FCC Rules VoIP an Interstate Service

UPDATED: WASHINGTON — Voice over IP services are interstate in nature and not subject
to traditional state public utility regulation, the Federal Communications
Commission (FCC) decided today. The ruling gives the FCC the responsibility
and obligation to decide what regulations apply to Internet telephony.

The FCC voted 4-1 to grant N.J.-based VoIP provider Vonage’s request to be
declared an interstate service in order to preempt efforts by the Minnesota
Public Utility Commission (PUC) to regulate Vonage’s service as a traditional
phone company. The decision also exempts similar VoIP services offered by
cable companies.

The commission did not address the applicability to Vonage of general laws
in Minnesota governing taxation, fraud, commercial dealings, marketing,
advertising and other business practices. Nor did the FCC decide whether
Internet telephony is an unregulated information service or a
telecommunications service.

Those issues are included in a separate, yearlong review of IP-enabled
services that FCC Wireline Competition Bureau Chief Jeffrey Carlisle said
Tuesday would be concluded sometime in the spring.

“Today’s decision lays a jurisdictional foundation for what consumers
already know — that the Internet is global in scope,” FCC Chairman Michael
Powell said. “The order recognizes 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.”

FCC Commissioner Michael Copps said he was withholding his approval because
“all I see coming out of this particular decision is more questions. 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.”

Instead, Copps said, “The commission moves bit-by-bit through individual
company petitions, in effect checking off business plans as they walk
through the door.”

In August 2003, the Minnesota PUC ruled that Vonage’s DigitalVoice
offering was a traditional telephone service for which Vonage was required
to obtain a certificate of authority and meet other rules and regulations
governing telephone service in the state.

Vonage won on appeal, and Minnesota
is now appealing that decision with oral arguments set to begin Nov. 17.

“To subject a global network to disparate local regulatory treatment by 51
different jurisdictions would be to destroy the very qualities that embody
the technological marvel that is the Internet,” Powell said. “Congress
rightly recognized the borderless nature of mobile telephony service and
classified it as an interstate communication. VoIP properly stands in this
category and the commission is merely affirming the obvious in reaching
today’s jurisdictional decision.”

U.S. Senator John Sununu (R-N.H.), who sponsored legislation in the 108th
Congress to exempt broadband voice traffic from state regulation, issued a
statement praising the FCC action, but added, “Comprehensive federal
legislation is needed now to deal with expected legal challenges to this FCC
decision and address other aspects involving this technology.”

In another statement, U.S. Representative Joe Barton (R-Tex.), chairman of
the House Energy and Commerce Committee, said, “I strongly support the FCC’s
decision to exempt Internet telephony from state regulation. VoIP services
offer innovative new ways for consumers to communicate and blur the
traditional distinctions between intra- and interstate telephone services.”

He added, “With this decision, Congress and the FCC can work in the coming
year to allow VoIP services to become a viable alternative to traditional
telephone service.”

The FCC has
already exempted Jeff Pulver’s Free World Dialup (FWD) from state
regulations, because the free calls customers make are routed entirely over
the Internet and never interconnect with the public switched telephone
network . With a broadband connection, FWD members talk with
each other computer-to-computer.

In August, the FCC ruled that Internet telephony should be
subject to traditional wiretap laws. The preliminary decision will force
VoIP providers to comply with the same law enforcement rules as telephone
carriers.

The FCC is also considering VoIP carrier obligations regarding emergency
911 calling services and any contributions the VoIP industry should make to
the Universal Service Fund.

“There will remain very important questions about emergency services,
consumer protection issues from waste, fraud and abuse and recovering the
fair cost of the network,” Powell said. “It is not true that states are or
should be complete bystanders with regard to these issues. Indeed, there is
a long tradition of federal/state partnership in addressing such issues,
even with regard to interstate services.”