March 21, 2007 / 3:52 PM / 13 years ago

UPDATE 3-US court backs FCC exemption of Web phone service

(Adds comment from FCC, cable association)

WASHINGTON, March 21 (Reuters) - A U.S. appeals court on Wednesday upheld a decision that exempted Internet telephone companies like Vonage Holdings Corp. (VG.N) from many state regulations and oversight.

The U.S. Court of Appeals for the Eighth Circuit backed a 2004 decision by the Federal Communications Commission that exempted Internet telephone companies from rate regulation and from being required to seek certification before offering service.

The court upheld the FCC’s order and said an issue raised by the state of New York on state regulation of fixed Internet phone services — like that offered by cable companies — was “not ripe for review.”

“After carefully considering the positions presented by both sides of this dispute, we conclude the FCC did not arbitrarily or capriciously determine state regulation of VoIP service would interfere with valid federal rules or policies,” the court decision said.

The FCC said the court decision affirms the agency’s authority to act to provide for public safety by requiring access to 911 emergency help, preserve universal service and “further other critical goals in an equitable, nondiscriminatory and competitively neutral manner.”

Consumers are gradually switching to VoIP service, or Voice over Internet Protocol, which requires a high-speed Internet connection. Established telephone providers have begun offering VoIP to compete with Internet phone companies like Vonage.

Minnesota and other states have demanded that Vonage obtain state certification, be subject to rate regulation and offer emergency 911 services comparable to those of land lines.

The FCC in 2005 addressed emergency service issues, including ordering Internet telephone carriers to ensure 911 calls reach live emergency dispatchers, instead of administrative lines.

Brooke Schulz, spokeswoman for Vonage, said the ruling was positive for Vonage and other businesses that would be hurt by regulations that are designed for networks that are built on the ground.

“It’s a win not only for Vonage customers but for the entire industry. The emerging industry that relies on the Internet shouldn’t be burdened by regulation and laws that are ill-designed for our industry,” she said.

David Kaut, analyst with Stifel Nicolaus, said the ruling gives Vonage and services like it protection from state regulation. “Cable dodged the bullet for now, but it will probably be in the cross-hairs in the future,” he said.

The National Cable and Telecommunications Association, which represents the biggest cable operators and programmers, said while the court specifically did not address the status of cable’s facilities-based technology, the ruling points in the direction of lighter regulation for all new phone providers.

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