The Internet and 'Telecommunications Services,' Access Charges, Universal Service Mechanisms and Other Flotsam of the Regulatory System

Abstract

As digitization and packet switching revolutionize communications networks, American communications law faces a dilemma: How can it reconcile an old law that contains distinct regulatory structures for telephony, broadcasting, cable television, and satellites, and that leaves Internet Protocol transmission largely unregulated, with a future in which voice, video, text and data will simply be different form of information to be transmitted using IP or other packet-switched protocols? In particular, to what extent should (or can) regulators impose existing telecommunications regulation, including the snarl of cross-subsidies that dominates the telephone system, on IP networks?

At the heart of existing telecommunications regulation is the distinction between "telecommunications service," whose providers are subject to FCC common-carrier regulation and must pay a percentage of revenues to a federal "universal service" fund, and "information services," whose providers are subject to no such obligations. The dividing line Congress and the FCC have drawn between these categories, though, is no longer workable. We must redraw that line in the modern communications context, so as to focus regulatory obligations on the underlying transport -- otherwise, the FCC will not be able to make coherent policy when it comes to IP telephony and other new services. The FCC must approach existing subsidies so as to make its overall regulation minimally distorting and technology-neutral.

JEL Classification: L96, L51, K23