VoIP Still on FCC's Open Road

UPDATED: States lose latest round to regulate and tax Internet telephony.

By Roy Mark | Posted Mar 21, 2007
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UPDATED: A federal appeals court today upheld a 2004 Federal Communications Commission (FCC) ruling that Voice over IP services are interstate in nature and not subject to state public utility regulation. The ruling gives the FCC the responsibility and obligation to decide which regulations apply to Internet telephony.

The ruling is a significant victory for Vonage and other VoIP providers, which have been fending off state efforts to regulate their services. While the FCC's order pre-empted those efforts, numerous states have challenged the ruling.

"The end-to-end geographic locations of traditional landline-to-landline telephone communications are readily known, so it is easy to determine whether a particular phone call is intrastate or interstate in nature," the Eight Circuit Court of Appeals ruled. "Conversely, VoIP-to-VoIP communications originate and terminate at IP addresses which exist in cyberspace, but are tied to no identifiable geographic location."

Similarly, the court ruled, in VoIP-to-landline or landline-to-VoIP calls, the geographic location of the landline part of the call can be determined, but the geographic location of the VoIP part of the call could be anywhere in the universe.

The court did not rule on the status of fixed VoIP services offered by cable companies, claiming it was not yet "ripe for review."

"[The decision] allows Vonage to continue growing our business unfettered by outdated pre-Internet regulatory structures," Vonage CEO Mike Snyder said in a statement.

The case stems from a 2003 Minnesota Public Utility Commission decision that Vonage's service was a traditional telephone service and subject to state rules, regulations and tariffs. Vonage won an appeal before the Eighth Circuit, which stayed any state actions until the 2004 FCC order was appealed.

Since then, several states, including New York, challenged the FCC order, which were eventually consolidated into the Eighth Circuit appeal.

In declaring Vonage an interstate service, then FCC Commissioner Michael Powell said that "several technical factors demonstrate that VoIP services are unquestionably interstate in nature. Internet applications such as VoIP are much more border-busting than either long distance or mobile telephony -- each inherently, and properly classified, interstate services."

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