Vonage Holdings v. Minnesota PUC

In 2003, Vonage filed a petition asking the FCC to preempt the Minnesota Public Service Commission’s decision that it, as well as every other state regulatory agency, had regulatory jurisdiction over Vonage’s services.  A year later, the FCC tackled the regulatory treatment of Vonage’s DigitalVoice, a popular IP to PTSN VoIP service.  The FCC found that DigitalVoice and other similar services allow users to originate and receive voice communications.  Additionally, it found that other resources allow users to control their own communications over the Internet. The 8th circuit accordingly upheld the district court of Minnesota's earlier decision which had been echoed by the FCC order.

Vonage uses a third-party Internet service provider (ISP), which provides a broadband Internet connection to users. Vonage itself does not function as an ISP for its customers. Vonage users can make computer-to-computer calls, computer-to-phone calls, and receive phone-to-computer calls. With computer-to-computer calls using a broadband Internet connection, outgoing communication is transformed into IP data that is sent through the Internet to a person on another computer.  “For computer-to-phone calls and phone-to-computer calls, Vonage uses a computer to transform the IP data packets into a format compatible with the PSTN, and vice versa. Rather than using the POTS equipment, Vonage’s customers use special customer premises equipment (“CPE”) that enables voice communication over the Internet.”
The court concluded that the service resembles the telephone service provided by the PSTN, but was distinct in that the Vonage customer must have a broadband connection to use the service as well as purchase special equipment to initiate and receive telephone calls.  Even though special equipment may often attach regular telephones to a specialized CPE that transmits and receives Internet protocol packages, a regular telephone will not work with IP to PSTN services such as Vonage without special equipment. 

In October of 2003, despite the Minnesota Commission’s order for Vonage to be obligated to comply with all state statutes and regulations on the offering of telephone service in Minnesota, the commission never determined whether Vonage was a telecommunications service or an information service.  In 2004, the 8th circuit court found in favor of Vonage, as an information service, and that federal law preempts the Minnesota Commission’s authority to regulate the service as a common carrier.

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