Handful of State Utility Commissions Now Impose TRS Contribution Obligations on Providers of Non-Interconnected VoIP Services


Our firm recently became aware of several State Public Utility Commissions and/or their administrators of state-run Telecommunications Relay Services (“TRS”) funding programs that have either extended or applied pre-existent TRS fund contribution obligations to providers of “Non-Interconnected VoIP” services.  Providers of services fulfilling the Federal Communications Commission’s (“FCC” or “Commission”) definition of “Non-Interconnected VoIP” (and potentially other forms of “non-traditional telecommunications”) should be aware that public interest program funding duties may not be limited to the federal-level only.  As explained in this Advisory, unless the federal government expressly preempts states from regulating or imposing public interest program support obligations, states are generally free to pass laws and regulations or interpret and apply existing regulations to new forms of communications services.  We have now confirmed that certain states are presently applying TRS contribution obligations to non-Interconnected VoIP service providers and, as recent history demonstrates, the slow creep of state regulation is likely to continue.  Providers of non-Interconnected VoIP and other non-traditional forms of telecommunications must remain vigilant in order to remain up-to-date and in compliance.

On October 7, 2011, the FCC adopted a Report and Order implementing the provisions of Section 104 of the Twenty-First Century Communications and Video Accessibility Act of 2010 (“CVAA”).  The Order extended disability access requirements to providers of “Advanced Communications Services,” and implemented the provisions of the CVAA codifying the existing obligation for interconnected VoIP (“I-VoIP”) service providers to contribute to the federal Telecommunications Relay Services (“TRS”) Fund, and extending contribution obligations to non-interconnected VoIP providers. Effective October 8, 2011, non-interconnected VoIP service providers have been required to contribute to the federal TRS Fund on the basis of their interstate end-user revenues.

Neither the CVAA nor the FCC’s implementing Order explicitly discusses a state’s authority to impose state TRS fund contribution obligations on providers of non-interconnected VoIP services.  Section 225 of the Communications Act of 1934, as amended (“the Act”), generally specifies that the costs attributed to the provisioning of interstate TRS shall be “recovered from all subscribers for every interstate service,” and the costs attributed to the provision of intrastate TRS will be “recovered from the intrastate jurisdiction.”  Many states currently collect state TRS fund fees on intrastate revenues from telecommunications and I-VoIP service providers.

Given Section 225’s general authorization to states to recover the costs of providing intrastate TRS service and the Commission and CVAA’s lack of preemption of state authority to impose TRS Fund liability on non-interconnected VoIP providers, several states have followed the FCC’s lead, requiring contributions to the state’s TRS fund on the basis of intrastate non-interconnected VoIP revenues.  These states follow in the footsteps of Nebraska and Kansas with respect to state universal service fund (“USF”) assessments.  In 2004, the FCC preempted states from regulating Vonage’s nomadic I-VoIP service.  In 2006, the FCC required I-VoIP providers to contribute to the federal USF.  In 2007, given the lack of express preemption by the FCC, the Nebraska Public Service Commission imposed state USF fees on nomadic and fixed I-VoIP service providers.  In 2008, based on the Vonage Preemption Order, federal courts enjoined the Nebraska Public Service Commission from collecting state USF fees from interconnected VoIP providers. In 2008, the Nebraska and Kansas commissions petitioned the FCC to overturn that result.  On Nov. 5, 2010, FCC issued a Declaratory Ruling holding that, prospectively, states may assess state USF fees on nomadic I-VoIP services.

This precedent lays a path for states to extend state TRS fund contribution obligations to non-interconnected VoIP providers, absent the adoption of language by the Commission or Congress clearly preempting states from exercising this authority.  As the Nebraska/Kansas example shows, the states ultimately prevailed in their battle to extend state USF obligations to nomadic I-VoIP providers.  Providers of non-interconnected VoIP services face a choice: (1) take the conservative approach and contribute to state funds on non-interconnected VoIP revenues or (2) swim along with the other fish in the shark tank, hoping not to be the one caught by the shark.  If caught by the shark, the provider can either pay up or challenge the state’s authority to impose fees.  But, as the Nebraska/Kansas example shows, this could be a lengthy and costly battle.  Clients should clearly consider the implications of either option in consultation with counsel before choosing a path forward.

Clients with questions or concerns related to the issues addressed in this Advisory should contact the attorney responsible for their account.

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