FCC excludes states from regulating VoIP service: industry hails action, but major issues await resolution

America's Network,  Dec 1, 2004  by Al Senia

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The unanimous decision by the Federal Communications Commission (FCC) last month that VoIP Internet telephony service offered by Vonage isn't subject to traditional state public utility regulation certainly clears the path for VoIP service providers to step up their marketing efforts, but it's far from the final word on the issue.

For one thing, the Minnesota Public Utilities Commission is likely to appeal the ruling. And it's going to have lots of state PUC support: California, New York and others all have a multimillion-dollar financial stake in the outcome. California alone estimates it could lose $400 million in phone tax revenue over the next few years as more wire line customers ditch traditional phone service for VoIP. A key argument will be whether the FCC will prevail in its assertion that the states can't regulate Vonage's service because it can't be broken down into separate intrastate and interstate services.

Another interesting sidelight: The FCC didn't address the issue, raised by Vonage, of whether the VoIP service should be classified as an unregulated "information service" or a more traditional telecommunications service. That issue, with its extremely broad ramifications, will be left for another day. So will issues such as whether VoIP service providers have to provide access to the disabled, pay intercarrier compensation and contribute to the universal service fund. In other words, now that the FCC reserves for itself the right to regulate VoIP, just how light or heavy will that touch wind up being?

Of course, the United States Congress in its upcoming session could trump the FCC if it decides to pass legislation deregulating the VoIP business entirely. That would cut out the FCC, much as the FCC cut out the states. An earlier effort to do so this year failed in the eleventh hour, but the new Congress will likely be even more conservative and free-market oriented than the outgoing one. It's quite likely Sen. John Sununu (R-N.H.) will take another stab at deregulating VoIP.

Still, the latest FCC decision was hailed by many as a step in the right direction and an achievement in removing regulatory uncertainty. "This landmark order recognizes that a revolution has occurred," said FCC Chairman Michael Powell. "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."

Most VoIP vendors and service providers--and industry trade organization like USTA, CompTel/ASCENT and TIA--agree with that assessment and hail Powell's ruling. "It is not logical or practical to subject this voice application to 100-year-old regulations by 50 individual states," says Jason Talley, president of Nuvio Corp.

Jeffrey Citron, Vonage's chief executive, says the FCC action "assures that competition from VoIP is here to stay" and allows service providers to focus resources on improving their VoIP services.

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