FCC Decides VoIP is an Interstate Service, Not Subject to State Regulation

November 9, 2004


The FCC decided today that “Vonage” and “Vonage-like” services are by nature “interstate services” and so subject to regulation by the FCC and not by any of the individual states.

The Federal Communications Commission ruled today that the type of Internet telephony service offered by Vonage Holdings Corp called DigitalVoice is not subject to traditional state public utility regulation. It also stated that other types of IP-enabled voice services, such as those offered by cable companies, that have basic characteristics similar to DigitalVoice would also not be subject to traditional state public utility regulation.

The Commission characterized “Vonage-like” services as (1) accessible only through a broadband connection; (2) nomadic and non-geographic in nature; (3) requiring the purchase of special equipment; and (4) performing a net protocol conversion for customers to communicate with the PSTN. This definition certainly seems to cover cable voice, and probably can be extended to virtually all VoIP service.

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. This decision will come later, as will almost certainly a tide of litigation from the states.

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 PSTN. 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.

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