Dialing for Dollars: Will the FCC Regulate Internet Telephony?

Rob Frieden
Associate Professor, Penn State University
201-D Carnegie Building
University Park, Pennsylvania 16802
(814) 863-7996; rmf5@psuvm.psu.edu

ABSTRACT

In March, 1996 a trade association representing medium and small
inter-exchange carriers
and resellers filed a petition with the Federal Communications Commission
("FCC") seeking
common carrier regulation of companies selling software and hardware products
that make it
possible to engage in real-time, voice communications via the Internet.
America's Carriers
Telecommunication Association ("ACTA") argued that the Telecommunications Act of
1996 so
broadly defines telecommunications that the FCC must exercise jurisdiction over
companies
selling products that convert the Internet into a conduit for "free" long
distance telephone service.
ACTA claims that companies providing such functionality must submit to entry and
rate
regulation.

While ACTA may not receive a sympathetic hearing from regulators, it does
raise several
serious and legitimate questions about the Internet and conflicting objectives
in the
Telecommunications Act of 1996. With growing functionality and reach, the
Internet can provide
services analogous to radio and television broadcasting, publishing,
video-conferencing and
telephony. The FCC can choose to avoid regulating simply on grounds that such
service are not
functionally equivalent, because computers manipulate and process content.
However, it is
possible that with increasing market penetration, the Internet and peripheral
devices may impact
market share, incumbent operator revenues and the current universal service
subsidy mechanism.
Likewise, Internet telephony juxtaposes the Telecommunications Act of 1996's
requirement that
the FCC promote new technologies with an expanded universal service mission.

This paper will examine the consequences of regulating incumbent carriers
while allowing
newcomers to operate free of regulation. Despite demands that a level
competitive playing field
necessitates symmetrical regulation, the paper concludes that different
treatment is justified on the
basis of law and a functional equivalency analysis.