechanism to ensure its upkeep, and, perhaps more significantly, no one provider will enjoy a 10% annual revenue advantage over another, which translates into a competitive advantage. As BSPA puts it, “[t]he principle of competitive-neutrality suggests that competitors need to pay similar costs for comparable services, if the competitive market is to operate effectively” (p. 9), and that with respect to the USF, “[t]he record in this proceeding demonstrates that IP is a technology, not a service” and with respect to universal service “[t]here is no basis in the Communications Act or in long-standing [FCC] policies for altering the regulation of voice telecommunications services merely because they use this new transmission technology” (p. 6).

Conclusion

Providers that favor a universal service funding mechanism overhaul tended toward language such as ensuring regulatory symmetry on the issue of universal services. These same stakeholders typically use the FCC term “technological neutrality” to describe how universal service should be administered, and tend to be those with an interest in keeping the PSTN viable so that their services will reach the most end-users. Stakeholders that advocate for a more technologically partisan policy maintain that VoIP is an information service, not a telecommunications service and as such has no 267

responsibility for universal service. However, they hasten to add, universal service is a noble cause and should be maintained. Just not with their money. The choice of descriptive that Global Crossing applies to the current universal service mechanism, “dysfunctional,” suggests a parent-child relationship between the FCC and fund contributors. SBC, as a fund contributor, suggests opening the fund to even more contributors. This chapter has shown that, concerning universal service, the VoIP debate largely divides along party lines. One camp advocates for laissez-faire policies, such as the policy of not regulating VoIP as a telecommunications service. Another camp advocates for regulations that would control competition without regard for the technology involved, such as regulations that include requiring USF contributions from a technological equivalent of telecommunications. Each of the other chapters shows this trend as well. Some stakeholders expressed a concern that a universal service contribution requirement for one provider but not another might enable the non-contributing provider to invest funds into creating new applications or offering new services which would otherwise have gone toward supporting universal service. The ILECs want all VoIP providers to contribute to universal service, envisioning the fund dwindling as end-users migrated from the PSTN to VoIP. Stakeholders that conceded their own likely contribution to universal service seemed especially concerned that an asymmetric application of universal service contribution requirements would allow some providers to “game” the system, and only provide the services that would not trigger a universal service fund “tax.” The use of the term “game” was often used in conjunction with a “level playing field,” giving the impression that stakeholders saw themselves competing in kind of regulatory sport. What this shows is the connection between the public interest and technology, competition, and universal service. Chapter Nine discusses the ways throughout this dissertation that stakeholders framed their arguments to convince the FCC that, concerning VoIP policy, it is their regulatory interests that most coincide with the public interest.

268

CHAPTER NINE

CHANGES IN PUBLIC INTEREST CONCEPTIONS

This inquiry began an evaluation of the VoIP debate by discussing how the FCC conducts its decision-making concerning new technology policy issues. It continued by considering the history of telecommunications and how interpretations of the public interest have changed over time, from an original standpoint of simply connecting all telephone networks under one universal service rubric in support of the public interest, to a telecommunications industry that the FCC suggests serves the public interest by allowing competition to drive innovation. This inquiry considered research from the fields of communication, economics, and technology to understand how the public interest is defined, and saw that the public interest as a concept remains open to the interpretation of the stakeholder, largely based upon how the stakeholder considers the public interest to support its competitive interests. Using framing analysis, this inquiry has attempted to answer the research questions: What interpretation of the public interest is reflected in stakeholder claims pertaining to VoIP regulatory policy and technology? What interpretation of the public interest is reflected in stakeholder claims pertaining to VoIP regulatory policy and competition? and; What interpretation of the public interest is reflected in stakeholder claims regarding VoIP regulatory policy and universal service? The final chapter of this inquiry chapter examines how well framing analysis answers these the questions, how well our methodology served our research purposes, and how effective the lens of the public interest was in understanding the ways FCC decision-making has changed over the past century to answer the final research question: In what ways has the VoIP debate reflected changes over time pertaining to interpretation(s) of the public interest? From the beginning of the VoIP debate, which the FCC opened with the unique usage of a VoIP Forum to garner policy input from selected stakeholders, the FCC was shown to be a stakeholder in its own VoIP policy debate, advocating openly for competitive principles to drive technological rulemaking. This inquiry showed that, irrespective of the VoIP policy advocated, stakeholders claimed that FCC precedent 269

indicated that their respective VoIP policy positions was representative of the public interest. Claims made by stakeholders concerning interpretations of the public interest were supported in some cases by theories from the literature examined in Chapter Two, with both competition and regulation representing supportable public interest goals depending upon how a stakeholder decided to interpret a highly nebulous concept. Some of the key concepts framed by stakeholders in this inquiry included: • “technological neutrality” – creating policy around VoIP such that regulation is symmetrically applied; • “regulatory arbitrage” – leveraging the asymmetries in regulation to a stakeholder’s advantage, and, some stakeholders claim, artificially affecting innovation in the process as stakeholders offer services not in keeping with what end-users want but with what triggers the least regulatory burden; • “facilities-based competition” – competition among stakeholders who own the transmission infrastructure for VoIP, and a regulatory construct that the FCC openly endorses; and; • “universal access” – ensuring not, as does universal service, that consumers are guaranteed connectivity to a communication network irrespective of their ability to pay, but guaranteeing that the access to the service will be available to any consumer who wishes to pay for it. With respect to the public interest, this inquiry showed that stakeholders will typically overlook public interest references in legislation, policy, and even instructions in an NPRM when the public interest interpretations therein run counter to the stakeholder’s agenda. It illustrated how stakeholders compete to circumscribe the public interest to conform to their respective technology agendas when no appropriate definition of the public interest was concretely presented. This inquiry especially evidenced how the stakeholder framed its agenda as reflective of the FCC’s interpretation of the public interest depending on the definition a stakeholder chooses when framing the topics of innovation, competition.

270

Innovation, Competition, and Universal Service

This inquiry showed how technology, competition, and universal service are all connected in the VoIP debate, and how efforts by stakeholders to circumscribe the public interest considered each of these components when framing policy prescriptions. With regard to innovation in telecommunications, this inquiry showed how stakeholders framed interpretations of the public interest to advance their respective positions on VoIP regulation. It demonstrated that depending on the stakeholder’s relative ownership of facilities, the stakeholder would advocate for regulation at differing levels of the network, and that the debate largely unfolded into three camps represented by the technological distinctions offered by the stakeholders. One policy model suggested by stakeholders as representing the public interest would regulate VoIP with a “layered approach,” applying regulation at strategic locations along the network to achieve certain overall industry goals for competition. Stakeholders favoring the layered approach framed the policy model as most appropriate for a technology that for the first time in telecommunications history de-coupled applications from transmission. A second policy model suggested by stakeholders as representing the public interest, which this inquiry termed the “dichotomous approach” to regulation, would regulate VoIP based upon its Title II classification as either a telecommunication service or an information service. Stakeholders favoring the dichotomous approach framed the policy model as most closely following the tenets of the 1996 Telecommunications Act (the 1996 Act) for considerations of access and universal service. A third policy model suggested by stakeholders as representing the public interest would regulate VoIP using the “functional approach,” to regulation, applying regulation to VoIP based upon its function to the end- user. Stakeholders favoring the functional approach framed the policy model as most appropriate for any technology that enables voice communication to such a degree that the application is transparent to the end-user. Concerning competition, stakeholder opinion differed depending on whether competition was framed as benefiting the public interest by allowing firms to develop innovations that the consumer could choose to purchase independent of the network upon which the application would ride, or whether stakeholders framed the public interest as

271

better served by allowing service providers to develop innovations that they would ultimately offer the consumer in combination with network connectivity. A regulatory approach favoring competition as described in the former scenario would likely preclude competition as described in the latter scenario. This inquiry introduced the definitions of inter-modal and intra-modal competition, the significance of each to competition in the telecommunications arena and the VoIP debate, and bridged the two to technological innovation. The distinction between “inter” and “intra” modal competition is important from a framing standpoint because the VoIP stakeholder that can successfully circumscribe the mode of competition can largely dictate the terms of the debate. Defining what is within and what is outside the bounds of a debate is a strategy that can help a stakeholder confine the discussion to those points which could predict a favorable policy outcome. Concerning universal service, this inquiry showed that there remains one issue about which the FCC stays undecided: whether to allow market forces or regulatory intervention to drive policy on a mandate prescribed by the 1996 Act. In the VoIP debate, all stakeholders – including the FCC – were eager to endorse the concept of universal service, although competing stakeholders defined “universal” very differently. This inquiry showed that some stakeholders were more in favor of “universal access” framed as universal service. This inquiry showed that universal access would only ensure that end-users could connect to transmission facilities if they so chose. This inquiry also showed that stakeholders who favored universal access over universal service framed a consumer’s ability to pay for connectivity as consumer choice. Universal service as mandated by the 1996 Act requires that telecommunications providers ensure that all consumers have a specified base level of communication connectivity irrespective of an ability to pay. Stakeholders less in favor of contributing to universal service typically claimed that universal access would suffice to ensure universal service that so long as service was available, and that competition and consumer choice would dictate how the consumer would spend disposable income on communications. The premise that competition would drive the diffusion of an innovation which all consumers would choose assumes a level of consumer disposable income sufficient to afford those more basic needs not supplanted by communication access. 272

Looking Back

This inquiry showed that part of the challenge in determining how to regulate VoIP in the public interest is that there are numerous technologically-based mechanisms around which a stakeholder can circumscribe its policy arguments. The chapter on technology and the public interest showed that one means of regulating, the layered approach, was forwarded primarily by the stakeholder MCI as a strategy for regulating VoIP at places along the network where competition could be compromised by transmission owners, and not regulating VoIP where no issues of technology monopoly exist. It showed how tightly-coupled issues of technological and competition are in regulating the VoIP innovation, largely due to the application’s reliance on two forms of transmission technology, the PSTN and broadband connectivity, to reach 95% of the end- user market. The stakeholder who can control the debate as to where regulation should be applied, if at all, has the greatest opportunity to dictate the terms of the debate and thus to influence its outcome. Circumscribing the public interest in a debate about technological innovation is important to stakeholders because the agency which the stakeholder attempts to influence cannot be seen as picking technological winners and losers by regulating one technology more or less liberally than another. If a stakeholder can dictate which techno-economic paradigm best conforms to the public interest, which itself is circumscribed by the stakeholder, that stakeholder can guide the agency toward its version of technological determinism by influencing policy outcomes. An agency such as the FCC – in the case of VoIP, also a stakeholder – can then claim to have made its policy decision not by favoring one technology or one technology provider, but rather by considering the policies most in keeping with the public interest. In this way the agency becomes tacitly partnered with those stakeholders that share its policy and public interest agenda, and do so while invoking the public interest and appearing not to exhibit shareholder bias. This inquiry’s chapter on competition and the public interest showed how different stakeholders frame the different ways of defining competition, for example when stakeholders conflated broadband competition issues with PSTN competition issues. Agencies rely on more than just industry competitive factors to make a policy

273

decision. In the case of the FCC, the public interest had been used since the 1930s to guide, or justify, telecommunications policy-making. This inquiry illustrated how differing definitions of competition, when applied in the communications industry, would result in different market outcomes, with each market outcome being framed by stakeholders as representing the public interest. The tightly coupled nature of technological innovation and competition encouraged stakeholders to frame their respective public interest claims around the regulatory model that would maximize their strategic position on the communication competitive landscape. This inquiry indicated how each method of framing competition mapped to the ways stakeholders employ VoIP technology as part of their service offering. It demonstrated how the stakeholder who can best define the points of the debate can best advance its competitive interests, all while framing these interests as representing the public interest. This inquiry’s chapter on universal service and the public interest showed how the stakeholders who must pay into the universal service fund claimed it to be in the public interest for all competitors providing voice service, irrespective of the technology used to do so, to contribute to universal service funding. This inquiry illustrated that those stakeholders who do not currently pay into universal service were either silent on the subject – the less perhaps to call attention to the fact they pay nothing – or attempted to reframe universal service into universal access. Universal service ensures that, via a contribution fund to which all telecommunications providers pay a percentage of their gross receipts toward supporting low income and comparatively high cost areas, all citizens enjoy basic telecommunications connectivity. Universal access makes no such guarantee. Universal access is a term created by stakeholders to suggest sufficiency of communication connectivity exists when an end-user is able to access transmission, i.e., communication infrastructure must “pass” all end-user homes, but need not necessarily guarantee network connectivity. Universal access advocates claim that as long as applications and infrastructure are offered equally, the burden to ensure that “all Americans” obtain network connectivity has been met, as has the public interest. However, universal service is mandated by the 1996 Telecommunications Act. [47 U.S.C. Sec. 231] Universal access, a less inclusive service guarantee defined not by the FCC but by providers, is not. Circumscribing the public interest is key to the 274

universal service discussion because the stakeholder who can define how universal service, or access, is to be administered can ensure at the very least a level competitive playing field. A stakeholder who successfully circumscribes the public interest around its policy agenda can ensure its exemption from contribution requirements, can ensure competitors’ obligations to contribute in the same manner as the stakeholder, or can exempt all stakeholders from contribution requirements and let the market decide who gets access. In the VoIP debate, no stakeholder was willing to suggest that universal service is not in the public interest. Instead, stakeholders who intended not to contribute to universal service worked to reframe universal service as universal access. Stakeholders who suggest a universal access option to universal service in the course of this inquiry stopped short of suggesting how to connect those end-users to the network who cannot even, for example, acquire sufficient disposable income to afford to do so.

The Larger Regulatory Picture

The issue of regulating VoIP communications is critical to the public interest because so many more choices exist as to how to provide voice communication today as compared with a century ago, when an end-user could have any transmission technology he or she wanted, as long as it was the PSTN. Today technological capabilities exist to offer not only numerous transmission options for connecting voice calls, but as this chapter has shown, also numerous ways to regulate the transmission based upon its underlying technology. A century ago, capabilities did not exist enabling more than one signal to traverse a network, not could the components of that network be broken out for differing regulatory treatment. Today a regulatory agency can select from among policy options when regulating a new communication innovation. In the case of VoIP, the FCC can choose what this inquiry calls the dichotomous model – where VoIP is regulated either as a telecommunications service or an information service and the regulatory implications of the 1996 Act will apply. The FCC could choose a layered approach, where regulation is strategically targeted at specific levels of a network depending on the competitive outcome the regulatory agency wishes to achieve. The FCC could choose the dichotomous approach to regulation, where it follows the prescripts of the 1996 Act and regulates VoIP either within or outside of the reach of Title II. The FCC could choose the 275

functional approach, where if the communication innovation walks and talks like a traditional voice call, then, as some stakeholders claim, it should be regulated like a traditional voice call. The same regulatory model would be applied whether the voice call were placed over the PSTN or the Internet. The key issue is that this entire regulatory debate would not need to occur if there were only one technological option for communication policy-making. Innovation has required the consideration of new communication policy options that would not have been necessary a century ago. What innovation has also done is create new opportunities for competition in the telecommunications industry that did not exist a century ago. A century ago, the telecommunications industry functioned under a monopoly. As Theodore Vail might have said in a different context, “one monopoly, one policy.” This inquiry explained the ways in which innovation and competition are related in the VoIP debate. Without changes in innovation, there would be no changes in competition. Without changes in competition, there would be no need for stakeholders to frame policy issues that reflect their competitive self interests as though they likewise reflect the public interest. Interpretations of the public interest have changed over time due largely to changing technology driving changes in competition. Without changes in competition, stakeholders would have no need to reframe conceptualizations of the public interest to ensure that public interest policies continued to meet their competitive interests, and that agencies have a way of justifying policy decisions such that they are not seen as endorsing a specific innovation or ensuring a specific market outcome. Changes in technology have driven changes in the competitive landscape for nearly a century, and the FCC was not always so concerned about conceptions of the public interest, nor how they played out in the communications industry.

Changes over Time

As indicated in Chapter Four, interpretations of the public interest began during the Progressive Era (circa 1897~1910) following the robber barrons’ Gilded Age exploits from 1873-1890. President Theodore Roosevelt and his Bull Moose Progressives saw a need to curtail some of the market failures seen stemming from monopolistic business practices, for example those in the common carrier industry (Gifford, 2003). Consumer 276

protections were framed as representing “the public interest” by protecting consumers from industry abuses while interpretations of the public interest were framed as anti- monopoly and pro-social regulation (Judis, 2000). The Mann-Elkins Act (1910), bringing voice communications under the oversight of the Interstate Commerce Act, gave federal jurisdiction over the Commerce Court in cases where the “public interest” was deemed to be involved. Concepts of the public interest began to change with the passing of the Willis- Graham Act in 1921. Congress had statutorily given the telecommunications industry the right to engage in monopoly practices to ensure network externalities of having all consumers connected to one telecommunications network, a decision that was seen to reflect the public interest. This is the first change in public interest interpretations that specifically consolidate the telecommunications industry under one dominant competitor, thus ensuring AT&T President Theodore Vail’s vision of universal service. The concept of universal service as a basic right is what Vail would guarantee to all Americans in exchange for AT&T’s protection from antitrust laws (Huber, Kellogg and Thorne, 1996). The public interest remained tied to monopoly telecommunications service provision until 1968, when the Carterphone v. AT&T [14 FCC 2d 571] decision began to chip away at AT&T’s unchallenged dominance of the telecommunications industry. Although AT&T invoked the public interest in an effort to prohibit device interconnection to the network, the FCC deemed it not sufficent enough of a public interest question to curtail competition in device manufacturing. Public interest considerations had for the first time in nearly half a century shifted from ensuring monopoly to enforcing competition. Public interest interpretations continued to change with the time frame in which they were taking place beginning to shorten. By 1978 the D.C. Circuit Court had remanded Execunet II back to the FCC, specifically requesting an answer as to why not allowing MCI to use its microwave technology to interconnect its own offices to each other and to other companies was not “in the public interest.” It was in response to this remand that competition supplanted monopoly as the public interest industry paradigm. AT&T was forced to open its long distance market with the 1982 Consent Decree, with

277

Judge Harold Green specifically making his determination based upon “the public interest.” More change in public interest interpretations came when the FCC and Congress saw that the levels of competition dictated by the Consent Decree were not sufficient to make the telecommunications market as competitive as imagined in 1982; monopoly in long distance service by this time was a distant memory. The resulting 1996 Telecommunications Act opened competition at not only the long distance but at the local level. Its provisions included clauses for regulatory reform when “such regulation is no longer necessary in the public interest as a result of meaningful economic competition between providers of such service” and clauses for forbearance from applying regulation if the FCC “finds that forbearance is in the public interest” [47 U.S.C. 161]. Changes in public interest interpretations continued with the passage of 1996 Act, the largest reform of telecommunications law since the 1934 Communications Act. The 1996 Act, in addition to prescribing competition in fulfillment of the public interest, also stipulated that universal service, once ensured by a monopoly provider, would be required by all common carriers to support in the form of universal service fund contributions, which the FCC deemed to be “consistent with the public interest.” The FCC seemed to understand that competitive markets would not guarantee that telecommunications service would reach customers that could not necessarily afford to pay for service, or to locations that were too remote to justify network infrastructure deployment. The FCC continued its support of universal service with its 1998 Universal Service Report and Order [CC Docket 96-45],requiring “if the public interest is met, that non-common carriers should contribute to universal service mechanisms along with common carriers.” Changes in public interest interpretations have served as reference points for stakeholders in the VoIP debate as to which form of competition best represents the public interest. Not once in any of the VoIP stakeholder comments is there a reference to encouraging less competition than the market currently reflects – much less any references to monopoly – as being more in keeping with the public interest than the policies increasing competition that are promulgated, albeit in different capacities, by stakeholders in the VoIP debate. Universal service, once guaranteed by a monopoly 278

provider, has been reframed by some stakeholders to more closely reflect universal access. Stakeholders who advocate for universal access claim that the public interest will be fulfilled by competitive markets. Yet it was only a decade ago that the FCC codified universal “service” as representing the public interest, and mandated its support, the implication being that competition alone would not suffice to ensure this component of the public interest. In the VoIP debate, the FCC is a stakeholder who advocates competition in its own policies as representing the public interest, but makes no assurances that universal service as outlined in the 1996 Act will remain a centerpiece of the public interest.

Global Applications for Public Interest Frame Analysis

This investigation can be useful beyond the confines of the communication industry. Its methods of applying framing analysis to understanding how stakeholders circumscribe the public interest is useful in the broader context of policy debates where stakeholder interests can masquerade behind regulatory recommendations framed as public interest initiatives. Potential policy debates in, for example, the health care industry or in the auto safety industry, could center on changes in interpretations of the public interest stemming from the introduction of innovation that change the composition of industry competition. For example, if a biotechnology firm were to develop an innovation to predict an individual’s likelihood of developing a disease with high treatment costs such as cancer or heart disease, an insurance company might want to harness this innovation to predict those individuals who might represent their more costly insurance patients. The insurance company might wish to know an individual’s long-term health prospects in advance of selling the individual a policy so that the insurance company can write coverage exceptions into that policy, or change more for coverage that includes an individual’s health risk. The insurance company might frame their desire for patient information not by revealing that better information could make them more competitive, but rather in the public interest, claiming that individuals should not have to pay higher premiums to cover the insurance risk of someone else.

279

In the same debate, healthcare providers could also invoke public interest concerns with respect to patient information access. They could reasonably be predicted, for budgeting purposes, to want to forecast where new facilities might need to be built. They might, however, elect to frame their desire in the public interest, claiming not that accurate forecasting can make them more competitive, but rather claiming that targeting interventions where they are needed most improves patient care. Both of these stakeholders would have interests concerning competition – the insurance provider wishing to mitigate risk and the healthcare provider wishing to predict cost allocations. Both could frame arguments to policy makers, as did stakeholders in the VoIP debate, how the policy that they advocate would best serve the public interest. Similar policy issues could arise in the auto industry if an innovation were developed that would save more lives but requiring its universal installation would cost automakers more money. Would stakeholders in the automotive industry invoke arguments of the public interest – as did stakeholders in the VoIP debate – and suggest that consumers would want to have the choice of whether pay for safety, or would policymakers enact regulation requiring universal safety standards for all auto passengers? What would policy makers determine to be in the public interest?

Reflection and Future Research

Over the course of eight chapters this inquiry has explored the history of telecommunications and how that history reflected changes in the public interest. Research has evaluated stakeholder claims concerning VoIP and technology, competition, and universal service and seen how stakeholders have chosen to frame the public interest concerning each of these issues. It has shown how issue framing began with the FCC, and that the agency is not necessarily a neutral party concerning VoIP policy. The FCC used words like “consumer choice” to frame its laissez faire policies, policies it framed as offering more, rather than closing off, end-user options. FCC rhetoric such as “dizzying array” described innovations made possible through IP- enabled technology. The FCC, however, did not acknowledge that consumers without adequate disposable income to make purchases from among the “dizzying array” of options could be left without any options. The FCC claims to regulate in the public 280

interest, but how the agency, and other stakeholders, interpret the public interest remains as much a part of policy debate as VoIP regulation. The public interest was chosen as an evaluative theory for VoIP policy-making because not only are both such challenging topics about which to draw concrete conclusions – which made them each an interesting foil for the other – but also because the public interest had been used as part of telecommunications policy debate for decades, yet its interpretations seldom remained consistent over time. Where at the beginning of telecommunications history a monopoly in the telecommunications industry was seen as serving the public interest, preliminary investigations of the VoIP debate suggested that contemporary public interest interpretations might reflect more agency interest and stakeholder interest in promoting competition in the changing communications industry. This inquiry showed that as the communications industry changed, representation of the public interest by industry changed as well. Concerning the choice of framing analysis for a method of examining stakeholder comments in the VoIP debate, it was selected to discern where the focus of the debate resulted and how stakeholders might use language to influence FCC decision-making in VoIP policy-making. This inquiry evidenced the theories offered by Althusser (1972) and Butler (1997) by disclosing the ways in which stakeholders in the VoIP debate made assumptions about FCC, and about “culturally sanctioned suspicions about government’s ability to successfully regulate the private sector” as discussed by Conrad (2004, p. 314). Stakeholders manifested throughout this inquiry the cognitive biases discussed by Keum et al. (2005) when framing how they proffered their notions of competition in the telecommunications market. Throughout the VoIP debate, stakeholders made “causal interpretation[s], moral evaluation[s], and … treatment recommendation [s]” concerning telecommunications policy in an effort to more saliently frame their regulatory agendas to the FCC (Entman, 1993). They employed the metaphorical tactics examined by Jordan (1999) and Warnick (2004), and Agar and Hobbes (1985) to frame VoIP both as the potential savior of and potential destroyer of the Public Switched Telephone Network. VoIP stakeholders, specifically BSPA, used the tactic of synecdoche – the whole of an object as represented by one of its parts – as outlined by Stone (1988) to frame universal service contributions as the reason that universal service in its present state is 281

unsustainable and must therefore be replaced by a policy supporting universal access. Perhaps most importantly, this inquiry relied on the writings of Snow et al. (1986) to show the many ways that stakeholders used framing to bridge those issues, such as innovation and competition, which they felt most useful in forwarding their particular policy agendas. Overall, frame analysis was a very useful tool for examining how stakeholders circumscribe the public interest in telecommunications policy debates. Frame analysis need not longer remain the province of discourse in media-specific research. The limitations of this inquiry were that the researcher selected the stakeholder comments to evaluate and the comments to leave unexposed, as well as decided how to interpret the comments made by stakeholders and any public interest implications those comments might have for the VoIP debate analysis. A potential for researcher bias exists as a result. Future research will include evaluating how the FCC decided to regulate VoIP and which, if any, of the stakeholder comments were given primacy in the ultimate decision. Future research will include an analysis of stakeholder comments in the universal service debate using the same methods and theory relied upon in this study.

282

APPENDIX A

This list indicates all stakeholders who contributed comments to the VoIP Forum

Jonathan Agosto Daniel Joseph Lee Senator George Allen Nickolaus E. Leggett APCO Arturo Leon AT&T Tim Linder Badger Tech Lodesoft Corp Nabil Badr, Ph.D. Senator John McCain Alan Batie Bruce Mills Keith BeAT&Ty NTCA Doug Black NENA Robert Boucher VON Coalition Laura Jane Borst Net2Phone M.R. Bristow Jo Norman Michael J. Britton Nortel Networks Steve Burling John Pallotta Callipso Corporation Michael Poncelet Carrier One Aswath Rao Cinergy Communiations Group Karren Rhodes Coalition of VoIP Service Providers Brian Rosen Consumer Advisory Committee Floyd Ross William S. Cook Thomas Kildow DoJ Senator John E. Sununu DEA Jim Terracino FBI Doa Thong Steve Douglas Virginia Tech EPIC Alan W. Williford Senator John Ensign Senator Ron Wyden James Andrew FlAT&T Norman Epstein David Frankel Flexible Internet, LLC John Friesen Steve Gaas Global Crossing Marc Giannoni Justin Hill John Guarino David G. Holt Max Hines Christopher Horne Buena Vista Wireless and Communications Corporation for National Research Initiatives Self Help for Hard of Hearing People Texas Coalition of Cities for Utility Issues UTEX Communications Corporation

283

APPENDIX B

This list represents those stakeholders who submitted comments to the VoIP Forum and were selected to give presentations, as well as those selected from the non-presenting stakeholders, for analysis in this dissertation.

Michael Powell Kathleen Abernathy Michael Copps Jonathan Adelstein Kevin Martin Jeff Pulver AT&T Supernova Global Crossing Net2Phone Vonage Time Warner UBS OPATSCO NTCA Werbach Florida PUC VoIP Coalition NTCA ITXC

284

APPENDIX C

This list represents those stakeholders who provided comments or reply comments In the Matter of IP-enabled Services, Wireline Competition Docket 04-28.

8x8 Maine Public Utilities Commissioners EFF Cablevision Systems Corp AFB CAN Communications Services, Inc. AAR US Council of Catholic Bishops OPC-CD Callipso Corporation SBC Computer and Communications Industry Association VON New Jersey Ratepayer Advocate DOJ California Public Utilities Commission OPATSCO Cox Communications NARUC Communication Service for the Deaf DHS Minnesota Public Utilities Commission USTA High Tech Broadband Coalition APT 911 Communications, Spokane Washington FERUP Citizens Utility Board, Illinois ARC Communications Workers of America ICG BT Americas, Inc. ACC Alcatel North America GCI King County E911 Program ITAA Consumer Electronics Association ITCI New York Public Service Commission CTIA Ad Hoc Telecommunications Users Committee ICC Pennsylvania Public utilities commission ALTS Global Crossing, NA APCO GVNW Consulting AT&T National Governors Association IEEE Public Utilities Commission of Ohio ITI National Taxpayers Union TCA Cheyenne River Sioux Tribe Telephone Authority ICORE Telecommunications for the Deaf ACTUA Amherst Massachusetts Cable Advisory Committee MCI The Yellow Pages Integrated Media Association SHHH Inclusive Technologies NCTA Wiltel Communications, LLC NENA Iowa Utilities Board ECA Local Government Coalition NECA United Telecom Council and United Power-line Council NTCA Carolyn McLaughlin EDUCAUSE Tennessee Regulatory Authority Net2Phone Time Warner Telecom Cisco Citizens Telephone Company Level 3 TracFone Wireless 285

Avaya Utah Division of Public Utilities Mpower National Consumer League CBeyond New Jersey Board of Public Utilities Nuvio AT&Torney General of New York Omnitor Vermont Public Service Board Qwest Virgin Mobile USA, LLC Verizon Valor Communications Verisign Pac-West Telecomm Pulver.com Z-Tel Communications, Inc. Motorola Wisconsin Gas Company Comcast Rural Carriers Coalition Sprint Rural Independent Competitive Alliance Skype City and County of San Francisco nexVortex Iowa Telecommunications Services PointOne Telecommunications Industry Association Bell South Montana Public Service Commission Vonage Wisconsin Electric Power Company Nortel Texas Coalition of Cities for Utility Issues Covad American Public communications Council Earthlink Ionary Consulting John H. West Nebraska Rural Independent Companies Frontier Commission of the state of Missouri National Grange Enterprise Communication Corporation USA Datanet Virginia State Corporation Commission Microsoft Arizona Corporate Commission City of New York National Association of State Utility Consumer Advocates Sonic.net Texas Commission on State Emergency Communications VoicePulse Time Warner Cable GlobalCom Charter Communications Dialpad Texas AT&Torney General Telltruth The Western Telecommunications Alliance SPI Solutions Texas Department of Information Resources CompTel/Ascent Office of Advocacy, US Small Business Administration Harry Sherman Marvin Nicholson, III Rebecca Ladew Tellme Networks, Inc. Glenn Gleixner David E. Magnenat, Jr. CenturyTel Donald Clark Jackson Quovio Florida Public Services Commission Starchild Intergovernmental Advisory Committee Boulder Regional Emergency Telephone Service Authority Rehabilitation Engineering Research Center on Telecommunication Access Public Service Commission of the National Association of Telecommunications Officers

286

APPENDIX D

This list indicates stakeholders whose comments were selected for analysis from among Comments before the Federal Communications responding In the Matter of IP-enabled Services, WC Docket 04-36

Association for Public Telecommunications AT&T The Broadband Service Providers Association Cisco Communication Workers of America Covad Cox Communications CTIA The Wireless Company Global Crossing The Information Technology Association of America Level 3 MCI National Cable Television Association The National Exchange Carriers Association Net2phone Nextel SBC Communications Sprint Time Warner United States Telecommunication Association The United Telecom Council & United Powerline Council Verizon VON Coalition

287

REFERENCES

Abernathy, K. (2003). Remarks at the Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Adelstein, J. (2003). Remarks at Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Aeronautical Radio v. FCC [451 US 920 (1981)]

Agar M. & Hobbes J. (1985). How to grow schemata out of interviews. In J.W. D. Dougherty (Ed.), Directions in cognitive anthropology. Urbana: University of Illinois Press.

Allen, G. (2003). Letter submitted to Federal Communications Commission VoIP Forum, Washington, D.C., December 1, 2003.

Althusscr, L. (1972). Ideology and ideological state apparatuses: Notes towards an investigation. New York Monthly Review Press.

Antonelli, C. (1991). The economic theory of information networks. In C. Antonelli (ed). The economics of information networks. Amsterdam: North-Holland.

AT&T Corporation (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

AT&T Corporation (2003). Submission to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

AT&T corporate website: http://www.AT&T.com/history/history3.html, last accessed January 4, 2006.

AT&T v. Hush-a-phone [20 FCC 391 (1955)]

AT&T v. Jordaphone [18 FCC 644 (1954)]

Banfield, E. (1991). Civility and Citizenship. St. Paul, MN: Paragon House.

Bellah, R. N., Madsen, R, Sullivan, W. M., Swidier, A., & Tipton. S. M. (1996). Habits of the heart: Individualism and commitment in American life. (Rev. ed.). Berkeley: University of California Press.

Benkler, Y. (1998). Communications infrastructure regulation and the distribution of control over content. Telecommunications Policy, Vol. 22. No. 3. pp. 183-196.

288

Best, J. (1987). Rhetoric in claims making: Constructing the missing children problem. Social Problems. Vol. 34, pp. 101-121.

Billock, J.K. (2003). Address given to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Broadband Service Provider Association (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Brookings Institution (2001). Who pays for universal service? When telephone policies become transparent. Washington, D.C.

Burkhead, J. and Miner, J. (1971). Public expenditure. Chicago: Aldine-Atherton.

Butler, J. (1997). The psychic life of power: Theories in subjection. Stanford: Stanford University Press.

Calabrese, A. (1999). Communication, citizenship, and social policy. Lanham, MD: Rowman and Littlefield.

Camp, K. (2002). IP telephony demystified. New York, NY: McGraw Hill

Carragee, K. & Roefs, W. (2004). The neglect of power in recent framing research. Journal of Communication, Vol. 54, No. 2, pp. 214-233.

Carterphone v. AT&T [14 FCC 2d 571 (1968)]

Castells, M. (2000). The rise of the networked society. Oxford: Blackwell Publishing.

Cato Institute www.cato.org last accessed January 4, 2006

Cerf, V. (2004). Address to United Nations Global Forum on Internet Governance, New York, NY.

Chamber of Commerce, Southern New Jersey - archives. http://chambersnj.com/membership/new.aspx. Last accessed April 3, 2006.

Charney, B. Sprint’s big VoIP plans for small business. ZD Net News, July 14, 2004. CNET Networks.

Christensen, C. (1997). The innovator’s dilemma: When new technologies cause great firms to fail. Boston: Harvard Business School Press.

Cisco (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36 289

Citizens for a Sound Economy www.cse.org last accessed January 4, 2006

Citron, J. (2003). Address to the Federal Communications Commission VoIP Forum, Washington, DC. December 1, 2003.

Comcast (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Communications Workers Association (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Computer and Communications Industry Association (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Conrad, C. (2004). The illusion of reform: Corporate discourse and agenda denial in the 2002 “corporate meltdown.” Rhetoric and Public Affairs, Vol. 7, No. 3, pp. 311-338.

Copps, M. (2003). Address to the Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Covad (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Cox Cable (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

CTIA, The Wireless Company (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04- 36.

Dahlgren, P. (1995). Television and the public sphere. London: Sage.

David, P. (1985). Clio and the economics of QWERTY. American Economic Review. Vol. 75, no. 2. pp. 332-337.

Davidson, C. (2003). Address to the Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Dawson, M. & Foster, J. R. (1998). Virtual capitalism. In R.W. McChesncy. E.M. Wood, & J. B. Foster (Eds.). Capitalism and the information age. (1998). New York Monthly Review Press.

Derrida, J. (1967). Writing and difference. Chicago: University of Chicago Press. 290

Downs, A. (1997). An economic theory of democracy. Boston: Addison Wesley.

Ensign, J. (2003). Letter submitted to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Entman, R. M. (1993). “Framing: toward clarification of a fractured paradigm.” Journal of Communication, Vol. 43, No. 4, pp. 51-58.

Evslin, T. (2003). Address to the Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Execunet I [561 F.2d 365 (D.C. Cir. 1977)]

Execunet II [580 F.2d 590 (D.C cir. (1978)]

Fainsod, M. (1940). Some reflections on the nature of the regulatory process. In C. Friedrich and F. Mason (Eds.), Public Policy, Cambridge, MA: Harvard University Press.

Federal Communications Commission Docket 16942, Carterfone Device Decision [13 FCC 2d, 420 (1968)]

Federal Communications Commission Docket 18920, Specialized Common Carrier Services First Report and Order, 3 June 1971, [29 FCC 2d, 872 (1971)]

Federal Communications Commission Memorandum Opinion and Order [28 FCC 2d 267 (1971)], Computer I.

Federal Communications Commission Memorandum Opinion and Order [88 FCC 2d 512 (1981)], Computer II.

Federal Communications Commission Memorandum Opinion and Order [3 FCCR 1150 (1988)], Computer III.

Federal Communications Commission News Release: “FCC to Begin Internet Telephony Proceedings.” November 6, 2003.

Federal Communications Commission First Report and Order [FCC 97-158], Access Charge Reform Order.

Federal Communications Commission Report and Order [17 FCC Rcd 4798 (2002)], The Cable Modem Ruling.

Federal Communications Commission Report and Order [11 FCC 1033 (1947)], The Recording Devices Decision.

291

Federal Communications Commission Report and Order [27 FCC 359 (1959)] The Specialized Common Carrier Decision.

Federal Communications Commission Report and Order [CC Docket 96-45 (1988)], Universal Service Report and Order

Federal Communications Commission website: http://www.fcc.gov/cgb/dro/knownoi.html, last accessed February 27, 2005.

Federation for Economically Rational Utility Policy (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Fidler, R. (1997) Mediamorphosis: Understanding new media. Thousand Oaks, CA: Sage Publications.

Foucault, M. (1980). Technologies of the self. Amherst, MA: University of Massachusetts Press.

Frey, L. R., Botan, C.H., & Kreps, G.L. (2000). Investigating Communication: An introduction to research methods. Needham Heights, MA: Allyn & Bacon.

Frieden, R. (1998). Without public peer: The potential regulatory and universal service consequences of Internet balkanization. Virginia Journal of Law & Technology, Vol. 3, pp. 1522–1687.

Gandy, O.H. (2002). The real digital divide: Citizens versus consumers. In L. Lieverouw and S. Livingstone, (eds.) Social shaping and the consequences of ICT’s: The handbook of new media (2002). Thousand Oaks, CA: Sage Publications.

Gifford, R. (2003). Modest observations on regulatory policy. The Skeptical Regulator. Vol. 1, No. 1, pp. 1-8.

Gitlin, T. (1980). The whole world is watching: Mass media in the making and unmaking of the new left. Berkeley, CA, Los Angeles, CA & London, U.K.: University of California Press.

Global Crossing (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Goffman, E. (1974). Frame analysis: An essay on the organization of experience. New York, NY: Harper & Row.

Gramsci, A. (1971). Selections from the prison notebooks. Cambridge, MA: Cambridge University Press.

292

Hadden, S. (1991). Technologies of universal service. In Universal telephone services: Ready for the 21st century? Queenstown, MD: Institute for Information Studies.

Hantke-Domas, M. (2003). The Public interest theory of regulation: Non-existence or misinterpretation. European Journal of Law and Economics, Vol.15. pp.165–194.

Harris, R. (1998). The Internet as GPT. In E. Helpman (ed). General purpose technologies and economic growth. Cambridge: MIT Press

Harvey, D. 1990. The Condition of Postmodernity. Cambridge, MA: Blackwell

Henton, H. and Skouby, K.E. (2002). Information society and trade & industry policy. In L. Lieverouw and Livingstone (eds). The handbook of new media: Social shaping and consequences of ICT’s. (2002). Thousand Oaks, CA: Sage Publications.

Heritage Foundation www.heritage.org last accessed January 4, 2006.

Hodulik, J. (2003). Address given to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Horwitz, R.B. (1989). The irony of regulatory reform: The deregulation of American telecommunications. Oxford: Oxford University Press.

Huber, P., Kellogg, M.K., and Thorne, J. (1996). Understanding the Telecommunications Act of 1996. Boston: Little, Brown & Co.

Hudson, H. (2002). Universal access to the new information structure. In L. Lieverouw and Livingstone (eds). The handbook of new media: Social shaping and consequences of ICT’s. (2002). Thousand Oaks, CA: Sage Publications.

Hughes, T. (1983). Networks of Power: Electrification in Western Society 1880-1930. Baltimore: Johns Hopkins Press.

Hyman, L.S., DiNapoli, E., & Toole, R.C., (1997). The new telecommunications industry: Meeting the competition. Public Utilities Reports, Inc, Vienna, VA.

Independent Telephone and Telecommunications Alliance (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Institute of Electronics and Electrical Engineers. www.ieee.org last accessed January 4, 2006

International Telecommunications Union. www.itu.int; last accessed October 16, 2004.

293

Jayakar, K.P. & Sawhney, H. (2004). Universal service: Beyond established practice to possibility space. Telecommunications Policy Vol. 28, pp. 339–357.

Jordan, T. (1999). Cyberpower: The culture and politics of cyberspace and the Internet. London: Routledge.

Judis, J.B. (2000). Are We All Progressives Now? American Prospect. Vol. 11, No. 12, pp. 34-38.

Kellner, D. (1999). Technologies, welfare state, and prospects for democratization. In A. Calabrese and J.C. Bergelman (eds). Communication, citizenship, and social policy (1999). Lanham, MD: Rowman & Littlefield.

Keum, H. Hillback, E., Rojas, H., Zuniga, H.G., Shah, D.V., & McLeod, D. (2005). Personifying the radical: How news framing polarizes security concerns and tolerance judgments. Human Communication Research, Vol. 33, No. 3, pp. 337-364.

Kim, H. (1995). The politics of deregulation: Public participation in the FCC rulemaking process for DBS. Telecommunications Policy, Vol. 19, No. 1, pp. 51-60.

Kondratieff, N. (1926). The long wave in economic life. Review of Economic Statistics. Vol.17, pp. 105-115.

Kronig, T. (2004). Reframing frame analysis: Systematizing the empirical identification of frames using qualitative data analysis software. Paper presented at ASA Annual Meeting, San Francisco, CA, August 14-17, 2004.

Kuhn, T. (1962). The structure of scientific revolutions, 2nd ed. Chicago: University of Chicago Press.

Kuttner, R. (1999). Everything for sale: The virtues and limits of markets. Chicago: Chicago University Press.

Lakoff, G. (2003). “Framing the issues: UC Berkeley professor George Lakoff tells how conservatives use language to dominate politics.” UC Berkeley News, October 27, 2003.

Leahy, K. (2004). Wireless fidelity: Regulating the future with policies from the past. Paper presented to the National Communication Association, Chicago, IL, November 10- 14, 2004.

Lehman, D.E. & Weisman, D.L. (2000). The Telecommunications Act of 1996: The “costs” of managed competition. Boston: Kluwer Academic Publishing.

Level 3 Communications (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04- 36. 294

Lieverouw, L. (2002). Determination and contingency in new media development: Diffusion of innovations and social shaping of technology. In L. Lieverouw and Livingstone (eds). The handbook of new media: Social shaping and consequences of ICT’s. (2002). Thousand Oaks, CA: Sage Publications.

Lincoln, Y.S. and Guba, E.G. (1985). Naturalistic inquiry. Beverly Hills, CA: Sage Press.

Lovelock, P. and Ure, J. (2002). The new economy: Internet telecommunications and electronic commerce? In Lieverouw and Livingstone (eds). The handbook of new media: Social shaping and consequences of ICT’s. (2002). Thousand Oaks, CA: Sage Publications.

MCI (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Marks, F.R. (1973). Brief of amici curiae to U.S. Supreme Court re: LAU v. NICHOLS, et. al., 414 U.S. 563

Martin, H.P, and Schumann, H. (1997). The global trap: Globalization and the assault on democracy and prosperity. London: Zed.

Martin, K. (2003). Address given to Federal Communications Commission VoIP Forum, Washington, D.C., December 1, 2003.

McCain, J. (2003). Letter submitted to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

McChesney, R.W. (1999). Rich media, poor democracy: Communication politics in dubious times. Urbana: University of Illinois Press.

McDowell, S. & Buchwald, C.C. (1997). Public interest groups and the Canadian Information Highway. Telecommunications Policy, Vol. 21, No. 8, pp. 709 – 719.

McNamara, J.R. (1991). The economics of innovation in the telecommunications industry. New York, NY: Quorum.

McQuail, D. (1992). Media performance: mass communications and the public interest. Newbury Park, CA: Sage Publications.

Modification of Final Judgment [460 U.S. 1001 (1983)]

Mody, B., Trebing, H. & Stein, L. (2002). The governance of media markets. In L. Lieverouw and Livingstone (eds). The handbook of new media: Social shaping and consequences of ICT’s. (2002). Thousand Oaks, CA: Sage Publications.

295

Mosco, V. (1989). The pay-per society: Computers and information in the information age. Norwood, NJ: Ablex.

Mueller, M. (1993). Universal service in telephone history: A reconstruction. Telecommunications Policy. Vol. 17, pp. 352–369.

Murdock, G. and Golding, P. (1999). Common markets: Corporate ambitions and communication trends in the UK and Europe. The Journal of Media Economics, Vol. 12, No. 2.

National Aeronautical Space Agency www.nasa.gov last accessed January 4, 2006.

National Association of Regulator Utility Commissioners (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

National Cable and Telecommunications Services (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

National Exchange Carriers Association (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

National Telecommunications Cooperative Association (2003). Submission to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Net2phone (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Net2phone (2003). Submission to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

New Millenium Research Council www.nmrc.org last accessed January 4, 2006

Nextel (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

North American Free Trade Agreement www.mac.doc.gov/nafta last accessed April 3, 2006

Organization for the Advancement and Promotion of Small Telecommunications Companies (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

296

Organization for the Advancement and Promotion of Small Telecommunications Companies (2003). Submission to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Pew Charitable Trust, www.pewtrust.org; accessed October 16, 2004.

Posner, R. (1974). Theories of economic regulation. Bell Journal of Economics and Management Science. Vol. 5, No. 2, pp. 335–358.

Posner, R. (1971). Taxation by regulation. The RAND Journal of Economics. Vol. 2, No.1, pp. 22-50.

Powell, M. K. (2003). Opening remarks at Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Powell, M.K. (1998). Before the American Bar Association17th Annual Legal Forum on Communications Law, Las Vegas, Nevada, April 5.

Pulver, J. (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Pulver, J. (2003). Remarks given to the Federal Communications Commission VoIP Forum, Washington, DC. December 1, 2003.

Rauchway, E. (2005). William McKinley and us. Journal of the Gilded Age and Progressive Era. Vol. 4, No. 3., pp. 235-253

Reder, M. (1999). Economics: The culture of a controversial science. Chicago: University of Chicago Press.

Reynolds, J. and Roffe, J. (2004). Understanding Derrida (Eds.) London and New York: Continuum.

Rogers, E. (1995). Diffusion of innovations. (4th ed.). New York, NY: Simon & Schuster.

Roller, L.H., Waverman, L. (2001). Telecommunications infrastructure and economic development. American Economic Journal. Vol. 91, No. 4. Pp. 909-923.

Rooksby, E., Weckert, J. (2003). Digital divides: Their social and ethical implications. In L.L. Brennan and V.E. Johnson (Eds.) Social, ethical, and policy implications for information technology (2003). London: Information Science Publishing.

SBC Communications (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04- 36.

297

Schumpeter, J. (1939). Business cycles: A theoretical, historical, and statistical analysis of the capitalist process. New York: McGraw-Hill.

Selfe, C.L. (1999). Technology and literacy in the twenty-first century: The importance of paying attention. Carbondale: Southern Illinois University Press.

Snow, D.A., Burke, E., Rochford, Jr., Worden, S.K., & Benford, R.D. (1986). Frame alignment processes, micromobilization, and movement participation. American Sociological Review, Vol. 51, No. 4, pp. 464-481.

Sprint (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Sprint Corporate Website, www.sprint.com. Last accessed April 3, 2006

Star, S.L., Bowker, G.C. (2002). How to infrastructure. In Lieverouw and Livingstone (eds.) Handbook of new media: Social shaping and consequences of ICTs. (2002). Thousand Oaks, CA: Sage Publications.

Sterman, J.D. (2000). Business Dynamics: System thinking and modeling for a complex world. Boston: McGraw-Hill.

Stigler, G. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science, Vol. 2, No. 1, pp. 3–21.

Stone, D. (1997). Policy paradox: The art of political decision making. W.W. Norton: NY.

Stone, D. (1988). Policy paradox and political reason. Harper Collins Publishers: NY.

Strugman, D.M. & Reid, L.N. (1980). The public interest as defined by FCC policy makers. Journal of Broadcasting. Vol. 24, pp. 311-325.

Sununu, J. (2003). Letter submitted to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

National Cable & Telecommunications et al. v. Brand X Internet Service et al. Certiorari to the United States Court of Appeals for the Ninth Circuit. No. 04-277. Decision: June 27, 2005.

Telecommunications Industry Association www.ITA.org last accessed January 4, 2006

TeleNomic Research www.telenomic.org last accessed January 4, 2006

298

Tilley, C. (1989). Discourse and power: The genre of the Cambridge inaugural. In D. Miller, M. Rowlands, & C. Tilley, (Eds.), Dominion and resistance. London: Unwin Hyman.

Time Warner (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Truman Library www.trumanlibrary.org. last accessed April 3, 2006.

United Power Line Council (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04- 36.

United States 1996 Telecommunications Act [47 U.S.C. Sec. 231] United States Clayton Act [15 U.S.C. Secs. 12-27 (1914)]

United States Code (1926). Office of the Law Revision Counsel of the United States House of Representatives

United States Communications Act of 1934 [47 U.S.C. SEC 157]

United States Constitution [Article 1, Section 8 (3)], Commerce Clause

United States Esch-Cummins Act [41 stat. 482 (1920)]

United States Hepburn Act [34 Stat. 584 (1906)]

United States House of Representatives Floor Debate [61 Cong. Rec. 1983 (1921)]

United States House of Representatives Hearings [H.R. hearings 8301 73rd Congress 2nd Session, 1934]

United States Internal Revenue Service, www.irs.gov last accessed January 4, 2006.

United States Interstate Commerce Act [49 USC 10101 (1887)]

United States Mann Elkins Act [36 Stat. 539, (1910)].

United States Patent and Trademark Office, www.uspto.gov last accessed January 4, 2006.

United States Sherman Antitrust Act (1890). [15 U.S.C. Sections 1-7)]

United States Tunney Act [15 USC 16 (c) (1974)]

United States Willis Graham Act [42 stat 27 (1921)] 299

United Telecom Council (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04- 36.

U.S. Internet Industry Association, www.usiia.org last accessed January 4, 2006

USTelecom (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Van Cuilenberg, J. and Slaa, P. (1995). Competition and innovation in telecommunications: An empirical analysis of innovative telecommunications in the public interest. Telecommunication Policy, Vol. 19. No. 8 pp. 647-663.

Verizon (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Vogelsang, I. and Mitchell, B.M. (1997). Telecommunications competition: The last ten miles. Mahwah, NJ: Lawrence Erlbaum Associates.

VoIP Coalition (2003). Submission to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Vonage Holdings Corporation (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04- 36.

Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission [19 FCC Rcd 22404 (2004)]

VON Coalition (2004). Comments before the Federal Communications Commission: In the Matter of IP-enabled Services. Wireline Competition Docket No. 04-36.

Volti, R. (2001). Society and technological change. 4th ed. New York, NY: Worth Publishers.

Warnick, B. (2002). Critical literacy in a digital era: Technology, rhetoric and the public interest. Lawrence Erlbaum Associates: Mahwah, NJ.

Webb, E.J., Campbell, D.T., Schwartz, R.C., and Sechrest, L. (1966). Unobtrusive measures: Non-reactive research in the social sciences. Chicago: University of Chicago Press.

Webster, F. (2002). The information society revisited. In L.Lieverouw and S. Livingstone, (eds.) Social shaping and the consequences of ICT’s: The handbook of new media (2002). Thousand Oaks: Sage Publications. 300

Werbach, K. (2003). Remarks given to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

Werbach, K. (1997). Digital tornado: VoIP regulation. Policy paper presented to the Federal Communications Commission.

Western Electric and AT&T Consent Decree (1956)

Whitt, R. (2004) A Horizontal Leap Forward. Policy paper presented to the Federal Communications Commission.

World Telecommunications Development Report, 1995: Information Structures. International Telecommunications Union, p. 115.

Wyden, R. (2003). Letter submitted to Federal Communications Commission VoIP Forum, Washington, D.C. December 1, 2003.

301

BIOGRAPHICAL SKETCH

Kimberley Leahy received her Ph.D. in Mass Communication from Florida State University. She earned a Fulbright Scholarship to Lithuania where she used her award to study telecommunications policy transitions that have occurred since Lithuania became a member of the European Union. She spent the first six months of 2006 at Vilnius University, Vilnius, Lithuania lecturing and generating research on Baltic telecommunications. Leahy has presented her research in Ireland, Finland, Croatia, Lithuania, and the U.S. Prior to earning her doctorate in Mass Communication from Florida State University, Leahy worked for CCH, Inc., a research publishing firm, where she was a member of the CCH President's Roundtable, a recognition of excellence within the firm. She earned her M.B.A. from St. Joseph's University and a Bachelor of Science degree in Marketing from Indiana University of Pennsylvania. She is a Rotary International Paul Harris fellow. Leahy and her husband, both originally from Philadelphia, currently reside in Tallahassee, FL.

302