Impact of Net Neutrality Decision On The Phone Transition, or “What Happens When You Can’t Make The Phone Service Work Like A Phone.”

I suppose I can best sum this up as “sucks to be rural.” On the plus side, it looks like all those lobbyists who went around getting states to pass laws prohibiting any kind of regulation of IP-based services and prohibiting local governments from offering broadband service wasted their money.

Also on the plus side, we can regulate the crap out of IP-based phone services to enhance consumer protection because it is all part of the virtuous circle of innovation. On the downside, if you are Mosque in the middle of small town USA, your local VOIP provider can now totally refuse to serve you. Sure, the fact that we cannot impose a duty to indiscriminately serve the public on VOIP providers (since that is the “hallmark of common carriage”) will only impact a statistically small number of people like the poor, the unpopular, and those in high cost rural areas. But screw it. Protecting the weak and helpless is soooo ‘New Deal.’ Who the #$@! needs a rule of law when we got markets baby!

Sure, some people we like might get rolled over by big companies and have no recourse. But ya know what? Who cares. Cause if a few big companies accidentally run over a few customers now and then, does that really matter? I mean, really?

And the best part of getting rid of that dumb old common carriage stuff? All the people that matter — like the judges making the decisions and the lobbyists arguing how we don’t need this stuff — will never even notice.  They never even have to deal with all those annoying weak, poor, vulnerable or unpopular people that the law protects. It’s like getting rid of the 4th Amendment, or stop and frisk, you only miss it if you’re someone we don’t give a crap about.

Read below to preview the exciting new world that now awaits us as “the fourth network revolution” meets “I can’t do rural call completion but I’m too scared to make VOIP Title II. So suck it rural.”

As I noted in my first post-Verizon v. FCC blog post, the Net Neutrality decision both dramatically expanded and dramatically limited the FCC’s authority. This has a large number of immediate implications for the FCC’s ability to conduct its work. While this ripples across just about every area of FCC jurisdiction, it has its most immediate impact on the transition of the phone system to all IP.


At a glance, the biggest losers are cable operators (except Comcast), CLECs, and anyone else that wants mandatory interconnection or cares about call completion. That means resolving the rural call completion problem just became harder, since VOIP providers cannot, now, be subject to the duty to complete calls. The most recent FCC Order, which imposes reporting requirements is still OK. But the original Declaratory Ruling requiring IP-based providers to actually complete calls is probably a dead letter.


On the other hand, the decision potentially empowers the state Public Utility Commissions (“PUCs”), or gives the FCC power to delegate to state PUCs, the ability to override the laws passed in 27 states that prohibit any regulation of IP based services, and to override limits on municipal broadband.



Immediate Impacts: Rural Call Completion, Service Blocking.


As the Court explained in the Net Neutrality decision, when the FCC decides to put something in the “Title I” Information Services box, the one thing the FCC can absolutely never do is make it work like the phone system.


Problem: What if it is the phone system?


As regular readers know, we have spent a lot of time here at PK talking about the transition of the phone system to an all IP (Internet protocol) system. In particular, we have highlighted the fact that the FCC has declined to declare that “voice-over-IP” (VOIP) is a Title II telecom service. Instead, the FCC has pretty much regulated it through ancillary authority and hoped no one noticed.


So what happens now? In certain ways, like privacy and other forms of consumer protection, the FCC has expanded authority. For example, the FCC now has clear authority to extend slamming and cramming rules to IP-based services.


On the downside, however, the FCC can no longer require VOIP providers to complete phone calls, can no longer prohibit VOIP carriers from blocking calls, and can no longer impose “carrier of last resort” (COLR) on IP-based service providers.  I’m also somewhat doubtful that the FCC can regulate the inter-carrier compensation rate (ICC) of VOIP providers, so the ICC Reform Order of 2011 (especially its decision to zero out ICC and force carriers to use “bill-and-keep”) probably needs re-examination.


Since all of these have already come up as potential problems, the inability of the FCC to solve them (other than by classifying VOIP as Title II) is problematic (unless the FCC classifies VOIP as Title II).


Problems in Action


Lets give a few examples of why this matters. In 2007, AT&T and several other carriers decided to block calls to over a dispute about the rates paid under the rather arcane rules of telephone call compensation. The FCC issued an Order saying that phone companies are not allowed to engage in such self-help and absolutely, positively MUST put calls through to whoever customers dial. Because—wait for it – they are Title II common carriers.


Post IP transition (and absent reclassification as Title II), could the FCC issue such an Order? No. Because, according to the D.C. Circuit, requiring a provider to complete a call (aka “no blocking”) is “the essence of common carriage.”


The FCC issued a similar order in 2012 to address the problem of rural call completion. In fact, the FCC’s entire campaign to address the problem of rural call completion is grounded in Title II common carrier authority and the duty to serve everyone. As the Court explained in the Net Neutrality decision, this is precisely the kind of thing you CANNOT DO to a non-Title II common carrier service.


So, post-IP transition, absent reclassification, the FCC would be unable to ensure that all calls go through when you dial your 10-digit phone number. They would not be helpless. They could – as they can with net neutrality – require companies to disclose if they are blocking calls or otherwise “managing” traffic in a way that degrades rural traffic. As everyone in rural America (and the folks at can tell you, this has been highly effective at curbing the problem.


As always, I am struck by the number of people who insist that such things would never happen when they already happen. The usual response to evidence that the problem already does exist is to observe that it doesn’t happen often (i.e., it doesn’t bother me), and therefore we don’t need a rule – conveniently overlooking the fact that the reason these things don’t rage out of control is because we actually have a rule that deals with them effectively.


Finally, as the fact that phone companies blocked the popular service in 2007 and that VOIP providers continue to use methods that degrade service to rural America, customer backlash is not a particularly good safeguard against this sort of behavior. Heck, we are talking about companies with the lowest customer satisfaction rating in America. As demonstrated graphically in this South Park episode, pissing off customers is practically their business model.



No More Carrier of Last Resort


Another casualty of the disappearance of Title II common carriage is the idea of “carrier of last resort” (COLR). For 100 years, we have considered phone system so basic that you have an absolute right to use it. As we noted back a few years ago when the BART messed with the cell system, this prevents anyone from just cutting you off because they don’t like you. More importantly, even if you live in an area that is geographically hard to serve, and therefore expensive to provide, the phone company has to bring you service.


Right now, the FCC requires a phone operator to serve an entire area. As states eliminate their own COLR requirements (and about 15 have already done so), the ability of the FCC to require carriers to serve everyone whether or not they want to serve them becomes increasingly important.


But this doesn’t apply to Title I services. To the contrary, the requirement to “serve the public indiscriminately” is one of the core obligations of common carriage. So after the IP transition, the FCC will have no authority to require carriers to provide COLR.


Again, lets consider a real life example. The FCC has before it Verizon’s request to discontinue common carrier service in Mantoloking, NJ and replace it with an unclassified service called “Voice Link.” Verizon points to the presence of Comcast, which offers VOIP in Mantoloking, NJ, as a reasonable wireline alternative.


But Comcast, as Title I provider, has no obligation to serve everyone who asks. If Comcast kicks you off its network for being a bandwidth hog, they have no obligation to give you phone service. If you build a new house somewhere too expensive for Comcast to pull a line, they have no obligation to build out to you just to give you phone service. If you cancel your Comcast cable and/or broadband, they have no obligation to sell you voice. And as a consequence of yesterday’s decision, the FCC cannot do anything about that.


Yes, cell services are still common carriers. But if you don’t have good coverage in your home, that doesn’t help.


If the FCC grants Verizon’s request to discontinue phone service in Mantoloking we would, for the first time in the United States for 100 years, have a place where you have no legal guarantee of getting wireline phone service. This is, of course, only a problem if you happen to be the person denied service. For most people, this probably won’t be an issue.


But to the extent the FCC takes seriously its responsibility to provide phone service “to all Americans,” it needs to recognize it will no longer have the authority to do that without reclassifying VOIP as Title II.



State Laws Barring Regulation of IP-Based Services.


On the bright side, it appears that the army of lobbyists pushing through laws actively preventing states from regulating IP-based services or prohibiting them from offering municipal broadband (or voice) wasted their money. As the decision explains, Section 706 delegates power both to the FCC and “to each State commission with regulatory jurisdiction over telephone service” the same broad powers to encourage broadband availability and infrastructure build out.


Since Section 706 is a federal law, it preempts state law. Since the law delegates this power to the “state commission with regulatory jurisdiction over telephone service,” the delegation applies directly to the PUC and the state legislature and cannot remove it. At the very least, the FCC may delegate authority if it so chooses.


Certainly this has limits, as noted above. State PUCs could not impose COLR obligations on IP-service providers or require IP-based service providers to complete calls – as noted above. But they can use this authority to impose quality of service requirements and other forms of consumer protection. Such mandates could extend not merely to VOIP, but to broadband access service as well.



Where Does This Leave The Phone Transition?


First, let me note that classifying VOIP as Title II is not the same as classifying broadband access as Title II. What the two have in common is a court decision that says “you are either information service or telecom service – choose.” In the case of VOIP, the FCC has hemmed and hawed and generally delayed making a choice for the last 10 years. Barring an appeal from someone that changes this opinion, the luxury of kicking this can down the road has ended.


Stay tuned . . .

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