Regulating Skype the hard way

The French regulator ARCEP’s recent move to report Skype to the public prosecutor in Paris is its latest attempt to get the VoIP provider to declare itself an electronic communications operator. However, its efforts have not prevented Skype from operating in the country so far. The French case is an example of the uncertainty that surrounds the definition and regulation of VoIP services.

VoIP is exercising increasing pressure on voice revenues, and providers of these services should expect to be regulated in the same way as traditional telephony, at least for the next few years. Regulators should provide more clarity in the way electronic communications services are defined, and simplify and standardise the framework where possible.

It’s more than likely that the high uptake of VoIP may have encouraged the French regulator to intervene. Its decision to inform the public prosecutor in Paris of a potential criminal offence signals its intention to not let up on getting Skype to declare itself an electronic communications operator. The regulator initiated legal proceedings in 2007, but these could not be completed when Skype moved all its operations in Europe to a single location in Luxembourg. This left them in a state of judicial limbo. ARCEP maintained that although an electronic communications operator needs no administrative approval to start its operations, it must comply with obligations such as providing access to emergency services and carrying out legally ordered interceptions. Skype has so far failed to do so, and states that in its view it is not required to.

A victim of its own popularity

The regulator’s attempts, however, have not prevented Skype from operating in France. The service’s popularity in the country may have encouraged ARCEP to again pursue its compliance with the CPCE. Although it is one of the most mature markets, the French telecoms sector keeps showing signs of strengthened competition across fixed telephony and broadband, where VoIP is increasingly being taken up instead of traditional voice services.

VoIP calling traffic continues to increase steadily, and now accounts for approximately two-thirds of traffic originating on fixed networks. ARCEP has stated that it has asked Skype repeatedly to declare itself an electronic communications operator; the firm has so far failed to oblige, maintaining that it is not a provider of electronic communications services under French law.

Regulating VOIP across the globe

Despite its increasing adoption all over the world, VoIP is still a relatively recent development in telecoms, and this is reflected in the inconsistencies in global regulatory environments. In our recent report The Regulation of VoIP Services Ovum found that regulators have had a hard time classifying VoIP, mainly because it can be seen as both a technology and a service. For example, under the current EU framework the treatment of VoIP has largely been left to national regulators, despite the recent attempt to reach a common position. The slow progress toward a common treatment in the EU may slow the deployment of VoIP because providers must come to terms with the different regulatory environments. Certainly VoIP is one area where a harmonised approach is desirable, and we expect such an approach to be established as telephony services gradually migrate toward VoIP technology.

For the moment, the approach adopted in the UK, which defines four different types of VoIP, is a good starting point for an agency looking to create a framework for the regulation of VoIP. However, few regulators have followed Ofcom’s example so far. Australia has adopted a system identical to that of the UK to classify VoIP, but other examples show the considerable confusion on the issue. In Mexico, for instance, VoIP has been treated like any other telephony service, yet this has not prevented OTT providers such as Skype from operating in the country.

Is Skype an electronic communications provider?

There is no doubt that VoIP services are increasingly likely to face the same regulation as traditional telephony. The impact of VoIP on fixed voice revenues has already been significant, and will only increase in the years leading up to 2020. In our report The Future of Voice Ovum predicted that from 2012 to 2020 VoIP will cost the global telecoms industry $479 billion in lost cumulative revenues. VoIP providers whose services replicate traditional telephony based on the PSTN should expect to be regulated in the same fashion and be subject to similar obligations as traditional operators.

The increase in the uptake of VoIP services shows that users consider it more and more a substitute for narrowband voice services. As such they are likely to expect access to the emergency services and other features that they actually cannot currently use on most VoIP platforms. A more equal regulatory treatment would also help ease some of the concerns of the established operators, which are suffering from customers switching from traditional voice to VoIP.

Regulators must resolve the dilemma that seems to be the basis of the conflict between Skype and ARCEP: whether or not a player such as Skype can be defined as an electronic communications provider. The EC’s Directive of 2002 defines “electronic communications services” as those consisting in the conveyance of signals on electronic communications networks, but excludes services providing content transmitted using electronic communications networks and services. The regulatory framework in EU countries stems from directives issued by the EC; the commission should consider further intervention to provide a better definition that removes any uncertainty.

Luca Schiavoni is an analyst in Ovum’s regulatory advisory service. He is responsible for benchmarking interconnection and tracking regulatory developments across countries.