VOIP Provider Succeeds in Enjoining Minnesota PUC

The case rose out of a Minnesota Department of Commerce (“MDOC”) investigation of Vonage, a firm providing voice-over-IP (VoIP) services which allow voice communications over the Internet. The MDOC investigation led to a complaint being filed by the MDOC before the Minnesota Public Utilities Commission (“MPUC”). In the complaint the MDOC alleged that Vonage was subject to regulation as a telecommunications services provider, and had failed to (1) obtain a proper certificate of authority required to provide telephone services in Minnesota, (2) submit a required 911 service plan, (3) pay 911 fees and (4) file a tariff. The MDOC’s complaint ultimately resulted in an MPUC order directing Vonage to comply within 30 days with Minnesota statues and rules regarding the offering of telephone service.Vonage sought injunctive relief in federal district court, arguing, inter alia, that it could not be regulated under the Minnesota laws that regulate telephone companies. Vonage argued that under federal law its VoIP services were “information services”, rather than “telecommunication services”, and that only services falling into the latter category could be regulated by state law.

In determining whether Vonage’s VoIP service was a “telecommunications service” or an “information service”, the federal district court followed the federal Communications Act’s explication of these categories. According to the Act, ”telecommunications services” consist in the “offering of transmission, between or among points specified by the user, of information or the user’s choosing, without change in the form or content of the information as sent and received.” In contrast, “information services” consist in the “offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.”

Having examined these categories, the district court found that the VoIP service provided by Vonage constitutes an information service because the information transmitted is transformed in the process of transmission. Vonage’s service allows customers using a computer to place a VoIP call to any person’s telephone number for receipt on their ordinary telephone handset, and for persons using ordinary telephone handsets to place a call to any Vonage customer, for receipt via their computer using a headset. (Vonage does not provide telephone-to-telephone VoIP services.) To complete a call from the computer of a Vonage customer to the recipient’s telephone handset, Vonage must transform information in the VoIP format into a form suitable for a public switched telephone network (“PSTN”); i.e., the ordinary telephone network. Conversely, when a person using an ordinary telephone calls a Vonage user, Vonage must transform information in the PSTN format into the VoIP format that allows receipt via the Vonage customer’s computer.

Accordingly, Vonage’s service is not a telecommunications service because ”from the user’s stand point’ the form of a transmission undergoes a net change” (internal quotations omitted). Finally, the district court agreed with Vonage respecting the scope of state regulatory authority: “In its role as an interpreter of legislative intent,” the Court held, “the Court applies federal law demonstrating Congress’s desire that information services such as those provided by Vonage must not be regulated by state law enforced by the MPUC”. The Court granted the injunction.

text of case

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