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February 2005
TELECOMMUNICATIONS
GUIDE
MINNESOTA
T E L E C O M
ALLIANCE
States Rights A month before the appeals court’s
Limited in decision, the FCC ruled that Internet
phone services could not be governed
Regulating Barring an appeal to the U.S.
Supreme Court – and an unlikely
reversal – a Dec. 28, 2004 decision by
by regulations that states use for
traditional wireline phone companies.
The commission left open the issue of
Internet the U.S. Court of Appeals for the
Eighth District prevents states from
whether states could still tax Internet
phone services. The PUC asked the
Phone regulating Voice over Internet
Protocol, or VoIP, the technology that
appeals court whether the FCC ruling
pre-empted Judge Davis’ decision,
allows phone calls using the Internet.
Service Add the likelihood of light regulations
for Internet-based phone service from
but the court ruled that the FCC’s
rules supported the district court’s
permanent injunction against the
the Federal Communications PUC.
Commission (FCC) and
telecommunications has a new The appeals court decision is a big
“playing field.” victory for Vonage and other Internet
phone providers. They argue that they
The industry’s “players” will have to are different from wireline phone
adjust. Some already are. companies because VoIP services
only supply the computer software
The Decision (and devices) used to make and
“”If the competitive receive phone calls over the Internet,
playing field is slanted The Minnesota Public Utilities but do not own or operate the physical
to a new technology, a Commission (PUC) made the appeal networks carrying the calls.
to the Eighth Circuit court in St.
company may have to Louis after Judge Michael Davis of States and wireline phone companies
change (to that the federal District Court in argue that VoIP providers are phone
Minnesota ruled in 2003 that the PUC companies that should be regulated
technology) to could not regulate Vonage, an Edison, because the services they provide are
effectively compete,” N. J.-based VoIP phone provider, as if basically the same as those provided
it were a traditional phone company. by traditional phone companies. In
Davis ruled that Vonage was not a essence, their argument is: “If it looks
Bill Vandersluis, director phone company – despite the fact that like a duck, walks like a duck and
of regulatory affairs for it calls itself the “broadband quacks like a duck, it must be a
Mankato-based telephone company” – but was duck.”
HickoryTech instead an information service and not
subject to regulation according to A Federal Issue Now
federal law. The Eighth Circuit
upheld Davis’ decision. The whole issue of regulating Internet
phone service now moves to the
federal level. With a reversal by the
U.S. Supreme Court doubtful – even
if an appeal is made, the court accepts
few cases and overturns fewer – the
issue is now on the plates of the FCC
and Congress. The former has already currently allow law enforcement to greatly reduced tax revenues seems
signaled its intent to regulate VoIP conduct wiretaps as they do on obvious, especially if – or when? –
lightly. The latter would have to wireline phones. But even if these Microsoft enters the field.
revisit the Telecommunications Act problems are fixed, which Jerry
of 1996. While there’s a growing Knickerbocker, government affairs VoIP Not the Only Issue
interest in doing that, changes may vice president for the Minnesota
come slowly and in a piecemeal Telecom Alliance, thinks is possible, VoIP is one of many important issues
fashion, if at all. there’s the much larger issue of a facing the telecom industry. Another
level competitive playing field. issue involves intercarrier
The issue is important to all of us compensation, the access charges paid
because it goes to the heart of the “If state regulators are pre-empted by long distance companies for use of
American idea of fair play for all. The from regulating VoIP providers, as it local company networks. “Because
1930s law that set up the federal appears they now are,” says wireless companies can’t be regulated
universal service fund understood the Knickerbocker, “then the only way by states, those carriers have no
necessity of a system that subsidized for companies to compete is in the pressure to negotiate agreements on
the actual costs of phone service in marketplace. And if wireline carriers this issue,” Knickerbocker says.
rural and hard-to-serve areas or part are at a competitive disadvantage “Local companies can go to court but
to ensure the people there would not because their customers pay taxes and that’s expensive and time-consuming.
be economically disadvantaged. fees that VoIP customers aren’t There needs to be equal leverage in
paying, then wireline companies will bargaining for each side. It’s not there
We may be headed for just that sort of be forced to do VoIP to save as much now.”
situation today. While the number of of their customer base as possible.”
people using Internet phone services The FCC is also being asked to
is still small, it’s growing fast and it’s Bill Vandersluis, director of eliminate intercarrier compensation
quite possible, perhaps even likely, regulatory affairs for Mankato-based by an industry group made up mostly
that the Internet will carry most calls HickoryTech, agrees, and points out of large companies. They want the
in the not-too-distant future. If VoIP the difficulties companies will have FCC to replace intercarrier
companies don’t have to pay taxes for doing that. “”If the competitive compensation with a “bill-and-keep”
things like 9-1-1 and universal playing field is slanted to a new system where companies would have
service, or the access charges on long technology, a company may have to to recover their infrastructure costs
distance calls that allow companies to change (to that technology) to from their own customers. Large
maintain their networks – none of effectively compete,” he explains. companies can spread such costs over
which VoIP providers pay now – “And that might have to happen even huge customer bases. For small, rural
many rural people could end up on though a company has millions companies, bill-and-keep would force
the wrong side of a digital telecom invested in equipment and technology them to raise their rates drastically
divide. Without some mechanism to that it won’t be able to recover. And a and cut new technology investments
offset the significant costs necessary company that jumps to the new unless there is an additional source of
to provide rural customers with technology leaves part or all of its old revenues.
telecommunication services, many revenue streams behind. Some small
won’t be able to afford what local companies currently get more than
phone companies would have to half their income from access charges
charge to recover their costs. and universal service funds.”
Minnesota Telecom Alliance is a
Adjusting to the New Playing Vandersluis also thinks VoIP could not-for-profit professional asso-
Field have a big effect on federal and state ciation representing more than 95
tax revenues from telephone service small, medium and large tele-
VoIP may be the future of telephony, and long distance calls. “To the extent communication companies provid-
offering number portability and many that VoIP is a tax ‘haven’ for end- ing voice, data, wireless, and high-
other services, but the technology is users, there could be massive speed broadband services to
not perfect. VoIP callers dialing 9-1- implications for state and federal tax Minnesota’s metropolitan and rural
1, for example, don’t reach an collections,” he notes. With cable communities. More information
emergency call center directly and companies like Comcast and Time about MTA can be found on the
their addresses don’t appear on call Warner rolling out VoIP in addition Internet at www.mnta.org
center screens. VoIP does not to AT&T, Qwest and other phone
companies, the implications for
Minnesota Telecom Alliance 30 E. 7th St., Suite 1650, St. Paul, Minnesota 55101
