Original URL: http://www.theregister.co.uk/2007/03/23/us_voip_court_victory/

Feds claim VoIP for their own

For the time being, anyway . . .

By Kevin Fayle

Posted in Law, 23rd March 2007 17:21 GMT

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.

The FCC determined that, since VoIP has no reliable or practical (read: cheap) way to determine geographic location based on the IP addresses used for the calls, there is no way to determine whether a call is interstate or intrastate. Thus, the impossibility exception applies and the FCC can sweep away all state regulations that interfere with valid federal rules or policies.

The court upheld the FCC's interpretation on this point, stating that the FCC's determination was entitled to a great deal of deference since the issue was technical and fact-heavy. The court did specifically address the state regulators' argument that an FCC order involving VoIP 911 calls contradicted the idea that it was impractical to determine geographic locations for VoIP users, but found it wanting.

The FCC 911 order, you may recall, was an attempt to ensure that VoIP users could properly access 911 systems based on their usual geographic location. The regulators argued that this order proved that VoIP providers can, in fact, determine a user's geographic location, and so the impossibility exception should not apply.

The court, on the other hand, took note of the fact that the 911 order was a temporary, compromise solution based upon a VoIP user's registration of the area in which they typically use the service - not an IP-based fix on the user's location. The order itself even notes that it would be nearly impossible to ever accurately determine a user's actual location based on an IP address, and relied on the registration quick-fix as a way around that technical roadblock.

The court also pointed to the fact that the FCC left a backdoor in its decision as a reason not to overturn it. The loophole allows a review of the Vonage order if VoIP technology ever changes in such a way that it suddenly becomes practical to pinpoint user location in real-time. This, said the court, was imminently reasonable, and further proved that the FCC's order was within its authority.

The court didn't seem to think it a problem that this bit of logic would encourage the VoIP providers to stifle the development of any new technology that could trace a user to their actual, real-time physical location, since this could then force the FCC to revisit the entire issue and possibly result in a flood of state regulations that would drive costs for the providers through the roof.

Thus, a decision that was meant to further the federal aim of encouraging competition and technological development in the telecomm arena could actually wind up reducing the quality of VoIP service.

In all fairness to the Eighth Circuit, though, that's more of a problem for the FCC than the court. Thanks to administrative law precedent in the US, an agency can come to the wrong decision as long as it considers all its option in good faith. Thus, as long as the FCC's decision isn't arbitrary or capricious, it can stifle or encourage innovation to its heart's content, and the court won't second guess it.

Which leaves the VoIP providers free to continue providing jumpy, distorted communications without the added burden of state regulations for the foreseeable future.®

Kevin Fayle is an attorney, web editor and writer in San Francisco. He keeps a close eye on IP and International Law issues.