Court Hears Debate on Whether States Can Regulate Cable VoIP

The N.Y. PSC Thurs. urged an appeals court to overturn an FCC decision preempting state oversight of cable IP telephony -- which an FCC attorney at the hearing said hasn’t occurred yet. The issue arose Thurs. in an oral argument before the 8th U.S. Appeals Court, St. Louis, on challenges to a Nov. 2004 FCC order preempting state regulation of Vonage.

Though not the primary issue before the court, the cable telephony debate threaded throughout the hearing. Jonathan Feinberg, representing the N.Y. PSC, said language in the FCC Vonage order lists cable VoIP among preempted services. Not so, said the FCC’s Nandan Joshi, who told the court the part of the order at issue only puts states on notice that the FCC might act on cable VoIP. Thus, Joshi said, the issue isn’t “ripe” for appeals court action. Feinberg said if the court decides the issue isn’t “ripe” for action, it at least should make that clear to other courts. Feinberg said he fears that district courts otherwise will assume states can’t regulate cable VoIP.

In question is the order’s Sec. 32, which addresses an issue key to preemption of state oversight of Vonage -- that it’s not possible to separate interstate and intrastate VoIP service. Services with “similar characteristics” to Vonage’s likely would get similar handling, the order said: “To the extent other entities, such as cable companies, provide VoIP services, we would preempt state regulation to an extent comparable to what we have done in this order.”

The FCC “practically speaking is preempting regulation of cable telephony,” said Feinberg. “The issue… is whether the FCC exceeded its jurisdiction when it stated it will preempt state regulation of cable VoIP.” The problem with cable is that it’s not hard to separate intra- and interstate calls “because the end points of the cable connections are fixed,” Feinberg said. “As such, we can identify a fixed endpoint when a cable company customer calls another cable customer or calls a customer on the public switched telephone network.” That means cable doesn’t fit the same “inseparable” test as Vonage, he said.

The upshot is state regulators can’t control cable telephony service quality, “can’t ask cable companies what is happening in their networks,” Feinberg said. Asked by Judge Kermit Bye if the market could take care of that, Feinberg said the market “may take care of the average case,” but after the 9/11 terrorist attack, N.Y. is compelled to go further. The PSC also wants to make sure there isn’t “a race to the bottom of service quality,” he said. One judge asked Feinberg why bring the issue up now, since the FCC language seems to be in the future tense. Feinberg said if states were to try to regulate cable telephony, cable firms could seek injunctions in district courts based on the FCC language. “If the court decides this case isn’t ripe for review, I believe it needs to address that problem,” he said.

Joshi said the FCC “made it clear it had not reached a decision on state preemption of other VoIP providers” such as cable. All that section says is that the agency is “likely” to preempt state oversight of other providers due to the difficulty of separating intra- and interstate calls, he said. Judge Steven Colloton asked why the language appears in the order if the FCC doesn’t consider it final. The FCC wanted to make clear that simply because a provider, such as cable, is facilities-based, doesn’t preclude the FCC from preempting state regulation of it, Joshi said. The FCC wanted to provide “guidance,” he added. “Guidance to whom?” asked Colloton. “To the industry and the states,” Joshi said. “So the states will not try to regulate?” Colloton asked. “At least not try to regulate similar services [to Vonage],” said Joshi.

Asked for his views on Feinberg’s request that the 8th Circuit let other courts know the FCC actually hasn’t acted yet on cable preemption, Joshi said he’s “not sure this court should instruct district courts elsewhere on how to read this order.” The N.Y. PSC could refer the matter to the FCC as the agency with primary jurisdiction if faced with a motion for injunction, he suggested.

The case before the court -- Minn. PUC v. FCC -- melds several PUC challenges to the order’s federal preemption of state oversight of VoIP providers. They include one by the Ohio PUC, which took the lead at the oral argument. The FCC had issued the preemption order against the backdrop of a Minn. PUC effort to bar Vonage from operating there unless it could provide 911 capability. The FCC asserted its authority over 911 in a separate order in 2005. Stephen Nourse, arguing on behalf of the Ohio PUC, said other public safety issues demand state rather than federal oversight. He said the FCC decision that it has “exclusive power” violates Congress’s “dual jurisdiction design,” along with case law and “the FCC’s own past decisions.”

A judge on the panel asked Nourse if he agrees with the FCC that it’s impossible to decide if calls are intra- or interstate. “The fact that you don’t know where calls are [coming from] doesn’t make them interstate,” Nourse said. A judge asked, “what do you do that the FCC doesn’t want you to do?” Nourse said “basic consumer protections to make sure they treat customers fairly and interact with other [telecom companies] in a fair way when using the telephone network.”

The states read too much into the order, Joshi said. It preempts only handling of certification, tariffing and related tasks, and “does not address consumer protections,” he said. The FCC “focused on those aspects that conflicted with federal open entry and detariffing policies,” Joshi said. A more comprehensive rulemaking pending at the agency will address other issues involving VoIP service, Joshi said. Asked by a judge if the FCC plans to “rein in” the order to exclude consumer issues, Joshi said it’s clear in the order that Minn.’s consumer protection laws weren’t addressed. Another judge noted “states want to do what they feel is proper without being second-guessed by the FCC.” Joshi said he sees that “but states can’t do it in a way that conflicts with federal policy.”

Ky Kirby, representing Vonage as an intervener, said PUCs are claiming functions such as 911 oversight are intrastate in nature and yet no state has appealed an FCC order asserting national jurisdiction over 911.