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VoIP Not Subject To State Regulation, Rules FCC

by Glen Shapiro,, New York

15 November 2004

In a case with implications for the entire internet telephony industry, the US Federal Communications Commission ruled last week that Vonage Holdings Corp's DigitalVoice service should not be subject to traditional state public utility regulation.

This decision has come as a relief to those providing Voice over Internet Protocol (VoIP) services, and to lawmakers who have urged the telecoms regulator to save the burgeoning industry from being subjected to a patchwork of state taxes and regulations.

In a statement, the FCC explained that:

"Acting on a petition from Vonage seeking federal preemption of an order by the Minnesota Public Utilities Commission, the FCC found that the company's DigitalVoice service cannot practically be separated into intrastate and interstate components, precluding dual state and federal regulatory regimes. DigitalVoice customers can use their phones from a broadband connection anywhere in the world, making it difficult to determine whether a call is local, interstate or international in nature."

It went on to add that:

"The Commission's order does not express an opinion about the applicability to Vonage of general laws in Minnesota governing taxation, fraud, commercial dealings, marketing, advertising and other business practices. But the Commission expects states to continue playing a vital role in protecting consumers from fraud, responding to complaints, and enforcing fair business practices."

The question of whether DigitalVoice should be classified as an unregulated "information service" under the Communications Act or a telecommunications service will be addressed by the FCC at a later date.

The Commission revealed that it is also addressing the issues of whether VoIP providers should provide access to the disabled, pay intercarrier compensation and contribute to the universal service fund, in its IP-Enabled Services Proceeding, which commenced in February of this year.

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