MINNESOTA RULING ON VONAGE MAY HAVE BROAD IMPLICATIONS

Federal court decision provides rare unifying point for ILECs, CLECs

While the Bell companies aren't overly concerned about a recent federal district court decision that ruled voice-over-IP services shouldn't be regulated like traditional telecom service, VoIP provider Vonage believes the ruling sets an important precedent that state regulators won't be able to ignore.

Federal Judge Michael Davis of the U.S. District Court for Minnesota granted a permanent injunction that prevents the Minnesota Public Utilities Commission from forcing Vonage to register as a telecommunications provider to provide voice services in the state. Classification as a telco could have subjected Vonage to certain common carrier obligations. VoIP providers claim such a classification not only would be unfair, but also would be illegal, since they don't provide voice services but applications that ride over the Internet.

Though the ruling carries no force in other states, Vonage CEO Jeffrey Citron predicted its reach would extend far beyond Minnesota. “A state may disagree with the conclusion and try to impose regulation, but on appeal the federal judge in that district would likely reach the same conclusion,” Citron said. “Federal law is federal law, and that doesn't change.”

The ruling, however, has changed one traditional dynamic. Competitive and incumbent carriers—natural enemies typically at each other's throats—are standing together against the VoIP providers. The common theme at this month's conferences sponsored by the rival Competitive Telecommunications Association and the U.S. Telecom Association was that voice is voice and VoIP providers shouldn't be given a free ride.

Because they are eyeing the space themselves, Bell companies have carefully avoided calling for VoIP regulation, but want regulators to impose basic obligations such as 911 service, access fees for connecting to the public network and universal service contributions.

“But that's not the same as being regulated,” said a Verizon Communications spokesman. “Our preference is that they don't regulate the future.”

While Vonage doesn't directly pay access fees or contribute to universal service, its CLEC partners do. Any fees paid by competitive carriers when connecting to the public network are charged back to Vonage, Citron said. The company recently began to itemize these fees on customer bills to demonstrate that it is meeting these obligations.

“I wholeheartedly agree with [FCC Chairman Michael] Powell that if incumbent carriers want to deploy fiber and build a new network, they shouldn't be forced to lease out that network,” Citron said. But he said regulation of the copper network is a price incumbents must bear as a quid pro quo for the 100-year head start they received in the local market. On a philosophical level, lumping VoIP providers in with wireline voice providers makes little sense, Citron said. “A dolphin might look like a fish and swim like a fish, but it's really a mammal,” he said. “Voice over IP is a different technology in its entirety.”

As the debate heats, all parties seem to agree on one thing: the FCC needs to weigh in on a market that is being flooded with competitors. The commission is planning to open a proceeding on VoIP near the end of this year, said Christopher Libertelli, senior legal advisor to Chairman Michael Powell. Speaking at the recent USTA conference, Libertelli said the commission likely would take into account the different methods of provisioning VoIP as it decides whether and how to regulate the service. “We might have different rules for the different flavors,” he said.