The United States Court of Appeals for the Eighth Circuit in Minneapolis has blocked the State of Minnesotas effort to regulate voice over IP telephony provider Vonage.
In a decision handed down March 21, the court agreed with Vonage and with the Federal Communications Commission that Vonage and IP phone companies like it are inherently interstate in nature, and as a result are not subject to state regulation.
The court also agreed that the FCC had the right to preempt state laws that would attempt to regulate, tax or otherwise impede the operation of such Internet-based voice telephony services.
However, the court stopped short of saying the same rules would apply to cable-based IP telephony services, saying that those are not yet ripe for review.
By that, the court meant that no legal actions have been filed by states attempting to regulate cable-based VOIP (voice over IP) services, and as a result there were no legal decisions that could be reviewed.
However, the court did note that if such an attempt were made, the FCC had already said that it would exert its preemption there as well.
As a part of its decision, the court made it clear that VOIP services were by their nature an "information service," and therefore excluded from state regulation.
The court also noted that because it was impossible to know where a VOIP call originated, it was also impossible for a state to prove that it was operating within the state that was trying to regulate it.
In this, the court said that the case was very similar to other circuit court decisions, notably the National Cable & Telecommunications Association vs. Gulf Power, where the courts decided that it would be impossible to tell if the communications in any particular instance was interstate or intrastate.
The court also said that Minnesotas contentions that the FCC had acted arbitrarily were incorrect, pointing out that the FCC had said in previous cases that Internet communications were very different from circuit-switched telephone calls.
Then the court pointed out that the FCC was the real authority in this area anyway.
"Because of the high level of deference we owe to the FCC in this fact-specific issue, it is unnecessary to justify our decision by countering all of the petitioners challenges to the FCCs fact-findings."
The court also said that the FCC requirement that VOIP providers be required to provide Enhanced 911 data did not make them subject to state regulation.
In fact, the court found that the requirement that this data be specifically provided by the phone company showed that otherwise location was in doubt.
"The FCC did not arbitrarily or capriciously preempt Minnesotas 911 requirements," the court said.
The Minnesota case was combined with similar suits by the state of Ohio, The National Association of State Utility Consumer Advocates and the National Association of Regulatory Utility Commissioners.
The New York Public Utility Commission brought the suit regarding cable providers and VOIP that the court decided was not ripe for review.
"It wasnt a big surprise," said David Kaut, associate analyst for the financial research firm of Stifel, Nicolaus in Washington, D.C.
"People thought the FCC was going to win on Vonage," he said. Kaut pointed out that its impossible to know for sure where a Vonage user actually is when a phone call is being made. "If you cant unscramble that egg, the answer is to declare it predominately interstate."
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Kaut noted that the decision is only binding on the area served by the Eighth Circuit. However, he said its a powerful precedent for other circuits.
He also noted that the only hope Minnesota has now is to appeal it to the US Supreme Court, a path he says is unlikely.
"I think its an uphill battle," Kaut said. "The Supreme Court only takes 80 cases a year," he noted, suggesting that this was unlikely to be one of them.
Kaut noted that a decision on cable companies offering VOIP service was bound to come along fairly soon.
He said that the Missouri Public Service Commission was already trying to regulate cable-based VOIP service, but that the case hasnt reached the federal courts.
"If the FCC doesnt weigh in on this classification, they may find trouble on this where the courts have defined it," he said.
But at this point, he noted, its the squeaky wheel that gets the attention, and that this case hadnt reached that level.
"The FCC has been concerned about jumping off that bridge," he said.
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