The Jeff Pulver Blog: And the Legal Uncertainty Continues: California Appeals the Vonage Order

December 29, 2004

And the Legal Uncertainty Continues: California Appeals the Vonage Order

The State of California and the California PUC filed an appeal on Dec. 22nd with the Ninth Circuit of the FCC's Vonage Order. I doubt that Vonage Order will be reversed but it does put a little crimp in the VoIP industry's logical desire to go about business without the lingering threat of a court reversal. The one thing I think we need more than anything else is regulatory and legal certainty. Once the rules of the road are set, the IP-based communications industry will go out and deploy new products and services, but this incessant legal overhangs are really debilitating, both in our ability to deploy products and services with assurance and in our ability to obtain necessary funding from the investment community.

I find it interesting that the appeal has been filed with the Ninth Circuit.

I would have thought that the states would naturally shoot for the Eighth Circuit, which has the storied history of reversing the FCC when it leaves little opportunity for a state regulatory role (Iowa Utils. Bd. v. FCC). Better legal strategists than I might disagree, but I think this is probably a pretty good venue for most members of the VoIP industry. First of all it's a rather tech-savvy bench, which has to play to the benefit of tech innovators. Second, this is the Court that, in the Brand X case, reversed the FCC on its categorization of cable modem service as exclusively an information service. The Ninth Circuit, applying essentially a layered regulatory approach, concluded that cable modem service included both a telecom service component and an information service component. Members of the VoIP industry will disagree as to whether the FCC or the Ninth Circuit was correct. Those VoIP providers with their own last-mile access facilities would logically prefer that any broadband Internet access service be categorized as only an information service, thereby freeing the entire service offering from any telecom common carrier regulation. Unaffiliated VoIP providers, without their own last-mile access facilities, would logically prefer a layered model, where the applications are unregulated, but where some semblance of common carriage principles exists to ensure reasonable access to consumers.

It is possible that the appellants (and their allies) determined that the Ninth Circuit was a good choice because it did reverse the FCC on the cable modem decision -- it was comfortable reversing an administrative decision by the expert agency and it recognized that cable modem service include a telecom service. I guess the logic would be that the Court would also find that broadband voice services, like Vonage's, are also telecom services and therefore subject to telecom common carrier regulation (at least with regard to the underlying telecom transmission service). But, let's not forget that the FCC only ruled on the jurisdictional issues in the Vonage Order and did not rule on the service categorization question of whether VoIP services like Vonage's are telecom or information services. In fact, it is only our Free World Dialup service that is specifically designated an information service exempt, pursuant to the FCC's Pulver Order from telecom regulation. Thus, that issue over the service category of Vonage-like connected bring-your-own broadband VoIP service is presumable not ripe for appeal. That indeed would have been the interesting question for the Ninth Circuit -- and one which I think the Ninth Circuit's precedent in Brand X (subject to Supreme Court review) would have suggested that the voice application provided by Vonage would not be a telecom service, but the underlying transmission, provided by an ILEC, a CLEC, a cable company, would have been subject to telecom regulation. Perhaps the current appeal by California might have, intentionally or not, laid the groundwork, for the Ninth Circuit to ultimately hear this controversy upon the inevitable appeal of the FCC's IP-Enabled Services NPRM. I suspect some unaffiliated VoIP ASP will attempt to argue that it should be the Ninth Circuit that hears that case. I also suspect that an ILEC or a cable company will attempt to keep the Ninth Circuit from hearing that controversy. Of course, this might all become moot next Summer, depending on how the Supreme Court rules in the Brand X appeal.

We are living in interesting regulatory times.

Posted by jeff on December 29, 2004 12:55 AM | Permalink

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Case Number: 05-70049 (People of California v. FCC)

Posted by: fghh at January 6, 2005 12:35 PM

Does anyone know the 9th circuit docket # for this matter, or where I can obtain a copy of the petition for review?

Thank you

Posted by: mwn37 at January 3, 2005 04:17 PM

Jeff: I don't think the State of California had a choice as to which Circuit Court it filed its appeal. The jurisdiction of the Circuit Courts are geographic. California is in the territory of the Ninth Circuit.

Of course, California could have leaned on a friendly midwestern state to file in the Eighth. In fact, they still could. If multiple appeals are filed in different Circuit Courts, then the cases are consolidated and allocated by lottery to one Court.

The Ninth Circuit has another really interesting feature. It's enormous. Not just in geography (nine western states), but because there are 27 judges. Only a few, I think only three, sit on a case, so there's an incredible wild card element about the selection of the judges to hear the case.

Posted by: Dan Ryan at December 29, 2004 01:28 AM

Jeff, one thing I'm wondering is the following scenario:

A Bell carrier, say Verizon, sells access to an ISP, say XYZ Broadband. XYZ provides broadband internet service and consequently allows Verizon customers the opportunity to purchase FWD or Skype phone service. In this case, Verizon is a network operator and sacrificing service (phone) revenue for access revenue.

Another way to look at this is in the OSI 7 layer IP network model:

The Bell companies used to own both their phone network and the phone service. With open IP networks, anyone with access can provide the service over someone else's network. In other words, the network layer and application layer are independent of one another. If Verizon provides access to an ISP, then application is anyone's game.

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December 29, 2004

And the Legal Uncertainty Continues: California Appeals the Vonage Order

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