Internet telephony providers have been exempted from some key state regulations by the Federal Communications Commission, which voted unanimously that the services are interstate commerce and thus under the proper jurisdiction of the federal government.
Vonage, which asked the FCC to declare them just that, said the 5-0 vote was a big victory for consumers. The company was at odds with Minnesota utilities officials who pressued to have them register in that state as a telecommunications service and leave it subject to Minnesota rate regulations and other state rules.
"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," said Chief Executive Jeffrey Citron.
“To subject a global network to disparate local regulatory treatment by 51 different jurisdictions,” FCC chairman Michael Powell said about the ruling, “would be to destroy the very qualities that embody the technological marvel that is the Internet.”
FCC commissioner Kathleen Abernathy, who said she doesn’t normally like to pre-empt state regulatory autonomy, agreed that Internet telephony is an interstate business inherently. She said several factors – especially the “architecture of packet-switched networks and the enhanced features that are offered as an integral part of [Voice-over Internet Protocol] services” – make it so.
“Together, these attributes necessarily result in the interstate routing of at least some packets,” Abernathy said. “These services are also marked – in striking contrast to circuit-switched communications – by a complete disconnect between the subscriber’s physical location and the ability to use the service.
“A subscriber’s physical location is not only unknown in many instances, but also completely irrelevant,” she continued. “Allowing state commissions to impose traditional public-utility regulations on these interstate communications services would frustrate important federal policy objectives, including the congressional directive to ‘preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation’.”
Perhaps to be expected, FCC commissioner Michael Copps went along with the vote while throwing forth a few barbs of his own. He said calling Internet telephony an interstate business is “fine as far as it goes, but it doesn’t go very far,” saying that just because you call a service interstate does not mean everything “magically falls into place, the curtains are raised, the technology is liberated, and all questions are answered.”
Copps said there are difficult questions of proper jurisdiction that are no closer to being answered now than before the FCC ruling. And by not supplying such answers, he said, the FCC has clouded rather than clarified the future of new technology. “While I agree that traditional jurisdictional boundaries are eroding in our new Internet-centric world, we need a clear and comprehensive framework for addressing this new reality,” he said. “Instead, the Commission moves bit-by-bit through individual company petitions, in effect checking off business plans as they walk through the door. This is not the way we should be proceeding.”
FCC commissioner Jonathan Adelstein said the ruling could injure state abilities to collect an estimated $1.9 billion in annual fees to pay for telephone service for rural and low-income customers.
“I cannot fully endorse an approach that leaves unanswered so many important questions about the future of communications services for so many Americans,” Adelstein said. “Rural and low-income Americans, the countless governmental and public interest groups who have expressed concern about our piecemeal approach, and the communications industry, itself, all deserve more from this Commission. If this Commission is to ensure that innovative services are widely available and also achieve the important public policy goals that Congress has articulated, the Commission must begin to wrestle in earnest with difficult issues that are largely ignored this Order. We simply cannot afford to slow roll these issues.”
The FCC ruling came down as Cisco Systems said strong demand for Internet telephones drove up their fiscal first quarter profit, even as some of the company’s largest units didn’t do as well as expected. The company’s net income rose 29 percent, to $1.4 billion over last year’s $1.1 billion, equal to 21 cents a share as compared to 15 cents a chare last year.
