Vonage’s Nebraska USF Win Holds Implications for Fixed VoIP

No matter what you think of Vonage Holdings Corp., the over-the-top VoIP provider has changed the nature of telecom. And now it’s on track to upend a regulatory norm: contributions to state universal service funds. In fact, if its recent court win sticks, Vonage could achieve what Verizon Communications Inc. called for last year: no state oversight of VoIP – nomadic or fixed – whatsoever.

That would be welcome news to smaller VoIP carriers that say inconsistent standards burden their lawyers, back-office employees and other workers, and hurt profits. But state commissioners say they need to collect USF money to support rural build outs. Still, that’s not a good enough argument for one Nebraska judge whose ruling sets a precedent for other courts mulling similar cases.

On March 3, Judge Laurie Camp barred Nebraska’s Public Service Commission (PSC) from imposing USF obligations on Vonage. She agreed with another state appeals court that VoIP constitutes an information service, not a telecommunications service, and she sided with Vonage that it is impossible to separate Vonage’s inter- and intrastate VoIP traffic because the service is nomadic. That means a subscriber can live in Texas, for example, while using a Nebraska area code. Cable and telecom VoIP, on the other hand, is fixed – it’s only available over the fixed connection to the customer’s home or business. Camp said the FCC’s authority over VoIP USF overrides that of the states and subsequently issued a preliminary injunction against the Nebraska PSC. Commissioner Anne Boyle said the PSC was deciding whether to appeal the decision.

If the Nebraska PSC does file an appeal, “my view is it would be an uphill battle,” said William Wilhelm Jr., a partner at Bingham McCutchen LLP, which specializes in IP litigation.

For industry observers, the weight of the verdict lay in its implications for fixed VoIP.

“You could suddenly have state universal service plans that have rapidly dwindling revenue bases at the same time that the demand is going up for targeted support to high-cost areas,” said Peter Bluhm, chief of the telecommunications section for the National Regulatory Research Institute (NRRI) and former policy director for the Vermont Public Service Board. The NRRI researches the impact of regulation for state utilities.

Bluhm said the situation gets murkier still considering that most providers are or will transition to IP/VoIP.

“If you imagine the future five years out, where most of the businesses and a good share of the residences are taking cable voice ... it’s going to be harder and harder and harder for those states like Nebraska to support rural areas,” he said.

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