Earlier this month, Vonage, a Voice-over-IP company, complained to the FCC that a North Carolina-based ISP, Madison River, was blocking VoIP traffic to its customers. In particular, the ISP looked for packets sent to its customers' computers with certain addressing information (called "ports") associated with Vonage (see here for a list of some commonly-used ports) and threw out those packets. The FCC investigated, and has just announced that it has entered into a consent decree with Madison River that calls for an end to the port blocking and a $15,000 fine. (The decree itself is here (PDF).
The ruling is a major regulatory success for VoIP; it shows that the FCC's is willing to use its regulatory muscle to keep incumbent telcos from using self-help against VoIP. It means that the market for long-distance bidirectional real-time voice communications is going to be competitive not just across service providers but across technologies. Indeed, since the FCC is also not itself regulating VoIP heavily at the moment, this gives the upstart VoIP carriers a comparative advantage for the moment.
At the same time, it's interesting to note that we only have an FCC that issue orders like this one because telco in general is still a regulated industry. The FCC here is preventing anti-competitive actions by incumbents. It's preventing the owners of the physical layer from engaging in one form of harmful control over the application layer.
It all depends on the legal status of ISPs as common carriers -- if the FCC weren't empowered to put serious restrictions on what ISPs can do, Madison River could probably have kept on port-blocking to its heart's content. The government, when it makes telco policy, isn't just choosing to let the market work; it also has to choose what kind of market to have. The "spectrum" wars, to give another example, are mostly a debate between fans of a market in the exclusive right to transmit on certain frequencies and fans of a market in devices. The FCC in the consent decree here implicitly endorses having a truly open market in long-distance voice service at the cost of restricting the market in local ISP serve a bit. Since we no longer think that the former is a natural monopoly, at least in comparison with the latter, that decision makes sense to me.
One other odd little unexpected consequence of the decision: Since it's now illegal for ISPs to block the ports Vonage uses, this strikes me as an open invitation to p2p companies to start using those ports, too. (Alternatively, they could start bundling VoIP and use the same ports for their VoIP and file traffic). I'm sure the FCC only meant to strike a small blow for the end-to-end principle, but a little technical arbitrage and it might be a very big blow indeed.