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Can VoIP Providers Avoid State Consumer Protection Rules?

In the state of Minnesota, an appeal to the Eighth Circuit Court of Appeals is likely inspiring the state's residents to make the switch from traditional landline telephones to VoIP telephones. The state has posed the following (potentially hyperbolic) question that the court will likely avoid answering: Whether the rule of law may be rendered obsolete by technological innovation.

For individuals who already pay for high-speed internet access, tacking on VoIP services can be done rather cheaply, and are almost always a better deal than traditional landline services. This is partly due to a loophole that allows standalone, interconnected, VoIP providers to avoid stringent state consumer protection rules.

However, the case pending before the Eighth Circuit could change everything, as the state is asking the court to declare VoIP providers as telecoms covered by the FCC. And interestingly, the FCC decided to step into the appellate fray by filing an amicus brief discussing how VoIP services live in a sort of FCC-limbo.

Case Details

The case involves a dispute between Charter Cable and the Minnesota Public Utilities Commission. Until 2013, Charter accepted that the MPUC imposed regulatory fees on it and Charter's consumers. But, at some point in 2013, the company transferred all of its consumers to a newly formed subsidiary company and stopped paying the MPUC fees. Charter admits doing so for the purpose of avoiding state regulation.

Charter relied on a distinction that allows VoIP services to escape the same regulatory framework under the FCC as traditionally telecommunication companies, like landline or cell phone service providers. Essentially, if a VoIP provider does not offer internet, or other data information, or telecom services, bundled with the VoIP service, the traditional telecom rules won't apply to it.

Chartering a Course

After the state came after Charter Cable, the federal district court struck down the MPUC's attempt to regulate Charter's newly formed VoIP subsidiary. The court reasoned that the federal law preempted the state's regulations, despite the fact that a state can regulate intrastate communications. Additionally, it noted that the regulatory fees being charged by the MPUC were misguided as VoIP providers still are regulating and still charge fees that go towards helping improve telecom access for the impoverished.

And while one might expect that the FCC stepped in to help the state of Minnesota defend the right to regulate, it actually filed its amicus brief in support of Charter.

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