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Judge says Internet phone regulation could slow Net's expansion
October 16, 2003

So-called "Voice-over-Internet-Protocol" or "VoIP" phone services have been around for years, but in the past, they were used mainly by only the most computer-savvy people. (MPR graphic)

St. Paul, Minn. — (AP) Allowing states to regulate companies that provide voice calls over the Internet as traditional telephone companies would conflict with federal law and could slow Internet growth, a Minnesota judge wrote Thursday.

Last week, Judge Michael Davis barred the Minnesota Public Utilities Commission from requiring a small, New Jersey-based company to apply for certification as a phone company. The rationale for his decision was made public Thursday.

"The Court acknowledges the attractiveness of the MPUCs simplistic 'quacks like a duck' argument, essentially holding that because Vonage's customers make phone calls, Vonage's services must be telecommunications services," Davis wrote in the 22-page memorandum. "However, this simplifies the issue to the detriment of an accurate understanding of this complex question."

In this case, he said, state law is pre-empted by federal law that aims to keep the Internet free from undue regulation that could hurt the medium's development.

So-called "Voice-over-Internet-Protocol" or "VoIP" phone services have been around for years, but in the past, they were used mainly by only the most computer-savvy people.

Now, better technology and the replacement of dial-up Web access with speedy DSL and cable connections are bringing VoIP closer to the mainstream.

VoIP converts the sound of a voice into packets of data, sends them across the Internet, and reassembles them into sound on the other end of a call.

Davis said the method is clearly an information service rather than a telecommunications service and therefore not subject to the same rules.

"The Court can find no statutory intent to regulate VoIP, and until Congress speaks more clearly on this issue, Minnesota may not regulate an information services provider such as Vonage as if it were a telecommunications provider," he wrote.

The judge said the case illustrates the impact of emerging technologies evolving ahead of the regulatory scheme intended to address them.

"Despite its continued growth and development, the Internet remains in its infancy, and is an uncharted frontier with vast unknowns left to explore," Davis wrote, later adding, "The Court understands the MPUCs position, but that position will have the unintended consequence of retarding the expansion of the Internet."

The growth in the VoIP industry threatens the more expensive traditional phone services. Vonage, for instance, advertises unlimited calls to anywhere within the United States and Canada for $34.99 per month.

The broader effect of the judge's ruling was unclear, and calls to industry analysts weren't immediately returned. Vonage officials also didn't immediately return a call seeking comment.

Minnesota regulators dropped their order that Vonage apply to be certified as a phone company after Davis' permanent injunction last week. Burl Haar, the PUC's executive secretary, said the commission was studying the decision and didn't have any immediate comment.

At least a half-dozen other states are studying the issue. So far, states have concentrated mostly on possible deficiencies in 911 use for VoIP users.

Because that type of service eliminates the connection between a phone number and a physical location, a 911 call dialed from a VoIP phone may not be automatically routed to the appropriate local emergency switchboard.

Davis didn't specifically address this issue, other than to say that because Vonage is unable to determine the geographic location of its customers, it requires customers to register their location before they can dial 911 for public safety purposes.

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