The Philippine IT Law Journal

Voice Over Internet Protocol (VoIP) is taking the world by storm, not only because it offers a cheaper alternative to the voice calls made through the traditional circuit switches, but because many governments, including the Philippines, do not have a policy in place to deal with this new technology.

Both the National Telecommunications Commission and Congress are currently looking into possible regulatory frameworks for VoIP. The Department of Transportation and Communications as early as Nov. of 2003 directed the National Telecommunications Commission (NTC) to promulgate the necessary implementing rules and regulations and guidelines that will govern the deployment and use of VoIP by businesses and the general public.

More than a year since the DOTC issued the directive, the NTC has yet to come up with the appropriate guidelines. The task is not easy – there are the big telephone companies on the one hand who want exclusive rights to offer VoIP to the public, and there are the Internet service providers and other service providers on the other hand who are pushing for a deregulated approach to VoIP.

The issue however boils down to a determination of the nature of VoIP under Republic Act no. 7925 or the Public Telecommunications Policy Act of 1995 and a resolution of the perplexing question of whether or not there is legal basis to regulate VoIP.

The NTC itself admits that reconciling the interests of government, telecommunications players, new entrants and the general public will not be an easy regulatory task, particularly because VoIP does not fit neatly within the model provided under Philippine law which has traditionally treated voice and data services differently.

“As the Internet becomes available over virtually all technologies and platforms, from traditional fixed copper lines to satellites to mobile phones and to cable, to name just the most obvious, market dynamics are changing faster than laws and rules,” the NTC said.

In a discussion paper circulated recently, the NTC pointed out that in coming up with VoIP guidelines, the commission is guided by two principles. The first is technological neutrality which means that future VoIP regulation, if at all, should neither impose nor discriminate in favor of the use of a particular type of VoIP technology, especially considering that various methods already exist, and indeed, that other methods could still be developed in the near future for accessing a VoIP network. Second is regulatory forebearance. The NTC stressed that it must be careful when deciding whether or not to regulate an emerging technology or service like VoIP. Given what is admittedly a slow pace of regulatory change, telecommunications, or more appropriately, information technology markets, can easily evolve as a result not of technological innovation and economic forces, but of regulation. This possibility is one which the NTC is seeking to avoid.

VoIP in a nutshell

The NTC in its paper defines VoIP as a generic term that refers to all types of voice communication using Internet protocol (IP) technology, instead of traditional circuit switched technology. This includes use of packet technologies by telecommunications companies to carry voice at the core of their networks in ways that are not controlled by or apparent to end users.

It basically enables users from different parts of the world to engage in voice conversations, even long distance ones, without having to pass through part or all of the telecommunications facilities. Using VoIP, a person could engage in international voice conversations without having to pass through – and pay for the use of - the international gateway facilities of telephone companies who charge much higher fees for the use of their networks.

Internet telephony, on the other hand, is a specialized form of VoIP in which a regular voice telephone call is transmitted via the public Internet, thus bypassing all or part of the public switched telephone network (PSTN). Internet telephony can occur between computers, between a computer and a phone, and between phones.

Legal and regulatory framework

According to NTC commissioner Ronald Solis, whether or not VoIP should be regulated and who should be allowed to offer it would largely depend on the determination of its classification either as a basic telecommunications service or a value-added service (or enhanced service). And Secretary Virgilio Pena, head of the newly created Commission on Information Communications and Technology (CICT) to which the NTC is now an attached agency, believes that any set of rules that will ultimately govern VoIP should be in consonance with RA 7925, particularly on what constitutes basic service and VAS.

There is no question that duly enfranchised public telecommunications entities (PTEs) can and are allowed, under law, to offer VoIP to the public. But in the context of converging technologies and services, it is now also possible for other non-PTE entities such as cable companies and ISPs to also offer VoIP services to subscribers and the general public.

RA 7925, defines ‘telecommunications’ as any process which enables a telecommunications entity to relay and receive voice, data, electronic messages, written or printed matter, fixed or moving pictures, words, music or visible or audible signs or any control signals of any design and for any purpose by wire, radio, or other electronic, spectral, optical or technological means.

Only PTEs, defined as any person, firm, partnership or corporation, government or private, engaged in the provision of telecommunications services to the public for compensation may provide basic telecommunications services.RA 7925 also requires all persons or entities intending to commence or conduct the business of being a PTE to first obtain a legislative franchise, and to apply for a Certificate of Public Convenience and Necessity (CPCN) from the NTC to engage in a particular telecommunications service. In the latter case, it must show that it has the legal, financial and technical fitness to operate the service.

Under the current legal regime, Internet Service Providers (ISPs) are not considered as PTEs. They are categorized as value added service (VAS) Providers, defined under RA 7925 as (entities) which, relying on the transmission, switching, and local distribution of facilities of the local exchange and inter-exchange operators, and overseas carriers, offer enhanced services beyond those ordinarily provided by such carriers.

Unlike PTEs, VAS providers cannot put up their own networks, although they are not required to obtain their own franchise. They are merely required to register with the NTC.

The nature of VoIP

In this context, the NTC said that the main legal question that it must resolve pertains to the legal nature of VoIP – whether it should be considered as a ‘telecommunications service,’ or as a ‘value added service.’

The question is crucial because if VoIP is classified a value-added or enhanced service, then there would virtually be no legal restrictions on ISPs and potential providers other than PTEs to offer VoIP as a separate and distinct service for compensation to the public.

But if VoIP is deemed to be a telecommunications service, on the other hand, ISPs and potential providers other than duly enfranchised and authorized PTEs can be allowed to offer VoIP for compensation, but only by entering into separate agreements with duly enfranchised PTEs.

Approaches of Other Jurisdictions

The legal classification of VoIP is a regulatory puzzle that is not unique to the Philippines.

In the United States, Minnesota, New York and Wisconsin have all found VoIP to be subject to state telecommunications regulation to some degree. Minnesota in 2003 ruled that Vonage’s VoIP offering is a “telecommunications service” and that accordingly, Vonage should comply with all state telecom regulations. New York found that a VoIP provider was subject to access charges. And Wisconsin requested VoIP providers to file an application for authority to provide telecom services within the state. In contrast, Florida passed legislation largely exempting VoIP services from regulation, but that legislation did not address the applicability of access charges to VoIP offerings.

Canada, meanwhile, makes a distinction between Internet data applications, which are free from regulation, and Internet applications that provide an alternative to public switched voice services, which are regulated. IP telephony between telephones, therefore, is subject to regulation. IP telephony service providers are treated like any other telephony service providers and must contribute to universal service funds, but only if the service they provide is between telephones.

In India, VoIP is allowed, but only for communications from computer to computer while Vietnam allows outbound Internet-based calls from computer to computer, and from computer to telephone, but prohibits inbound Internet phone calls.

The European Commission as taken the position that Internet voice services do not constitute voice telephony unless: they are offered commercially and separately to the public as voice services; they are provided to and from PSTN termination points; and, they are offered in real time at the same level of speech quality and reliability as offered by the PSTN.

The EU presently holds that VoIP does not fit the definition of telecommunications because it does not involve direct speech transport in real time. However, recent improvements in the quality of service and the growth of the European VoIP market could eventually induce the EC to review its position.

The NTC has laid down several issues that will have to be resolved in order that it may be properly guided in coming up with an acceptable and viable regulatory framework for VoIP. Among these are:

Congress looks into VoIP

The House committee on information and communication technology has formed a technical working group to resolve the long standing debate on who may deploy VoIP services in the Philippines.

Committee Chairman and former NTC commissioner Simeon Kintanar said that the working group would consolidate two bills filed in relation to VoIP into one bill.

The dispute, he said, centers on whether VoIP services should be considered voice traffic or a value-added service. Considering VoIP as voice traffic would mean that only telecommunications companies with a congressional franchise to carry phone calls could offer commercial VoIP services.

He pointed out that the differing interpretations of RA 7925 could be resolved by amending the law. An amendment would supersede any guidelines issued by the NTC.

Telcos speak out

The Philippine Chamber of Telecommunications Operators, whose members include the Philippine Long Distance Co. (PLDT), Globe Telecom, Smart Communications Inc., Bayan Telecommunications Inc., Digital Telecommunications Phils. Inc., want VOIP regulated.

They argued that VOIP cannot be classified as a value-added service (VAS) simply because VOIP is marketed as a telephone service, a service which is already being offered by existing carriers who have complied with the law to put up at least four million fixed lines before they were allowed to operate.

“The reality is that VOIP is marketed as a telephone service, that is, a person using a telephone set can talk over the system to another person at the other end using a telephone set. That is why it is aptly called Internet Telephony. And telephony is voice service…The moment a VAS provider offers voice service to the public in exchange for compensation, such would be a clear violation of law, absent compliance with the clear statutory requirements,” PCTO head and Globe senior vice president Rodolfo Salalima said.

He pointed out that if the NTC allows VOIP operators to operate freely, without having to comply with the service area scheme, then they would be riding piggy-bank on the same networks constructed by existing carriers who have spent billions of pesos to put up the necessary infrastructures.

“To remove this constitutionally mandated rules would be wholly disadvantageous to those entities which went through the mandated process, and they would have no chance in competing with a new breed which will not be regulated and not required to pay the numerous taxes and regulatory fees to which PTEs now are subjected. It would be not fair for the government now, after requiring the huge investments, to just say let another alternative voice service take over because it costs less. This alternative service appears to cost less because it will ride parasite-like on existing infrastructure at very minimal expense,” Salalima added.

But ISPs say otherwise

The Philippine Internet Services Organization (PISO) maintains that as a product of Internet technology and as one which uses the Internet Protocol instead of relying on the traditional switching mechanism to exist, VoIP is clearly not a traditional telecommunication services but an enhanced service and therefore a value-added-service.

It stresses that the general public should be allowed to use VoIP, in all its forms. PISO has supported the clamor for a set of rules that will govern VoIP because according to its ISP members, because of the uncertainty, incumbent telephone operators are the only ones benefiting from the technology. The NTC, it said, should allow Internet-based services to develop in an environment of minimal regulation.

In a position paper submitted to the NTC, the group added that it is incorrect to state that telecommunication companies will be threatened by unfair competition by VAS providers especially since providers like ISPs and (hopefully) VOIP providers, will always use an incumbent telecommunication operator for its infrastructure.