FCC Takes VoIP Regulation Out of State's Hands

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WASHINGTON -- The Federal Communications Commission Tuesday yanked jurisdiction on Internet telephony away from states, a decision that could set a major precedent for the industry.

In what FCC chairman Michael Powell called a "landmark" decision, the commission voted 4-1 to exempt Vonage Holdings Corp.'s DigitalVoice Voice over Internet Protocol phone service from Minnesota telephone taxes and certification standards, including 911 emergency call capability.

By taking Vonage's side in its dispute with Minnesota, the FCC set a standard it says is essential to free the VoIP industry from state laws that can hinder growth and prosperity.

"If we were to defer to a single state...they would in effect be able to determine default rules" for the VoIP industry, and would "wreak havoc on this industry," according to FCC commissioner Kathleen Abernathy.

No Surprise

The decision comes as no surprise. Powell promised last month to put VoIP under federal control, saying the industry needed federal oversight and lax regulations to flourish.

Powell says the ruling "firmly puts the commission" in charge of the VoIP regulation, and Abernathy added, "They will not be subject to state regulation, they will be subject to federal regulation."

Vonage brought the case to the FCC after the Minnesota Public Utilities Commission demanded in 2003 that the company comply with state telephony taxes and certification requirements, which included an ability to call 911.

Vonage asked the FCC to make a preemptive ruling on the dispute before the 8th U.S. Circuit Court of Appeals issues a ruling on the company's appeal. That decision was expected next week.

Looking Toward the Future

Commission members also looked toward the future at the hearing, saying there is a need to define and place standards on VoIP.

FCC Commissioner Michael Copps, the lone dissenter, says he withheld support because his agency needs to establish firm, clear standards to define and regulate VoIP rather than address issues case by case.

"A growing chorus of voices is urging the commission to stop cherry-picking" its decisions on VoIP, Copps says. "Moving ahead in a piecemeal fashion is irresponsible."

Commissioner Jonathan Adelstein, although voting with the majority, agreed with Copps, stating, "Today's uncertainty could be avoided with a more comprehensive approach."

This marks the third time the FCC has issued a ruling on the difference between Internet phone services and traditional, public switched telephone networks.

In February 2004, the commission exempted Pulver.com's World Free Dialup service from most telecommunications regulations. In another judgment in April, the FCC held AT&T to telecom charges for calls placed across an IP network, because the calls began and ended on a public switched network.

States and Jurisdiction

The commission did not completely eliminate the responsibilities of states, saying they play an important role in issues such as state taxation, fraud, and commercial services for VoIP businesses.

"A cooperative approach with the state, I think, makes the most sense," Abernathy says.

Jeffrey Carlisle, head of the FCC's Wireless Competition Bureau, says he hopes the appeals court simply acknowledges the FCC's jurisdiction.

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