Category Archives: FCC on VoIP

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The Federal Communication Commission (FCC) strikes out to regulate Broadband as hybrid telecom service after April 2010 legal trouncing of Net Neutrality rulemaking authority in DC Circuit Court decision in Comcast v. FCC. More VoIP regulation on the Horizon?

Sometimes one or two bad policy decisions comes back to haunt you.  This may have been the bitter pill swallowed by the FCC’s Genachowski Commission this past week when it released its statement on how the regulation of broadband services will be approached by the Commission.  At odds with the FCC was its precise legal authority to regulate “Broadband” pitted against recent Congressional pressure to implement a fundable “Broadband Plan” with regulatory control and certainty.  The problem faced by the FCC arises from two significant court cases that, in a negative and positive counter-reaction, have effectively cancelled out a clear regulatory path for the FCC in the treatment of broadband, and VoIP.  These cases being the June 2005 Supreme Court Decision in Brand X v. FCC (BrandX) and the April 2010 DC Circuit Court Decision in Comcast v. FCC.

The BrandX case is a well traveled decision by many of those operating in the telecom, VoIP and ISP sectors.  It largely de-regulated cable provisioned internet services by finding definition that it was an information services, a service outside the FCC’s Title II regulation of telecommunications. A part of this finding was largely due to the FCC itself and stipulation that the service was intertwined with information services.  The political tenor of the FCC’s then Martin-era Commission was to keep the Broadband within the scope of unregulated data services, and allow time for the services to grow in the market.  The Court, in a 6-3 decision, overturned an FCC regulatory proposition of jurisdiction that would have forced cable companies to open up their networks to Internet service providers.  The majority opinion was written by Justice Clarence Thomas and among the dissenting justices was Justice Antonin Scalia, who opined that the more logical proposition would be to bifurcate (or unbundle if you prefer) the regulation of the service between elements of transport and elements of content.  This all was well before “Broadband” became better defined under stimulus money and well before access charges and content access became pawns pieces battled between cable providers and other market players by 2007.

The April 2010 DC Circuit Court Decision in Comcast v. FCC is a more recent thorn in the side of the FCC to be able to set a clear policy direction for Broadband.  Post BrandX, the FCC’s Martin-era Commission attempted to find regulatory continuity under Title I by introducing regulatory principles of Net Neutrality, a lose set of principles not specifically founded in statutory authority but reinforced in the broadest sense by “ancillary jurisdiction” under Ssection 4(i) of the Communications Act of 1934 codified in 47 U.S.C. § 154(i).  Since then, much talk, and debate has centered on the FCC’s ability to actually enforce Net Neutrality Principles in real disputes between content providers and internet access networks under this expansive interpretation of ancillary jurisdiction.  Leading among the controversies pushing clarification of Net Neutrality has been the ISP/Cable Company’s network management practices to block select content or data on its network and access charges associated with data pushed to Interconnected VoIP telephony.  The Comcast v. FCC placed this question on the table, and the FCC’s expansive interpretation of 47 U.S.C. § 154(i) on the chopping block.   The DC Circuit Court’s Decision is well-thought and inclusive of the practices and issues at hand (worth reading), however, in the end the court determined that as series of existing decisions in cases such as Southwestern Cable, Midwest Video I, Midwest Video II, and NARUC II bar this expansive theory of ancillary authority.  With this ruling, the continued development of Net Neutrality Rules as first undertaken by the FCC’s Martin-era Commission have effectively been stymied, leaving the Genachowski Commission vacillating whether to re-work Net Neutrality – or let Net Neutrality pass away much like President Woodrow Wilson’s “League of Nations” and choose another course.

In the statement made Thursday May 6, 2010, the Genachowski Commission has clearly chosen the other course, albeit a hybrid and fuzzy one at this juncture.  Chairman Genachowski, the Commissioners, and along with the legal opinion support of FCC General Counsel Austin C. Schlick (who by the way had argued the FCC’s position in the recent Comcast Case) outlined the proposition of defining broadband within the confines of Title II, as related to transport of such services, and not, content.  In essence adopting Justice Scalia’s bifurcated view of broadband Internet access service in the BrandX case dissent as the under pinning for forward going regulation.  The FCC will begin to take comment and begin rulemaking to regulate Broadband under a qualified telecommunications regulatory category pursuant to Title II of the Federal Communications Act of 1934, as amended.  Regulatory pundits have already coined this policy move as regulation light or “REG-LITE” among others.  In the Thursday Statements¸ FCC General Counsel Austin C. Schlick underscored some key point, not only to regulation, but to its relationship to VoIP:

“…the Commission’s legal approach with its policy of (i) keeping the Internet unregulated while (ii) exercising some supervision of access connections.  The provisions of Title II would apply solely to the transmission component of broadband access service, while the information component would be subject to, at most, whatever ancillary jurisdiction may exist under Title I.” (emphasis added)

He further opined on the legal approach:

“The upshot is that the Commission is able to tailor the requirements of Title II so that they conform precisely to the policy consensus for broadband transmission services.  Specifically, the Commission could implement the consensus policy approach—and maintain substantively the same legal framework as under Title I—by forbearing from applying the vast majority of Title II’s 48 provisions to broadband access services, making the classification change effective upon the completion of forbearance, and enforcing a small handful of remaining statutory requirements.” (emphasis added)

I encourage all regulatory pundits in the VoIP and telecom arena to read FCC General Counsel Austin C. Schlick’s advisory opinion to the Chairman as the logic of the FCC’s legal position is quite clear – down to its own authority to define anew Broadband under Title II in accord with the BrandX majority’s opinion.

The relevance and impact of this change to VoIP resellers and Interconnected VoIP Providers.

Not surprisingly, the first 9:00am EST Friday morning call to my office was from a VoIP Toll Provider with the questions: do I need to apply for the FCC 214 today or not?   Fortunately, things do not happen that fast with the FCC.  However, there are a few things VoIP Toll Resellers and Interconnected VoIP Providers should be thinking about and preparing for in the near future.  The current focus of the “Broadband” regulatory definition now contemplates transport distinct from content when regulating between Title I (information services) and Title II (telecom).  This stands to impact the current regulatory classification of Interconnected VoIP, and definitely more clearly define VoIP Toll Resellers beyond the FCC’s IP In-the-Middle Order and USAC treatment on the 499-A filing.

First, think about the underpinning of Interconnected VoIP from the regulatory standpoint.  Within the FCC, the term is first used to implement E-911 requirements on providers of VoIP Phones and Phone systems in the FCC’s E-911 Order.  Therein, Interconnected VoIP Providers are determined based upon meeting four technical features – one of which is Broadband connection. VoIP Toll Resellers are referred to in the 2005 FCC IP In-the-Middle Order and the 499-A Instructions as to regulatory treatment of other VoIP Toll traffic.  However, aside from placing additional requirements on that definition for CPNI Compliance (in the EPIC CPNI Order), Biannual Form 477 Reports, and 499-A Reporting and Regulatory Fee Contribution requirements under the IP In-The-Middle Order, the term Interconnected VoIP and VoIP Resellers have been loosely placed into a hybrid treatment like Title II of the Communications Act without any formal Decision or Order stating that VoIP will or must be treated under Title II.  The FCC’s legal authority is not clear in this area.  This “Titlesk II” treatment of VoIP accounts for considerable revenues collected by the FCC through USAC and other regulatory fee contribution.  This will not change or have forbearance as the FCC needs the funds to further implement its Broadband Plan. The question that remains in a post “broadband” regulatory definition is whether the existing treatment of VoIP is enough for the FCC.  I have my doubts.  Broadband integration into Title II under “REG-LITE” naturally implicates VoIP as a transport medium, and not, an information medium. This may require the FCC to require Section 214 Authority of such VoIP providers, even if only to be able to issues forbearance on reporting requirements.  Alternatively, it may simply just require the International and Wireline Bureaus to simply recognize a new class of Section 214 Authority for IP Broadband transport services that includes Interconnected VoIP and VoIP Toll Resellers.  Clear from the recent FCC statement is that Broadband regulation going forward will definitely change the existing regulatory framework of VoIP – the question is how much, and when.

Another factor to be considered is the present treatment of Interconnected VoIP and VoIP Toll Providers by the FCC and more specifically USAC.  USAC has become as great a machine to the FCC funding itself as the Roman Legion was to the great infrastructure works Ancient Rome.  Those VoIP providers filing 499-Q to either pay contributions or exempt themselves from contributions know this well.  However, forgotten by the FCC is that VoIP Providers, in fact all carriers, are their customers in this role and should be treated as such, not like subjects of an empire.  Numerous VoIP providers have had to seek USAC appeals and formal Appeals to the Wireline Bureau for scribers errors and confusion as to how to properly record pass through of VoIP USAC obligations to downstream providers – this will not likely change in the REG-LITE process of “Broadband.”  It is my opinion that any FCC Broadband Plan must be tied to USF Reform and contribution reform for small businesses in that sector.   This must be taken Congress directly by VoIP Providers.  It is simply not the “stuff” of protracted comment processes and debates within the agency itself; the FCC needs a clear mandate from Congress.

I welcome comment and substantive feedback on these thoughts from the industry.

Edward A. Maldonado, Esq.

Telecom Attorney & FCC Advocate

© Edward A. Maldonado, Esq. 2010


Requiem of the Small FCC 214 Carrier: The Dirge of FCC Shut-Downs.

I hate to say it, but, my office consultations to discuss carrier shut-downs have been more frequent in recent days.  Not surprisingly its small competitive resale and retail carriers closing-up shop these days. These small-sized carriers were not long-haulers in the market. The post 911 Era saw many of them enter the marketplace quickly after obtaining base FCC 214 Authority or declaration as a VoIP Carrier and budget facilities. Fueled by competitive international direct routes and the use of VoIP to offer aggressive rates in comparison to the major providers, these plucky carriers leveraged their small-size and niche routes to enter and exist in the marketplace.  

 However these exuberant entrepreneurs often lacked the financial stability and/or the proper administrative organization to successfully manage both the business and regulatory side of telecommunications.   Regulatory compliance was often consciously left to the back-burner in lieu sales and the quest for premium routes.  This became patently evident when the Great Recession of 2008-2009 coupled in time with more sophisticated FCC Regulatory Fee Enforcement and converged on them simultaneously. Pinned by shrinking commercial margins and back-owed FUSF, TRS, LNP, NANPA and FCC Contributions, many crawled for a period but now are coming to a make-it or break-it proposition: clean-ups or shut-down.   

 After reciting the colloquy of necessary clean-up steps and cancellation processes involved in a formal FCC and State shut-downs a few dozen times, it seemed prudent to post a brief, but non-exhaustive, list of what is needed to properly shut-down a FCC 214 Carrier or VoIP Carrier with some safe harbor suggestions for when you meet with your regulatory counsel:

1.  Understand that Cancellation of any Authority is your responsibility per the Federal Communication Commission’s Rules. Therefore if you don’t cancel your Section 214 Authority (214 License) and Form 499 Filer ID Number, FCC won’t do it for you and the FCC will continue to regulate you until they have Formal Notice from you as a carrier.  This includes the assessment of late fees for not filing regular FCC 499-A and 499-Q Reports and remitting Contributions.  Cancellation of your FCC Section 214 Authority can be done by a simple Petition.  Cancellation of your 499 Flier ID can be made through a Notice to USAC.  Both are formal Notices to the FCC and must be made truthfully under penalty of perjury per Commission Rules. Also pursuant to Commission Rules, it is your responsibility as a part of Cancellation to give Notice of Shut-Down to the State Regulatory Commissions (Public Utility or Service Commissions) where you operated, or alternatively the Governor of each state where you operated, and to the Department of State where applicable.

  •  Safe Harbor Suggestion #1 – If you decide to close operation as a FCC 214 Carrier, establish a final date of service in mind and have the necessary shut-down Petitions and Notifications prepared filed with the FCC International Bureau (FCC 214) and USAC (499 Filer ID and FCC 499 Reports) before that date.  If you leave it as a rolling date, it will, and liability will continue to accrue. Hedge any time delays due to glitches in the process, particularly the payment of past due regulatory fees owed to the FCC.
  • Safe Harbor Suggestion #2 – Have a ready list of States in which your company was authorized to provider telecommunication services. File your cancellation Notices to the State Public Utility Commissions well in advance of the final date of service, and even the Petition for the FCC 214 Cancellation, as states generally take more time to process this type of request, or, may require approval by sitting Commissioners in some instances.   

 2. Understand effective May 13, 2009, the same procedure required by FCC Section 214 Carriers for closing down their 499 Filer ID and paying down Contribution debt is also required by Interconnected VoIP Providers and VoIP Carriers.  See In the Matter of IP-Enabled Services WC Docket No. 04-36 REPORT AND ORDER Adopted: May 13, 2009.

 3. Understand that past due Contribution debts of over $100 that are over 180 days delinquent must be referred to the Department of Treasury for offset of any refunds or payments to your company. This means Treasury will match the debts against payments that might be owed to you from other Federal governmental entities (including tax refund payments), and will reduce those payments by the amount of your debt to the FCC. If mandatory centralized offset is not possible, Treasury and the Department of Justice will take necessary legal action to collect the delinquent debts. Treasury often uses third-party debt collection companies to collect the debt. The debt may be reported to a consumer reporting agency.  If the Carrier is financially unable to pay a debt owed to the FCC in one lump sum, it may request an installment payment plan, which can extend past the last date of service. There must be a basis for such a and the FCC will require the carrier, or its principal owners to enter into legally enforceable written agreements supporting the arrangement pursuant to 47 C.F.R. Part 1, Subpart O §1.1914.  The carrier can seek to offer a debt compromised, or reduced in amount as a part of closing out, however this must be backed by financial information justifying the request. FCC is only authorized to settle under a compromise when the principal balance of the debt is less than $100,000 USD. Only the Department of Justice may compromise debts exceeding a $100,000 USD debt. If you are about to enter into Federal bankruptcy protection, the FCC and its agencies should be Notified of this event in relation to Regulatory Fee Debt as the automatic stay imposed at the time the bankruptcy petition may stop any further collection activity by the FCC or Department of Treasury.

  •  Safe Harbor Suggestion #3 Assess any outstanding or past due Federal Universal Service Fund (FUSF) Contributions owed to USAC as well as Telecommunication Relay Service Fund (TRS), Local Number Portability (LNP), North American Numbering Plan Administration (NANPA), and FCC Contribution.  This will involve review of FCC Form 499 Reporting for the last two fiscal years in combination with review of Notices and Statements from USAC, NECA, NANPA, Welsch and Company, NuStar, and the FCC. Section 254(d) of the Communications Act of 1934 (Telecom Act) requires the FCC to collect USF contributions from all telecommunications providers offering interstate telecommunications services.  This includes all services until last day of operation.  Identify as best as possible Contribution Debt to be managed as a part of paying-down liabilities.
  • Safe Harbor Suggestion #4  Assess, Collect and Remit all pending Federal Universal Service Fund (FUSF) Contributions owed to USAC as well as Telecommunication Relay Service Fund (TRS), Local Number Portability (LNP), North American Numbering Plan Administration (NANPA), and FCC Contribution until last day of service.
  • Safe Harbor Suggestion #5 Begin negotiations for installment payments or debt compromise in advance of last date of operation.

4. Understand the Difference between the FCC Red Light Rule and FCC Wage GarnishmentThe “red light” rule simply means that if you are delinquent in debt owed to the FCC, it will not grant any further applications or other benefits until your debt to the FCC is resolved.  This can include the Cancellation of your Section 214 Authority.  If the Regulatory Contribution Debt has been already transferred to the Department of Treasury, there may be a possibility that the debt may be subject to wage garnishment.  Under Department of Treasury rules, also found at 47 C.F.R. § 1.1936 for the FCC, the Treasury may collect money owed to the FCC by garnishing wages of the delinquent debtor without first obtaining a court order. This may occur for delinquent debts of individuals or businesses that are sole proprietorships or partnerships.

  •  Safe Harbor Suggestion #6 Identify any past-due Contribution Debt and place priority to it as a part of shut-down liability liquidation.  Avoid risks of Red Light Rule treatment of your company that would result in denial of FCC Section 214 Cancellation or linger into future Wage Garnishment of Owners.   

5. Understand that any pending Enforcement Action by the FCC’s Enforcement Bureau must be resolved prior to shut-down unless a consent decree is entered by the carrier.   Since the FCC may potentially propose a fine against the carrier, the payment of the fine may be subject to the FCC Red Light Rule.

  The point of this brief review of steps and procedures is to provide small-sized resale and retail carrier a point of venture when talking to regulatory counsel about shut-downs.  It is by no means exhausting, or should it be.  The reality is that a final decision to close operations requires a hard analysis into the success, failure and potential of any business; and likewise, into the tenacity of its owners. Remember that a tough regulatory clean-up can be just as effective as closing and re-starting a business anew depending on the capabilities of the ownership and the core business proposition of the company. 

Good Luck and Success in the Industry

Attorney Edward A. Maldonado

November 29, 2009 – Miami, Florida

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Posted by on November 30, 2009 in FCC on VoIP, Wireline Bureau


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