District Court Holds that Vonage's VOIP is an Information Service
October 16, 2003. The U.S. District Court (DMinn) issued its Memorandum and Order [PDF] in Vonage v. Minnesota Public Utilities Commission, holding that Vonage is an information service provider, and that the MPUC cannot apply state laws that regulate telecommunications carriers to Vonage. The Court wrote that "State regulation would effectively decimate Congress's mandate that the Internet remain unfettered by regulation."
The conclusion that a service provider offers an information service, rather than telecommunications service, would prevent state and federal government entities from applying rules that apply to telecommunications, such as those pertaining to the filing of tariffs, cross subsidies, unbundling, wiretapping and other electronic surveillance by the FBI and other law enforcement agencies, and 911.
The Court engaged in a detailed review of the technological nature of the services provided by Vonage, and determined that these are information services under the language of the Communications Act, as amended, orders of the Federal Communications Commission (FCC), and particularly the 1980 Second Computer Inquiry, and the April 10, 1998 Universal Service Report, and opinions of the U.S. Supreme Court, Eighth Circuit, and the Fourth Circuit.
Notably, the Court ignored the opinions of the Ninth Circuit regarding classification of broadband internet services provided by cable operators as a telecommunications service. See, June 22, 2000, opinion in AT&T v. Portland holding that "transmission of Internet service to subscribers over cable broadband facilities is a telecommunications service".
See also, October 6, 2003 opinion [39 pages in PDF] in Brand X Internet Services v. FCC, vacating the FCC's declaratory ruling that cable modem service is an information service, and that there is no separate offering as a telecommunications service. And see, TLJ story titled "9th Circuit Vacates FCC Declaratory Ruling That Cable Modem Service is an Information Service Without a Separate Offering of a Telecommunications Service", October 6, 2003.
Also, the Court's conclusion was dependent upon its analysis of the technological nature of the services provided.
Vonage provides a service that permits voice communications over the internet. It sells a service called Vonage DigitalVoice that enables its customers to engage in voice communications, with broadband internet connections, using voice over internet protocol (VOIP). It has customers in the state of Minnesota.
The Minnesota Public Utilities Commission (MPUC) issued an order on September 13, 2003 requiring Vonage to comply with Minnesota laws that regulate telephone companies.
Vonage filed a complaint in U.S. District Court in Minnesota against the MPUC and its Commissioners, in their official capacities. It seeks declaratory and injunctive relief. It argues that its VOIP service is an information service, not a telecommunications service.
The Court began by observing that "Despite its continued growth and development, the Internet remains in its infancy, and is an uncharted frontier with vast unknowns left to explore. Congress has expressed a clear intent to leave the Internet free from undue regulation so that this growth and exploration may continue. Congress also differentiated between ``telecommunications services,´´ which may be regulated, and ``information services,´´ which like the Internet, may not."
It added that "At the outset, the Court must note that the backbone of Vonage's service is the Internet. Congress has spoken with unmistakable clarity on the issue of regulating the Internet: ``It is the policy of the United States ... 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.´´ 47 U.S.C. § 230(b)".
The Court applied the facts regarding Vonage's technology to the Communications Act, and concluded "that the VoIP service provided by Vonage constitutes an information service because it offers the ``capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.´´ 47 U.S.C. § 153(20). The process of transmitting customer calls over the Internet requires Vonage to ``act on´´ the format and protocol of the information. 47 C.F.R. § 64.702(a)."
The Court elaborated that "For calls originating with one of Vonage's customers, calls in the VoIP format must be transformed into the format of the PSTN before a POTS user can receive the call. For calls originating from a POTS user, the process of acting on the format and protocol is reversed. The Court concludes that Vonage's activities fit within the definition of information services. Vonage's services are closely tied to the provision of telecommunications services as defined by Congress, the courts and the FCC, but this Court finds that Vonage uses telecommunications services, rather than provides them."
Moreover, the Court held that the Communications Act preempts the state laws being applied by the MPUC. It wrote that "Because Congress has expressed an intent that services like Vonage's must remain unregulated by the Communications Act, and because the MPUC has exercised state authority to regulate Vonage’s service, the Court concludes that that state and federal laws conflict, and pre-emption is necessary."
The Court concluded by summarizing its holding: "it is clear that Congress has distinguished telecommunications services from information services. The purpose of Title II is to regulate telecommunications services, and Congress has clearly stated that it does not intend to regulate the Internet and information services. Vonage's services do not constitute a telecommunications service. It only uses telecommunications, and does not provide them. 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. What Vonage provides is essentially the enhanced functionality on top of the underlying network, which the FCC has explained should be left alone."
This case is Vonage Holdings Corporation v. Minnesota Public Utilities
Commission, Leroy Koppendrayer, Gregory Scott, Phyllis Reha, and R. Marshall
Johnson, in their official capacities as the commissioners of the Minnesota
Public Utilities Commission, D.C. No. 03-5287 (MJD/JGL), Judge Michael Davis