Unregulated but regulated. Which is it? This is the uncertainty that has arisen since the U.S. Federal Communications Commission (FCC) imposed regulations on Voice over Internet Protocol (VoIP), while declaring its intention to keep the Internet unrestricted. As satellite service providers expand their product lines to include Internet derivatives like VoIP, it is important to be aware of how services are regulated and in which direction the regulations are going. It is not unusual to see companies’ profit margins affected by unplanned compliance with new regulations.

The underlying U.S. Internet policy is that government agencies should avoid undue restrictions on electronic commerce. The policy’s main premise states that parties should be able to buy and sell products and services across the Internet with minimal government intervention.

The U.S. government initially chose not to directly regulate the Internet, but some exemptions quickly arose. The two principal exceptions came in the form of regulating obscene content and protecting copyrighted material on the Internet. This last item came to light with the popularized Napster case, in which an online music file-sharing service allowed people to easily copy and distribute MP3 files among each other, bypassing the established music market. The site was eventually shut down by court order.

The Regulation of VoIP

VoIP enjoyed an unregulated status for some time. However, the rapid capturing of voice telephony market share, principally by Vonage, caught the attention of the traditional voice carriers. A cry of "it’s not fair" was carried to the halls of the FCC, and thereafter, a cascade of regulations quickly came down on VoIP services.

In June 2005, the FCC released an order concerning enhanced 911 (E911) service requirements for VoIP providers. E911 is a North American telecommunications system that automatically associates a physical address with the calling person’s telephone number and routes the call to the most appropriate law enforcement, rescue or emergency entity. The FCC order imposed E911 requirements on a new category of carrier called the Interconnected VoIP Service Provider. Interconnected VoIP providers were defined as carriers offering services that enabled two-way voice communications to and from the public telephone network requiring a broadband connection and IP-compatible end-user equipment. Interconnected VoIP providers, like Vonage, now had to comply with E911 just like the traditional carriers.

In September 2005, the FCC released an order requiring all interconnected VoIP providers to comply with the Communications Assistance for Law Enforcement Act (CALEA), a wiretapping law enacted in 1994 and designed to enhance the ability of law enforcement to conduct electronic surveillance. The law requires telecommunications carriers to modify their networks to include built-in surveillance capabilities that allow agencies to monitor traffic under a valid court order. Interconnected VoIP providers now had to incur the expense of complying with CALEA just like the traditional carriers.

In June 2006, the FCC released an order requiring interconnected VoIP providers to collect Universal Service Fund (USF) payments from end users and remit the payments to the Universal Service Administration Co. USF is designed to ensure that underprivileged and underserved markets have access to telecommunications services. VoIP providers now would have to file declarations and contribute to the USF fund just like the traditional carriers.

Interconnected VoIP Providers and the States

Traditional voice telephony is regulated both by the U.S. Federal Government as well as the 50 U.S. states. Federal regulation is carried out by the FCC, while state regulation is done by the individual Public Utility Commissions of each state. There have been some attempts by states to regulate Interconnected VoIP services, but those attempts have been preempted by the FCC, which currently believes that state regulation of VoIP is inappropriate. That means that state regulation of voice telephony is one area where VoIP providers still hold the competitive advantage over the traditional voice carriers.

The regulation of Internet and VoIP services is rapidly evolving. As satellite service providers add Internet derivatives to their product line, it is vital to consider how the regulatory environment and the apparent direction of regulation could affect their profit margins.