The decision further consolidates the FCC's non-regulatory approach to the growing VoIP industry.
The ruling related to Vonage's DigitalVoice service, which allows customers to use their phones from broadband connections anywhere in the world. This, and other other types of IP-enabled services that have basic characteristics similar to DigitalVoice, are not subject to traditional state public utility regulation, said the FCC.
In particular, the FCC found that the company's DigitalVoice service could not practically be separated into intrastate and interstate components, precluding dual state and federal regulatory regimes.
The Commission also found that the regulations that would have been imposed by the Minnesota Commission were inconsistent with the FCC's deregulatory policies, and that the preemption was consistent with federal law and policies intended to promote the continued development of the internet, broadband and interactive services.
But the Commission was keen to stress that the ruling did not relate to general laws in Minnesota governing taxation, fraud, commercial dealings, marketing, advertising and other business practices. States, said the Commission, are expected to continue playing a vital role in protecting consumers from fraud, responding to complaints, and enforcing fair business practices.
The ruling will be further considered next week when a suit on the issue, filed by Vonage against the Minnesota regulator, is heard by the Court of Appeals for the 8th Circuit.
IP telephony, also known as VoIP or Voice over Internet Protocol, is basically the transport of telephone calls over an internet connection. For a company that already pays for a broadband connection, long distance calls can become free of charge, albeit that VoIP handsets tend to be much more expensive than standard handsets.
In the US, where internet access charges are free, the technology has the added attraction of being tax free. However, cash-strapped US states, concerned at losing revenue previously provided by highly taxed telephone calls, are calling for VoIP calls to be regulated and taxed.
In February, the FCC began investigating the growth of VoIP, taking as its starting point the premise that internet services should remain largely free of regulatory burdens and that it should apply regulatory requirements only where needed.
At the same time, the FCC announced an investigation into the technical issues associated with law-enforcement access to VoIP services. The FBI has expressed concern that VoIP offers terrorists a low risk means of communicating, as the structure for phone tapping and surveillance is less easy to implement.
There are further practical concerns, such as the effect of the new services on the emergency 911 systems, and the difficulty of funding low income or rural-based subscribers from VoIP services. At present these are subsidised by what are known as universal service fees, but costs might rise if funding cannot also be raised from the internet telephone service.
While pondering these difficult issues, the FCC has also been faced with petitions from individual companies over the imposition of regulations at the state level, and in the course of three important rulings, has begun to set out its non-regulatory approach to VoIP.
The first of these, issued in February this year, found that provider Pulver.com – which allows free access over the internet to other members of the service – was not a telecom service and therefore not subject to the usual telephone taxes and regulations.
Then in April the Commission found that AT&T was still liable to pay other providers over whose network a call was carried, even if the call, generated by an AT&T customer on a normal phone, was carried part of the way on AT&T's "internet backbone".
The third ruling, issued yesterday in respect of the Vonage petition, extends the approach even further.
"Internet voice is an internet application that takes its place alongside e-mail and instant messaging as an incredibly versatile tool for communicating with people all over the world. As such it has truly unique characteristics," said FCC Chairman Michael Powell. "To subject a global network to disparate local regulatory treatment by 51 different jurisdictions would be to destroy the very qualities that embody the technological marvel that is the internet."
"This forward-thinking decision from the FCC assures that competition from VoIP is here to stay," said Vonage CEO Jeffrey Citron. "Because the FCC has acknowledged the reality of the internet—which knows no state boundaries and no borders—more people will enjoy the benefits of internet phone service."