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Silicon Justice VoIP just got another leg up on traditional telecoms.

A US appellate court ruled this week that the Federal Communications Commission (FCC) acted correctly in pulling the rug out from under state regulators in their attempts to establish rules for VoIP providers in individual state markets. This decision is bound to help VoIP services (at least for the moment), as it will eliminate the cost of complying with 50 different sets of state regulations.

This benefit could disappear, however, if the decision is overturned by the Supreme Court, or if the VoIP providers ever come up with an accurate method for locating their users' locations.

The issue arose after the Minnesota Public Utilities Commission (MPUC) ordered Vonage to comply with Minnesota's regulations for telephone service. Vonage responded by filing a petition with the FCC requesting that it preempt the MPUC's order on the grounds that Vonage was a provider of information services, and thus exempt from state regulation. Vonage also sued the MPUC in federal court to prevent enforcement of the order.

While that suit was working its way through the appellate court system, the FCC issued a ruling on Vonage's petition. The FCC decided in favor of Vonage, but on different grounds than the company had suggested.

State regulators from across the country then filed suit in various federal appellate jurisdictions seeking direct review of the FCC's decision. The cases were consolidated and placed under the purview of the Eighth Circuit.

Vonage had asked the FCC to determine that it was an information services provider, not a telecommunication services provider. This distinction carries great significance, since states can regulate the intrastate portion of telecommunications services, while the interstate component is subject to federal rules.

Information services are not subject to any kind of state regulation. Indeed, information services, like the internet itself, are free from almost all federal and state regulation, which is why Vonage really, really, really wanted the FCC to label it as such.

The FCC, probably wanting to avoid painting itself into a corner by deciding VoIP's status prematurely, instead resolved the case based on a bit of esoteric telecoms law known as the "impossibility exception".

The impossibility exception basically states that the FCC can preempt state rules where it is physically impossible for service providers to comply with both state and federal regulations. More specifically, the exception allows the FCC to preempt state regulation when there is no way to separate the interstate and intrastate components of a regulation.

Translation: since the states have jurisdiction over intrastate calls, and the Feds have jurisdiction over interstate calls, the inability to tell the two apart renders compliance impossible and the FCC can then swoop in and preempt any state rule in conflict with federal regulations.

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