Voice over the Internet (VoIP) – the regulatory landscape

16 February 2005

Gill Andrews, Richard Eccles

The advent of voice over the internet (“VoIP”), long heralded, is now transforming the telecommunications industry. Not only can it be used in a variety of ways to enable low cost voice transmissions across the internet, it facilitates convergence of voice, data, e-mail and video on an IP network, all of which services can be readily integrated into a multi-media package. This in turn enables a reduction in the number and types of equipment and more efficient use of the available bandwidth on broadband networks. Moreover, VoIP involves voice being treated as another data application, which in turn has significant regulatory consequences.

Guidelines on the regulatory treatment of VoIP services are expected in the near future by the European Commission. Meanwhile, however, the Commission has published a Consultation Document on “The Treatment of Voice over Internet Protocol (VoIP) under the EU Regulatory Framework, dated 14 June 2004 (the Commission’s “Consultation Document”).

One of the most interesting aspects of this convergence (at least for lawyers and regulators) is that it is taking place between a traditionally unregulated, anarchic phenomenon (the internet) and one of the most regulated industries on the planet, with its roots in the national provision of a core infrastructure. This article looks at the impact of European communications regulation on VoIP operations.

What is VoIP?

VoIP (also known as “IP telephony” or “internet telephony”) is using the internet, instead of the public telecommunications network, for voice telephone calls. This can be done in a number of ways, for example:

  • Using Free Software: There are very many applications which can be downloaded from the web. Equipped with a PC headset, once the (normally free) software has been downloaded, it is possible to use the internet to call anyone else who has downloaded the same software. The charge is whatever you pay for internet calls (free if you pay a flat monthly charge.) However, it is only possible to call people who also have the same software, and can only speak with them if their PC is switched on.

  • With Public Network Connection: Many companies now also offer a connection from the VoIP service to the public telephone network, enabling callers to use the internet to call anyone with a phone. This requires an analogue to digital converter or an IP telephone and uses a service provider node to access the internet and a service provider gateway to interconnect with the PSTN for onward access to PC and telephone terminals. It is also possible to combine DSL or cable networks for initial access, linked through a node to a private IP network and then through a gateway to the PSTN.
  • Private Circuits: Use of the internet for internal calls within a company. One advantage of this “corporate VoIP” is that there is no need for a separate IT infrastructure and telephone system. VoIP used in this way can also enable integrated corporate management and information systems to be implemented, for example, integrating fax, email, telephone, mobile, text message, instant messaging and presence management systems. “Corporate VoIP” involves an access from IP phones via an IP-PBX to a private IP network and then through a gateway to the PSTN or through an IP-PBX to IP phones.
  • Internal use by Communications Operators: For several years, communications companies have used VoIP within their internal networks to avoid high cost international interconnect charging regimes. In using these data networks, operators should be able to use network management systems that can monitor, control and maintain a much higher level of service to the outer limits of the network, when compared to traditional voice networks.

Why now?

First, the level of take-up of domestic broadband is gathering pace. Many domestic users have always-on internet, or pay a flat monthly charge for their internet access, making the per-call incremental cost of internet traffic nil. Second, many businesses which had been delaying telecoms capital investment, are now beginning to spend. The capital goods cycle is starting to generate increased orders for new enterprise switching systems (PBX etc), as corporates examine their communications arrangements, and look for cheaper or enhanced options. And the voice quality, though still variable, is often now at least as good as the “normal” public telephone network.


With VoIP, voice is now just another data application on an IP network, alongside, for example, video, e-mail, the domain name services and http-internet access. The type of network will no longer dictate the type of service involved, as voice converges with a host of other media applications and devices in a VoIP environment, with simplified architecture and a single network supporting voice, data and video. In this way, VoIP also enables a reduction in the number and types of equipment, more efficient use of available bandwidth (broadband) and the possibility to provide customised services.

Applying telephony regulation to VoIP

From a policy perspective, one could take the view that end-users should have the same legal and regulatory rights, whether they take their telephony services from a traditional telecommunications operator, or using VoIP. Consumers are generally interested in quality and cost of services, not the technical means by which service is provided. Why should they know or care that the service is VoIP rather than traditional telephony?

Where a VoIP offering merely comprises the provision of a software programme with no ongoing service provision, this is not within the scope of the EU electronic communications regulatory regime. Corporate private networks are within the EU regulatory framework but there are not specific obligations addressed to private networks.

Publicly available VoIP services do, however, fall under the EU regulatory framework where there is access to and from telephone numbers allocated under the international telephone numbering plan (in Recommendation E.164 of the ITU).

VoIP services will be regulated in the same way as other telephony services if they are regarded as a Publicly Available Telephony Service (PATS), under the EU regulatory regime. The EU Universal Service Directive[1] defines PATS as -

a service available to the public for originating and receiving national and international calls and access to emergency services …

It should be noted that the different Member States of the European Union have some flexibility as to how to implement the Universal Service Directive. This Article considers the Directive itself, rather than the different national implementing regulations. In addition, the Universal Service Directive does impose additional obligations on operators with significant market power, and on those which have been designated as universal service providers. These are not addressed in this article as they are unlikely to be relevant to most VoIP operations.

Is VoIP a Publicly Available Telephony Service (PATS)?

VoIP will only be PATS, if it involves a “service”. In the case of software available for download from the internet, there is probably no actual service (and therefore no PATS). All the provider is doing is making software available.

Equally VoIP would seem not to be PATS if only outgoing (or only incoming) calls are provided for.

However, where the VoIP is publicly available, allows calls to be both made and received, and includes break-out to the public network (thus allowing calls to any phone, not just to computers loaded with the same software), then this resembles a service. But whether or not this will then be regulated as “PATS” depends on the interpretation of the PATS definition on the subject of calls to emergency services.

  • Calls to emergency services

The Universal Service Directive requires that “all end-users of PATS … are able to call the emergency services …” using the single European emergency call number ‘112,’ in addition to any national emergency numbers (such as ‘999’ in the UK).[2]

However, the definition of PATS is problematic here. We can read the definition of PATS to mean that any operator which does not provide access to the emergency services is (by definition) not providing PATS. If this is the correct interpretation, then the obligation on PATS operators to provide emergency service access becomes rather circular, in that the question of whether an operator is obliged to provide emergency service access (as well as the other obligations imposed non PATS providers) depends on whether it is already providing that emergency service access.

From a practical point of view, this PATS definition would suggest that suppliers should think carefully before including emergency services access within their VoIP offering. By doing so, they could be taking on the various PATS obligations outlined in this article. From a policy point of view, this disincentive to provide emergency services access is surely not desirable. In the UK, Ofcom has recognised this in its consultation and interim guidance document “New Voice Services” of September 2004. This sets out an interim position pending further clarification from the European Commission, that VoIP services will be permitted to offer access to the “999” emergency services number without having to meet all the obligations of PATS. This is so as to avoid new services entering the market being discouraged from offering 999 access due to a requirement to comply with all the regulatory conditions associated with PATS.

The European Commission’s Consultation Document proposes that national regulatory authorities could require suppliers of VoIP services that include access to the public telephone network, to give precise information to customers on how the VoIP supplier deals with access to emergency services and caller location. Such information should be provided in the customer contract drawn up in accordance with Article 20 of the Universal Service Directive 2002/22. The Commission’s Consultation Document further recommends that market players offering VoIP-based services should devise and rapidly implement operational solutions for the effective handling of calls to emergency services.

  • Obligations on PATS operators

These include:

  • Maintaining network integrity:[3] All suppliers that provide PATS “at fixed locations” must take all reasonable steps to ensure uninterrupted access to emergency services in the event of catastrophic network breakdown or force majeure. This “fixed location” exception was introduced for mobile operators, but it is unclear whether it also applies to VoIP operations. VoIP callers can access the internet from public wireless LAN (WiFi) hotspots, as well as from home. Does this mean that VoIP is not provided “at fixed locations”? If this network integrity obligation does apply to VoIP, it is not at all clear what “reasonable steps” might consist of, in the case of the internet.

The European Commission’s Consultation Document refers to in-line powering of terminals, which has traditionally been provided on PSTNs to ensure that a basic telephone terminal will continue to function in the event of electricity power failure. The Consultation Document states that in-line powering of terminals is not specifically required under EU law, but that some Member States impose such obligations on network operators. These obligations could in some instances apply to VoIP based telephone services. As a result, the Commission encourages Member States to review any legal obligations imposed in this area and to consider adapting them where necessary in the light of technological or market developments. The Commission also proposes that NRAs could require suppliers of VoIP services that include access to the public telephone network to inform their customers about the impact of power failures on their service, and how this differs from traditional telephone services.

    • Customer contracts:[4] Any supplier whose services include connection or access to the public telephone network (even if not PATS) must publish certain prescribed information regarding the service offered, contract terms, charges and any available dispute resolution mechanisms. Customers must be given at least one month’s notice of changes to their contracts, and the right to withdraw without penalty, if they do not accept the changes.

    • Number portability: PATS suppliers must offer number portability to their customers.[5] (Although it is of course possible for a VoIP operator that only offered outgoing calls to operate without telephone numbers). Since only PATS subscribers have the right to port numbers from one PATS supplier to another, it is advantageous for a services provider to have a declaration from its national regulatory authority that it is providing a PATS service.
    • Directories and directory enquiries: PATS customers must be able to be included in a telephone directory and in a directory enquiries service. They must also have access to a directory enquiries service and to operator assistance.[6]
    • Lawful interception: PATS suppliers (as providers of electronic communications services) can be obliged to allow interception of calls by competent national authorities. The application of this to VoIP raises a number of difficult practical issues.[7]
    • Out-of-court dispute resolution: PATS customers must have access to transparent, simple, and inexpensive out-of-court dispute resolution procedures.[8]

These regulatory obligations may seem strange to companies used to working in the internet world. But companies providing VoIP services will need to familiarise themselves with telephony regulation, as they take advantage of the opportunities now becoming available to them.

Pricing and interconnection

VoIP will invoke challenges to current charging models for interconnection both with fixed (PSTN) networks and mobile networks. In particular, VoIP could result in a move to capacity-based interconnection charging models, because usage related networks charging elements, in “pence per minute” may be too small to be cost effective or sustainable. Similar considerations apply to interconnection with mobile networks in relation to the termination of traffic on their networks. Arguably the adaptation of the appropriate new business models and charging mechanisms should be left to market operators, and should not be dictated in advance by regulators.

Most importantly, as regards interconnection between VoIP and mobile networks, VoIP calls will be treated as data; VoIP services are terminated as IP traffic on mobile networks and are part of the emerging mobile data services market. As such, the services, or at least the relevant call termination charges, are not (as yet) regulated in the way that normal voice services which are terminated on mobiles are subject to mobile termination access fees (in which respect each individual mobile network operator’s network is treated as a separate market for competition regulatory purposes). Mobile termination access fees with regard to VoIP services can therefore be determined only on the basis of free commercial negotiations with mobile network operators. The results of such negotiations on interconnection (termination) charges will be the primary factor determining the cost of using VoIP for calls to mobiles.

Interconnection with the PSTN is regulated pursuant to the EC Access and Interconnection Directive[9]. By contrast, direct interconnection between IP networks is not subject to regulation and is realised via commercial peering arrangements between internet service providers. The European Commission’s Consultation Document states that where problems of technical non-interoperability between networks occur, these are best resolved by the parties involved, with any dispute being referred to the national regulatory authority for resolution under the procedures set out in Article 20 of the Framework Directive[10]. Ultimately, national regulatory authorities can impose obligations on undertakings that control access to end users, to the extent necessary to ensure end-to-end connectivity, under Article 5 of the Access and Interconnection Directive. In particular, this requires[11] that national regulatory authorities be empowered to intervene in the absence of agreement between undertakings, in order to ensure access and interconnection. It would appear that this provision could be invoked to achieve interoperability of a VoIP network with, for example, the PSTN, subject to the requirements[12] that any such intervention should promote efficiency, sustainable competition and benefits to end users.


VoIP will accelerate the convergence of voice, data, e-mail and video services and a rationalisation of end user equipment, and will enable greater scope for developing customised services to meet end users’ own personal communications needs. The fact that VoIP services are terminated as data rather than voice results in significant changes in the way charges will be made for such calls. In particular, interconnection charging rates will probably need to be resolved due to the fact that VoIP calls, being treated as data, are outside the regulated voice call termination charging system, which is operated on a network-by-network basis. It is also possible that the development of VoIP will result in a move to capacity-based charging rather than the present usage-based system of charges for voice calls.

[1] Directive 2002/22/EC of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services.

[2] Universal Service Directive, Article 26.

[3] Universal Service Directive, Article 23.

[4] EU Universal Service Directive, Articles 20 and 21.

[5] EU Universal Service Directive, Article 20.

[6] EU Universal Service Directive, Articles 5 and 20.

[7] Annex to the Authorisation Directive (2002/20/EC)

[8] EU Universal Service Directive, Article 34.

[9] Directive 2002/19

[10] Directive 2002/21

[11] Article 5(4)

[12] Article 5(1)