Court Overturns Minnesota’s Decision to Regulate IP Telephony

A judge on Thursday said Minnesota regulators erred in seeking to regulate Internet telephone company Vonage Holdings Corp.

“The court can find no statutory intent to regulate VoIP, and until Congress speaks more clearly on the issue, Minnesota may not regulate an information services provider such as Vonage as if it were a telecommunications provider,” U.S. District Court Judge Michael Davis wrote in an order.

Vonage, which provides local and long-distance telephone service to consumers and businesses with a broadband connection to the Internet, has argued it is not subject to regulations under federal law because it is providing a so-called information service. Judge Davis agreed.

“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,” the judge stated.

Telecom regulators across the country are faced with a tough task as more phone companies route Americans’ calls over the Internet, rather than via the public switched telephone network. State public service commissions are evaluating whether to treat IP phone companies as traditional telecom providers, and if not, whether they should regulate them at all.

The FCC, the top telecom regulator setting national policy, has not released rules stipulating if and how these companies should be regulated, but “the commission plans to launch a VoIP proceeding to address the very important issues at stake in the coming months,” an FCC spokesman said Friday.

William Wilhelm, a partner with Swidler Berlin Shereff Friedman, LLP, representing Vonage, said Vonage does not oppose all regulations, but the type of rules must be “appropriate for a nascent industry and common carrier regulation is inappropriate for Internet applications.”

“I think everyone including Minnesota agrees it would be useful to have the FCC help provide a framework,” he added.

The Minnesota Public Utilities Commission ruled in September that New Jersey-based Vonage is subject to telecom regulations and must comply with various requirements by Oct. 15. An official with the Minnesota PUC did not immediately return a phone call placed Friday seeking comment on whether the regulator would appeal yesterday’s written order.

Some other states also have weighed in on VoIP regulation.

In a letter sent to six phone companies routing calls over the Internet, including Vonage, the California Public Utilities Commission directed the businesses to become licensed telecom providers by Oct. 22. “Based on our monitoring of the telecommunications market and actions being taken by other state regulatory commissions, the telecommunications division concludes that your company … is offering intrastate telecommunications service for profit in California without having received formal certification from this commission to provide such service,” John Leutza, director of California PUC’s telecommunications division, stated in the letter.

Wilhelm, Vonage’s counsel, said the company plans to respond to the regulator’s request.

“I would think [the California PUC] would pay particular attention to the federal court’s ruling,” Wilhelm said. “They are a savvy commission.”

Ravi Sakaria, president and chief executive of IP telephone company VoicePulse Inc., said his company plans to send a letter today to the California PUC. “I can’t comment on the details of that,” he said, but, “we are open to having a dialogue” with the California PUC.

In September, 8x8 Inc., a broadband phone company, announced the Public Service Commission of Wisconsin had notified the company saying the regulator believed 8x8 was offering telecom services without getting the proper certification from the commission. Linda Barth, a spokesperson with the Wisconsin PSC, said the commission had not made a decision to regulate 8x8. “We are in an information gathering phase to see if they are providing telecommunications services according to our statutes,” she said.

8x8 did not immediately return a phone call placed Friday seeking comment.

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