Any discussion of regulation as it pertains to VoIP services must begin with an attempt to establish useful definitional parameters. VoIP can be classified in a number of different ways. Initially, the FCC and the European Union (“EU”) tended to differentiate types of VoIP based upon the nature of the customer premises equipment (“CPE”) at the end points of the transmission. One type is computer-to-computer VoIP, where the transmission starts and ends on a computer. Another type of service is computer-to-phone VoIP, where one party uses a phone to receive the transmission. There is also phone-to-phone VoIP (also known as Internet Protocol (“IP”) in the middle), where both parties use phones. It turned out that this type of categorization did not provide a useful framework to allow comprehensive regulatory analysis.
Regulators, service providers, and investment analysts in many countries are beginning to think about VoIP regulation using categories based more on the intended functionality of the VoIP service, and not on the type of endpoint. There are currently five types of potential categories that regulators may use to frame a regulatory regime. The first category is “incumbent VoIP,” broadly defined as the use of IP transmission technologies in part or on all of an incumbent network to provide voice services. Today, VoIP technology is sprinkled throughout the incumbent wireline and wireless networks in nearly every country. For instance, almost all long distance carriers’ networks use IP transmission in the backbone. Most wireless carriers use it for backhaul from cell towers to their switches. Therefore, IP in the middle of established networks is widespread, if not ubiquitous. Incumbents are adopting IP technologies in parts of their existing networks in order to lower their costs or improve their product offerings. Some incumbent carriers are even transitioning to all IP networks. Perhaps the best known examples are British Telecom and the Australian carrier Telstra.
The second broad category of VoIP is enterprise VoIP, which covers the situation where VoIP is used within a large business enterprise to create a local or wide area network (“LAN” or “WAN”). The migration to VoIP within large business enterprises has progressed significantly in the United States, the EU, and a number of other countries with well-developed telecommunications infrastructure.
The third category of VoIP consists of the PSTN replacement or interconnection services. The initial growth of VoIP outside the enterprise market occurred in the international call market during the late 1990s, when ISPs and Internet carriers used VoIP to undercut the high prices of international toll calls. These bypass carriers succeeded in capturing a large slice of the market, formed by the most price-sensitive customers, such as expatriates and students. As the quality of services improved, smaller businesses adopted international VoIP services. In many developing countries, VoIP providers won considerable market share from incumbents, which became another factor leading to regulatory reforms aimed at liberalizing the market and rebalancing tariffs. In the last three years, domestic or local VoIP services, marketed as cheaper versions of regular PSTN voice service, have significantly risen in popularity in many countries. These services are designed and priced to allow customers to call anyone else with a phone number on the domestic PSTN. The types of competitors offering these services vary from country to country. The best known examples of VoIP PSTN replacement services in the United States are Vonage and Sun Rocket. SkypeOut and SkypeIn also fall within this category. Most of the large U.S. cable companies are also now offering VoIP services in their territories. In fact, the two largest U.S. VoIP providers are Cablevision and Time Warner Cable.
The fourth type of VoIP service is peer-to-peer voice telephony such as Pulver.com’s Free World Dial-Up and the original (non-PSTN-interconnected) version of Skype. These P2P applications can only be used to connect to other users who have downloaded the software. They are computer software programs that can be designed to utilize a central server—essentially like Napster, but for voice instead of music—or they can be pure P2P, with no central server operation. They are not designed to substitute directly for or to interconnect with the PSTN, and in general, there is no charge to users for the service they provide. Most of these are computer-to-computer applications.
The fifth category of VoIP services is what industry analyst and former FCC
Chief of Staff Blair Levin has dubbed P2P Community VOIP(“P2PC.”) These are services in which voice is merely a subset of a suite of Internet services. This category is not marketed as a direct competitor to the PSTN, “rather, the model involves pre-existing communities that use communications to facilitate or expand their existing activities.” The most well known example of this category is eBay’s purchase of Skype and incorporation of its voice functionality into eBay’s platform. Other examples include Yahoo.com, Google.com’s Google Talk program, MSN.com, Amazon.com, and AOL’s instant messaging program. Many characterize these companies as being in different businesses, but as Levin has pointed out, “[T]hey are really all in the information-management business.” In each of their business models, the information and connectivity is free. These companies realize profits because they manage certain kinds of information, for example search engines, multimedia, retail sales, or auctions, better than anyone else. Voice is only one way that these innovators can communicate with their users and enable their users to communicate with each other. Other methods of communication used by such communities include both synchronous applications such as instant messaging and chat rooms, and asynchronous applications such as email and message boards.
In the past, most countries’ regulatory schemes considered all voice traffic to be similar and treated it similarly. The most important exception to this rule was voice traffic on private or corporate networks, which were freed from most regulation in the United States beginning in the 1970s and in the rest of the developed world from the 1980s forward. This state of affairs, unitary or monolithic treatment of voice traffic, is changing as voice becomes largely (arguably entirely) a packetized service. As this occurs, each of those five categories of VoIP will be regulated differently. The remainder of this Article examines the drivers for VoIP regulation generally and suggests likely national regulatory frameworks that will emerge for each type of VoIP service.
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