Minnesota backs down on VoIP rules--for now

Utility regulators in Minnesota have temporarily halted the first-ever attempt by a state to impose its telephone rules and regulations on an Internet phone service provider.

The Minnesota Public Utilities Commission acted partly because of a recent Federal Communications Commission order to stop its effort. The FCC claimed sole jurisdiction over Net phone service Vonage in its order, issued early last month.

In halting its regulatory plan on Tuesday, the Minnesota commission promised to resurrect the effort should a judge or Congress modify the FCC's order. Minnesota utility regulators also will jump-start the effort should a court decide U.S. District Court Judge Michael J. Davis was wrong to permanently bar the state from regulating Vonage last October. A decision is expected in about 90 days.

A spokesman for the commission didn't return a call seeking comment.

The commission's options, according to James Ramsay, general counsel of the National Association of (state) Regulatory Utility Commissioners, include challenging the FCC's recent decision in court. "I'm expecting at least one state to appeal," Ramsay wrote in an e-mail. He didn't disclose which state he meant--of the dozens that have unsuccessfully tried to regulate Internet phone service providers over the past two years.

Vonage, and other voice over Internet Protocol (VoIP) providers, have so far escaped the rigors of regulation mainly because their calls travel over the Internet, which lawmakers in general have kept unregulated to avoid stifling its development. That translates into sometimes jaw-dropping savings. Typically, VoIP providers charge $25 a month for unlimited domestic calling to any telephone number, versus about $60 charged by local phone companies.

States fear that the taxes they collect on phone calls will diminish as more calls travel the unregulated Internet, endangering funding for key public programs.

A Vonage spokeswoman said "it wouldn't be prudent" to speculate whether the decision in Minnesota will influence other states that have tried to regulate VoIP providers. The most active is New York, but utility regulators there have been temporarily barred from doing so since June, the result of a decision by U.S. District Court Judge Douglas Eaton. Vonage and the New York State Public Service Commission go before Eaton in January, when they will argue over whether the temporary ban should become a permanent one.