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Judge Davis Gets It: The Internet is Not a Telephone

October 17th, 2003

It’s a wonderful thing to see a federal judge actually understand the Internet.  In his recent decision permanently enjoining the Minnesota Public Utility Commission from applying state telecom regulations to Voice-over-Internet-Protocol (VOIP) services, Judge Michael Davis of the Minnesota federal district court wrote what is one of the most well-informed — and most important — Internet-related decisions in recent years.  Judge Davis’s memorandum merits a close read;  I’ve posted it here in .pdf format.

At the heart of the case is the difference between circuit-switching and packet-switching, and whether the laws developed decades ago for the circuit-switched traditional phone network should be applied to the packet-switched Internet.  It’s like asking whether the laws developed for the railroad should be applied to the automobile. (Answer: Hell, no!)  What most non-technical people (including federal judges) don’t readily understand is how fundamentally different the packet-switched Internet is from the circuit-switched telephone.  Happily for the future of the Internet, Judge Davis figured it out.

Here’s a quick summary of the issues in the case, and Judge Davis’s analysis.  Minnesota law requires telephone companies to obtain certification from the Public Utility Commission.  The certificate specifies certain obligations (such as 911 service) and tariffs.

Vonage is a VOIP service provider that allows broadband customers to use a special Cisco box to translate telephone calls into IP packets, and vice versa.  A Vonage customer uses an ordinary telephone to make calls through her home broadband connection.  If a Vonage customer calls a traditional telephone customer, the telephone call is (a) converted to IP packets right there in the home via the special Cisco box, (b) carried over the Internet to a Vonage computer in the recipient’s area code, (c) converted back into a traditional telephone signal, and (d) sent into the traditional telephone network as a local call.  If a Vonage customer calls another Vonage customer, the call is (a) converted to IP packets right there in the home via the special Cisco box, (b) carried over the Internet to the recipient’s home, and (c) converted into a traditional phone call on the telephone attached to the recipient’s Cisco box.  Vonage call quality is good, but not as clear or reliable as a traditional circuit-switched telephone call.

Judge Davis’s decision revolves around two key legal questions:  (1) whether, under federal law, VOIP services are “information services” (not subject to regulation) or “telecommunications services” (subject to regulation), and (2) whether the federal Telecommunications Act pre-empts Minnesota’s state law.

On the first question, Judge Davis has little trouble concluding that VOIP is an “information service”.  He first looks at the language of the Communications Act of 1996, and concludes that Vonage service meets the plain statutory definition of “information service.”  Judge Davis goes further, however, examining the nature of Vonage’s service and comparing it to the 4-part test tentatively used by the FCC to determine whether a given service is phone-to-phone IP telephony.  (In its 1998 report to Congress on universal service issues, the FCC tentatively concluded that phone-to-phone 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.’”  Whether the FCC’s 1998 thinking is still valid is very much subject to doubt.)  The FCC’s tentative 4-part test:

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 [customer premises equipment] 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.

Judge Davis concludes that Vonage’s service does not meet requirements (2) and (4):  Vonage’s service offering requires customers to use special VOIP equipment, and entails the conversion of calls from IP packets into traditional telephone signals.  Therefore, Vonage service is not regulatable phone-to-phone IP telephony.

Fortifying his reasoning, Judge Davis noted that when Vonage customers call each other, they are effectively making computer-to-computer calls (where the computers are the special Cisco boxes into which the home telephones get plugged) that do not come into contact with the traditional (regulated) telephone system.  From the point at which it leaves one home to the point at which it reaches the other, the calls consist entirely of packets. 

In the thorniest (and perhaps murkiest) bit of analysis in the decision, Judge Davis delves deep into the FCC’s generic 1998 discussion of IP telephony, in which it examined three classes of providers involved with IP telephony:  first, those that only provide hardware and software at customer premises;  second, ISPs;  and third, IP telephony providers that deploy a gateway within the network to enable phone-to-phone service.  According to the FCC’s tentative conclusions, the first two categories are not regulated “telecommunications services”, while the third category is.  In his decision, Judge Davis determines that Vonage does not qualify for categories one (it provides more than hardware and software) and two (it is not an ISP).  But Vonage does, however, maintain gateways that transform IP packets into traditional telephone signals, and vice versa. 

So how can Judge Davis conclude that Vonage is not an phone-to-phone IP telephony provider?  His opinion is less than crystal clear, but the answer appears to center on the fact that the Vonage system provides computer-to-computer or computer-to-phone service (keeping in mind that the Cisco box that sits between the customer’s broadband connection and her telephone is a computer), but never phone-to-phone.  Judge Davis goes on to quote a range of FCC policy statements that argue that the legal line between telecommunications and information services is one that should be maintained, even though the engineers might have a hard time distinguishing them on the basis of their technical infrastructure.  (Judge Davis is here running up against an increasingly pressing conceptual headache.  He’s not alone.  Many commentators, including me, have argued in recent years that the massive convergence of telephony and IP networks is going to make irrational the FCC’s infrastructure-based regulatory distinctions.)  Stressing that information services can legitimately be deployed on top of telecommunications infrastructure without being pulled into the orbit of telecommunications regulations, Judge Davis finds that Vonage uses telecommunications services, but does not provide them.  In passing, Judge Davis trashes the Minnesota PUC’s “quacks like a duck” analysis as a distracting oversimplification. 

[By the way: if Judge Davis is right that Vonage’s service doesn’t count as the kind of phone-to-phone IP telephony that is subject to regulation, what does?  What was the FCC talking about?  The answer is that the FCC wanted to make clear that telecom companies couldn’t remove themselves from regulation by migrating their backhaul networks to the Internet protocol.  Unlike Vonage (which packetizes phone calls right there in the customer’s home), telecom companies typically have IP-based networks at the core, with traditional switched telephone signals covering at least the last mile. From an engineering standpoint, this is a suspect distinction.  But it seems to be what motivated the FCC’s 1998 definitions.]

Whether federal law pre-empts state law typically depends on the clarity of Congress’s intent.  One thing Judge Davis gets right is Congress’s unusually specific statement of intent that the Internet remain as unregulated as possible.  Said Congress in the Telecommunications Act of 1996:

“It is the policy of the United States . . . to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.”

In short, Judge Davis concludes that Vonage provides an “information service”, that “information services” are expressly unregulated under the federal Telecommunications Act of 1996, and that Minnesota’s effort to regulate Vonage’s “information service” conflicts with federal law and must therefore be pre-empted.  He orders that Minnesota be permanently enjoined from enforcing its attempt to regulate Vonage.

In my judgment, this a fantastic victory for the Internet, and a hugely significant precedent.  For one thing, a federal court has declared that, for purposes of federal law, packets are packets are packets, even if some of them happen to be carrying voice traffic.  More importantly, VOIP promises to bring low-cost, highly-reliable, and feature-rich integrated communications devices within the reach of many many more people in developing countries for much less money than traditional telephony could ever realistically hope to achieve.  A strong stand against regulation by the US would be a powerful signal to other nations.

Finally, the decision bolsters the notion that Internet services should not be forcibly shoehorned into decades-old telecommunications regulations.  If VOIP is to be regulated, it should be approached in ways that respect the comprehensively different nature of packet-switched networks. 

For example: If 911 service is the issue, then the regulators need to make the mandates fit the capabilities of the technology.  Vonage already provides a limited 911 service similar to that for mobile phones (after all, your Vonage box can connect to the Internet anywhere in the world, so Vonage can’t tell with certainty where a 911 caller is, geographically, at a given moment).  The fact that mobile phones can’t convey geographic location to 911 operators was not considered to be a reason to slow or restrict mobile phone technology;  likewise, VOIP providers should be allowed to offer services with modified 911 capabilities, so long as customers know exactly what they’re getting.