Effect of the FCC’s Minnesota Vonage Preemption Order on CPUC Regulation of Intrastate IP-enabled Services

In our first post regarding SB 1161, which would prohibit, subject to certain exceptions, the California Public Utilities Commission (CPUC) and other state and local agencies from regulating VoIP and other IP-enabled services, we offered some insights and historical background regarding the status of the CPUC’s jurisdiction over those services under California law. As we explained in that post, our view is that, as a matter of California law, providers of VoIP and other IP-enabled telecommunications providers are probably subject to, or potentially subject to, regulation by the CPUC as public utility telephone corporations. We did not address, however, the extent to which the CPUC’s authority may have been expressly preempted by the Federal Communications Commission (FCC) in its 2004 Minnesota Vonage Preemption Order. We will take a look at that issue, now.
State regulation of VoIP has been preempted by the FCC . . . right? – Not necessarily.

The Minnesota Vonage Preemption Order has been widely touted as precluding state regulation of VoIP service providers. By that order, the FCC preempted Minnesota Public Utilities Commission (MPUC) rulings by which the MPUC asserted jurisdiction over the intrastate aspects of Vonage’s IP-enabled “DigitalVoice” service and required Vonage to comply with all entry and service regulations generally applicable to traditional telephone service. The FCC observed that Vonage’s compliance with certain MPUC requirements was technologically impossible, and that because DigitalVoice was “fully portable,” meaning that the same end user could access the service from anywhere in the world through a broadband Internet connection without informing Vonage, Vonage would have no ability to avoid providing intrastate service in violation of the MPUC’s order, even it tried only to provide interstate service. As a consequence, the FCC concluded, the MPUC’s imposition of traditional telephone company regulations on the provision of Vonage’s service would substantially interfere with, if not preclude, Vonage’s provision of jurisdictionally interstate and international service, which would directly conflict with various important federal policies and objectives. For these reasons, the FCC preempted the MPUC’s order and indicated, further, that such preemption would extend to similar regulations imposed by other states on DigitalVoice or comparable services. However, the FCC’s preemption of state regulation may not be as far-reaching as some presume.

Since the Minnesota Vonage Preemption Order was issued, there has been continuing uncertainty as to how far the FCC’s preemption of state regulation over IP-enabled services reaches. The FCC’s decision specifically addresses only nomadic VoIP, but the FCC did state that it would preempt state regulation to a comparable extent with respect to the provision of VoIP by other entities including, the FCC said, “cable companies.” This could be read as indicating an intent to extend preemption to fixed VoIP, which typically is the nature of VoIP service offered by cable companies and, ordinarily, should not pose the same extent of separations issues as nomadic VoIP. This would suggest that the impossibility of separating intrastate from interstate components is not actually a critical aspect of the FCC’s analysis, but that other considerations noted in the FCC’s decision, such as an interest in promoting broadband deployment by enhancing opportunities for the use such facilities, and an interest in promoting a “vibrant and competitive free market for the Internet and other interactive computer services,” may, alone, be sufficient to support preemption of state regulation.

On the other hand, the FCC may have been speaking only with regard to cable services that like Vonage’s, utilize the Internet for call completion, rather than those that are clearly just a substitution for traditional TDM-based services. In fact, the FCC has subsequently indicated that the inability to undertake a separations analysis is still the key factor in its analysis, specifically noting, at times, that a VoIP provider that has the ability to track call jurisdiction would not be protected by the Minnesota Vonage Preemption Order, but would be subject to state regulation.

Thus, the actual extent to which the Minnesota Vonage Preemption Order operates to preempt CPUC regulation of IP-enabled services, including VoIP, is unclear and may well be far more limited than many presume.

Our first two posts on this topic have provided brief background regarding the current regulatory status of VoIP and other IP-enabled services in California. In subsequent posts, we will get closer to the heart of the matter: what, if anything, are likely to be significant impacts of SB 1161, if it is enacted.

(Despite the use of the editorial “we,” the views, opinions, and errors in this blog are all solely those of the writer, John Clark. They are offered only to promote further thought and discussion and are not intended to be relied upon as legal advice on any matter or subject.)
For more information please contact:
John Clark: Goodin, MacBride, Squeri & Day, LLP, San Francisco, California
415 392 7900 or jclark@goodinmacbride.com