Ruling on VOIP Regulation Upheld
A Minnesota agency may not regulate calls through cyberspace as it does calls through traditional phone lines, a federal appeals court ruled.
The order by the U.S. 8th Circuit Court of Appeals in St. Louis upholds a lower-court ruling and is a win for fledgling companies such as Vonage Holdings Corp., which provides voice over Internet protocol, or VOIP, services.
The Minnesota Public Utilities Commission had argued that VOIP companies were providing phone-like service and therefore should be regulated in the same manner as traditional phone companies. But the VOIP providers said they offered an information service rather than a telecommunications service.
VOIP converts the sound of a voice into packets of data, sends them across the Internet, and reassembles them into sound at the other end of a call.
The Dec. 22 ruling follows an order from the Federal Communications Commission last month saying that Internet phone services should not be governed by the same state regulations as regular phone companies.
Under the FCC order, VOIP providers may disregard non-federal regulations requiring state certification and emergency, or 911, dialing capability. The order left open the possibility that the states could tax Internet phone businesses.
The appeals court cited the FCC’s Nov. 12 action in upholding the district court ruling.
The “FCC order is binding on this court and may not be challenged in this litigation,” the three-judge panel said, adding that the state can petition to have a federal court review the FCC order.
The FCC issued the unanimous ruling in response to a request by Edison, N.J.-based Vonage. Two states -- Minnesota and New York -- tried to impose phone rules on Vonage, said William Wilhelm, a Washington attorney representing Vonage in the Minnesota case.
A New York federal court has temporarily blocked that state from regulating Internet phone calls, said Wilhelm, a partner at Swidler Berlin Shereff Friedman. The 8th Circuit ruling could be “persuasive” in having that injunction made permanent, he said.
The FCC ruling had been criticized by some consumer groups, which argued that state regulators should have regulatory power over VOIP service to guarantee safeguards such as making sure 911 calls work properly and rural subscribers aren’t left out.
But Owen Kurtin, a media and technology law specialist at Sonnenschein Nath & Rosenthal, said state regulation of telephone service was becoming obsolete because “all voice traffic is going to an Internet platform.”
Vonage, AT&T; Corp., Verizon Communications Inc. and Comcast Corp. are expanding their Internet calling capabilities.
Vonage subscribers use conventional phones hooked to a special box and a broadband connection to make Internet calls. Chief Executive Jeffrey Citron said the company had more than 375,000 subscribers and added 100,000 in the last quarter of 2004.
Burl Haar, executive secretary of the Minnesota Public Utilities Commission, said the commission had not decided how to proceed and would meet to discuss the court ruling next week.
The deadline for petitions for review of the FCC order is Jan. 11. California regulators have already filed one such petition, Haar said.
Associated Press and Bloomberg News were used in compiling this report.
