Subject: [NEXTEL-1] Minnesota PUC Rules VoIP Is Telecom Service-Order May Have Broad Implications For Entire Industry

From: [email-masked]
Date: Wed, 20 Aug 2003 01:17:43 -0400

Minnesota PUC Rules VoIP Is Telecom Service

Aug 20, 2003

Order May Have Broad Implications For Entire Industry

The Minnesota Public Utilities Commission (MPUC) may have avoided being
plunged into darkness during last week's historic power outage, but it certainly
did not avoid being plunged into a precedent-setting controversy. The state regulator
last Wednesday sent a stunning message to providers of Internet telephony,
issuing a ruling - the first of its kind in the nation - classifying Voice over
Internet Protocol (VoIP) as telecommunications, not an information service. The decision -
soon to be the subject of an appeals court case - clears a path for the MPUC to
regulate VoIP in virtually the same way it regulates traditional telephone service
-
including rate regulation.

The MPUC ruling, if it holds up against legal challenges now being planned by a
variety of parties, will have sweeping consequences for VoIP providers and end
users around the nation. In fact, there is growing speculation among policy wonks
in Washington, D.C., and elsewhere that the Minnesota order could eventually
open the door for full-blown regulation of the Internet. What is certain is that
an ever increasing number of state regulatory agencies are now examining the same
questions answered last week in Minnesota. In fact, federal regulators are facing
mounting pressure from incumbent telcos to rein in VoIP, and make the
technology subject to the same rules that apply to providers of legacy telecom
services.

According to Burl Haar, executive secretary for the MPUC, the Minnnesota case
began July 15, when the state Department of Commerce filed a complaint with
the commission against Vonage Holdings Corp., a key provider of VoIP
services. The essence of the department's complaint, Haar told TPR, was that
Minnesota law requires companies providing telephone service in the state to be
certified by the MPUC. With respect to 911 service, the department said Vonage's
failure to have a commission- approved 911 plan (or to submit one for review and
approval) violated MPUC rules. In addition, the department said Vonage failed to
pay the 911 fees required to be collected from telephone subscribers and remitted
to the state's Department of Administration.

The Commerce Department also alleged that Vonage failed to file a tariff for
charges and prices of service it uses in conducting its telephone business.

The department asked the commission to take action to remedy the problem
posed by Vonage in the following ways:

Issue an order finding that Vonage knowingly and intentionally violated
Minnesota's rules and statutes.

Order Vonage to fully comply with all state statutes and rules relating to the
offering of telephone service in Minnesota within 30 days of the MPUC's order.

Order Vonage to remit 911 fees to the Minnesota Department of
Administration for the period when it served Minnesota customers but did not pay
such fees.

Assess penalties against Vonage in accordance with Minnesota law.

Vonage on July 23 offered the first of what was to become several responses to
the department's complaint. A week later, the company filed a motion asking the
MPUC to dismiss the department's complaint. In asking for the dismissal, Vonage
said it is an "information services" provider, not a "telecommunications services"

provider, and is not subject to the jurisdiction of the MPUC. Therefore, because
it does not provide telephone services or telecommunications services, it hasn't
violated any Minnesota statutes or rules, Vonage told the commission.

On Aug. 4. AT&T, MCI and Level 3 Communications entered the fray, Haar
said. TPR is well aware that the three companies have an interest in seeing VoIP
remain an unregulated technology. For one thing, VoIP is an inexpensive way to
transmit voice services. It allows large carriers to avoid certain types of fees
associated with interexchange (i.e., long distance) service, in that voice traffic
is "digitalized" into packets and then transmitted over the Internet backbone as
opposed to the Public Switched Telephone Network (PSTN).

In its various pleadings before the state commission, Vonage conceded it had no
certificate of authority from the MPUC, but added that as an information service
provider, it was not required to obtain a certificate before offering services in
the state, Vonage spokeswoman Brooke Schulz told TPR on Monday. Similarly,
Vonage didn't submit a 911 plan because it was not required to do so, she said.
The company also denied that it was required to collect 911 fees, but said as an
information service provider that purchases telecommunications services, it has
indeed paid 911 fees to telecommunications carriers, Schulz said.

On the subject of tariffs, Vonage has not filed such documents in Minnesota
because it is not subject to tariff requirements applicable to telephone
companies, Schulz said. In asking the MPUC to dismiss the department's complain, Vonage
urged the commission to immediately open a VoIP workshop, which is something
that a number of other states are currently doing.

MCI, in intervening, noted the issue of VoIP regulation is extremely complex and
has far-reaching implications, Haar said. In its pleading before the MPUC, MCI
noted that a determination by the commission to regulate VoIP service will likely
affect Universal Service Fund issues, intercarrier compensation issues, and
carrier obligations under Section 251 of the federal Telecom Act of 1996. In fact, a
ruling by the MPUC to regulate VoIP will affect parties other than those that are the
subject of the Minnesota Commerce Department's complaint, MCI said.

MCI said the commission must make "a threshold finding that it has jurisdiction
over the complaint, if it is to move forward." In this case, MCI said, such a
finding "is not simple, as no state or federal entity has made a finding as to whether the

VoIP services constitute a 'telecommunications service' or an 'information
service.'" The MPUC may only assert regulatory jurisdiction over the case if it determines
that the Vonage service meets the Telecom Act's definition of a
"telecommunications service," MCI said.

Haar said the MPUC staff analysis noted that there were two broad types of action
the commission could take to act upon the Commerce Department's complaint.
First, the commission could have determined it needed a more extensive record to
resolve the case. If that had been the decision, the MPUC would have ordered a
contested case hearing, or an expedited case hearing, or it would have embraced
the suggestion of Vonage and MCI and convened a VoIP workshop, Haar said.

The expansion of the record afforded by these types of proceedings would have
been especially useful in that there are facts material to the disposition of the
complaint which are in dispute, the staff analysis said. If, on the other hand,
the facts are undisputed, "then really only policy and law need resolution, and there
are less expensive means of doing so," the staff said in the analysis.

The second type of action open to the MPUC was to deal directly with the matter
on the basis of the record as it stands, Haar said. If the facts are undisputed,
and the law or policy is clear, then the MPUC could proceed to immediately put the
matter to rest - which is exactly the course the commission chose, he said.

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