Court declares VoIP is exempt from service fees

ars technica has a great article on how Vonage won its fight with the state of Nebraska over service fees. Nebraska wanted Vonage to "chip in" by paying into the state's Universal Service Fund (USF), a fund designed to offset the costs of providing phone service to remote areas. A court ruled in favor of Vonage by declaring federal law excludes VoIP providers from paying service fees. This is great news for VoIP service providers, especially ones that don't own the last mile, since they can continue to offer service at prices that drive the cost of traditional PSTN phone service down.

Vonage doesn't "ride" on phone wires anyway - they ride on the Internet - so why should they pay into the USF? Well, technically, a Nebraska citizen could have DSL Internet access and be using Vonage. But if they have DSL, they have a phone line and probably pay a service fee already. Actually, most phone companies don't offer "naked DSL" (Internet only - no phone service), so in most cases Vonage customers would be using cable broadband not DSL. In which case, why should Vonage subsidize the USF when it doesn't even "ride" on top of the phone wires? And even if it did, lots of Internet applications ride on top of DSL phone lines. Shall we start forcing MySpace, YouTube or Google to pay into the USF? Sheesh!

ars technica excerpt:

Late last year, VoIP provider Vonage sued the state of Nebraska over the Nebraska Public Service Commission's attempts to force it to pay into the state's Universal Service Fund. A federal court has rebuffed the Cornhusker State's attempts, barring the PSC from collecting USF fees from Vonage and, by extension, any other VoIP provider operating within the state.

In 2006, the Nebraska PSC decided that VoIP providers operating within the state boundaries should be forced to contribute to the USF, which is used to keep local telephone rates down and subsidize broadband access in Nebraska's rural areas. The decision required Vonage and its competitors to "pay a surcharge... for all their intrastate Nebraska traffic," finding that "federal law did not preempt that authorization."

The problem is that federal law does have something to say on the subject, and it contradicts Nebraska's opinion regarding whether VoIP is subject to state regulation.

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