VoIP Legal Planning Entering the Emerging VoIP Market   By Thomas K. Crowe, Esq.   Entering the communications market as an IP-telephony (or VoIP) provider (whether prepaid or postpaid) entails a different set of legal and regulatory considerations than entering as a conventional telecommunications provider.  Notwithstanding this, the Federal Communications Commission (FCC) increasingly imposes regulatory obligations upon interconnected VoIP providers.  This article attempts to summarize selected legal and regulatory considerations most relevant to providers utilizing interconnected VoIP technology.   Pursuant to several recent rulings, providers of VoIP services fitting the FCC’s definition of “interconnected VoIP service” are now required to register with the FCC, contribute to the FCC’s Universal Service Fund (USF), comply with disability access regulations including contributing to the Interstate Telecommunications Relay Services (TRS) Fund, and comply with E911 and Communications Assistance for Law Enforcement Act (CALEA) obligations.  In addition, under new rules expected to take effect in the fall of 2007, interconnected VoIP providers will be subject to the FCC’s customer proprietary network information (CPNI) regulations.     Interconnected VoIP Regulation   Interconnected VoIP Service.  The FCC has defined “interconnected VoIP service” as those VoIP services that: 1) enable real-time, two-way voice communications; 2) require a broadband connection; 3) require IP-compatible customer equipment; and 4) permit subscribers to receive calls from and initiate calls over the Public Switched Telephone Network (PSTN).  Such VoIP providers are subject to the selected regulatory requirements summarized below (although the list is likely to expand in the future).    FCC Registration (Form 499-A).  Interconnected VoIP providers must file an FCC Form 499-A registration with the Universal Service Administrative Company (USAC).  The FCC Form 499-A serves to register the company with the FCC and USAC as a provider of U.S. domestic, interstate services.  This registration also automatically ties the company into the FCC’s USF contribution system, identifying the company as a potential contributor under the program.  Among other things, the form requires the company to list an agent for service of process in the District of Columbia and identify the states in which the company is likely to provide service.  For more information, see http://www.tkcrowe.com/fcc_forms_ 499.html.      USF Contributions.  Without determining whether VoIP services are “telecommunications services” or “information services,” the FCC has concluded that interconnected VoIP providers are “providers of interstate telecommunications” for purposes of the USF requirements of the Telecommunications Act of 1996, and thus must contribute to USF.  USF fees subsidize or underwrite telecommunications services for a number of different groups including residents of rural areas, low-income consumers, rural health care providers, schools and libraries.  USF contributions are calculated based on quarterly submissions of FCC Form 499-Q and annual submissions of FCC Form 499-A (due each April 1st).  Providers are then billed and payment is required on a monthly basis.  The contribution rate, which changes quarterly, has in recent years run at 9-12 percent of combined interstate/international revenues.   Interconnected VoIP providers must file quarterly FCC Forms 499-Q, starting with the August 1, 2006 form, reporting revenue for the second quarter of 2006 and projecting revenue for the fourth quarter.  Subsequent quarterly reports will be due on November 1st, February 1st and May 1st of each year.  Such providers are also required to submit annual FCC Forms 499-A, starting with the April 1, 2007 form.  The FCC Form 499-A registration should have been submitted before or concurrent with the August 1, 2006  FCC Form 499-Q for providers operating as of that date.  For more information, see http://www.tkcrowe.com/fcc_forms_ 499.html.      Like wireless providers, interconnected VoIP providers can report revenues by 1) using a “safe harbor” (set at 64.9%); 2) using actual revenues; or 3) using a traffic study to estimate interstate revenues.  The FCC set the VoIP “safe harbor” at 64.9% because it determined that interconnected VoIP service is predominantly used for interstate and international service, like wireline toll service.  The percentage of interstate revenues reported to the FCC by wireline toll providers is 64.9%, so the FCC established the same percentage as a “safe harbor” for interconnected VoIP providers.   VoIP E911.  Pursuant to FCC rules, interconnected VoIP providers must 1) transmit all 911 calls to the appropriate Public Safety Answering Point (PSAP), designated statewide default answering point, or appropriate local emergency authority; 2) transmit a callback number (automatic numbering information or ANI) for each 911 caller to the PSAP; and 3) transmit the caller’s “Registered Location” to the PSAP.   An interconnected VoIP provider must also advise all subscribers to its service (existing and new) of the circumstances under which E911 service may not be available or may be limited in comparison to traditional E911 service (i.e., power outages, Internet connection failure and network congestion).  These notifications must be prominent and in plain language. Such providers must obtain, and maintain a record of, an affirmative acknowledgement from all subscribers that they received this advisory and understood it.  Customers must also be notified as to E911 limitations via warning stickers that the customer is instructed to place on VoIP handsets.   Law Enforcement/CALEA.  Interconnected VoIP providers must comply with the Communications Assistance for Law Enforcement Act (CALEA).  CALEA is intended to preserve the ability of law enforcement agencies to conduct electronic surveillance by imposing specific obligations on “telecommunications carriers” for assisting law enforcement, including delivering call interception and call identification functionality to the government with a minimum of interference to customer service and privacy.   CPNI.  Interconnected VoIP providers currently are not required to comply with the FCC’s rules protecting Customer Proprietary Network Information, which is the personally identifiable information derived from a customer’s relationship with a telecommunications provider, including call-identifying information and customer identity.  Under the current CPNI rules, providers must establish safeguards and procedures for the use of CPNI and implement a system under which the status of a customer’s CPNI approval can be clearly established prior to the use of the CPNI.  However, recently announced amendments to those rules likely to take effect in the fall of 2007 impose additional requirements on providers in order to safeguard CPNI, and will require interconnected VoIP providers to comply with all of the FCC’s CPNI rules.   Disability Access and TRS.  In another recent order, adopted May 31, 2007, the FCC extended disability access requirements to interconnected VoIP providers and equipment manufacturers.  Specifically, this requires VoIP providers and manufacturers to evaluate the accessibility of their equipment and services, design or develop accessible equipment and services, and provide accessibility information with respect to their equipment and services.  Furthermore, interconnected VoIP providers are now also required to make contributions to the Interstate TRS Fund, which helps to subsidize operator assisted calling services for individuals with hearing or speech disabilities.   Selected History   The following is a selective review of the regulatory landscape shaping VoIP classification (in addition to the requirements discussed above) as it has evolved chronologically before the FCC over the past several years. Pulver.com.  On February 12, 2004, the FCC issued its “Pulver.com Ruling” which concluded that Pulver.com’s Free World Dialup (FWD) service is an unregulated information service.  FWD, however, is a unique VoIP offering in that, among other things, it is a free peer-to-peer service (unlike commercial VoIP products which are interconnected with the PSTN). IP-enabled Services Proceeding.  On the same day, the FCC launched its much discussed “IP-enabled Services” rulemaking proceeding to examine potential regulatory approaches for VoIP services.  The FCC’s rulemaking sought comment on a range of issues, including 1) the impact of VoIP on existing Universal Service funding mechanisms; 2) whether VoIP providers should be exempt from access charges; 3) network reliability issues (i.e., the impact of power outages on VoIP communications); 4) how disabled access can be extended to VoIP; and 5) other issues that these innovative services raise (including, for example, whether the FCC’s slamming regulations should apply).  In each of these areas (with the exception of USF, which has already been addressed by the FCC), there is a significant likelihood that the FCC will conclude that some degree of regulation or cost-recovery should apply to interconnected VoIP providers. FCC AT&T Decision.  In April 2004, the FCC released an order denying an AT&T petition for declaratory ruling that the company’s phone-to-phone IP-telephony service (accessible via the PSTN) is exempt from terminating access charges. State Preemption.  At its November 2004 Open Meeting, the FCC adopted an important ruling declaring that the VoIP service offered by Vonage Holdings Corp. under the trade name “DigitalVoice” is not subject to traditional state Public Utilities Commission regulation (i.e., state certification and tariffing requirements).  While this decision would seem to largely shield interconnected VoIP offerings from state public utility regulation, it is being appealed by the California Public Utilities Commission and others. Enhanced Prepaid Cards Rulemaking.  The FCC initiated yet another rulemaking proceeding in February 2005 to comprehensively address the appropriate regulatory regime for menu-based prepaid calling card providers as well as prepaid calling cards which incorporate VoIP capabilities.  In a recent order, the FCC clarified that all prepaid card providers offering telecommunications capability—including those offering menu-driven services as well as utilizing IP transport to deliver calls—are subject to federal regulation as telecommunications services providers.  As such, prepaid card providers must contribute to federal USF and pay access charges.  In addition to clarifying that prepaid card providers are required to transmit the Calling Party Number to interconnecting carriers, the decision establishes requirements that prepaid card providers report traffic data to underlying providers and file quarterly certifications with the FCC.  The FCC’s ruling applies retroactively to prepaid card providers utilizing IP transport but prospectively to prepaid card providers providing menu-driven services.   The author is a Washington, D.C.-based attorney specializing in communications, VoIP, wireless and prepaid legal/regulatory matters.  To obtain additional information regarding any of the issues covered above, please contact Thomas K. Crowe at (202) 263-3640 or visit our website at www.tkcrowe.com.  The foregoing is intended to provide a general overview only and should not be viewed as a substitute for conferring with qualified legal counsel.  Each new business will have unique requirements that should be analyzed by counsel.  Please note that these materials were last updated on June 19, 2007, and do not include developments occurring after that date.