Interconnected VoIP Service Providers received a big win this month when, on May 1, 2009, the U.S. Court of Appeals for the Eighth Circuit upheld a lower court ruling enjoining the Nebraska Public Service Commission (“NPSC”) from imposing instate Universal Service Fund (“NUSF”) contribution obligations on Vonage. As detailed in the attached Client Advisory, this decision, which likely will cause other states to rethink their instate USF contribution programs, affirms that the FCC‘s 2004 Vonage Preemption Order unilaterally prevents states from collecting USF payment from nomadic interconnected VoIP providers.
Although the full ramifications of the Eighth Circuit‘s decision are yet unknown, the outcome appears to be a significant win for interconnected VoIP providers. Notably, the decision cements the FCC‘s preemptive authority over state regulation of nomadic VoIP services, at least until the FCC reconsiders the facts underlying its Vonage Preemption Decision. Specifically, this decision makes the states‘ expansion of intrastate USF contribution obligations to nomadic interconnected VoIP providers very difficult.
In addition, the Eighth Circuit‘s decision calls into question the validity of existing intrastate USF contribution obligations imposed on nomadic interconnected VoIP providers by other states. For example, in anticipation of the Eighth Circuit‘s decision, the New Mexico District Court recently stayed its decision concerning the validity of the New Mexico Public Regulatory Commission‘s extension of its USF contribution obligations to interconnected VoIP providers. Further, the courts have yet to scrutinize the Kansas Public Utilities Commission‘s USF program, although that program is still in its infancy. Both of these programs were based upon the same rationale as the NUSF program –the FCC‘s safe harbor allowance in its VoIP USF Orderprovides a mechanism to justify the imposition of intrastate USF requirements on interconnected VoIP providers.
Nevertheless, Vonage‘s win is not the nail in the coffin of the states‘ power to regulate VoIP services.The FCC‘s decision to preempt the regulation of VoIP in 2004 was based upon the technological reality that existed at the time.Indeed, when the FCC released its 2004 Order, most commercial interconnected VoIP services lacked the capability to track call routing and jurisdiction.Today such technology does exist, and most, if not all, retail VoIP providers have the capability to track call jurisdiction. Hence interconnected VoIP service providers may find it increasingly difficult to justify preemption.
Furthermore, issues about intercarrier compensation and the structure of the USF will likely cause the FCC to rethink the overall regulatory classification of interconnected VoIP services. Indeed, in November 2008, departing Chairman Martin promoted an intercarrier compensation plan which specifically subjected interconnected VoIP services to state USF contribution obligations. As VoIP services continue to cut into the revenue states receive from traditional telecommunications services, pressure from the states may force the FCC to revisit its decisions in the Vonage Preemption Decision and the VoIP USF Order.
In the meantime, all clients are advised to closely monitor the legal issues surrounding the regulation of interconnected VoIP service providers. Based upon the tenacious fight states have waged thus far and the diminishing revenue received from traditional telecommunications services during this time of budget shortfalls, it is highly probable that states will double down on efforts to collect USF from interconnected VoIP providers.
Clients who have any further questions or concerns about the information contained in the attached Advisory should contact Jonathan Marashlian at: email@example.com or 703-714-1313.