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FCC: Vonage Internet Telephony Is Interstate

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Update: FCC: Vonage Internet Telephony Is Interstate

November 9, 2004

By Brian Blackstone

WASHINGTON -- The Federal Communications Commission Tuesday granted a petition by Vonage Holdings Corp. asking that its voice over Internet protocol, or VOIP, service be treated as interstate, putting it under federal jurisdiction.

The ruling shields Internet telephony services like Vonage's from state regulatory oversight, including similar Internet-enabled services provided by cable companies.

"This landmark order recognizes that a revolution has occurred," said FCC Chairman Michael Powell. "What today's decision does is put the Commission in a firm position of responsibility."

Vonage petitioned the FCC in September 2003 for federal preemption from state regulations that had been imposed by the Minnesota Public Utilities Commission.

In a statement, Vonage Chief Executive Jeffrey Citron said "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."

"As a practical matter, that means Voip companies would not be subject to tariff and certification" by states, said Bill Wilhelm, a partner at Swidler Berlin Shereff Friedman, which filed the FCC petition on behalf of Vonage.

"It will really streamline the ability of companies to deploy Internet services without being subject to the jurisdiction of 50 state utility commissioners," he added.

The FCC ruling left untouched thornier issues like whether Voip should be treated as a telecommunications or information service. That has a big impact on such issues as the Universal Service Fund - which telecom companies pay into but information services companies don't - as well as access charges and public safety-related questions.

FCC Commissioner Michael Copps, one of the five-member panel's two Democrats, criticized what he called the FCC's "cherry-picking" approach to VOIP.

"I'm more worried about a lack of a central framework," Copps said. "We need clear predictable rules of the road."

Despite those objections, Copps voted with the rest of the FCC in favor of the Vonage ruling.

Industry Applauds Decision

The FCC decision was praised by long-distance carriers, Baby Bells and equipment makers alike, and they urged the agency to provide still more regulatory relief to VOIP.

"Today's decision will help drive demand for broadband infrastructure, which is critical to the 21st Century information economy," said Raymond L. Strassburger, vice president, global government relations at Nortel Networks Corp. (NT).

The FCC will address broader questions like whether Voip is a telecom or information service and whether Internet telephony providers must provide access to the disabled, pay intercarrier compensation and contribute to universal service as part of the agency's IP-Enabled Services Proceeding, which began in February.

Jeff Carlisle, head of the FCC's wireline branch, said the agency will examine a restructuring of universal service and develop recommendations on regulatory treatment of IP-enabled services in the spring of 2005.

"The FCC now must act quickly to reform the badly broken intercarrier compensation system and make sure new technologies and services will not be hindered by a scheme to subsidize old networks," the VON Coalition, which consists of Voip companies like AT&T Corp. (T), MCI Inc. (MCIP) and Covad Communications Group Inc. (COVD), said in a statement.

Yet some caution that the FCC's granting of regulatory relief to Voip services could have unintended consequences in areas like universal service - which provides subsidies to rural and high-cost areas - especially if telecommunications companies are able to find a way to fit other types of services into the Voip category.

As Internet telephony grows, there could be fewer people paying charges to support universal service, leading to higher rates paid by users of traditional phone service and in effect resulting in subsidization of Internet phone service by traditional users.

"NARUC is committed to being a constructive partner on all these issues, but we are concerned that today's action will make a sinking ship sink a little faster, especially on universal service where $1.9 billion in state programs are now in the crosshairs," said Robert Nelson, chairman of the Telecommunications Committee of the National Association of Regulatory Utility Commissioners.

Jeff Chester, executive director of the Center for Digital Democracy, said the FCC ruling also ignores the vital role states play in assuring that the Internet meets the needs of local communities.

"What's at stake is whether Voip service addresses the needs of low-income communities, spurs economic growth, and assists civic expression," Chester said. "To do so requires having states and local government be able to make essential decisions about the welfare of their citizens."

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