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Technology Stocks : Voice-on-the-net (VON), VoIP, Internet (IP) Telephony -- Ignore unavailable to you. Want to Upgrade?

To: wonk who wrote (1746)	10/29/1998 7:36:00 AM
From: Frank A. Coluccio	Read Replies (1) \| Respond to of 3178

wireless, Charles, it sounds like they are going to use fast silicon to set traps at Layers 4 and 5, as in Layer 4 or 5 switching and routing. Also sounds like they may be making use of autosensing at the lower layers through the use of common techniques, possibly aided by more recent DSP advances. I fail to see what's new about this. Comments? Frank C.

To: wonk who wrote (1746)	10/30/1998 2:17:00 AM
From: wonk	Respond to of 3178

Introduction and Main Points from : In the Matter of Federal-State Joint Board on Universal Service CC Docket No. 96-45 (Report to Congress) fcc.gov A few years ago, few consumers in this country were aware of the Internet and the notion that a packet-switched network could be used to complete a long distance call placed from a residential telephone probably would have been regarded as far-fetched. ...... We can only speculate about the technologies and services that will be offered in the future. We must take care to preserve the vibrant growth of these new technologies and services. But we also must remain constant in our commitment to ensuring universal service... In this Report, we find, under the framework of the 1996 Act, that universal service and the growth of new Internet-based information services are mutually reinforcing. The development and continued growth of information services depends upon the preservation and advancement of universal service. By connecting our nation's telecommunications networks to all citizens, we expand the potential customer basis for information services. At the same time, the growth of Internet-based information services greatly stimulates our country's use of telecommunications, and thereby the revenue base from which we now fund universal service. As we confirm below in our Report, the parties supplying the underlying interstate transmission services used by those information services contribute to universal service based on their telecommunications service revenues.... We also consider below the regulatory status of various forms of "phone-to-phone" IP telephony service mentioned generally in the record. The record currently before us suggests that certain of these services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services," ....To the extent we conclude that the services should be characterized as "telecommunications services," the providers of those services would fall within the 1996 Act's mandatory requirement to contribute to universal service mechanisms. Thus, in general, continued growth in the information services industry will buttress, not hinder, universal service..... We recognize that we are in the midst of a transition from an outmoded system of universal service support that will be undermined by the emergence of local competition to one that is compatible with competitive local markets. We underscore that during and after this transition, it is our duty and intention to ensure that financial support for federal universal service support mechanisms is maintained. ...... Our rules should not create anomalies and loopholes that can be exploited by those seeking to avoid universal service obligations. ... 96 act Before passage of the 1996 Act, universal service was promoted through a patchwork quilt of implicit and explicit subsidies at both the state and federal levels. ..... Recognizing the vulnerability of these implicit subsidies to competition, Congress, in the 1996 Act, directed the Commission and the states to restructure their universal service support mechanisms to ensure the delivery of affordable telecommunications services to all Americans in an increasingly competitive marketplace. Congress specified that universal service support under the new federal system "should be explicit," and that "every telecommunications carrier that provides interstate telecommunications service shall contribute, on an equitable and non- discriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service." In addition, Congress specified that a telecommunications carrier meeting the statutory requirements in section 214(e) of the Act would be eligible to receive federal universal service support and required states to designate more than one eligible telecommunications carrier for service areas other than those served by a rural telephone company. To sustain universal service in a competitive environment, Congress recognized that: (1) the appropriate amount of the universal subsidy must be identifiable; (2) all carriers (rather than only interexchange carriers) that provide telecommunications service should contribute to universal service, on an equitable basis; and (3) any carrier (rather than only the incumbent LEC) should receive the appropriate level of support for serving a customer in a high cost area.

To: wonk who wrote (1746)	10/30/1998 2:19:00 AM
From: wonk	Respond to of 3178

Discussion of Major Law and Policy Decisions from: fcc.gov In the Matter of Federal-State Joint Board on Universal Service CC Docket No. 96-45 (Report to Congress) History The Communications Act of 1934. The Communications Act of 1934, as amended, gives the Commission extensive authority over all "common carriers," defined as all persons "engaged as a common carrier for hire, in interstate and foreign communication." Title II of the Act, derived from the federal Interstate Commerce Act, includes (among other things) requirements that common carriers provide service at just and reasonable prices, and subject to just and reasonable practices, classifications, and regulations; that they make no unjust or unreasonable discrimination; that they file tariffs, subject to Commission scrutiny; and that they obtain Commission approval before acquiring or constructing new lines. Computer II. More than three decades ago, the Commission recognized that "the growing convergence and interdependence of communication and data processing technologies" threatened to strain its existing interpretations of Title II. It began an inquiry into the regulatory and policy problems posed by that confluence. In 1980, it issued the Computer II decision, embodying its thinking on how it could best advance its regulatory goals of "minimiz[ing] the potential for improper cross-subsidization, safeguard[ing] against anticompetitive behavior, and [protecting] the quality and efficiency of telephone service" while "foster[ing] a regulatory environment conducive to . . . the provision of new and innovative communications-related offerings" and "enabl[ing] the communications user to [take] advantage of the ever increasing market applications of computer . . . technology." In Computer II, the Commission classified all services offered over a telecommunications network as either basic or enhanced. A basic service consisted of the offering, on a common carrier basis, of pure "transmission capacity for the movement of information." The Commission noted that it was increasingly inappropriate to speak of carriers offering discrete "services" such as voice telephone service. Rather, carriers offered communications paths that subscribers could use as they chose, by means of equipment located on subscribers' premises, for the analog or digital transmission of voice, data, video or other information. The Commission therefore defined basic transmission service to include the offering of "pure transmission capability over a communications path that is virtually transparent in terms of its interaction with customer supplied information." An enhanced service, by contrast, was defined as "any offering over the telecommunications network which is more than a basic transmission service." Specifically, the Commission defined enhanced services to include services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information. Enhanced service providers, the Commission found, were not "common carriers" within the meaning of the Communications Act of 1934, and hence were not subject to regulation under Title II of that Act. Enhanced services involve "communications and data processing technologies . . . intertwined so thoroughly as to produce a form different from any explicitly recognized in the Communications Act of 1934." Seeking to regulate enhanced services, the Commission concluded, would only restrict innovation in a fast-moving and competitive market. The Commission stressed that the category of enhanced services covered a wide range of different services, each with communications and data processing components. Some might seem to be predominantly communications services; others might seem to be predominantly data processing services. The Commission declined, however, to carve out any subset of enhanced services as regulated communications services. It found that no regulatory scheme could "rationally distinguish and classify enhanced services as either communications or data processing," and any dividing line the Commission drew would at best "result in an unpredictable or inconsistent scheme of regulation" as technology moved forward. Such an attempt would lead to distortions, as enhanced service providers either artificially structured their offerings so as to avoid regulation, or found themselves subjected to unwarranted regulation. The Commission therefore determined that enhanced services, which are offered "over common carrier transmission facilities," were themselves not to be regulated under Title II of the Act, no matter how extensive their communications components. The Commission reaffirmed its definition of enhanced services in the Computer III proceeding. The Modification of Final Judgment On August 11, 1982, the District Court for the District of Columbia entered a consent decree, commonly known as the Modification of Final Judgment or MFJ, settling the United States Government's long-running antitrust lawsuit against AT&T. Under the MFJ, AT&T was required to divest itself of the Bell Operating Companies. The MFJ distinguished between "telecommunications" and "information" services: the Bell Operating Companies were to provide local exchange telecommunications service, but were forbidden to provide interexchange telecommunications service or information services. The Telecommunications Act of 1996 On February 8, 1996, the 1996 Act became law. Whereas historically the communications field had been dominated by a few, heavily regulated providers, Congress sought to establish "a pro- competitive, deregulatory national policy framework," making "advanced telecommunications and information technologies and services" available to all Americans, "by opening all telecommunications markets to competition." Although the 1996 Act left intact most of the existing provisions of Title II, it added new provisions referring to "telecommunications" and "information service." The 1996 Act defined "telecommunications" to mean "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent or received." It defined "telecommunications service" to mean "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available to the public, regardless of the facilities used." It defined "telecommunications carrier" to include "any provider of telecommunications services, except that such term does not include aggregators of telecommunications services." It defined "information service" to mean the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and [such term] includes electronic publishing, but does not include any use of any such capability for the management, control or operation of a telecommunications system or the management of a telecommunications service. The 1996 Act redefined "telephone exchange service" to include not only "service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers interconnecting service of the character ordinarily furnished by a single exchange," but also "comparable service provided through a system of switches, transmission equipment, or other facilities (or combination thereof) by which a subscriber can originate and terminate a telecommunications service." It defined "local exchange carrier" to include "any person that is engaged in the provision of telephone exchange service or exchange access." The definition excludes persons "engaged in the provision of a commercial mobile service . . . except to the extent the Commission finds that such service should be included in the definition of such term." The 1996 Act imposes a wide variety of obligations on telecommunications carriers, including, among other things, obligations relating to interconnection and privacy of subscriber information. One such obligation relates to universal service: section 254(d) dictates that every telecommunications carrier that provides interstate telecommunications services must contribute to the mechanisms established by the Commission to preserve and advance universal service. The 1996 Act does not impose obligations on telecommunications providers who do not provide interstate "telecommunications services" (and therefore are not "telecommunications carriers"), except that the Commission may require any provider of interstate telecommunications to contribute to universal service mechanisms if the public interest requires. The Act imposes no regulatory obligations on information service providers as such.

To: wonk who wrote (1746)	10/30/1998 2:21:00 AM
From: wonk	Respond to of 3178

Discussion of Internet Backbone Services from: fcc.gov In the Matter of Federal-State Joint Board on Universal Service CC Docket No. 96-45 (Report to Congress) Provision of Transmission Capacity to Internet Access and Backbone Providers Internet service providers typically utilize a wide range of telecommunications inputs. Commenters have focused much attention on the fact that Internet service providers purchase analog and digital lines from local exchange carriers to connect to their dial-in subscribers, and pay rates incorporating those carriers' universal service obligations. What has received less attention is that Internet service providers utilize other, extensive telecommunications inputs. While a large Internet service provider engages in extensive data transport, it may own no transmission facilities. To provide transport within its own network, it leases lines (T1s, T3s and OC-3s) from telecommunications carriers. To ensure transport beyond the edges of its network, it makes arrangements to interconnect with one or more Internet backbone providers. We explain below, in Part IV.D.2, that Internet service providers themselves provide information services, not telecommunications (and hence do not contribute to universal service mechanisms). But to the extent that any of their underlying inputs constitutes interstate telecommunications, we have authority under the 1996 Act to require that the providers of those inputs contribute to federal universal service mechanisms. With regard to the lines leased by Internet service providers to provide their own internal networks, the analysis is straightforward. We explain below that the Internet service providers leasing the lines do not provide telecommunications to their subscribers, and thus do not directly contribute to universal service mechanisms. The provision of leased lines to Internet service providers, however, constitutes the provision of interstate telecommunications. Telecommunications carriers offering leased lines to Internet service providers must include the revenues derived from those lines in their universal service contribution base. The record reveals that at least some leased-line providers are complying with that requirement, and the prices paid by Internet service providers for their leased lines reflect that universal service obligation. Internet access, like all information services, is provided "via telecommunications." To the extent that the telecommunications inputs underlying Internet services are subject to the universal service contribution mechanism, that provides an answer to the concern, expressed by some commenters, that "[a]s more and more traffic is 'switched' to the Internet . . . there will no longer be enough money to support the infrastructure needed to make universal access to voice or Internet communications possible." To the extent that IP-based services grow, Internet service providers will have greater needs for transport to accommodate that level of usage. Those needs will lead to increased universal service contributions by providers of the leased lines that make up internal Internet service provider networks. More generally, the Internet backbone is currently growing at an exponential rate, as Internet-based services gain popularity and new Internet-based services are developed, leading to increased overall universal service support. In those cases where an Internet service provider owns transmission facilities, and engages in data transport over those facilities in order to provide an information service, we do not currently require it to contribute to universal service mechanisms. We believe it is appropriate to reexamine that result. One could argue that in such a case the Internet service provider is furnishing raw transmission capacity to itself. To the extent this means the Internet service provider is providing telecommunications as a non-common carrier, it would not generally be subject to Title II, but it "may be required to contribute to the preservation and advancement of universal service if the public interest so requires." As a theoretical matter, it may be advisable to exercise our discretion under the statute to require such providers that use their own transmission facilities to contribute to universal service. This approach would treat provision of transmission facilities to Internet service providers similarly, for purposes of universal service, without regard to how the facilities are provided. We recognize, however, that there are significant operational difficulties associated with determining the amount of such an Internet service provider's revenues to be assessed for universal service purposes and with enforcing such requirements. There also are issues relating to the extent to which Internet service providers would uneconomically self-provide telecommunications because of a universal service assessment. The Commission in the Universal Service Order expressly characterized entities that "provide telecommunications solely to meet their internal needs" as telecommunications providers subject to our permissive contribution authority. It found that those entities "should not be required to contribute to the support mechanisms at this time, because telecommunications do not comprise the core of their business." Further, "it would be administratively burdensome to assess a special non-revenues-based contribution on these providers." We intend to consider, in an upcoming proceeding, the status of entities that provide transmission to meet their internal needs. To the extent that we conclude that such entities provide telecommunications, we would consider, among other things, whether there are efficient, effective ways to require information service providers that provide telecommunications to meet their own internal needs to contribute to universal service support so that our regulations do not create an artificial incentive for information service providers to integrate vertically. We also would consider whether, and to what extent, our reasoning applies to entities other than information service providers that provide interstate telecommunications to meet their own internal needs. With respect to the facilities that make up the Internet backbone, the record does not reveal the extent to which firms providing telecommunications facilities as part of the Internet backbone are currently contributing to federal universal service mechanisms. Yet it seems clear that, in one manner or another, firms are offering telecommunications inputs in this context that underlie the ultimate provision of Internet services to the consumer. We believe we would need to consider these offerings in order to ensure that the goals of section 254 are fully realized. Our thinking relating to the Internet backbone points up some of the limitations of our current approaches to implementing the universal service provisions of the 1996 Act. The technology and market conditions relating to the Internet backbone are unusually fluid and fast-moving, and we are reluctant to impose any regulatory mandate that relies on the persistence of a particular market model or market structure in this area. It may be that the most successful approach in this context, maintaining universal service revenues while avoiding the imposition of inefficient or innovation-discouraging obligations, would look to the actual facilities owners, requiring them to contribute to universal service mechanisms on the revenues they receive. It is facilities owners that, in a real sense, provide the crucial telecommunications inputs underlying Internet service. If universal service contribution obligations, in the context of the Internet backbone, were based on facilities ownership rather than end-user revenues, then firms purchasing capacity from the facilities owners would still contribute indirectly, through prices that recover the facilities owners' contributions. This matter deserves further consideration.

To: wonk who wrote (1746)	10/30/1998 2:23:00 AM
From: wonk	Respond to of 3178

Discussion of Internet Access Services from: fcc.gov In the Matter of Federal-State Joint Board on Universal Service CC Docket No. 96-45 (Report to Congress) Internet Access Services We find that Internet access services are appropriately classed as information, rather than telecommunications, services. Internet access providers do not offer a pure transmission path; they combine computer processing, information provision, and other computer-mediated offerings with data transport. Senators Stevens and Burns suggest that services provided by Internet access providers should be deemed to fall on the telecommunications side of the line. When an Internet service provider transmits an email message, they maintain, it transmits "information of the user's choosing, without change in the form or content of the information as sent or received." Changes such as the addition of message headers, they argue, are inconsequential: "If the information chosen by the user has the same form (e.g., typewritten English) and content (e.g., directions to Washington, D.C.) as sent and received, then a 'telecommunication' has occurred." Senator McCain, by contrast, urges that electronic mail, voice mail and Internet access are information services, because they furnish the capabilities to store, retrieve, or generate information. In determining whether Internet access providers should be classed as providing information services rather than telecommunications services, the text of the 1996 Act requires us to determine whether Internet access providers merely offer transmission "between or among points selected by the user, of information of the user's choosing, without change in the form or content of the information as sent and received," or whether they go beyond the provision of a transparent transmission path to offer end users the "capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information." For the reasons that follow, we conclude that the latter more accurately describes Internet access service. We note that the functions and services associated with Internet access were classed as "information services" under the MFJ. Under that decree, the provision of gateways (involving address translation, protocol conversion, billing management, and the provision of introductory information content) to information services fell squarely within the "information services" definition. Electronic mail, like other store-and-forward services, including voice mail, was similarly classed as an information service. Moreover, the Commission has consistently classed such services as "enhanced services" under Computer II. In this Report, we address the classification of Internet access service de novo, looking to the text of the 1996 Act. Various commenters have approached this question by inquiring whether specific applications, such as e-mail, available to users with Internet access, constitute "telecommunications." As we explain below, we believe that Internet access providers do not offer subscribers separate services -- electronic mail, Web browsing, and others -- that should be deemed to have separate legal status. It is useful to examine specific Internet applications, however, in order to understand the nature of the functionality that an Internet access provider offers. Internet access providers typically provide their subscribers with the ability to run a variety of applications, including World Wide Web browsers, FTP clients, Usenet newsreaders, electronic mail clients, Telnet applications, and others. When subscribers store files on Internet service provider computers to establish "home pages" on the World Wide Web, they are, without question, utilizing the provider's "capability for . . . storing . . . or making available information" to others. The service cannot accurately be characterized from this perspective as "transmission, between or among points specified by the user"; the proprietor of a Web page does not specify the points to which its files will be transmitted, because it does not know who will seek to download its files. Nor is it "without change in the form or content," since the appearance of the files on a recipient's screen depends in part on the software that the recipient chooses to employ. When subscribers utilize their Internet service provider's facilities to retrieve files from the World Wide Web, they are similarly interacting with stored data, typically maintained on the facilties of either their own Internet service provider (via a Web page "cache") or on those of another. Subscribers can retrieve files from the World Wide Web, and browse their contents, because their service provider offers the "capability for . . . acquiring, . . . retrieving [and] utilizing . . . information." Most of the data transport on the Internet relates to the World Wide Web and file transfer. The same is true when Internet service providers offer their subscribers access to Usenet newsgroup articles. An Internet service provider receives and stores these articles (in 1996, about 1.2 gigabytes of new material each day) on its own computer facilities. Each Internet service provider must choose whether to carry a full newsgroup feed, or only a smaller subset of available newsgroups. Each Internet service provider must decide how long it will store articles in each newsgroup, and at what point it will delete them as outdated. A user can then select among the available articles, choosing those that the user will view or read; having read an article, the user may store or forward it; and the user can post articles of his or her own, which will in turn be stored on the facilities of his own Internet service provider and those of every other Internet service provider choosing to carry that portion of the newsgroup feed. In providing this service, the Internet service provider offers "a capability for generating, acquiring, storing, . . . retrieving . . . and making available information through telecommunications." Its function seems indistinguishable from that of the database proprietor offering subscribers access to information it maintains on-site; such a proprietor offers the paradigmatic example of an information service. As noted above, Senators Stevens and Burns state that electronic mail constitutes a telecommunications service. They note that the provision of a transmission path for the delivery of faxes constitutes telecommunications, and characterize electronic mail as "nothing more or less than a paperless fax." We have carefully considered this argument, but further analysis leads us to a different result. Like the World Wide Web and Usenet services described above, electronic mail utilizes data storage as a key feature of the service offering. The fact that an electronic mail message is stored on an Internet service provider's computers in digital form offers the subscriber extensive capabilities for manipulation of the underlying data. The process begins when a sender uses a software interface to generate an electronic mail message (potentially including files in text, graphics, video or audio formats). The sender's Internet service provider does not send that message directly to the recipient. Rather, it conveys it to a "mail server" computer owned by the recipient's Internet service provider, which stores the message until the recipient chooses to access it. The recipient may then use the Internet service provider's facilities to continue to store all or part of the original message, to rewrite it, to forward all or part of it to third parties, or otherwise to process its contents -- for example, by retrieving World Wide Web pages that were hyperlinked in the message. The service thus provides more than a simple transmission path; it offers users the "capability for . . . acquiring, storing, transforming, processing, retrieving, utilizing, or making available information through telecommunications." More generally, though, it would be incorrect to conclude that Internet access providers offer subscribers separate services -- electronic mail, Web browsing, and others -- that should be deemed to have separate legal status, so that, for example, we might deem electronic mail to be a "telecommunications service," and Web hosting to be an "information service." The service that Internet access providers offer to members of the public is Internet access. That service gives users a variety of advanced capabilities. Users can exploit those capabilities through applications they install on their own computers. The Internet service provider often will not know which applications a user has installed or is using. Subscribers are able to run those applications, nonetheless, precisely because of the enhanced functionality that Internet access service gives them. The provision of Internet access service involves data transport elements: an Internet access provider must enable the movement of information between customers' own computers and the distant computers with which those customers seek to interact. But the provision of Internet access service crucially involves information-processing elements as well; it offers end users information-service capabilities inextricably intertwined with data transport. As such, we conclude that it is appropriately classed as an "information service." An Internet access provider, in that respect, is not a novel entity incompatible with the classic distinction between basic and enhanced services, or the newer distinction between telecommunications and information services. In essential aspect, Internet access providers look like other enhanced -- or information -- service providers. Internet access providers, typically, own no telecommunications facilities. Rather, in order to provide those components of Internet access services that involve information transport, they lease lines, and otherwise acquire telecommunications, from telecommunications providers -- interexchange carriers, incumbent local exchange carriers, competitive local exchange carriers, and others. In offering service to end users, however, they do more than resell those data transport services. They conjoin the data transport with data processing, information provision, and other computer-mediated offerings, thereby creating an information service. Since 1980, we have classed such entities as enhanced service providers. We conclude that, under the 1996 Act, they are appropriately classed as information service providers. Our findings in this regard are reinforced by the negative policy consequences of a conclusion that Internet access services should be classed as "telecommunications." We have already described some of our concerns about the classification of information service providers generally as telecommunications carriers. Turning specifically to the matter of Internet access, we note that classifying Internet access services as telecommunications services could have significant consequences for the global development of the Internet. We recognize the unique qualities of the Internet, and do not presume that legacy regulatory frameworks are appropriately applied to it.

To: wonk who wrote (1746)	10/30/1998 2:25:00 AM
From: wonk	Respond to of 3178

Discussion of IP Telephony from: fcc.gov In the Matter of Federal-State Joint Board on Universal Service CC Docket No. 96-45 (Report to Congress) 3. IP Telephony Having concluded that Internet access providers do not offer "telecommunications service" when they furnish Internet access to their customers, we next consider whether certain other Internet-based services might fall within the statutory definition of "telecommunications." We recognize that new Internet-based services are emerging, and that our application of statutory terms must take into account such technological developments. We therefore examine in this section Internet-based services, known as IP telephony, that most closely resemble traditional basic transmission offerings. The Commission to date has not formally considered the legal status of IP telephony. The record currently before us suggests that certain "phone-to-phone IP telephony" services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." We do not believe, however, that it is appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual service offerings. "IP telephony" services enable real-time voice transmission using Internet protocols. The services can be provided in two basic ways: through software and hardware at customer premises, or through "gateways" that enable applications originating and/or terminating on the PSTN Gateways are computers that transform the circuit-switched voice signal into IP packets, and vice versa, and perform associated signalling, control, and address translation functions. The voice communications can be transmitted along with other data on the "public" Internet, or can be routed through intranets or other private data networks for improved performance. Several companies now offer commercial IP telephony products. For example, VocalTec sells software that end users can install on their personal computers to make calls to other users with similar equipment, and also makes software used in gateways. Companies such as IDT and Qwest employ gateways to offer users the ability to call from their computer to ordinary telephones connected to the public switched network, or from one telephone to another. To use the latter category of services, a user first picks up an ordinary telephone handset connected to the public switched network, then dials the phone number of a local gateway. Upon receiving a second dialtone, the user dials the phone number of the party he or she wishes to call. The call is routed from the gateway over an IP network, then terminated through another gateway to the ordinary telephone at the receiving end. Commenters that discuss IP telephony are split on the appropriate treatment of these services. Several parties, including Senators Rockefeller, Snowe, Stevens, and Burns, urge that IP telephony providers offer interstate telecommunications services and, consequently, should contribute to universal service support mechanisms. Other parties, including Senator McCain, Representative White and the National Telecommunications and Information Administration, oppose application of Title II regulation. Some commenters argue that IP telephony is a nascent technology that is unlikely to generate significant revenues in the foreseeable future. Regardless of the size of the market, we must still decide as a legal matter whether any IP telephony providers meet the statutory definitions of offering "telecommunications" or "telecommunications service" in section 3 of the 1996 Act. As we have observed above in our general discussion of hybrid services, the classification of a service under the 1996 Act depends on the functional nature of the end-user offering. Applying this test to IP telephony, we consider whether any company offers a service that provides users with pure "telecommunications." We first note that "telecommunications" is defined as a form of "transmission." Companies that only provide software and hardware installed at customer premises do not fall within this category, because they do not transmit information. These providers are analogous to PBX vendors, in that they offer customer premises equipment (CPE) that enables end users to engage in telecommunications by purchasing local exchange and interexchange service from carriers. These CPE providers do not, however, transport any traffic themselves. In the case of "computer-to-computer" IP telephony, individuals use software and hardware at their premises to place calls between two computers connected to the Internet. The IP telephony software is an application that the subscriber runs, using Internet access provided by its Internet service provider. The Internet service providers over whose networks the information passes may not even be aware that particular customers are using IP telephony software, because IP packets carrying voice communications are indistinguishable from other types of packets. As a general matter, Title II requirements apply only to the "provi[sion] " or "offering" of telecommunications. Without regard to whether "telecommunications" is taking place in the transmission of computer-to-computer IP telephony, the Internet service provider does not appear to be "provid[ing]" telecommunications to its subscribers. "Phone-to-phone" IP telephony services appear to present a different case. In using the term "phone-to-phone" IP telephony, we tentatively intend to refer to services in which the provider meets the following conditions: (1) it holds itself out as providing voice telephony or facsimile transmission service; (2) it does not require the customer to use CPE different from that CPE necessary to place an ordinary touch-tone call (or facsimile transmission) over the public switched telephone network; (3) it allows the customer to call telephone numbers assigned in accordance with the North American Numbering Plan, and associated international agreements; and (4) it transmits customer information without net change in form or content. Specifically, when an IP telephony service provider deploys a gateway within the network to enable phone-to-phone service, it creates a virtual transmission path between points on the public switched telephone network over a packet-switched IP network. These providers typically purchase dial-up or dedicated circuits from carriers and use those circuits to originate or terminate Internet-based calls. From a functional standpoint, users of these services obtain only voice transmission, rather than information services such as access to stored files. The provider does not offer a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information. Thus, the record currently before us suggests that this type of IP telephony lacks the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." We do not believe, however, that it is appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual service offerings. As stated above, we use in this analysis a tentative definition of "phone-to-phone" IP telephony. Because of the wide range of services that can be provided using packetized voice and innovative CPE, we will need, before making definitive pronouncements, to consider whether our tentative definition of phone-to-phone IP telephony accurately distinguishes between phone-to-phone and other forms of IP telephony, and is not likely to be quickly overcome by changes in technology. We defer a more definitive resolution of these issues pending the development of a more fully-developed record because we recognize the need, when dealing with emerging services and technologies in environments as dynamic as today's Internet and telecommunications markets, to have as complete information and input as possible. In upcoming proceedings with the more focused records, we undoubtedly will be addressing the regulatory status of various specific forms of IP telephony, including the regulatory requirements to which phone-to-phone providers may be subject if we were to conclude that they are "telecommunications carriers." The Act and the Commission's rules impose various requirements on providers of telecommunications, including contributing to universal service mechanisms, paying interstate access charges, and filing interstate tariffs. We note that, to the extent we conclude that certain forms of phone-to-phone IP telephony service are "telecommunications services," and to the extent the providers of those services obtain the same circuit-switched access as obtained by other interexchange carriers, and therefore impose the same burdens on the local exchange as do other interexchange carriers, we may find it reasonable that they pay similar access charges. On the other hand, we likely will face difficult and contested issues relating to the assessment of access charges on these providers. For example, it may be difficult for the LECs to determine whether particular phone-to-phone IP telephony calls are interstate, and thus subject to the federal access charge scheme, or intrastate. We intend to examine these issues more closely based on the more complete records developed in future proceedings. With regard to universal service contributions, to the extent we conclude that certain forms of phone-to-phone IP telephony are interstate "telecommunications," and to the extent that providers of such services are offering those services directly to the public for a fee, those providers would be "telecommunications carriers." Accordingly, those providers would fall within section 254(d)'s mandatory requirement to contribute to universal service mechanisms. Finally, under section 10 of the Act, we have authority to forbear from imposing any rule or requirement of the Act on telecommunications carriers. We will need to consider carefully whether, pursuant to our authority under section 10 of the Act, to forbear from imposing any of the rules that would apply to phone-to-phone IP telephony providers as "telecommunications carriers." We recognize that our treatment of phone-to-phone IP telephony may have implications for the international telephony market. In the international realm, the Commission has stated that IP telephony serves the public interest by placing significant downward pressure on international settlement rates and consumer prices. In some instances, moreover, IP telephony providers have introduced an alternative calling option in foreign markets that otherwise would face little or no competition. We continue to believe that alternative calling mechanisms are an important pro- competitive force in the international services market. We need to consider carefully the international regulatory requirements to which phone-to-phone providers would be subject. For example, it may not be appropriate to apply the international accounting rate regime to IP telephony.

To: wonk who wrote (1746)	10/30/1998 2:28:00 AM
From: wonk	Read Replies (1) \| Respond to of 3178

Internet Impact on Universal Service from: fcc.gov In the Matter of Federal-State Joint Board on Universal Service CC Docket No. 96-45 (Report to Congress) Policy Implications Congress directed us to explain in this Report "the impact of the Commission's interpretation . . . on the current and future provision of universal service," and "the consistency of the Commission's application" of statutory definitions. Therefore, we address in this section the policy consequences of the legal analysis described above. We conclude that our reading of the statutory definitions reflects a consistent approach that will safeguard the current and future provision of universal service to all Americans, and will achieve the 1996 Act's goals of a "pro- competitive, deregulatory communications policy." Further, we are committed to monitoring closely developments in the telecommunications industry to ensure that such changes do not undermine our obligation to ensure universal service. Generally The Internet and other enhanced services have been able to grow rapidly in part because the Commission concluded that enhanced service providers were not common carriers within the meaning of the Act. This policy of distinguishing competitive technologies from regulated services not yet subject to full competition remains viable. Communications networks function as overlapping layers, with multiple providers often leveraging a common infrastructure. As long as the underlying market for provision of transmission facilities is competitive or is subject to sufficient pro-competitive safeguards, we see no need to regulate the enhanced functionalities that can be built on top of those facilities. We believe that Congress, by distinguishing "telecommunications service" from "information service," and by stating a policy goal of preventing the Internet from being fettered by state or federal regulation, endorsed this general approach. Limiting carrier regulation to those companies that provide the underlying transport ensures that regulation is minimized and is targeted to markets where full competition has not emerged. As an empirical matter, the level of competition, innovation, investment, and growth in the enhanced services industry over the past two decades provides a strong endorsement for such an approach. Impact on Universal Service Congress has directed us to explain how our interpretation of the 1996 Act promotes "the current and future provision of universal service to consumers in all areas of the Nation, including high cost and rural areas." With regard to the current provision of universal service, we have established programs under section 254 to fund telecommunications services in high-cost areas and for low-income consumers, as well as access to advanced services for schools, libraries, and rural health care providers. We believe that these programs have been designed with a sufficiently broad contribution base to support current universal service needs. As we have explained, our interpretation of the terms "telecommunications" and "information service" reflect continuity with pre-existing legal categories. Consequently, we do not believe that these interpretations would create significant shifts in contribution obligations based on the current configuration of the communications industry. Retail revenues of Internet service providers -- approximately five billion dollars in 1997 -- are relatively small compared to the $100 billion in long-distance revenue reported in the latest telecommunications relay service fund worksheet report. The fact that Internet access is not considered a "telecommunications service" therefore does not have a significant impact on the current universal service funding base. More importantly, however, Internet access generates additional telecommunications revenue to support universal service in the form of the thousands of business lines (with their associated tariffed rates, subscriber line charges, and presubscribed interexchange carrier charges) that Internet service providers must purchase in order to provide connectivity to their users, and the high-capacity leased lines that they use to route data across their networks. It is critical, however, to make sure that our interpretation of the statute, to the extent legally possible, will continue to sustain universal service in the future. Some parties argue that, as new communications services such as Internet access and IP telephony grow, traffic will shift away from conventional telecommunications services, thus draining the support base for universal service. We are mindful that, in order to promote equity and efficiency, we should avoid creating regulatory distinctions based purely on technology. Congress did not limit "telecommunications" to circuit-switched wireline transmission, but instead defined that term on the basis of the essential functionality provided to users. Thus, for example, we have previously required paging providers to contribute to universal service funding, because they are providers of "telecommunications service." We have also required private carriers to contribute to federal universal service funding, even though they are not common carriers. In this Report, we have further addressed providers of pure transmission capacity used for Internet services, and have concluded that these entities provide services that meet the legal definition of "telecommunications." We also have considered the regulatory status of various forms of "phone- to-phone IP telephony" service mentioned generally in the record. The record currently before us suggests that certain of these services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." We do not believe, however, that it is appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual service offerings. As noted, to the extent we conclude that certain forms of phone-to-phone IP telephony are "telecommunications," and to the extent that providers of such services are offering those services directly to the public for a fee, those providers would be "telecommunications carriers." Accordingly, those providers would fall within section 254(d)'s mandatory requirement to contribute to universal service mechanisms. If such providers are exempt from universal service contribution requirements, users and carriers will have an incentive to modify networks to shift traffic to Internet protocol and thereby avoid paying into the universal service fund or, in the near term, the universal service contributions embedded in interstate access charges. If that occurs, it could increase the burden on the more limited set of companies still required to contribute. Such a scenario, if allowed to manifest itself, could well undermine universal service. At this time, however, there is no evidence that there is an immediate threat to the sufficiency of universal service support. Several commenters urge us to subject Internet access providers and other information service providers to universal service contribution requirements. The potential future threat to universal service funding posed by use of the Internet derives from services that are functionally substitutable for telecommunications services at the same level of the network hierarchy. An end user that shifts its local exchange service from an incumbent local exchange carrier (LEC) to a competitive LEC, or to a wireless carrier, is purchasing a functionally identical service using different providers or technologies. We have designed the universal service regime so that shifting between such services does not eliminate the contribution requirement. Substitutability in a particular case, however, is not sufficient under the statute to require universal service contributions. Instead of making a telephone call or sending a fax, an end user could send an overnight letter. It is unlikely, however, that anyone would argue that the overnight delivery service should contribute to universal service funding. The key difference is that delivery service does not provide "telecommunications" as defined in the Act. Congress limited universal service contribution obligations to providers of "telecommunications," because only those services are truly substitutable in a functional sense. Some parties argue that we should reclassify Internet service providers as telecommunications carriers in order to address congestion of local exchange networks caused by Internet usage. We note that the Commission addressed this argument last year in the Access Reform proceeding, and decided to continue to treat Internet service providers as end users for purposes of access charges. As the Commission stated in that Order, although concerns about network congestion deserve serious consideration, imposition of per-minute interstate access charges on Internet service providers is not an appropriate solution. Commenters in this proceeding have raised many of the same arguments that we considered in the Access Reform proceeding. We make no conclusions here as to whether some alternate rate structure for Internet service providers would be more efficient. That is an issue best addressed either on reconsideration of our Access Reform decision, or in connection with the Notice of Inquiry on Internet and Information Services that Use the Public Switched Telephone Network that we issued in the Access Reform proceeding. For purposes of this Report, we believe that the central issue is whether our decision that Internet access is not a "telecommunications service" is likely to threaten universal service. In other words, will Internet usage place such a strain on network resources that incumbent LECs will be unable to provide adequate service? As we noted in the Access Reform Order, both ILECs and the Network Reliability and Interoperability Council agreed that Internet usage did not pose any threat to overall network reliability. Incumbent LECs are investing in network upgrades to handle Internet traffic, and our Notice of Inquiry docket provides the appropriate forum to consider steps that we could take to ensure that incumbent LECs have incentives to choose the most efficient technology. We realize that, as technology evolves, new means of providing telecommunications service may emerge. Although we conclude that Internet access is not a "telecommunications service," we acknowledge that there may be telecommunications services that can be provisioned through the Internet. We have singled out IP telephony services for discussion in this Report. As discussed above, users of certain forms of phone-to-phone IP telephony appear to pay fees for the sole purpose of obtaining transmission of information without change in form or content. Indeed, from the end-user perspective, these types of phone-to-phone IP telephony service providers seem virtually identical to traditional circuit-switched carriers. The record currently before us suggests that these services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." With respect to the provision of pure transmission capacity to Internet service providers or Internet backbone providers, we have concluded that such provision is telecommunications. As some parties observe, our interpretation of the 1996 Act may mean that information services such as Internet access are not eligible for subsidies outside of the limited scope of schools and libraries under section 254(h) We believe Congress made a policy decision to limit support for information services to schools and libraries. "Telecommunications services" provide the basic transmission functionality that enables customers in rural and high-cost areas to connect to the rest of America. These services also enable users to reach Internet access providers, so reductions in the cost of basic telephone service in rural areas will effectively reduce the cost of Internet access in those areas. The information services delivered over telecommunications networks are not sensitive to distance and density to the same extent as the telecommunications facilities themselves. Therefore, the rationale for establishing a subsidy mechanism for these services is far more attenuated. At this early stage of Internet development, we cannot know whether market and technological forces will result in Internet access being widely available in rural and high cost areas. Already, free electronic mail services such as Juno and low-cost Internet access devices such as WebTV have made Internet-based services far more affordable. A recent study found that at least 87% of the U.S. population has access to a commercial Internet service provider through a local call, and that three-fourth of Americans live in local calling areas with at least three Internet service provider points of presence. America Online reports that seventeen percent of its local access nodes are in rural counties. Rural Internet service providers, especially smaller entrepreneurial companies, will be able to provide more affordable and widely-available service if they are not subject to unnecessary regulatory burdens. Finally, the support mechanism that will benefit schools and libraries established pursuant to section 254(h) of the 1996 Act will enable rural libraries to provide public access Internet terminals, and rural school districts to make Internet access available to their students. Congress did recognize that "telecommunications services" would evolve over time, and that universal service should adapt to reflect those change. Thus, for example, universal service today includes functionalities such as touchtone service and access to 911 that simply did not exist in previous decades. Other such innovations, as well as improvements in voice transmission quality, will no doubt occur in the future, and we will update our definition of universal service to account for those changes. For example, it appears that universal service funds could be used to ensure rural and high-cost areas have affordable access to high-speed data transmission services, such as xDSL, when those services meet the criteria for support outlined in section 254(c). Consistency of Commission Decisions We believe that the framework described in this Report, and in the May 8th, 1997 Universal Service Order, is entirely consistent, both internally and with the letter and spirit of the Act. Companies that are in the business of offering basic interstate telecommunications functionality to end users are "telecommunications carriers," and therefore are covered under the relevant provisions of sections 251 and 254 of the Act. These rules apply regardless of the underlying technology those service providers employ, and regardless of the applications that ride on top of their services. Therefore, although we will need to consider further the definition of "phone-to-phone" IP telephony, the record currently before us suggests that certain of these services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." Further, we have found that providers of pure transmission capacity to support Internet services are providers of "telecommunications." Internet service providers and other information service providers also use telecommunications networks to reach their subscribers, but they are in a very different business from carriers. Internet service providers provide their customers with value-added functionality by means of computer processing and interaction with stored data. They leverage telecommunications connectivity to provide these services, but this makes them customers of telecommunications carriers rather than their competitors. Under our framework, Internet service providers are not treated as carriers for purposes of interstate access charges, interconnection rights under section 251, and universal service contribution requirements. This treatment admittedly provides some benefits to such companies, but it also imposes limitations. Internet service providers are not entitled under section 251 to purchase unbundled network elements or discounted wholesale services from incumbent LECs, they are not entitled to federal universal service support for serving high-cost and rural areas, and they are not entitled to reciprocal compensation for terminating local telecommunications traffic. As we discuss below, the one case in which Internet service providers and carriers enjoy similar treatment is in the provision of certain services to schools and libraries at discounted rates. In that case, Congress expressly directed the Commission to create "competitively neutral rules" to facilitate "access to advanced telecommunications and information services." There is no necessary connection between those who contribute to universal service funding and those entitled to receive support. For example, contributions to the fund are primarily derived from interexchange carriers, but the companies that receive high-cost support are LECs. Paging providers are required to contribute to universal service, but have limited opportunity to receive support. We realize that Congress carefully balanced several competing concerns when it crafted the universal service provisions of the 1996 Act. After reviewing our implementation of those provisions, and considering novel issues such as the status of IP telephony, we believe that we are being faithful to the balance struck by Congress.