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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."