Wednesday, June 21, 2006

VoIP Telecommunications Services Must Allow Wiretapping by Law Enforcement officials

Companies that provide Web-based telecommunications services must allow wiretapping by law enforcement officials, a federal appeals court ruled yesterday.

The ruling upholds a Federal Communications Commission decision that companies such as Vonage Holdings Corp., the country's largest provider of Internet phone service, are under the same legal obligation as telephone companies. The requirement for a wiretap-compatible system could mean higher expenses for broadband service companies, and it marks the further spread of regulation into Internet phone services.

The FCC issued its ruling based on Justice Department concerns that new technology would not accommodate police wiretaps under the 1994 Communications Assistance for Law Enforcement Act, known as CALEA.

Judge David B. Sentelle, writing for a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit, said that the FCC "offered a reasonable interpretation" of the law.

In dissent, Judge Harry T. Edwards argued the law should not apply to information services such as broadband Internet phone providers.

The law "does not give the FCC unlimited authority to regulate every telecommunications service that might conceivably be used to assist law enforcement," he wrote.

The American Council on Education, worried that the FCC directive would place new costs on university networks, challenged the FCC decision and argued that information services should be exempt from the law.

The court ruled that private networks, such as those at universities, are exempt. Peer-to-peer communications, such as instant messaging programs, are also beyond the law's reach because they communicate between computers.

Matthew A. Brill, a lawyer with Latham & Watkins LLP in Washington who argued the case, said he was disappointed the FCC ruling was upheld but "pleased the court recognized the law exempts private networks, which was one of our goals."

He said he is considering whether to appeal.

The requirement for equipment compatible with government surveillance could "impose significant costs to anyone who wants to install a [commercial] broadband network," said Philip J. Weiser, a professor of law and telecommunications at the University of Colorado.

"Any provider of broadband networks now needs to make accounts wire-tappable," he said. "That's not the way they're engineered and it's certainly not the cheapest way."

Those costs most likely will squeeze company profits rather than be passed on to customers, said Blair Levin, who analyzes telecommunication regulation for Stifel, Nicolaus & Co., a financial services firm.

"The trend is to bring the Internet voice business model into parity with traditional voice business models, and that trend will continue," he said.

Further regulation of Web-based phone services probably will continue as well. Legislation already has passed forcing Internet phone providers to connect emergency calls to local 911 dispatchers, which has been challenged by several providers. The FCC also may require Internet phone companies to pay into a fund for universal telephone service.



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