Federal Court Says FCC Preempts Nebraska VoIP Regulation

The ruling isn’t nationally binding, but it’s “one more precedent” that sends a “cautionary message” to other states considering charging nomadic interconnected VoIP carriers state universal service fees, Kaut said. The analyst said he “wouldn’t be surprised” if the PSC appeals to the 8th Circuit. If so, it’s likely the appeals court would ask the FCC to clarify how the case intersects with a 2006 Commission order requiring VoIP to pay into federal USF, he said. The PSC might also go to the FCC for clarification directly, he said.

The decision largely looked to a 2007 8th Circuit U.S. Appeals Court ruling in Vonage v. Minnesota PUC that affirmed a 2004 FCC order saying the commission -- and not states -- should decide what regulations apply to Vonage. The 8th Circuit said it was impossible to distinguish between interstate and intrastate calls on interconnected VoIP. The district court also cited the 8th Circuit’s affirmation that Vonage provides an information service not subject to telecom regulations. An injunction against the Nebraska PSC is appropriate because it’s “Congress’s expressed intention that the Internet be free from undue regulation,” the district court said.

The court dismissed a Nebraska PSC argument that a June 2006 FCC order provided a mechanism for assessing a state USF charge. In that order, the FCC set a “safe harbor” for determining federal USF contributions due to the technological difficulty in separating VoIP intrastate and interstate revenue. The FCC said 64.9 percent of VoIP revenue is subject to federal USF contribution. The FCC didn’t say whether states could also collect USF, and the safe harbor alone isn’t justification, the district court said: “The safe-harbor ruling does not negate the fact that there is no way to distinguish between interstate and intrastate [VoIP] service; nor does the adoption of safe- harbor rules affect the characterization of VoIP service as an information service.”

Nebraska PSC Chair Anne Boyle said the state commission was “disappointed” with the ruling, but hasn’t decided whether to appeal: “Any party using the network should be responsible for paying for its use.” It’s “critical” the FCC clarify whether it preempts states on this issue, especially since Vonage is likely to take action against other states assessing USF, she said.

Vonage lauded the decision. “We hope this decision will help discourage state public utility commissions from seeking to impose universal service charges on interconnected VoIP providers,” a spokesman said. “Consumers today are looking for lower phone bills, not higher, particularly in the current economy.” The ruling is an “important victory” for interconnected VoIP, said Jim Kohlenberger, VON Coalition executive director. It reflects a realization that the Internet is “geographically irrelevant,” he said.

The ruling is “bad public policy” because it undermines state funding programs and will increase the burden on federal USF funding, said NARUC General Counsel Brad Ramsay. If phone technology continues to migrate to IP and states can’t assess USF fees on VoIP carriers, states will have only federal USF to support telecom infrastructure in high-cost areas, he said. “I hope this case gets appealed,” he said.

Kohlenberger said he disagreed with Ramsay’s assessment. VoIP already contributes more to the federal USF than wireless and traditional wireline, he said. “According to analysis of contribution rates, the [safe harbor ruling] means that a typical interconnected VoIP subscriber pays $2.12 in universal service fees for VoIP, $1.21 for comparable wireless service, and $1.38 for comparable wireline service,” Kohlenberger said. In addition, VoIP reduces consumer phone bills, he said. In Nebraska, VoIP competition could reduce bills $700 million over five years; nationally, it could save $111 billion, he said, citing a report from Microeconomic Consulting and Research Associates.