The State of VoIP

Posted 10/01/2004

The State of VoIP Regulation
Waiting for Rules on IP TELEPHONY

By Josh Long

Many State regulatory commissions are sitting on their hands until the FCC decides this year on a petition by Vonage Holdings Corp. asking the commission to declare its Internet phone service is subject to federal — not state — jurisdiction and exempt from telecommunications regulations. Still, at least 15 state commissions have either sought to assert jurisdiction over VoIP providers or launched inquiries into the classification of VoIP, according to Bob Nelson, a commissioner with the Michigan Public Service Commission and chair of the Committee on Telecommunications with the National Association of Regulatory Utility Commissioners. Those states include Alabama, California, Colorado, Indiana, Iowa, Florida, Michigan, Minnesota, Missouri, New York, North Carolina, Ohio, Pennsylvania, Texas and Wisconsin, Nelson says. The action in Florida involved state legislation aimed to deregulate the Internet phone market. State commissions launched the other proceedings.

But Nelson says states in general are reluctant to regulate VoIP, which is something most of them want to promote. “No state has looked for economic regulation of this and all the states wanted to make sure nobody is going to require VoIP providers have their rates approved, for example,” he says.

In voting to partially regulate America’s most renowned Internet phone company, Vonage, the New York State Public Service Commission cited the Sept. 11 terrorism attacks to underscore the importance of supporting a reliable telecommunications grid with emergency 911 capabilities. “The events of Sept. 11, 2001, emphatically attest to the state’s vital interest in maintaining reliable telecommunications networks, and to the extent that New Yorkers come to rely on VoIPenabled service to access those services, we need to ensure such access,” New York PSC Chairman William Flynn said in a statement released May 19.

Jeffrey Citron, chairman and CEO of Vonage, says the Edison, N.J., company already supports 911 and is working hard to develop an emergency 911 solution that will allow an operator to see where a distressed person is calling from. He says the company completed a successful emergency 911 test in Rhode Island.

Citron says Vonage plans to implement the capabilities on a market-by-market basis, but declined to provide a schedule. “It could be as early as the end of this year. It might very well be early next. We don’t know for sure,” says Citron, whose company is working with the FCC’s Internet Policy Working Group and the National Emergency Number Association to develop solutions.

New York regulators will have to take Vonage at its word. U.S. Magistrate Judge Douglas F. Eaton has granted a preliminary injunction prohibiting the commission from regulating Vonage, marking the second court case in which a judge has overturned a state public service commission’s finding to regulate the Internet phone company.

“Vonage has shown that it is likely to succeed on the merits of its claim that the PSC order is preempted by federal law,” Eaton said.

Last year, U.S. District Court Judge Michael Davis ruled Minnesota regulators erred in seeking to regulate Vonage. “VoIP services necessarily are information services, and state regulation over VoIP services is not permissible because of the recognizable congressional intent to leave the Internet and information services largely unregulated,” Judge Davis wrote in the order.

The case is now before the U.S. Court of Appeals for the 8th Circuit.

If the appellate court decision rules before the FCC does on the matter, that could set a precedent — at least for the time being. But Vonage hopes the FCC gets there first. “We would hope by the end of this year the FCC would rule on our petition to deem Vonage to be interstate in nature only for purposes of regulation,” Citron says.

Sitting on Their Hands

While at least 15 states have either sought to assert jurisdiction over VoIP providers or launched inquiries into the classification of VoIP, state regulators are waiting for the FCC to make the first move on VoIP rules.

Charles Davidson, a commissioner with the Florida Public Service Commission, says he wants the industry to avoid a patchwork of regulations across the states. “I hope our role is not one of economic regulation because we ought not to be regulating new technology. I hope our role is to implement [rules] consistent with ... a national policy that’s deregulatory in nature,”

Davidson adds. “In other words, I hope we state regulators have a minimal role when it comes to this new technology unless and until there is some demonstrated need to regulate.”

Jeffrey Citron, chairman and CEO of Vonage Holdings Corp., says the company is working hard to develop an emergency 911 solution that will allow an operator to see where a distressed person is calling from.

The Colorado Public Utilities Commission also has put on the brakes with this issue, opting to wait for the FCC to act on the jurisdictional issues in question before moving forward with an inquiry into possible regulation of VoIP service. Although the staff of the Colorado PUC recommended its commissioners regulate VoIP service the same way as traditional phone service, the commission early this year rejected the proposal.

“Not only are there jurisdiction questions as to whether we can regulate this if we wanted to,” there are policy questions that really run the gamut of all telecom regulation from the fees phone companies pay one another to complete calls to federal subsidies, says Colorado PUC Chairman Gregory Sopkin.

Charles Davidson, a commissioner with the Florida Public Service Commission, hopes the industry can avoid a patchwork of state regulations governing Internet phone service.

“We said, ‘Let’s see what the FCC does on this.’ And once the FCC makes a decision, we’ll probably take a look at it again,” Sopkin says.

The Public Utilities Commission of Texas also is waiting for the FCC to provide guidance about Internet phone service, says PUC spokesman Terry Hadley.

State legislatures also have taken action to endorse a hands-off approach to the technology.

Last year the Florida Legislature passed a bill that largely prohibits Internet phone regulation.

Meanwhile, in Pennsylvania, state senators Jake Corman and Connie Williams reportedly proposed a five-year moratorium on VoIP regulation. A spokesman for Corman, who is the chair of the Communications and Technology Committee for the Pennsylvania General Assembly, was not available for comment.

It is unclear to what extent the Florida law limits the authority of the Florida Public Service Commission to regulate VoIP, but Senate Bill 654, which the Florida Legislature passed last year, seems to discourage it: “The legislature ... finds that the provision of voice over Internet Protocol (VoIP) free of unnecessary regulation, regardless of the provider, is in the public interest.” The bill goes on to say, “Nothing herein shall affect the rights and obligations of any entity related to the payment of switched network access rates or other intercarrier compensation, if any, related to VoIP service.”

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