8th Circuit Denies Petitions for Review of FCC's Vonage VOIP Order
March 21, 2007. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in MPUC v. FCC, denying several consolidated petitions for review of the Federal Communications Commission's (FCC) November 9, 2004, Memorandum Opinion and Order [41 pages in PDF] (MO&O) that preempted an order of the Minnesota Public Utilities Commission (MPUC) that applied its traditional telephone company regulations to Vonage Holding Corporation's DigitalVoice service, which provides voice over internet protocol (VOIP) service.
However, the Court of Appeals also concluded that the issue raised in the petition filed by the Public Service Commission of the State of New York regarding fixed VOIP service "is not ripe for review".
Background. On July 15, 2003, the Minnesota Department of Commerce (MDOC) filed an administrative complaint against Vonage with the MPUC alleging that Vonage offers telephone services in Minnesota, including local exchange service and long distance service, without a certificate under Minn. Stat. §§ 237.16 and 237.74, for those services. The complaint also alleged that Vonage violates Minnesota law by failing to provide 911 service.
On September 13, 2003, the MPUC issued its Order Finding Jurisdiction and Requiring Compliance [9 pages in PDF] finding that the MPUC has jurisdiction, and that Vonage must comply with Minnesota laws that regulate telephone companies, including obtaining certification from the state, complying with 911 rules, and paying 911 fees.
Vonage filed a Petition for Declaratory Ruling with the FCC.
On November 9, 2004, the FCC adopted its MO&O finding that Vonage's VOIP service is an interstate service, and that Minnesota cannot regulate as it had proposed in its September 2003 order. However, the FCC did not classify VOIP service is either an "information service" or a "telecommunications service".
This MO&O stated that "we preempt an order of the Minnesota Public Utilities Commission (Minnesota Commission) applying its traditional ``telephone company´´ regulations to Vonage’s DigitalVoice service, which provides voice over Internet protocol (VoIP) service and other communications capabilities. We conclude that DigitalVoice cannot be separated into interstate and intrastate communications for compliance with Minnesota’s requirements without negating valid federal policies and rules."
It continues that the FCC, and "not the state commissions, has the responsibility and obligation to decide whether certain regulations apply to DigitalVoice and other IP-enabled services having the same capabilities. For such services, comparable regulations of other states must likewise yield to important federal objectives. Similarly, to the extent that other VoIP services are not the same as Vonage's but share similar basic characteristics, we believe it highly unlikely that the Commission would fail to preempt state regulation of those services to the same extent."
The FCC adopted its MO&O on November 9. It released this item on November 12, 2004. See, story titled "FCC Adopts Order on Vonage's VOIP Petition" in TLJ Daily E-Mail Alert No. 1,015, November 10, 2004, and story titled "FCC Releases Vonage VOIP Order" in TLJ Daily E-Mail Alert No. 1,018, November 15, 2004. This MO&O is FCC 04-267 in WC Docket No. 03-211.
Also, it should be noted that while the FCC preempted the state of Minnesota's attempt to regulate VOIP like a phone company, including requiring the provision of 911 service, the FCC subsequently created a federal VOIP 911 regulatory regime.
On May 19, 2005, the FCC adopted its First Report and Order and Notice of Proposed Rulemaking [90 pages in PDF]. The order portion of this item extends 911/E911 regulation to interconnected voice over internet protocol (VOIP) service providers. This proceeding is titled "In the Matter of IP-Enabled Services" and numbered WC Docket No. 04-36. This order and NPRM also assigns a second proceeding title, "E911 Requirements for IP-Enabled Service Providers", and a second number, WC Docket No. 05-196. This item is numbered FCC 05-116.
See also, story titled "FCC Releases VOIP E911 Order" in TLJ Daily E-Mail Alert No. 1,148, June 6, 2005, and stories titled "FCC Adopts Order Expanding E911 Regulation to Include Some VOIP Service Providers", "Summary of the FCC's 911 VOIP Order", "Opponents of FCC 911 VOIP Order State that the FCC Exceeded Its Statutory Authority", and "More Reaction to the FCC's 911 VOIP Order", in TLJ Daily E-Mail Alert No. 1,139, May 20, 2005.
Court of Appeals. Four petitions for review of the FCC order were filed in the Courts of Appeals for the 6th, 8th, and 9th Circuits. All four were consolidated in the 8th Circuit.
The Court of Appeals offered this summary of the issues raised by the petitions: "The four primary issues raised in the consolidated petitions are whether the FCC's order is arbitrary and capricious because it (1) failed to make a threshold determination about whether VoIP services were ``information services´´ or ``telecommunications services,´´ (2) determined it is impractical or impossible to separate the intrastate components of VoIP service from its interstate components, (3) determined state regulation of VoIP service conflicts with federal regulatory policies, and (4) preempted emergency 911 telephone service requirements. A fifth issue raised in the petition filed by the Public Service Commission of the State of New York is whether ¶ 32 of the FCC's order arbitrarily preempted ``fixed´´ VoIP services offered by cable television companies, even though the intrastate components of such service can more easily be separated from the interstate components of such services."
The Court of Appeals first held, with little discussion, that the FCC did not act arbitrarily or capriciously when it failed to classify VOIP service as either an "information service" or a "telecommunications service".
Second, the Court of Appeals held that the FCC did not act arbitrarily or capriciously when it determined that it is impractical or impossible to separate the intrastate components of VOIP service from its interstate components.
It wrote that "It was proper for the FCC to consider the economic burden of identifying the geographic endpoints of VoIP communications in determining whether it was impractical or impossible to separate the service into its interstate and intrastate components", and that "Service providers are not required to develop a mechanism for distinguishing between interstate and intrastate communications merely to provide state commissions with an intrastate communication they can then regulate."
It added that "the issue whether VoIP services can be separated into interstate and intrastate components is a largely fact-driven inquiry requiring a high level of technical expertise", and "in such situations we accord a high level of deference" to the FCC.
Third, the Court of Appeals held that the FCC did not act arbitrarily or capriciously when it determined that state regulation of VOIP service conflicts with federal regulatory policies.
Fourth, the Court of Appeals held that the FCC did not act arbitrarily or capriciously when it the preempted Minnesota's emergency 911 telephone service requirements.
The Court of Appeals wrote that "Because the FCC had already determined there was no practical way for Vonage to identify the geographic location of the calls placed by its customers, Vonage could not comply with this entry regulation and thus the requirement effectively barred Vonage from entry into Minnesota." The Court of Appeals also wrote that the FCC's subsequent VOIP 911 order, which requires interconnected VOIP service providers identify location, does not relate to the reasonableness of Minnesota's order.
Finally, the Court of Appeals addressed New York's PSC's argument regarding fixed VOIP services.
It wrote that "A distinction can be drawn, however, between what is referred to as ``nomadic´´ VoIP service and ``fixed´´ VoIP service. ... For example, cable television companies offer VoIP service to their customers, but when they do so the ensuing transmissions use the cable running to and from the customer's residence. As a result, the geographic originating point of the communications can be determined. Thus, when VoIP is offered as a fixed service rather than a nomadic service, the interstate and intrastate portions of the service can be more easily distinguished."
New York argued that fixed VOIP is no different than traditional landline telephony, and that the FCC should have utilized an end-to-end analysis which looks to the geographic endpoints of the communications.
The Court of Appeals reasoned that the FCC's order only addresses services having basic characteristics similar to Vonage's Digital Voice, and does not address fixed VOIP service providers. Hence, New York's challenge to the FCC's order is not ripe for review.
It added that New York's "contention that state regulation of fixed VoIP services should not be preempted remains an open issue".
Reaction. Vonage CEO Mike Snyder stated in a release that "This decision is great news for Vonage, for our industry, and most importantly for consumers because it protects a young and growing segment of the telecommunications business that's geared toward providing value, innovation and choice to the public ... It allows Vonage to continue growing our business unfettered by outdated pre-Internet regulatory structures."
FCC spokesman David Fiske stated in a release that "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 in an equitable, nondiscriminatory and competitively neutral manner."
This case is Minnesota Public Utilities Commission v. FCC, and consolidated cases,
U.S. Court of Appeals for the 8th Circuit, App. Ct. Nos. 05-1069, 05-1122, 05-3114, and
05-3118, petitions for review of a final order of the FCC. Judge Bye wrote the opinion of
the Court of Appeals, in which Judge Colloton joined. The third member of the panel, Judge
Heaney, resigned on August 31, 2006.