Further muddying the waters around the legal definition of VoIP, Vonage Holdings Corp. (VG) has secured a little-noticed regulatory victory that, while great news for the VoIP company, only complicates federal efforts to reform telecom compensation and contribution regimes.
On May 1, the 8th Circuit Court of Appeals in St. Louis ruled that Vonage and other nomadic VoIP providers do not have to pay into state Universal Service Fund (USF) coffers. Collected from various telecom service providers, mainly large carriers, the USF subsidizes several missions, including buildouts of communications services to schools and libraries and providing service to hard-to-reach communities.
The decision marks the sixth time a federal court has blocked state attempts to regulate Vonage, and ended more than a year’s back-and-forth between Vonage and Nebraska’s Public Service Commission. Vonage maintains that it shouldn’t have to contribute to the states’ Service Funds because its VoIP product is an information, rather than a telecommunications, service. Further, Vonage argued, its service is nomadic, which makes separating intra- and interstate traffic impossible. The judge agreed.
The 8th Circuit win is especially welcome for Vonage, which is losing subscribers and on May 7 reported a net loss, excluding one-time gains, of $7.7 million. The VoIP provider is hoping the latest verdict “will re-settle the exclusive federal jurisdiction over this important form of competition,” Charlie Sahner, a Vonage spokesman, told VON.
Only about 20 states have USF systems and now they’ll “no longer have legal justification for assessing intrastate USF contributions on VoIP providers,” wrote Jessica Zufolo, telecom analyst for investment bank Medley Global Advisors, in a May 1 client memo. The defeat, Zufolo added, comes at a bad time for states such as Nebraska, Kansas and Texas: “Their state funds continue to face pressure from a declining revenue base due to the increase in non-switched offerings like IP voice.”