Vonage USF Win Complicates Federal Reform Efforts

A recent federal court ruling on VoIP providers’ contributions to state Universal Service Fund (USF) coffers marks a major victory for Vonage Holdings Corp. (VG) but puts a crimp in federal efforts to reform telecom compensation and contribution systems.

Vonage on May 1 won a long-fought victory against the state of Nebraska – a judge ruled that Vonage and other nomadic VoIP providers do not have to pay into state service funds. For the 20 or so states that run such programs, the decision is a blow, although it doesn’t hold as much impact as one might think, observers say.

“Frankly, I think if you carve out the nomadic VoIP guys, and I don’t think they’re a majority of the market anymore, this may be a more limited impact on the states than you think,” said a telecom lawyer who asked to remain anonymous.

The decision makes life harder for the FCC as well. The agency last year came close year to an overhaul after then-FCC Chairman Kevin Martin started pushing for action on intercarrier compensation reform. The move sent many CLECs into a panic and enough doubt prevailed among the four other commissioners that Martin failed to get the details to a vote before he resigned from the commission.

Now that Martin is gone, and the FCC remains in a flux state with an acting chairman and the upcoming DTV transition on its plate, intercarrier compensation fixes have taken a back seat. There’s no word on when the agency might again address the issue, but the 8th Circuit Court’s move spotlights the pressing need for reform.

Members of Nebraska’s Public Service Commission are likely to file an appeal to the finding, which means the case could reach the Supreme Court. At that point, the question of regulatory classification of voice service over the Internet would stand a chance of finally being defined.

And as people in the industry like to say, everybody knows intercarrier compensation and USF have to be changed, but no one knows quite how.

“It’s just a huge, messy business,” said the telecom lawyer.

And it just got messier.