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Vonage: Not a Telecommunications Service

Posted by: Olga Kharif on May 1, 2009

Today, the 8th Circuit Court of Appeals ruled in favor of Web-calling provider Vonage in a landmark case. In Vonage Holdings Corp vs. the Nebraska Public Service Commission, the court determined that Vonage and other Voice over Internet Protocol (VOIP) providers whose services can be used nomadically won’t have to contribute to the state’s universal service fund (USF), because these companies provide an “information service” rather than a “telecommunications” service. Traditional carriers are required to contribute to the fund, used to provide schools with access to telecom services.

The decision could have long-ranging implications for national policy that governs USF charges. “This decision is a major victory for the entire VoIP industry who have long fought the states and the FCC on this issue,” notes Jessica Zufolo, senior policy director at Medley Advisors. “As a result of this opinion, several states with state USF funds will no longer have legal justification for assessing intrastate USF contributions on VoIP providers.” She adds, “This case throws a monkey wrench into the FCC’s ongoing process on what kind of access charge regime should apply to VoIP traffic.”

As more such cases pop up in different states, the FCC will have to, for starters, come up with a new definition of telecommunications services. “….the ultimate question as to whether VoIP service is a telecommunications service or an information service remains unanswered by the FCC,” according to a legal alert from law firm Sutherland Asbill & Brennan. Then will come an even harder part: Determining just how much to charge Vonage and its ilk. After all, according to today’s decision, Vonage is not a telecommunications service provider, and should not be charged at all.

Reader Comments


May 4, 2009 2:09 PM

It'll be interesting to see how this plays out. For more about VoIP you might check out these articles on hosted VoIP: and hosted PBX:

John Wiggins

May 7, 2009 9:44 AM

Why don't schools pay for the telcom services they want or need out of their own budgets like everyone else? This amounts to a hidden tax.


May 8, 2009 3:43 PM

A big list of Voip Providers


May 12, 2009 3:00 PM

Since most VOIP providers buy their service (mainly PRI's and issue DID's or virtual numbers they lease from a carrier) the “USF taxes” are paid by the VOIP to the carrier (AT&T; Verizon; XO Communications; Qwest;Embarq...etc...) So placing a USF tax to the customer would be double taxing. The USF tax is all inclusive in the price paid to the carrier by Vonage and the other VOIP providers.
There is a big difference between a Carrier and a Provider.


June 9, 2009 2:03 AM

So the basis of the decision is that Vonage does NOT provide a telecommunications service?
What a joke.
Not sure if I should laugh harder that Vonage was ever thought of as providing anything (much less telco services) or that they are providing something other than telco. Vonage is an infomation provider? So lets piggy back on someone else's infrastructure in order to make crappy calls and then claim you are not like the others, when the whole premise always was that you were like all the others, when you werent?

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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