INTERVIEW: Attorney William Wilhelm Discusses Port Blocking, Taxation and Regulatory Jurisdiction

William Wilhelm, a partner in the Washington D.C. office of Swidler Berlin, is one of the leading attorneys in VoIP and one of its most effective spokespersons. His clients have included Fortune 500 companies, telecommunications providers, software and technology companies, and developers of voice and video applications for the Internet. Wilhelm, a frequent speaker at industry events and contributor to publications, received his law degree from The Catholic University of America, where he was an editor of the Law Review.

William Wilhelm: The threat is real, and it affects not just VoIP but virtually any Internet application that is provided through a broadband or other Internet connection.

First, it is clearly an anticompetitive practice. So it is likely to violate antitrust laws and that is a serious violation. 

Two, in many instances it would violate Title 2 of the Communications Act, which requires common carriers to offer services in a nondiscriminatory and reasonable manner. And it also likely violates Title 1 of the Communication Act, which provides that all common carriers, whether cable or DSL, or other broadband provider to engage in practices that are reasonable. It also vests the FCC with authority to actively regulate providers that interfere with the promotion of a nationwide communication network, which is exactly what port blocking prevents.

So there is a substantial basis in law, both at the FCC and in antitrust, that accompanies VoIP. If they find that this activity engaged is illegal, [Vonage] would have an actionable claim. Nevertheless, it behooves the FCC and, particularly, congress to articulate clearly that this activity is a violation of the law, so the FCC will take enforcement action against companies that engage in this activity and will not allow it.

I should point out that the activity of port blocking is a general threat, but also it can be circumvented. So it is problematic in the larger context, but now it is more of a nuisance because providers play a cat-and-mouse game of figuring out workarounds for port blocking.

NT: Are there precedents?

Wilhelm: At one time payphone providers blocked dial-around calls to companies offering long-distance services that were not provided by the payphone operator. The FCC found that violated the Communication Act, and also that it was anticompetitive and clearly unlawful.

Similar precedents apply in the case of port blocking. It is one of a number of instances where the FCC asserted its authority to promote the deployment of competition and availability of new applications that benefit consumers.

NT: What about the issue of jurisdiction?

Wilhelm: I’m encouraged by fact that we have achieved a great amount of clarity in only a year or two. Two years ago we had great doubt as to whether state telecom authorities would be able to impose a patchwork quilt of jurisdictional requirements over VoIP, requirements that could not be met because VoIP provides services in a manner that is technologically different from telco providers.

We have increasing clarity with respect to issues of access reform and universal service. The next two years will be positive in terms of trying to promote the availability of 911 and access for law enforcement. I expect providers, not only to continue to develop and deploy solutions to those issues, but also I suspect that there will continue to be a number of trials.

NT: What is the greatest regulatory challenge facing VoIP?

Wilhelm: My greatest concern is the application of traditional telephony taxation to VoIP.

Counties or states are trying to tax VoIP communication similarly to how they tax telecom, but it's not clear how that works. Do you tax someone with a billing address in the state or where the number is located or where the transmission originated or terminated? And the problem is that you have states trying to assert jurisdiction over all of the above. So the concern is rather how can we have uniform policy at a federal level on how these communications will be treated? 

Instead, we find states trying to do two things: first, [they] assess jurisdiction far more than they have authority to do. Most now tax telecom and exempt information services. And, rather than revisit the statutes that govern taxation authority, the states are taking extreme positions in an effort to tax VoIP. Some are taking the position that even a computer-to-computer call is subject to their tax.

So that raises the question of what don't they tax? Can they tax e-mail or a portion of Skype [Internet calling] revenue or on the portion of the [Microsoft Inc. online gaming system] Xbox service that allows gamers to communicate back and forth? This jurisdictional push could have much greater impact, not just on VoIP but on streaming video and streaming audio and a host of other applications on the Internet.

The system of telecom taxation is broken. Telecom services is one of the most heavily taxed services in the country and is a regressive tax. It also is a tax that is imposed on entities that have some nexus with a particular jurisdiction.

NT: Is there legislative activity on this?

Wilhelm: I frankly believe that Congress made a smart decision when it passed the Internet tax-free act and it did so because it realized there is a productivity benefit, that access to services should be guaranteed and also that Internet and Internet applications should not be bound by traditional jurisdictions.

That same principle should be put on VoIP, and was in draft legislation by [John] Sununu (R-N.H.) and [Charles] Pickering (R-Ala.) last year. I expect that will be reintroduced this year. There is quite a bit of activity concerning a possible telecom rewrite, and it is indeed possible that some of those bills will get reintroduced.

There is the Stearns Boucher voucher proposal and I won't be surprised if some others are introduced. (The Stearns bill would require the FCC to establish regulatory parity among cable operators, traditional telecom providers and other providers of what it calls "advanced Internet communications services," of which VoIP is one example.)

NT: How did the VoIP community receive those proposals?

Wilhelm: There was quite a favorable reaction. You have to realize that this was at a point in time when we had less clarity than we have now with respect to jurisdictional issues.

The FCC order (claiming federal jurisdiction over VoIP) has been appealed by a number of states, but I am very confident that the order will be upheld. Meanwhile, Congress has the authority to resolve any ambiguity and pass legislation to ensure VoIP services are treated as interstate services. Within the scope of that legislation, I think it would be helpful if they resolve the jurisdictional nature of some of these taxes.

NT: One city asked several VoIP providers for lists of subscribers in their city for the purpose of taxation.

Wilhelm: Unfortunately, there is a bit of a land grab going on here, but over time it doesn't make sense. What the states and municipalities ultimately are trying to do is to extend a taxing authority that was imposed on a specific telecom service that is fixed, not mobile, and to apply it to every mode of Internet communication: first VoIP, then peer-to-peer, then instant messaging, then maybe Xbox, then maybe e-mail. ... In my opinion, many states know that they are stretching the limits of reason, and overall, I'm not sure that it makes policy sense.

The easiest thing to do is abolish the communication tax altogether,  ... but that is politically unpopular, and I suspect that politicians are unwilling to do that though it is easier to apply and to administer.

NT: And for most people, VoIP is something that a privileged group uses.

Wilhelm: Privileged because they don't have access to broadband, which raises the issue of what universal service should apply to. Should it apply to a subsidy for narrowband services or should the system be revised to incent providers or customers to receive or deploy broadband services?

We could shift the subsidy from narrowband to broadband. Another alternative is we could give the subsidy to consumers, so they could use that money to purchase any number of broadband services that might be available to them.

So universal service may mean something different today than it meant in 1934 when the Telecom Act was first enacted. That is a very important consideration for the FCC and Congress.