Time Warner’s VOIP Internet Phone Service in New York is a “Telecommunications Service” Requiring Just, Reasonable and Nondiscriminatory Service

The New York Times published an Op -Ed today raising numerous valid points about current efforts of telephone companies to migrate telephone service  and phone customers from traditionally regulated copper wireline service to networks using other technologies (wireless or internet) that currently are virtually unregulated by the FCC and state regulators.  See Jon Brodkin, When the Landline is a Lifeline, N.Y. Times, June 5, 2014.  The FCC has not determined whether a provider of “Voice Over Internet Protocol” (VOIP) phone service  is a “telecommunications carrier” under Title II the Communications Act of 1934, which obviously was enacted before the days of widespread wireless phones and the internet.  The New York Public Service Commission, however, in a little noticed development, is regulating Time Warner as a telecommunications carrier subject to full state regulation regarding its home phone VOIP service.

Background

The “telecommunications carrier” classification of service makes the provider a “common carrier” under Title II of the 1934 Act.  This carries with it longsanding  universal service obligations under the federal statute, and arguably under state common law.  The universal service requirements were updated and made more explicit by Congress when it adopted the 1996 Telecommunications Act,  purposes of which were to address the introduction of competition and the impact of new technologies.  [A lengthy congressional impasse over how to update the 1934 Communications Act was broken after FCC efforts to deregulate phone service without statutory power to do so were annulled by the Supreme Court in MCI v AT&T.   The ensuing 1996 Act reflects many compromises.  Also, it did not contemplate the current widespread adoption of wireless technology or the importance of broadband in everyday life and commerce, it envisioned greater competition rather than the industry re-consolidation through mergers, and it left many issues to be decided by the divided FCC, which seems reluctant to act in several critical areas such as universal, affordable, broadband provided on a non discriminatory basis).  

Under the Telecommunications Act of 1996, once a telecommunications carrier is classified under FCC regulations as an “Eligible Telecommunications Carrier” (ETC) , along with the duty to satisfy federal universal service requirements relating to service at affordable rates, it becomes eligible to receive financial support for those services through the Universal Service Administrative  Company (USAC), which was  created by the FCC to receive bill surcharges for universal service required by the statute and FCC orders, and to disburse them.  To implement the 1996 Telecom Act, the FCC established four programs:

  • The High Cost Program provides support to eligible telecommunications companies in rural and high cost areas that in turn offer rates and service comparable to those available in urban areas.
  • The Lifeline Program provides support to telecommunications companies that in turn offer rate discounts to eligible low-income consumers.
  • The Rural Health Care Program provides support to eligible rural health care providers that qualify for reduced rates.
  • The Schools and Libraries (E-rate) Program provides discounts to eligible schools and libraries that qualify for reduced rates for high speed broadband services.

A point made in today’s New York Times Op Ed is that the FCC has not defined cable providers of home phone service to be “telecommunications carriers”.  Instead, the FCC has left it undefined, but has imposed some but not all requirements for phone service.  The federal situation is aptly described by Tom Dougherty, Is The FCC’s Regulation Of VoIP In Jeopardy After Comcast?, CommLawBlog, April 10, 2010.

“VoIP allows consumers to make and receive telephone calls over the Internet. From the user’s perspective, VoIP is functionally the same as “plain old telephone service” (POTS).  Both allow the user to make and receive calls to and from points otherwise reachable by regular telephone. But the two are technologically different: POTS uses time division multiple access or analog switching to create circuits while VoIP uses session initiated protocol to send and receive messages in packets via the Internet and Internet Protocol. VoIP is basically no more than a software application. So, like any other software application, it isn’t subject to FCC regulation, right?

“Not according to the FCC.

“Seeing the obvious functional similarity between VoIP and POTS, the FCC decided that VoIP should be regulated like POTS. But is VoIP an “information service” or a “telecommunications service?” Labels are important here: “telecommunications services” fall under the full-tilt Title II common carrier regulation imposed on POTS, while “information services” would not be subject to such regulation. Complicating matters, the FCC has expressly declined to attach either label to VoIP, although the Commission has imposed a whole host of POTS-like common carrier regulations on VoIP providers.”

With little notice, however, a significant New York development may chart the way for other states and eventually the FCC to come to grips with the reality that VOIP is phone service subject to regulation and consumer protection.

Time Warner VOIP Home Phone Service Now Under Full New York PSC Regulation 

Under the 1996 Act, leeway is given to  state regulatory commissions to make a decision whether a provider is a common carrier and an ETC.   47 U.S.C. § 214(e). Section 214(e) of the Telecommunications Act requires state commissions to designate eligible telecommunications carriers and service areas for the purpose of determining universal service obligations and eligibility to receive federal universal service funding. FCC regulations give the PSC power on its own motion to classify a provider as a common carrier and ETC, but the New York PSC did not,  though it added some duties, including E911 emergency service requirements Over the years, the Utility Project repeatedly called upon the PSC to make all phone service, no matter how provided, subject to the  same regulatory requirements, for example, Lifeline assistance to low-income customers, and the Telephone Consumer Protection Act (TFPA), a set of regulations protecting customers rights to service and limiting termination and billing practices, such as the shutoff of phone service for nonpayment of charges for other services (e.g., cable TV charges).

Verizon, the major phone provider in the state, used the asymmetrical regulatory situation to argue insistently for more deregulation, claiming, with justification, that other providers using alternative technologies (VOIP, wireless) did not have to bear the same costs and assessments for meeting regulatory standards, putting Verizon at a competitive disadvantage.  The answer, of course, was not to jettison rules but to make them equally applicable.  Nevertheless, Verizon sought, and successfully obtained, pricing flexibility, detariffing  all but a short list of “basic” phone services, weakened service quality standards that only count service problems of 8% of its customers, and loosened billing and collection rules, invoking the rationale that it competes for phone customers with VOIP and other providers who did not have the same regulatory obligations. The PSC and the legislature granted concessions, weakening price controls and customer protections under the questionable theory that the playing field was not level.

Then, in 2012, Time Warner, the second largest phone service provider in New York State, with more than 2 million customers, decided it wanted to receive federal universal service funds from USAC, and so petitioned the PSC to be recognized as a telecommunications carrier and an ETC.  It shifted all its VOIP home phone service customers to a subsidiary, TWCIS(NY)  that is a certified New York telephone company.  The Commission   granted the petition, stating,

“TWCIS(NY)’s petition represents the first request to the Commission for ETC designation from an entity providing service using fixed Voice over Internet Protocol (VoIP) technology. Although the Federal Communications Commission (FCC) has not yet determined the overall classification of interconnected VoIP, it recently recognized that a VoIP provider with a state commission issued Certificate of Public Convenience and Necessity (CPCN) that has also filed a tariff offering intrastate telecommunications service, is functioning as a telecommunications provider.2 TWCIS(NY) has a Commission-issued CPCN3 and had tariffs in effect offering intrastate services. The company subsequently filed a replacement tariff, effective February 23, 2013, offering Home Phone and Business Class Phone service on a fully regulated basis.”

The petition was opposed on various grounds by NYSTA, an association of other New York phone companies.  In response, the Commission stated:

“NYSTA, however, claims that TWCIS(NY) is seeking a telecommunications service designation for TWCIS(NY)’s retail interconnected VoIP service and that self-declarations are not sufficient to confer the required telecommunications carrier status. NYSTA states that TWCIS(NY)’s previous classification of its VoIP service as unregulated requires justification for the basis of such service’s transformation to telecommunications service status.The FCC recognizes a VoIP provider that has obtained a certificate from a state commission and filed a tariff offering intrastate telecommunications service as a telecommunications provider. Although the FCC has not determined interconnected VoIP service’s overall classification, it has stated that, “if a provider of interconnected VoIP holds itself out as a telecommunications carrier and complies with appropriate federal and state requirements,” it may be treated as a telecommunications carrier. ****NYSTA questions TWCIS(NY)’s commitment to participate in universal service programs. However, in both TWCIS(NY)’s petition and reply comments, it stated that TWCIS(NY) is fully committed to supporting all New York State universal service programs. In addition, TWCIS(NY) made a commitment to full Commission regulation; and, we will regulate TWCIS(NY) as we regulate any other competitive local exchange carrier (CLEC). This obligation includes payment of all fees, including mandatory payment into the State’s USF and TAF. In addition, the company will be subject to service quality regulation.”

CASE 12-C-0510 – Petition of Time Warner Cable Information Services (New York), LLC for Modification of Its Existing Eligible Telecommunications Carrier Designation. ORDER APPROVING DESIGNATION AS A LIFELINE-ONLY ELIGIBLE TELECOMMUNICATIONS CARRIER, (Issued and Effective March 18, 2013).

Accordingly, the New York PSC has recognized that VOIP phone service is subject to full state regulation.  This entails the requirement of Section 91 of the Public Service Law that all service be provided on just, reasonable, and nondiscriminatory rates, terms and conditions.  The Commission has abdicated price regulation of Competitive Local Exchange Carriers (CLECs), apparently on the theory that if it regulates the primary provider it need not be concerned over the prices charged by competitors who presumably would need to beat the regulated provider’s price.  (A similar administrative deregulation theory was rejected by the Supreme Court when the FCC attempted it, in MCI v AT&T).  As a consequence of industry consolidation, pricing differences between the de facto phone/cable duopoly are small.  As the Supreme Court stated, “we doubt it makes sense, if one is concerned about the use of filed tariffs to communicate pricing information, to require filing by the dominant carrier, the firm most likely to be a price leader.”  Competition, such as it exists, is over highly advertised time-limited promotions for service bundles including phone service.  Still, bringing VOIP under the consumer protection and Lifeline assistance requirements is a major advance.  Enforcement of the consumer protection rules designed to preserve continuous service may help in addressing New York’s lamentable slide in the area of household telephone service penetration.  See TELEPHONE SUBSCRIBERSHIP OF NEW YORK HOUSEHOLDS DECLINES AGAIN IN 2013 — NEW YORK NOW 48TH OF 50 STATES.

In a subsequent proceeding, the Commission granted in part requests of Time Warner for regulatory forbearance, ironically, in order to be symmetrical with Verizon, which had obtained its deregulatory indulgences on the grounds it needed them to compete with providers like Time Warner.  The Commission denied Time Warner’s requests to expand the days and hours when service can be terminated to collect bills and to waive service quality rules on the ground it is a competitive provider.  The Commission imposed, at least temporarily, service quality reporting requirements.  The service quality reports are being filed by Time Warner with claims of trade secrecy.

Although Time Warner’s VOIP phone service is now subject to consumer protection and Lifeline requirements, the VOIP services of other cable companies, notably, Comcast and Cablevision, is not.  See TIME WARNER PHONE CUSTOMERS PROTECTED. OTHER CABLE PHONE CUSTOMERS?

With Time Warner being purchased by Comcast, the PSC may be faced in the Comcast – Time Warner merger case with the issue whether to require Comcast to provide the same customer protections and Lifeline assistance to its customers that Time Warner customers now have.

Gerald A. Norlander

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