VOICE OVER INTERNET PROTOCOL (VOIP) SERVICES: CANTO’S RECOMMENDATIONS FOR THE CARRIBEAN REGION

1. VOICE OVER INTERNET PROTOCOL (VOIP) SERVICES:CANTO’S RECOMMENDATIONS FOR THE CARRIBEAN REGION Presented at CANTO 23rd Annual Telecommunications Conference And Trade Exhibition St. Michael, Barbados June 24th – 27th, 2007 By Robert J. Aamoth Chairman, Telecommunications Practice Group Kelley Drye & Warren LLP 3050 K Street, N.W., Suite 400 Washington, D.C. 20007 202-342-8620 fax 202-342-8451 raamoth@kelleydrye.com

2. I. CANTO IS PREPARING GUIDELINES FOR REGULATING VOIP SERVICES IN THE CARIBBEAN A. THE PROBLEM – An uncertain and insufficient VoIP regulatory environment today. B. THE OBJECTIVE – To ensure that VoIP regulation stems from informed policy choices to promote the public interest.

3. II. WHAT ARE THE BENEFITS OF THE VOIP GUIDELINES? A. Protect public health and safety. B. Protect consumers. C. Promote universal service. D. Ensure level playing field for all competitors. E. Promote accountability. F. Promote efficient infrastructure investment and development. G. Stimulate active discussion of VoIP legal and policy issues.

4. III. WHAT ARE THE VOIP GUIDELINES NOT DESIGNED TO DO? A. Promote a one-size-fits-all solution for VoIP regulation. B. Eliminate the ability of each country to tailor regulations to their own unique situation. C. Create barriers to entry. D. Penalize VoIP providers. E. Prohibit Internet telephony.

5. IV. THE US EXPERIENCE – FROM LAISSEZ FAIRE TO INFORMED DECISION-MAKING A. The US regime for VoIP regulation need not be a model, but lessons can be learned from the US experience. B. The early years – New entry based on industry expectations of no regulation, no social obligations, and artificial cost disparities. i. No Federal or State licensing ii. No universal service obligations iii. No access charge payments iv. No regulatory compliance costs C. IP-based telephony was not perceived to fit neatly into the existing US legal paradigm of regulated telephone services and unregulated information services.

6. IV. THE US EXPERIENCE – FROM LAISSEZ FAIRE TO INFORMED DECISION-MAKING (CONTINUED) D. The FCC avoided clarifying the situation for many years. i. Avoid risk of chilling new entry and technological innovation. ii. Uncertain market consequences of imposing regulations. iii. Political sensitivities – “regulating the Internet.”

7. IV. THE US EXPERIENCE – FROM LAISSEZ FAIRE TO INFORMED DECISION-MAKING (CONTINUED) E. The FCC adopted a measured, step-by-step approach to clarifying the regulatory status of IP-based services. i. February, 2004 – Free World Dial-Up Service is not regulated. ii. April, 2004 – AT&T’s “IP-in-the-middle” service is a regulated LD service. iii. February, 2005 – AT&T’s IP-based calling card service is a regulated service. iv. June, 2005 – VoIP providers must comply with E911 rules. v. October, 2005 – VoIP providers must comply with CALEA. vi. June, 2006 – All prepaid card services are regulated telephone services. vii. June, 2006 – VoIP providers must pay universal service contributions. viii. April, 2007 – FCC extends CPNI rules to VoIP providers. ix. May, 2007 – VoIP providers must comply with disabled access rules. x. May, 2007 – Proposed automatic location E911 rules for nomadic VoIP.

8. IV. THE US EXPERIENCE – FROM LAISSEZ FAIRE TO INFORMED DECISION-MAKING (CONTINUED) F. Who has jurisdiction over VoIP? One step forward . . . i. November, 2004 – FCC holds that Vonage service is Federal and not subject to regulation by State commissions. ii. June, 2006 – FCC suggests that State commissions may have jurisdiction where VoIP call end-points are known. iii. Numerous states have imposed or proposed regulations for VoIP providers.

9. IV. THE US EXPERIENCE – FROM LAISSEZ FAIRE TO INFORMED DECISION-MAKING (CONTINUED) G. Some issues are still unresolved. i. The FCC has not clarified whether VoIP providers are regulated telcos or unregulated information service providers. ii. The FCC has not clarified whether VoIP providers must pay access charges to incumbent local operators for terminating LD calls. iii. Current FCC preference – If allowed by law to choose, the FCC will impose a “like” regulatory regime on what it perceives to be “like” service providers in order to promote the US public interest.

10. V. WHAT ARE THE CURRENT GUIDELINES PREPARED BY CANTO? A. These Guidelines have been established by CANTO pursuant to an ongoing process. i. All CANTO members have the right to participate. ii. The Guidelines do not necessarily reflect the views of any single CANTO member. B. The Guidelines must balance competing considerations. i. They must be detailed enough to provide real guidance to the Governments of CANTO members. ii. They must be detailed enough to have a visible nexus to meaningful policy objectives. iii. They must not be so detailed as to prevent a Government from tailoring a solution for its own country. iv. They must not be so detailed as to constitute a code or model legislation.

11. GUIDELINE NUMBER TWO “2. A Government which currently directly or indirectly restricts some or all VoIP services and applications should not relax or remove such restrictions without first ensuring that the current legal and contractual rights of all parties are fully recognized and satisfied.” -- This is an important first principle – These Guidelines apply only where a Government has already made the decision to authorize Internet telephony as a legal and policy matter. -- If authorizing VoIP would interfere with a party’s existing legal or contractual rights, those rights should be fully respected and satisfied before VoIP entry is authorized.

12. GUIDELINE NUMBER THREE “3. The Government shall adopt laws requiring all providers of VoIP services and applications (either wholesale or retail) to one or more customers in the country to apply for and obtain an appropriate license before commencing VoIP service. Each provider should be required to provide certain minimum information regarding the company, its location and offices, its capital structure and financial qualifications, its ownership, its operations, its services, service quality, network, and 24/7 contact information.” -- CANTO believes mandatory licensing is a key principle. -- Many CANTO members are small and/or island countries, which they believe makes them vulnerable to unknown companies providing VoIP services from outside the country on a hit-and-run basis without any accountability and without making any contribution to the social and economic welfare of the country.

13. GUIDELINE NUMBER FOUR “4. The licensing and taxation regimes applicable to VoIP providers should be non-discriminatory when compared to the legal and regulatory regime governing non-VoIP providers of similar or equivalent services or applications.” -- This Guideline reflects CANTO’s endorsement of the non-discrimination principle. The goal is fairness and a level playing field – no party should have an unjustified advantage over another party. -- Note that this Guideline extends to both licensing and taxation.

14. GUIDELINE NUMBER FIVE “5. At a minimum, the Government should adopt laws requiring each licensed VoIP provider to have a bona fide local business presence and to accept service of process at such location or through another designated and accessible local entity.” -- This Guideline reflects CANTO’s belief that all regulated carriers should be accountable and accessible. If a VoIP provider wants to provide telephone service in a country, it should establish a legitimate business presence in that country. -- Note that this is considered by CANTO to be a minimum requirement, not a maximum.

15. GUIDELINE NUMBER SIX “6. The Government should adopt laws stating that a person or entity directly or indirectly providing VoIP services in the jurisdiction without fully complying with all licensing and related requirements is thereby deemed to consent to accept service of process within the jurisdiction and to be subject to the judicial system within the jurisdiction.” -- This Guideline also promotes accountability. It is directed at VoIP providers who knowingly decide to provide service in a country without complying with local laws and regulations. -- The purpose is to ensure that these providers can be held accountable through the local judicial system for any harm they cause to consumers, competitors, or others through violations of local laws and regulations.

16. GUIDELINE NUMBER SEVEN “7. A licensed operator providing a broadband connection to a customer shall be entitled to shut down such broadband connection, either by port blocking or otherwise, in the event the customer takes service from a VoIP provider which does not comply with all licensing and related requirements in the jurisdiction. This ensures that the licensed operator is not disadvantaged by its network being used for no charge.” -- Again, this Guideline is intended to enable law-abiding operators to take steps to minimize the harm they suffer at the hands of VoIP providers who choose not to comply with local laws. -- It also reflects CANTO’s desire to minimize the incentive for a VoIP provider to flout local laws by limiting the provider’s ability to benefit from doing so.

17. GUIDELINE NUMBER EIGHT “8. The providers of local telephone services whose networks are being used to convey VoIP traffic should not be restricted from undertaking network management activities to promote efficient bandwidth usage by customers while removing incentives for users to engage in bandwidth usage which was not reasonably contemplated by the local operator’s rate plans and applicable cost recovery mechanisms in the jurisdiction.” -- CANTO intends this Guideline to enable existing operators to take reasonable steps to protect themselves against increased costs from VoIP services or against VoIP customers taking unfair advantage of perceived loopholes or limitations in an existing operator’s rate plans.

18. GUIDELINE NUMBER NINE “9. A person providing only VoIP services may also be required to make a contribution to universal service within the jurisdiction in a non-discriminatory manner when compared to other providers of similar or equivalent service. It is expected that fixed and mobile providers would already be required to make contributions to the universal service fund.” -- CANTO believes that universal service is an important social objective, and that all providers of telephone services should participate on a non-discriminatory basis. -- CANTO also believes this provision will ensure that the competitive playing field remains level by ensuring that VoIP providers do not receive an unjustified cost advantage.

19. GUIDELINE NUMBER TEN “10. The Government should adopt laws making it a misdemeanor criminal offence to provide VoIP services or applications in the jurisdiction without complying with all licensing and related requirements.” -- CANTO feels this Guideline is an appropriate recognition of the importance of these laws and policies for promoting public health, public safety, and efficient competition. -- CANTO also believes this provision is necessary to reduce whatever incentives may exist for a VoIP provider to provide services while ignoring local laws and policies based on a perception that it can successfully avoid the consequences of its violations.

20. GUIDELINE NUMBER ELEVEN “11. Each VoIP provider should be required to coordinate with national law enforcement authorities to ensure that such authorities are able to enforce the laws of the jurisdiction.” -- This Guideline is intended to promote public safety, as well as embody the general principle of non- discrimination.

21. GUIDELINE NUMBER TWELVE “12. The Government should establish a unique block of telephone numbers for assignment to VoIP users so that all parties can easily distinguish VoIP calls from all other types of traffic, and VoIP providers should port numbers to competing carriers consistent with the porting requirements of the country.” -- CANTO supports this Guideline as a reasonable measure for network management and administrability, as well as the general principle of non-discrimination.

22. GUIDELINE NUMBER THIRTEEN “13. Each VoIP provider shall be required to offer an emergency voice calling service capability for all customers in the jurisdiction that is reasonably equivalent in quality and reliability to the emergency voice calling capability offered by the incumbent local telephone operator.” -- CANTO believes this is an important public safety requirement. -- This Guideline is intended to ensure that all VoIP customers have emergency calling capabilities, and that such capabilities are adequate. -- This Guideline also is intended to embody the non- discrimination principle between providers of “like” communications services.

23. GUIDELINE NUMBER FOURTEEN “14. Each VoIP provider should be required to comply with all local consumer protection laws, including provisions in the local operator’s license, and to provide appropriate disclosures to customers regarding the potential effect of power loss on the availability of VoIP services.” -- This is a fairly self-explanatory Guideline intended to protect consumers.

24. GUIDELINE NUMBER FIFTEEN “15. Each VoIP provider should be required to offer its customers termination on all licensed networks in the jurisdiction.” -- CANTO believes this Guideline is necessary to preserve the current scope of calling accessibility in most countries. -- It promotes consumer interests by ensuring that consumers are not surprised or harmed by being unable to call other persons in the country.

25. GUIDELINE NUMBER SIXTEEN “16. The Government should adopt laws granting to licensed operators a private right of action against any VoIP operator which does not comply with all licensing and related requirements in the jurisdiction. Such licensed operators shall be entitled to enhanced damages for the harm caused by such a VoIP provider, including without limitation lost revenues, stranded investment, bandwidth usage and congestion, network management costs, or other increased costs. Licensed operators should be permitted to rely upon any reasonable methodology for estimating damages.” -- CANTO believes this is a key provision to protect law-abiding licensed operators from being harmed by VoIP providers who inflict damage while failing to comply with applicable local laws and rules. -- This Guideline is intended to ensure that licensed operators are not dependent on the Government’s resources, or willingness to allocate those resources, to recover reasonable damages for unlawful activities by unlicensed operators. -- Note that this Guideline supports enhanced damages to establish a strong disincentive for entities to provide VoIP services unlawfully in a country.

26. GUIDELINE NUMBER SEVENTEEN “17. Each VoIP provider should be required to post a bond with the National Licensing Agency in an amount sufficient to cover reasonably expected claims by customers for refunds, overcharges, or inferior service should the VoIP provider refuse to grant appropriate remedies or cease providing service without satisfying such claims.” -- CANTO intends this Guideline to protect against the possibility of hit-and-run VoIP providers who exit the country quickly without providing adequate compensation or remedies for consumers they may have harmed.

27. GUIDELINE NUMBER EIGHTEEN “18. In any case where a VoIP provider is reselling or rebilling VoIP services provided by another entity, or providing VoIP services in partnership with another entity, all such VoIP providers shall be independently subject to these requirements.” -- This Guideline is intended to ensure that an entity cannot evade a Government’s VoIP regime through corporate maneuvers or by hiding behind another (poorly financed) entity. -- CANTO believes this is a key Guideline to ensure accountability and compliance.