U.S. COURT OF APPEALS FOR THE EIGHTH CIRCUIT UPHOLDS FCC’S
PREEMPTION OF STATE REGULATION OF VOICE OVER INTERNET PROTOCOL
In a decision issued March 21, 2007, Minnesota Public Utilities Commission, et al. v.
Federal Communication Commission, et al., No. 05-1069, the U.S. Court of Appeals for the
Eighth Circuit denied petitions to review that challenged the FCC’s Order preempting state
regulation of telecommunication services which utilize Voice over Internet Protocol (“VoIP”).
The FCC had preempted state regulation of VoIP after determining that (1) it would be
impractical, if not impossible, to separate the intrastate portion of VoIP service from the
interstate portion, and (2) state regulation of VoIP would conflict with federal rules and policies.
The FCC’s Order came as a result of a petition filed by Vonage Holdings Corporation
(“Vonage”), which had been ordered by the Minnesota Public Utilities Commission (“MPUC”)
in 2003 to comply with Minnesota regulations applicable to telephone service and cease and
desist from offering Vonage’s Digital Voice services within Minnesota until it did so.
As you know, VoIP is a an Internet application utilizing “packet-switching” to transmit a
voice communication over a broadband Internet connection. VoIP is different from the “circuit-
switching” application used to route traditional landline telephone calls. In circuit-switched
communications, an electrical circuit must be kept clear of other signals for the duration of the
telephone call. Packet-switch communications travel in small digital packets along with many
other packets, allowing for more efficient utilization of circuits. Packet-switching is more cost
effective then circuit-switching.
VoIP communications also differ from traditional circuit-switched telephone
communications in other respects. First, the end-to-end geographic location of traditional
landline-to-landline telephone communications are readily known, so it is easy to determine
whether a particular telephone call is intrastate or interstate. VoIP-to-VoIP communications,
however, originate and terminate at an Internet Protocol (“IP”) addresses which exist in
cyberspace, but are tied to no identifiable geographic location. Thus, a VoIP customer residing
in Minnesota but visiting New York State could connect a laptop computer to a broadband
Internet connection there and communicate with a next door neighbor in Minnesota via
computer. The next day the same caller could be in Los Angeles and talk to the same person
who now happens to be in Los Angeles as well, all using VoIP. The Internet would recognize
both communications as taking place between the same two IP addresses, but when considering
the geographic locations of the caller and the recipient of the call, the first call would be
interstate (New York to Minnesota) while the second call would be intrastate (Los Angeles to
Likewise, in VoIP-to-landline or landline-to-VoIP communications, known as
interconnected VoIP service, the geographic location of the landline part of the call can be
determined, but the geographic location of the VoIP part of a call can be anywhere in the world
where the VoIP customer obtains broadband access the Internet, not necessarily in geographic
location associated with the customer’s billing address or assigned telephone number. Moreover,
using the North American Numbering Plan (“NANP”), the industry’s system of using a three
digit area code followed by a seven digit telephone number, or a VoIP customer’s billing address
as “proxies” for the originating or terminating points of interconnected VoIP communications
causes some interstate calls to appear to be intrastate in nature and vise versa. In the example
used above, if one assumes that the caller and the recipient had Minnesota billing addresses and
NANP numbers with Minnesota area codes, both communications would appear to be intrastate
Minnesota calls, if the billing addresses or NANP numbers were used as proxies for the original
and terminating points of the communications, even though the first call was made between New
York and Minnesota, and the second call was made within Los Angeles.
Additionally, the use of proxies as substitutes for the actual originating and terminating
points of VoIP communications is further complicated by the fact that VoIP customers can
choose NANP numbers with area codes different from those associated with their billing address.
Thus, a VoIP customer could choose an area code for Washington, D.C., even though the
customer resided in New York. In such a case, the call in the example above between New York
and Minnesota would appear to be a Minnesota intrastate call if the customer’s billing address in
Minnesota were used as the proxy for the original point because the customer lived in Minnesota,
but would appear to be an interstate call between Washington, D.C. and Minnesota, if the NANP
number were used as a proxy for the originating point.
There are two kinds of VoIP calls. First, a VoIP call can be “nomadic”. Nomadic VoIP
services are the type described above, where a VoIP customer can use the service “nomadically”
by connecting with a broadband Internet connection anywhere in the world to place a call. A
VoIP call can also be “fixed”. In this type of VoIP call, the VoIP services used from a fixed
location. For example, cable television companies offer VoIP service to the customer, but when
they do so, the ensuing transmissions use the cable line running to and from the customer’s
residence. Thus, VoIP service is “fixed”. As a result, the geographic originating point of the
communications can be determined. When VoIP service is a “fixed” service rather than a
“nomadic” service, the intrastate and interstate portions of the service can be more easily
distinguished. This later issue has been one which has already been presented to the federal
courts. You may recall a decision by the U.S. District Court for the Eastern District of Missouri
which ruled in the case of Comcast v. The City of St. Louis, that Comcast failed to allege that its
service could not be separated between interstate and intrastate calls, and therefore, the court
refused to issue an injunction against the Missouri Public Service Commission from regulating
Comcast’s Digital Voice as an intrastate service. (See January 2007 Telecom Newsletter, Vol.
IV, Issue I.)
After Vonage received the MPUC order, it filed a petition with the FCC requesting the
FCC to preempt the order on the grounds that Vonage was a provider of “information services”
rather than a “telecommunications carrier”, and thus exempt from state regulation for its Digital
Voice service. In the alternative, Vonage requested the FCC find that its Digital Voice service
fell under the “impossibility exception” under Section 2(b) of the Communications Act, 47
U.S.C. § 152(b). This section allows the FCC to preempt state regulation of a service which
would otherwise be subject to dual federal and state regulation where (1) it is impossible or
impractical to separate the services of intrastate and interstate components, and (2) state
regulation interferes with valid federal rules or policies.
Vonage also filed suit against the MPUC in the federal District Court in Minnesota
seeking to enjoin enforcement of the MDUC’s order. The District Court granted a permanent
injunction which barred the MPUC from enforcing its cease and desist order, concluding that
Vonage was providing “information services” rather than “telecommunication services”, and
therefore, not subject to state regulation. The MPUC appealed this ruling to the Eighth Circuit.
While the MPUC appeal of this District Court decision was pending, the FCC issued the
referenced Order addressing Vonage’s petition. In the Order, the FCC adopted Vonage’s
alternative position, which was, irrespective of whether Vonage’s services should be
characterized as “telecommunications services” or “information services”, it was appropriate to
preempt state regulation because it was impossible or impractical to separate the intrastate
components of VoIP service from its interstate components, and state regulation VoIP interfered
with federal policies.
In support of its Order on preemption, the FCC recognized that communications over the
Internet were different from traditional landline-to-landline telephone calls because of the
multiple service features which come into place during a VoIP call. The FCC also recognized
that the a VoIP call requires accessing different websites or IP addresses during the same
communication and performing different types of communications simultaneously, none of
which the provider has the means to separately track or record by geographic location.
The FCC determined that there were significant costs and operational complexities
associated with modifying or obtaining a system to track, record and process geographic location
information with respect to the service, which would substantially reduce the benefits and use of
the service to the public.
The FCC also determined that state regulation of VoIP service would interfere with valid
federal rules or policies. Thus, the FCC decided that if Digital Voice offered by Vonage were
classified as a telecommunications service, Vonage would be considered a nondominant
competitive telecommunications provider for which the FCC had eliminated entry and tariff
requirements. In contrast, Minnesota law would compel tariff filings, and also has entry
requirements which would require Vonage to obtain a Certificate of Authority from the MPUC
before offering its services in Minnesota. The FCC eliminated tariff requirements for the
purposes of promoting competition and the public interest, and Minnesota’s tariff requirements
may actually harm consumers by impeding the development of vigorous competition. Likewise,
the FCC determined that if Digital Voice were classified as an information service, the FCC has
a long standing policy of non-regulation of information services, whereas any state regulation of
an information service would conflict with that federal policy of non-regulation.
Finally, the FCC decided that the practicality and severability of other types of IP-
enabled services having basic characteristics similar to Vonage’s Digital Voice service would
likewise preclude state regulation. Accordingly, the FCC stated that where other entities such as
cable companies provide VoIP, the FCC would preempt state regulation to an extent comparable
to what it did with respect to Vonage.
After the FCC issued its preemption of the Minnesota order at the request of Vonage, the
Eighth Circuit concluded that the FCC order was binding with respect to the MPUC appeal of the
District Court’s permanent injunction and barring enforcement of the MPUC order, unless and
until the aggrieved party sought review of the FCC’s preemption order. After the FCC’s order
was released, MPUC and others appealed the FCC’s order to various federal courts, which
transferred the case to the Eighth Circuit.
The Eighth Circuit held that it was proper for the FCC to consider economic burden of
identifying the geographic endpoints of VoIP communications in deciding whether it was
impractical or impossible to separate the service into its interstate and intrastate components.
Furthermore, the court held 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. The Eighth Circuit also
agreed that regulation of VoIP by the MPUC would conflict with federal policies
The Eighth Circuit Court also ruled that another FCC order that VoIP service providers
should contribute to the Universal Service Fund and comply with its E911 regulations were not
inconsistent with the FCC’s preemption of state regulation of Vonage, because in the case of the
E911 Order, the FCC recognized the practical difficulties of accurately determining the
geographic location of VoIP customers when they place the phone call. Thus, the FCC devised a
temporary solution requiring VoIP service providers to have their customer register the physical
location at which they would first utilize VoIP service, and to also provide a means for
customers to update these registered locations. Under this temporary fix, responses to 911 calls
would be routed to the registered location, which may not be the same as the actual location
where the call was placed. Accordingly, the FCC had recognized the practical difficulties of
determining the geographic location of nomadic VoIP calls. Furthermore, the FCC recognized
the potentially limited scope of its preemption of state regulations of VoIP in the event
technology is developed to identify the geographic location of nomadic VoIP communications.
The court acknowledged that the FCC indicated that if such technology were developed, the
preemptive effects of the Vonage order may no longer apply. Therefore, the court held that the
FCC’s preemption Order was not inconsistent with its Universal Service and E911 Order.
If there are any questions about this Eighth Circuit decision, or the current status of VoIP
communications, whether its provided by an entity like Vonage, or a cable television company,
in which there may be differences in how the service is rendered, please give us a call.
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FCC CLASSIFIES WIRELESS BROADBAND INTERNET
ACCESS SERVICE AS AN INFORMATION SERVICE
The Federal Communications Commission (“FCC”) declared on March 22, 2007 that
wireless broadband Internet access service is an “Information Service” as defined in Section
3(20), 47 U.S.C. § 153(20), the Federal Communications Act of 1934, as amended. The FCC’s
declaration places wireless broadband Internet access service on the same regulatory level as
other broadband service such as cable modem service, wireline broadband (digital subscriber line
or “DSL”), Internet Access Service and Broadband Over Power Line (“BPL”) enabled Internet
access service, all of which the FCC has declared on “Information Service”). Accordingly,
wireless broadband Internet access services will be free from unnecessary regulatory constraints.
Wireless broadband Internet access service is defined as a service that uses radio
frequency spectrum, wireless facilities, and wireless technologies to provide subscribers with
high speed Internet access. Wireless broadband Internet access service can be provided using
mobile, portable, or fixed wireless technologies. Such technologies can transmit data over short,
medium or long ranges.
The FCC specifically determined that the transmission component which underlines
wireless broadband Internet access is “telecommunications”, and that the offering of this
telecommunications transmission component as part of a functionally integrated wireless Internet
access service is an “Information Service”. Previously, the FCC made this same analysis with
the cable modem service in its 2002 Declaratory Ruling, on such service, and its ruling on
wireline broadband Internet access service and BPL enabled Internet access. The FCC also
determined that wireless broadband Internet access service using mobile technology is not a
commercial radio service (“CMRS”), as that term is defined in Section 332 of the
Communications Act, 47 U.S.C. ¶ 332, which is implemented by the FCC’s rules and regulations
in part 22 of the FCC’s Rules, 47 C.F.R. part 22.
The FCC released its Declaratory Ruling in this matter on March 23, 2007.
If anyone wishes to review the Declaratory Ruling, or has any questions about it, please
let us know.
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FCC INITIATES INQUIRY INTO BROADBAND MARKET PRACTICES
The Federal Communications Commission (“FCC”) initiated an Inquiry into broadband
market practices. More specifically, the FCC is seeking information in responses to a Notice of
Inquiry (“NOI”) on the behavior of broadband providers, including:
• How broadband providers are managing Internet traffic on their networks;
• Whether broadband providers charge different prices for different speeds or capacities of
• Whether the FCC’s policies should differentiate between content providers that charge end
users for access to content and those that do not; and
• How consumers are affected by the foregoing practices and activities.
The NOI also requests comment on whether the FCC’s 2005 Internet Policy Statement
that set forth four principles to encourage broadband deployment and preserve and promote the
open and inter-connected nature of the public Internet. You may recall that the FCC’s Internet
Policy Statement was set forth in our Telecom Report (Vol. II, Issue 6, August 31, 2005). In this
statement FCC announced the following four principles:
• Consumers are entitled to access the lawful Internet content of their choice;
• Consumers are entitled to apply applications and services of their choice, subject to
the needs of law enforcement;
• Consumers are entitled to connect legal devises to the Internet that do not harm the
• Consumers are entitled to competition among Internet network providers, application
service providers, and content providers.
Additionally, the FCC’s NOI requests public comment on whether the FCC’s Internet
Policy Statement should incorporate a new principle of non-discrimination, and if so, how would
non-discrimination be defined, and how should the principle be articulated.
The docket number of this NOI is Docket No. 07-52. The FCC has not yet released the
NOI, but when it does, it will provide response dates.
This NOI is related to the FCC’s NPRM to evaluate access to MDU or other real estate
developments for video providers (see above). As such, it is equally as important for interested
parties to respond to this NOI as it is to the FCC’s NPRM on MDUs.
Anyone interested in getting more detail on this NOI, or responding to the same, please
let us know.
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FCC ANNOUNCES RULE MAKING TO EVALUATE ACCESS TO
MULTIPLE DWELLING UNITS FOR VIDEO PROVIDERS
The Federal Communications Commission (“FCC”) has adopted a Notice of Proposed
Rule Making (“NPRM”) that requests public comment on issues relating to the use of exclusive
contracts for the provision of video services to multiple dwelling units (“MDUs”) or other real
In the NPRM, the FCC requests public comment on the use of exclusive contracts and the
MDU video provider in the marketplace, and the impact of such exclusive contracts on the goals
of enhanced multi-channel video competition and accelerated broadband deployment.
The NPRM specifically requests comment on the following subjects:
• The current environment for service providers attempting to obtain access to MDUs
or other real estate developments, including use of exclusive contracts;
• The impact of exclusive contracts on consumer choice and video competition, and
whether the use of exclusive contracts reduces the likelihood of competitive entry;
• The FCC’s tentative conclusion in the NPRM that the FCC has authority to regulate
exclusive contracts for the provision of video services to MDUs or other real estate
developments where it finds such contracts may impede competition and impair
deployment of such services; and
• The specific steps the FCC should take to insure that exclusive contracts do not
unreasonably impede competitive video entry.
The FCC has not yet released the text of the NPRM, but will do so shortly. Comments
will be due within thirty (30) days of the publication of the text in the Federal Register, with
reply comments coming several weeks later.
This NPRM is an important FCC undertaking, and presents the opportunity for video
providers, fiber optic companies, real estate developers, and other interested parties, to submit
written comments making a record with respect to their position on whether the FCC should
exert regulatory authority over exclusive contracts for the provision of video services to MDUs,
including whether the FCC has authority to regulate companies involved in such controls, which
are not telecommunication service providers or cable systems as defined in the Communications
If any of you are interested in filing comments for NPRM, please let us know as soon as
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QWEST REBUFFED IN ATTEMPT TO COLLECT ACCESS CHARGES FROM AT&T
FOR IP TELEPHONY
In Qwest Corporation v. AT&T Corp., et al., No. 05-1443 (March 14, 2007), the U.S.
Court of Appeals for the Tenth Circuit ruled against Qwest Corporation’s appeal of a decision of
the federal District Court in Colorado that Qwest could not collect access charges from AT&T
for IP Telephony. You may recall that AT&T began using phone-to-phone internet protocols
(“IP Telephony”) to route some of its long distance calls over AT&T’s Internet backbone and
through incumbent local exchange carrier’s local exchange systems in 1998. In the case of
Qwest, AT&T routed the calls over AT&T’s Internet backbone through Qwest’s local exchange
system. Qwest provides two relevant local exchange services to interexchange carriers. Access
services and PRI services. Access services are used and the accompanying access charges are
accrued for connecting long distance calls to Qwest’s networks. PRI services are used by IXE’s
for end-user administrative purposes. Qwest access charges are priced significantly higher than
its PRI charges. Qwest lists the rates for these services and tariffs follow the Fedral
Communications Commission (“FCC”) for interstate communications and with the applicable
state commissions in Qwest’s 14-state region for intrastate communications. More specifically,
AT&T sent interstate calls through Qwest’s primary rate interface (“PRI”) services.
After the FCC ruled on a Petition for Declaratory Ruling filed by AT&T in 2004 that
AT&T’s IP Telephony charges were not exempt from access charges on a prospective basis,
Qwest brought action against AT&T for accrued access charges on the IP Telephony calls
AT&T routed through Qwest’s PRI service, claiming that AT&T owed Qwest the higher access
charges as opposed to the PRI charges. AT&T and Qwest, however, had entered into a Bill
Period Closure Agreement (the “Agreement”) in 1992, which provided for billing monthly
settlements related to access charges. Under the Agreement, all billing issues not encompassed
by the Agreement were requested to be listed on a Supplemental Exemption form (the
“Supplement”) associated with the Agreement that had been or could have been asserted for all
periods prior to and including the billing period closed by the specific Supplement. If
exemptions were not listed in the Supplements, they were forever waived and released by
execution of the Supplement. Under the Agreement, Qwest submitted Supplements with
exemption forms for billing periods in 1999 and 2000 regarding to AT&T’s IP Telephony, but
later withdrew these exemptions. Qwest’s Supplements to the Agreement for the billing period
July 2000 through February 2004 were submitted to AT&T without exemption forms relating to
AT&T’s IP Telephony routing practices.
After the FCC denied AT&T’s Petition for Exemption From Access Charges in 2004,
AT&T stopped routing long distance calls using IP Telephony in April 2004. In May 2004,
Qwest filed a complaint in the U.S. District Court in Colorado against AT&T to recover access
charges from 2000 through 2004 relating to IP Telephony. A few days after the lawsuit was
filed, Qwest and AT&T executed a Supplement covering the February 2004 billing cycle. The
Supplement did not contain an exemption form relating to IP Telephony charges. Qwest later
tried to attach an exemption form to the Supplement, claiming that lower level access billing
personnel within Qwest mistakenly executed the Supplement without the exemption.
After Qwest filed the complaint, the U.S. District Court granted AT&T’s Motion for
Summary Judgment on Qwest’s claims for relief relating to the access charges prior to March
2004, based upon the Agreement and the Supplement which did not contain exemptions for
Qwest appealed the U.S. District Court’s decision, claiming that AT&T’s attempt to
enforce the Agreement and Supplement without the exemption violated the Filed Rate Doctrine.
The Tenth Circuit determined that the Filed Rate Doctrine did not preclude a good faith
settlement of a dispute regarding a federal tariff’s applicability in the absence of a regulatory or
judicial ruling directly resolving the dispute. The court held that the Filed Rate Doctrine’s
purpose is to prevent collusion and discrimination that justifies a strict application of the
Doctrine. In this case, however, these policies are not implicated, and the court refused to
invalidate the otherwise valid settlement of the access charge issue under the Agreement and
Supplement, because Qwest failed to attach an exemption to the Agreement and Supplement
reserving its right to collect access charges.
Call us if you want more information on this decision.
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FCC ANNOUNCES PROCEEDINGS ON BROADBAND DATA AND DEPLOYMENT
On April 16, 2007, the Federal Communications Commission (“FCC”) initiated two
proceedings focused on evaluating broadband deployment in the United States.
The first proceeding is a Notice of Inquiry (“NOI”) under Section 706 of the
Telecommunications Act of 1996 (the “Act”). This NOI requests public comment on whether
broadband services are being deployed in the United States in a reasonable and timely manner.
The second proceeding is a Notice Proposed Rule Making (“NPRM”), requesting public
comment on ways to collect information the FCC needs to establish broadband policies in the
The NOI is the fifth FCC inquiry under Section 706 of the Act. This section requires the
FCC to determine whether broadband services are being deployed in a reasonable and timely
fashion. In this NOI, the FCC requests public comment on how to define broadband in light of
rapid technological change occurring in the marketplace, including the development of higher
speed services and new broadband platforms. The FCC also requests public comment on the
following significant issues:
• Availability of broadband including rural and other hard-to-serve areas;
• Whether consumers are accepting new broadband services; and
• A level of competition in the broadband marketplace.
The FCC is also requesting public comment on what actions, if any, the FCC should take
to accelerate the deployment of broadband services, and comment on current investment trends
in the broadband industry. Finally, the FCC requests comment on external data sources that
address broadband prices and the extent to which consumers have a choice of competing
broadband providers, on a house-by-house and business-by-business basis, as well as comparable
data on speed, price, availability and adoption of broadband services in other countries. The
comment date on the NOI is June 15, 2007, with reply comments through July 16, 2007. The
docket number is WC Docket No. 07-52
The NPRM requests public comment on whether the FCC should modify collection of
speed tier information and how to improve the data it collects about wireless broadband Internet
Access Services. The NPRM also requests public comment on how the FCC can best collect
information about the number of subscribers to interconnected VoIP service. Last, the NPRM
requests public comment on the FCC can develop a more accurate estimate of current broadband
deployment, including by extrapolating for more accurate estimates of representative urban,
metropolitan, low income, tribal, rural and ex-urban(?) areas. the FCC also wants to seek
information on price, other factors that affect consumer decisions to subscribe to broadband
services, and comparisons of broadband services in the United States and other countries. the
docket number is WC Docket No. 07-51.
The comment date on the NPRM has not yet been established.
Each of these proceedings presents an excellent opportunity for those in the broadband
industry to make their positions known, and we suggest that all participants in the industry
consider filing appropriate comments with the FCC in response to each of these proceedings.
Let us know if you have any questions about the NOI or NPRM, as we have copies of the official
FCC documents in these proceedings
Shughart Thomson & Kilroy, P.C. provides this report for informational purposes only. Because the
material provided herein is general, it is not intended to be legal advice and should not be relied upon or