The regulation of voice over IP (VoIP) is one of the most hotly debated topics of the past two years. And while the regulatory bodies debate its definition and character, a variety of new entrants has been experimenting with the technology and deploying it—a development that has created havoc in the telecommunications landscape and transformed consumer expectations about telecommunication services.

The Federal Communications Commission (FCC) has historically classified Internet services as "enhanced services," which are not subject to traditional access charges. Still, it has reserved a decisive definition when it comes to telecommunications services over the Internet. In late 1996, the FCC ruled that telephony services provided by enhanced service providers are not subject to access charges. On the basis of these rulings, VoIP service providers are paying a lower reciprocal compensation rate than they would for long distance and wireless providers. Concerns about the increased burden of social responsibility of the Universal Service Fund (USF) and the discriminatory access charge and inter-carrier compensation for similar services prompted various organizations to file petitions challenging this definition. Although the FCC has made a few rulings on VoIP regulation, it has usually reserved the right to adopt different approaches based on the findings of its Internet Policy Working Group.

A few states have tried to pre-empt FCC rulings by subjecting VoIP service providers to local regulations similar to those imposed on local-exchange carriers (LECs). The FCC recently made a clear and decisive ruling that IP-enabled services such as VoIP fall under the interstate domain and therefore the states and Public Utilities Commission (PUC) do not have jurisdiction over these services.

In the recent Brand X decision, the U.S. Supreme Court ruled that cable companies do not have to share their infrastructure with competing Internet service providers. The FCC has defined cable broadband as an "information service"—a definition that, under agency guidelines, frees cable companies from regulations that would require operators to share their networks with competitors, including Internet service providers (ISPs) such as Brand X. Following that ruling, the FCC redefined its classification of digital subscriber line (DSL) services. DSL is now considered an information service rather than a telecommunication service. This puts DSL in line with the classification of cable modem services—and exempts the telcos from opening up their infrastructure to competing ISPs and VoIP service providers such as Vonage.

In the meantime, Congress is debating a bill that proposes rules for three types of broadband services: VoIP, broadband video, and broadband Internet transmission services (BITS). The industry is now voicing its opposition to the draft's failure to impose "net neutrality" requirements equally on all three categories of services.

Before discussing the contentious topic of how to regulate VoIP services, it is useful to step back and ask the basic question, "Is it necessary to regulate VoIP?" The 1996 Telecom Act set forth two major policy objectives:

• Ensure affordable and reliable communication services to all U.S. citizens
• Transform telecom from a regulated monopoly to a healthy, competitive market and reduce regulatory oversight as much as possible

If we give some critical thought to the influence of the advent of voice services over the Internet, the following six observations stand out:

• The voice services offered by VoIP providers are much more affordable than many traditional phone services.
• The VoIP providers have driven increased competition in the telecom marketplace by pulling more players into the market, with the multiple system operators (MSOs) and LECs now providing basic telecom services.
• In a pure VoIP market, the barriers to entry for a new provider are much lower because the only requirement is that the subscribers have access to broadband services. Since broadband penetration is a priority of the FCC, the barriers are bound to fall even lower.
• Regulation is needed when there is a fear of market power harming the public interest. It is quite inconceivable to think of an individual company or organization monopolizing a network of disparate networks such as the Internet and thereby denying the common citizen of access to information services.
• Public interest is amply demonstrated by the simple fact that the prices of VoIP services are revised downward every few months in response to competition.
• Public interest is also demonstrated by the fact that emergence of this new technology has given rise to many other complementary technologies and services that are spurring U.S. economic growth (e.g., VoIP mobile phones, Wi-Fi, and WiMAX equipment).¹

The biggest issue in introducing regulation in the VoIP industry is the concern that subjecting it to cumbersome regulation might rob the people of the great promise that this technology holds. The only sensible reason to subject VoIP to regulatory oversight is if it is considered to be part of an overhaul of the complete regulatory landscape, considering the new and radically different technological environment.

The efficacy of regulations on any service will be proved only when that service can withstand or adapt to the changes in the underlying technology that is used to provide the service.

Any new regulatory structure the FCC implements should address the following issues:

• Declaring decisively that Internet-based services are inevitably interstate in nature and subject only to federal regulations. This is fundamentally true because packet-based networks often use the best routing path to the destination, regardless of geographic boundaries.
• Recognizing the fact that the new telecom field will have more players than there have been historically—incumbent LECs (ILECs), competitive LECs (CLECs), MSOs, and independent VoIP providers—and that the FCC should be able to enforce standard interfaces for inter-carrier compensation or access charges where market forces cannot drive these.
• Ensuring that the policies are technology-neutral.
• Ensuring that the social and economic obligations of the government, including USF, law enforcement, and emergency services, are adequately covered and applied equally to all service providers.

The future of telecom regulation is at a major crossroads in the United States (and in many other countries). It is crucial that the involved agencies choose the right path going forward—a path that does not simply transfer the legacy regulatory framework onto newer services, but instead creates a broader framework that will continue to reward and encourage innovation in technologies such as VoIP. Historically, it has been seen that the fewer regulatory shackles on any technology or industry, the more robust the investment and the more spectacular the innovations. That brings to mind Hippocrates and his principle of "to help, or at least to do no harm."