Appeals Court Upholds FCC VoIP Policy

Q Boyer
WASHINGTON — In a ruling issued late last week, a U.S. appeals court upheld a Federal Communications Commission ruling that requires VoIP providers to contribute a portion of their earnings into the Universal Service Fund.

The U.S. Court of Appeals for the District of Columbia held that the FCC acted within its authority last year when it issued an order requiring VoIP providers like Vonage to pay into the fund.

In its challenge of the FCC order, Vonage argued that the FCC had exceeded its authority under the Telecommunications Act of 1996 and “acted arbitrarily and capriciously” by analogizing VoIP to traditional phone services when calculating revenues generated through interstate and international service, requiring pre-approval for traffic studies submitted by VoIP providers but not those submitted by wireless providers and suspending the “carrier’s carrier rule” where VoIP is concerned.

On the first two points, the court disagreed with Vonage.

“We conclude that the Commission has statutory authority to require VoIP providers to make USF contributions and that it acted reasonably in analogizing VoIP to wireline toll service for purposes of setting the presumptive percentage of VoIP revenues generated interstate and internationally,” the court stated in its decision.

The ruling wasn’t a complete loss for Vonage, however.

In its decision, the appeals court stated that it found the FCC’s explanation “wanting as to the pre-approval of traffic studies and the suspension of the carrier’s carrier rule,” and vacated those portions of the FCC order accordingly.

Representatives of both the FCC and Vonage were quick to declare victory, albeit a partial triumph.

“I am pleased that the court has affirmed the commission’s action, which ensures that Universal Service Fund contribution obligations are administered in a competitively and technologically neutral manner on all phone providers, including interconnected VoIP providers,” FCC Chairman Kevin Martin said in a written statement issued by the FCC.

A spokesperson for Vonage said that the company got what it wanted all along, despite the court’s ruling that the FCC acted within its authority.

“We are pleased that the court vacated portions of the FCC’s USF order that treated VoIP providers in an inequitable manner, as that was our goal: fair and equitable treatment for all VoIP providers under this interim USF funding regime,” Vonage spokeswoman Brooke Schulz said.

Companies offering long-distance and/or international phone service, as well as companies that offer digital subscriber line (DSL) technology currently must contribute 10.9 percent of revenue generated from those services to the USF.

According to the Universal Service Administrative Company (USAC), estimated contributions to the USF in 2006 totaled $7.3 billion. Since the fund was established in 1997, more than $16.4 billion in funding commitments have been disbursed from the fund to schools and libraries nationwide.