Breaking News

Eighth Circuit Panel Affirms FCC's Vonage Order

March 21, 2007

A three-judge panel of the U.S. Court of Appeals for the Eighth Circuit unanimously affirmed a Federal Communications Commission ("FCC") order (the "Vonage Order") that preempted state regulation of Voice over Internet Protocol ("VoIP") service. The Vonage Order, issued in response to a preemption request from Vonage after the latter's DigitalVoice VoIP service was deemed by the Minnesota Public Utilities Commission ("MPUC") to be a "telephone service" subject to state regulation, had preempted state regulation of VoIP on the grounds that separating the intrastate and interstate components of vOIP was impossible or impractical.

The panel identified four primary issues raised in the four consolidated petitions for review of the Vonage Order, which were whether that order was arbitrary and capricious because the FCC (1) did not reach a threshold determination about whether VoIP services were "information services" or "telecommunications services," (2) determined that delineating the intrastate components of VoIP service from its interstate components was impractical or impossible, (3) determined state regulation of vOIP service conflicts with federal regulatory policies, and (4) preempted emergency 911 requirements. A fifth issue, which the panel decided was not ripe for review, was whether the Vonage Order arbitrarily preempted state regulation of fixed VoIP services offered by cable television companies.

Addressing the issues in order, the panel first decided that, based upon the "impossibility exception" (i.e., whether it was impossible or impractical to separate VoIP's intrastate and interstate components), it was "sensible" for the FCC to address the threshold issue of whether to preempt state regulation without also addressing the question of whether VoIP service was a "telecommunications service" or an "information service."

Next, deferring to the FCC's expertise, the panel decided that the FCC did not act arbitrarily and capriciously when the agency determined that it was impractical to separate the interstate and intrastate components of VoIP service. In affirming the Commission, the court decided that the determination of whether VoIP services can be separated into interstate and intrastate components is a "fact-driven inquiry requiring a high level of technical expertise," and that in such cases the court must give "a high level of deference to the informed decision of the agency charged with making those fact findings."

The panel then decided that the FCC did not act arbitrarily or capriciously in determining that state regulation of vOIP service would interfere with federal regulatory policies. The court found that the FCC's determination of conflicts between state and federal regulation, including federal policies regarding competition and deregulation, were entitled to "weight" because of its thorough understanding of its own regulatory framework, its objectives and the likely impact of state requirements.

The panel decided the fourth issue by concluding that the Vonage Order did not preempt emergency 911 telephone service requirements because the FCC's VoIP 911 regulations did not exist when the MPUC asserted jurisdiction over Vonage or when the FCC released its Vonage Order. Furthermore, the panel agreed with the FCC that national 911 rules are necessary given the nomadic nature of VoIP service and the discrepancies between state laws and regulations for 911 service.

Finally, the court decided that the question of whether the FCC's order arbitrarily preempted state regulation of fixed VoIP services offered by cable television companies was not ripe for review. The panel held that since the Vonage Order had only suggested that the FCC would preempt fixed VoIP services, until the FCC faced this precise issue, the FCC's order was merely a "prediction" of FCC action. Accordingly, the issue of whether states should be preempted from regulating fixed VoIP services therefore remained an open issue. The panel went on to note that the FCC had, subsequent to its Vonage Order, "indicated that VoIP providers who can track the geographic end-points of their calls do not qualify for the preemptive effects of the Vonage order."

We would be pleased to respond to any questions regarding this matter.

Other News