FCC to states: Hands off Vonage

As expected, the FCC today declared that the voice-over-IP (VoIP) service provided by Vonage is interstate in nature and not subject to state regulations.

One of the key components of Vonage’s DigitalVoice service is that it provides customers with portability, because the Vonage phone can be used from any jurisdiction where a broadband connection exists. It also enables other feature enhancements, which commissioners said are critical in differentiating the regulatory treatment of VoIP.

"This order should make clear the commission’s view that all VoIP services that integrate voice communications capabilities with enhanced features and entail the interstate routing of packets_whether provided by application service providers, cable operators, LECs, or others will not be subject to state utility regulation," Commissioner Kathleen Abernathy said.

While ruling on "Vonage-like" offerings, the order did not assert FCC jurisdiction for all forms of VoIP, meaning the commission still must answer jurisdictional questions in subsequent VoIP proceedings--something Abernathy acknowledged.

Commissioner Michael Copps criticized the FCC’s piecemeal approach to VoIP. <> "While I agree that traditional jurisdictional boundaries are eroding in our new Internet-centric world, we need a clear and comprehensive framework for addressing this new reality," Copps said. "Instead, the commission moves bit-by-bit through individual company petitions, in effect checking off business plans as they walk through the door."

A driving force behind the FCC issuing the order at this time is the fact that the 8th Circuit Court next week is scheduled to hear oral arguments regarding the state of Minnesota’s attempt to certify Vonage as a telecommunications carrier subject to the state’s 911 rules. Vonage has resisted such efforts successfully in district courts twice in the past year.

Unless the appeals court decides to overrule today’s FCC ruling, Vonage should not have to worry about state intervention in the future.

"Now we can focus our resources exclusively on building an even better service--rolling out E-911 for all our subscribers, innovating new features and new devices for VoIP, and expanding aggressively around the globe," Vonage CEO Jeffrey Citron said in a prepared statement. "Because the FCC has acknowledged the reality of the Internet, which knows no state boundaries and no borders, more people will enjoy the benefits of Internet phone service."

Most telecom experts believe VoIP will be the voice technology of the future. Today’s FCC ruling could leave state commissions--primary regulators for more than 100 years for legacy voice services--with little or no role in future voice regulation.

For this reason, many believe the National Association of Regulatory Utility Commissioner (NARUC)--the primary trade association for state regulators--would challenge any FCC assertion of VoIP jurisdiction in court. But NARUC general counsel Brad Ramsay said the organization had not made any decision thus far.

"We’ll have to see the text of the order first," Ramsay said. "I don’t know what the (NARUC) commissioners will decide."

Even if NARUC does not litigate the matter, Ramsay said he believes one of the states will. Cherie Kiser, a telecommunications attorney with the law firm of Mintz Levin Cohn Ferris Glovsky and Popeo, echoed this sentiment, noting that states unsuccessfully challenged the FCC’s assertion of jurisdiction over enhanced services in 1992.

"If history is any guide, they’ll probably challenge it," Kiser said.

There is not a consensus among state regulators on the matter. Although NARUC has long been the primary organization to represent state regulators, the recent formation of a rival organization known as the Federation of Economically Rational Utility Policy (FERUP) is indicative of the schism on the subject. FERUP members--typically state regulators who tend to be more deregulatory in their philosophies--have encouraged the FCC to assert its jurisdiction on VoIP calls.

In addition to independent VoIP providers such as Vonage, AT&T and MCI, most RBOCs and cable representatives expressed support for the FCC’s deregulatory stance toward VoIP. However, the FCC should assert its jurisdiction on all VoIP offerings instead of limiting it only to Vonage-like services, according to Jonathan Banks, BellSouth vice president of executive and federal regulatory affairs.

"We encourage the commission to complete in short order the work it has started here by establishing a similar regime for all IP-enabled networks and services in its 'IP-enabled' rulemaking proceeding," Banks said in a prepared statement. "Such a decision would go a long way toward eliminating uncertainty and allowing quicker introduction of new and more efficient services."

Meanwhile, rural carriers expressed disappointment with the ruling. The FCC ruling did not address sticky VoIP-related issues such as intercarrier compensation and universal service, but the National Telecommunications Cooperative Association (NTCA) reiterated the fact that independent VoIP providers like Vonage do not contribute to these revenue streams that are needed for rural carriers to build the broadband infrastructure VoIP offerings need.

"By getting a free ride on that infrastructure without compensating the carriers that maintain these networks, VoIP providers continue to gain a significant advantage," NTCA CEO Michael Brunner said. "And, by usurping states’ ability to regulate these providers, the commission has created an unfair competitive advantage over those telecom carriers that are regulated at both the state and federal levels. "We disagree with the FCC’s decision to give preference to one technology and tilting the competitive advantage in VoIP’s favor to the detriment of other technologies."