Court Upholds FCC VoIP Order against PUC Challenges

Focusing on the difficulty of separating “nomadic” VoIP service into state and national components, the court left up in the air regulatory treatment of cable VoIP offerings and other fixed VoIP services. “The interstate and intrastate portions of [fixed VoIP] service can be more easily distinguished,” the court said, without saying how regulators should treat such fixed offerings. The case was heard by Judges Kermit Bye, Steven Colloton and Gerald Heaney. Heaney retired before the opinion was issued.

The court said a related challenge by the N.Y. PSC that raises the fixed services question wasn’t “ripe for review,” adding uncertainty to cable VoIP’s regulatory status. The N.Y. PSC said the FCC order effectively preempted state regulation of all VoIP services, including fixed ones, which exceeded its jurisdiction. But the court, siding with the FCC, said the issue isn’t ripe because the FCC order indicated it was focusing mainly on services with “basic characteristics similar to [Vonage’s] Digital Voice [nomadic service].” The court said the FCC order says only that it would preempt state regulation if the issue arose, and “until that day comes it is only a mere prediction.”

The court described its decision as “limited,” based as it is “on the record existing before [the FCC] at the time.” If new technology eases the difficulty of determining state- federal boundaries for VoIP, the issue could be “reexamined,” said the court’s decision, written by Judge Bye.

Ruling on other arguments against the FCC decision, the court said it wasn’t “arbitrary and capricious” for the agency to rule on state preemption without first deciding if VoIP service is an “information” or “telecommunications” service. Instead, it was “sensible” for the FCC to endorse preemption of state rules on VoIP service “because it was impossible or impractical to separate the intrastate components of VoIP service from its interstate components.”

The court also supported the FCC against arguments that the VoIP preemption order conflicted with a later order requiring VoIP providers to offer 911 service. Challengers said the 911 order required VoIP providers to do just what the FCC said couldn’t be done in this order -- identify VoIP calls’ geographic end points. “Contrary to the assertions of the state public utilities commissions, the 911 Order also recognizes the practical difficulties of accurately determining the geographic location of VoIP customers when they place a phone call,” the court said: “Recognizing this practical difficulty, the FCC devised a temporary solution requiring VoIP service providers to have their customers register the physical location at which they would first utilize VoIP service.”

The FCC was pleased with the 911 reference as well as other parts of the court’s ruling, an agency spokesman said: “Today’s decision affirms the Commission’s authority to act to provide for public safety by requiring access to 911, preserve universal service and further other critical goals.” A NARUC official called it “encouraging” that the court limited its decision to current technology, but disappointing that the judges didn’t address possible conflict between the preemption order and the recent VoIP universal service decision.

“Overall, this is a more positive decision than most would have predicted,” said NARUC Pres. Jim Kerr of the N.C. Utilities Commission. “The court was careful to point out that its review is limited” and said “new facts will require reexamination of the decision to preempt,” Kerr said. “The court also noted the FCC concession that when the traffic is severable, states can exert oversight when conditions warrant.” He said it’s “most significant” that the court didn’t authorize FCC preemption of fixed VoIP providers.

The case has a convoluted legal history, starting with a 2003 Minn. PUC ruling that Vonage’s VoIP offering is a phone service subject to state controls. After Vonage appealed, the U.S. Dist. Court, Minneapolis, granted a permanent injunction barring the PUC from enforcing its order. The PUC appealed the lower court decision to the 8th Circuit which in late 2004 affirmed the Dist. Court injunction. Meantime, the FCC, acting in Nov. 2004 on a Vonage petition, exerted preemption over state regulation. The 8th Circuit fielded the issue again last year, when PUCs and others appealed the FCC 2004 decision. Appeals filed in 3 circuits were consolidated at the 8th Circuit.