This article continues our four-part series focusing on the regulatory issues surrounding voice over Internet protocol (VOIP) services. It analyzes some fairly recent CRTC VOIP decisions and follows up on VOIP regulatory concerns in the developed world.

McCarthy Tétrault Notes:

The CRTC has rendered two decisions dealing with the issues raised by Telecom Public Notice CRTC 2004-2.

The Emergency Services Decision

On April 4, 2005, the CRTC released Telecom Decision CRTC 2005-21. In that decision, the CRTC made its final determinations regarding the emergency service issues raised in Telecom Public Notice CRTC 2002-2.

In the Emergency Services Decision, the CRTC confirms its position that the public interest requires imposing emergency service obligations on local VOIP service providers. By contrast, a VOIP service offering providing only long-distance calling capability would not be subject to these obligations. Only VOIP services that provide a substitute or functional equivalent to local public switched telephone network services are to be subject to the identified emergency service obligations.

The Emergency Services Decision examines the special complications associated with the nomadic and non-geographic capabilities of VOIP services, and resolves these complications by examining three different ways in which VOIP services can be deployed:

  • from a fixed address with a telephone number that is native to one of the exchanges within the customer’s PSAP (public-safety answering point; i.e., within its service area);
  • from a fixed address with a telephone number that is not native to one of the exchanges within the customer’s PSAP service area (i.e., where the assigned telephone number is identified with an exchange that is outside the geographic area of the subscriber’s registered service address); and
  • on a nomadic basis, where the customer makes calls from an address that is different from the registered address for service.

For services associated with a fixed address and a telephone number that is native to the public safety answering point service area, the CRTC expects VOIP service providers to be able to supply emergency services practically equivalent to those for conventional local service offerings, including participating in the exchange of all required subscriber information and related data. For non-geographic and nomadic services, the CRTC requires VOIP service providers to implement appropriate interim solutions that provide a level of emergency service comparable to the basic emergency services provided by conventional service providers. This includes using the intervention of call centre agents to confirm the location of the caller and to ensure that the call is transferred to the appropriate PSAP or emergency service best able to respond to the emergency and subscriber location.

The CRTC has also asked the industry steering committee responsible for resolving competitive market issues — namely, the CRTC Interconnection Steering Committee (CISC) — to submit a report identifying the technical and operational issues that impair emergency services where local VOIP service is offered on a non-geographic basis, and a similar report within one year with respect to service offered on a nomadic basis. In addition to identifying the practical problems of implementing emergency services in these circumstances, the reports will identify alternative solutions, make recommendations for preferred solutions and propose time frames for implementation.

Finally, the Emergency Services Decision emphasizes the importance of informing potential subscribers of all emergency service limitations prior to any VOIP service commitment, and requires express acknowledgement by subscribers of these service limitations as part of the process of contracting for VOIP services.

The Regulatory Framework Decision

On May 12, 2005, the CRTC issued telecom decision CRTC 2005-28, resolving the remaining issues raised by Telecom Public Notice CRTC 2004-2.

This decision deals with the issues raised by Public Notice CRTC 2004-2 that were not dealt with in the Emergency Services Decision. Most importantly, this decision sets out the CRTC’s final determinations regarding the regulatory framework that should apply to VOIP services, including the extent to which those services should be forborne from conventional regulation.

VOIP service categories

The Regulatory Framework Decision begins with a discussion of various categories of VOIP services.

One category of service that the CRTC singles out for specific treatment is ‘peer–to-peer’ or ‘P2P’ services, which it defines as "IP-enabled voice communications services that do not connect to the public-switched telephone network and that do not use conventionally assigned telephone numbers." These peer-to-peer services include computer-to-computer voice communications with traffic routed via the Internet and without using a conventional telephone number or related switching to establish the voice connection. The CRTC considers these peer-to-peer VOIP services to be within the category of retail Internet services, a service category that it has previously determined should be forborne from regulation.

The FCC has also determined that these peer-to-peer communication services are not subject to traditional telecommunications regulation by either the FCC or state regulatory commissions, on the basis that they constitute regulation exempt ‘information services’ and do not constitute ‘telecommunication services.’

Forbearance from regulation

Under its governing legislation, Canada’s Telecommunications Act, the CRTC has the power to forbear from regulation where it determines that markets are sufficiently competitive or that forbearance would otherwise be in accordance with the policies set out in the Act. In its Regulatory Framework Decision, the CRTC confirms that VOIP services, other than peer-to-peer services, are not within the category of ‘retail end user Internet services’ previously forborne from tariff and other regulation. The CRTC bases that determination on characteristics of VOIP services that distinguish them from retail Internet services. Ultimately, the CRTC finds that the primary function of VOIP services is not accessing the Internet, but rather accessing the public-switched telephone network in order to make and receive telephone calls.

Having determined that local VOIP services are not within existing forbearance determinations, the CRTC also considers specific requests by the incumbent telephone companies to grant new forbearance orders regarding local VOIP services. The CRTC examines these requests for forbearance in accordance with a methodology based primarily on consideration of the relevant market for local VOIP services, and whether firms in that market have sufficient market power to maintain prices above those that would prevail in a competitive market.

In performing this analysis, the CRTC finds that local VOIP services satisfy the same general requirements as circuit-switched local exchange services and are close substitutes for those circuit-switched services. Accordingly, local VOIP services are part of the same relevant market as conventional circuit-switched local services. The CRTC includes ‘access-independent’ VOIP service configurations in this finding that local VOIP services are part of the same relevant market as conventional local services.

The CRTC also notes that the incumbent local exchange carriers in Canada remain dominant providers of local service, accounting for 98 per cent of local residential revenues and 92 per cent of local business revenues in 2003. Given the definition of the relevant market, and the continuing market share of incumbent carriers, the CRTC concludes that it would not be appropriate to forbear from tariff and other regulation of local VOIP services offered by incumbent carriers at this time.

The CRTC also considers whether cable television companies provide sufficient competition to incumbent carriers in local VOIP or other voice services markets to support forbearance. It observes that although the cable companies are emerging as stronger competitors, they remain subject to obstacles compared with the incumbent carriers, including the need to (i) upgrade conventional cable networks to permit the delivery of VOIP or other voice services (ii) accumulate experience in offering local voice services over time.

The CRTC also expresses concern about the competitive advantage enjoyed by incumbent carriers in their ability to migrate existing customers from conventional telephone services to VOIP services, particularly given their continuing dominance in conventional local service markets. Another concern is that granting forbearance from tariff regulation prematurely could permit incumbent carriers to engage in targeted below-cost pricing of local VOIP services, and related bundling strategies, permitting them to continue their market dominance prior to the entry of other competitors.

Ultimately, the CRTC denies the request for forbearance from the regulation of local VOIP services and determines that local VOIP services should be regulated as local exchange services, including application of the CRTC’s previously determined regulatory framework governing local service competition (as modified by other parts of the decision).

Application of local service regulatory framework

Having dealt with the request for regulatory forbearance, the CRTC examines specific issues in the application of its regulatory framework for local service competition to local VOIP services in the balance of the decision.

The CRTC’s determinations include confirmation that the existing framework for the allocation of telephone numbers, and rights and obligations pertaining to local number portability, apply to local VOIP service providers on the same basis as conventional local service providers. Similarly, the requirements of directory information and subscriber listing information remain generally the same. The only difference is that directory listings for VOIP service subscribers are to appear in the local directory where calls to or from the assigned number are local calls regardless of the location of the subscriber’s service address. Local VOIP service providers are also subject to the general obligation to ensure equal access to competitive long-distance service providers. They must not enter into contractual arrangements or otherwise obstruct access by their subscribers to competing long-distance service providers.

Regarding Message Relay Service and other disability services, the CRTC concludes that local VOIP service providers should offer comparable service capabilities to the extent that is technically feasible. It also asks the CISC to prepare a report addressing technical problems and recommended solutions for the implementation of these disability functions.

Similarly, the CRTC determines that privacy safeguards such as blocking of calling line identification and disabling of call return should be implemented by local VOIP service providers to the extent that is technically feasible. Again, it requests the CISC to assess the technical issues associated with implementing these privacy safeguards using VOIP technologies and service configurations.

Regarding tariff-filing requirements, the CRTC confirms that incumbent carriers must file tariffs for local VOIP services within their traditional geographic operating territories. Outside these territories, where the incumbent carriers do not exercise market power, the carriers will have the benefit of tariff regulation forbearance. Similarly, non-dominant carriers that do not have market power in a geographic market will not be required to file tariffs for local VOIP services so long as they generally comply with the requirements of being a competitive local exchange carrier.

As indicated previously in this article, in Telecom Public Notice CRTC 2002-2, the CRTC made a preliminary determination that VOIP services should be subject to the same obligation to support the cost of telecommunication service in high-cost areas (the ‘contribution’ mechanism used in Canada to achieve universal service objectives). In the Regulatory Framework Decision, the CRTC confirms this preliminary determination and provides further guidance on the extent to which revenues from VOIP services should be contribution eligible. Generally, the CRTC confirms that the revenues for services that permit access to and from the public-switched telephone network are to be contribution-eligible, and that revenues associated with peer-to-peer voice communications (i.e., computer-to-computer and other communications that do not use conventional numbering to make a connection) are not contribution eligible. The CRTC also confirms that local VOIP service providers will be entitled to the benefit of contribution-fund subsidies to extend service into high-cost service areas where they meet the basic service characteristics defined for conventional local service.

Finally, the regulatory framework decision includes determinations requiring cable companies and telecommunications carriers to remove contractual restrictions that prohibit the offering of voice communication services from their terms of service for ISP resellers. The intention of this further determination is to ensure that ISPs making use of cable television systems or telephone company facilities or services are able to offer voice communications as part of their competing service offerings.

Concluding comments

As indicated earlier in this article, the issues raised by the CRTC in its VOIP Public Notice are similar to issues that have been raised by the FCC and OFCOM in their own VOIP public notices and proceedings. The issues include the extent to which VOIP services and service providers should be subject to the regulatory framework established for local and long-distance voice services generally, particularly given the underlying technologies and service characteristics of VOIP services.

The CRTC’s recent decisions are among the first efforts by a regulator to deal with these issues in a market with a history of extensive voice service competition. It remains to be seen whether the CRTC’s determinations on VOIP issues will be repeated by the FCC, OFCOM or other regulators examining the issues in similar service environments.

For its part, the CRTC has taken the position that VOIP services should be subject to the same regulatory framework as conventional telephone services, to the extent that VOIP services provide unrestricted access to and from the public switched telephone network, make use of the same numbering conventions and otherwise provide consumers with services that are practically equivalent to conventional telephone services.

The CRTC has, however, recognized that VOIP service platforms are not at present able to reproduce all of the emergency services, disability access and other service characteristics of conventional circuit-switched telephone services. The CRTC has adopted the pragmatic stance of requiring VOIP services to meet these public requirements as soon as technologically feasible, with specific interim measures applicable until that time, particularly including disclosure to consumers of the service limitations.

The regulatory challenges faced by countries that do not have a history of extensive service competition, and where the state of development of telecommunications network facilities and services is more limited, are very different. These will be explored in the third instalment of this four-part article.