As has been expected, the FCC late Friday released an order finding that states can require nomadic interconnected VoIP providers such as Vonage to pay state universal service fund contributions on a prospective basis provided that (1) the relevant state’s contribution rules are consistent with the FCC’s universal service contribution rules (i.e., states must allow a provider to treat as intrastate for state USF purposes the same revenues treated by the provider as intrastate under the FCC’s USF contribution rules), and (2) the state does not apply its contribution rules to intrastate VoIP revenues attributable to another state (i.e., no two states can impose USF assessments on the same intrastate revenues).

This ruling essentially overturns a 2009 Eighth Circuit U.S. Court of Appeals decision finding that the FCC had preempted the states’ ability to impose such contribution requirements. The Eighth Circuit reached that decision despite the FCC's filing of an amicus brief stating that the best reading of its 2004 Vonage Preemption Order was one that found no preemption of states’ ability to impose USF contribution obligations on intrastate revenues.

While the FCC states that Friday’s order does not address the question of retroactivity, states seeking to collect past assessments could argue that the adjudicatory nature of the ruling shows that the answer provided by the FCC on Friday has always been the answer (i.e., the rules were interpreted – not changed). Of course, providers seeking to fend off retroactive state USF assessments can continue to rely on the broad preemptive language contained in the Vonage Preemption Order (and even a footnote expressly preempting a Minnesota statute requiring USF contributions) and the Eighth Circuit decision (which may have persuasive effect beyond the borders of that circuit) which remained “good law” until Friday.

Friday’s order also is notable for the guidance provided by the FCC with respect to the “double assessment” issue. For carriers claiming the FCC safe harbor, 35.1% of their interconnected VoIP revenues will be intrastate. Commenting favorably on the manner in which states have handled the state-by-state allocation issue in the wireless context (as with interconnected VoIP, states are preempted from imposing entry regulations on wireless providers, but may still impose USF contributions), the FCC noted that allocation based on “primary place of use” or, as a proxy, registered location for 911 purposes would be reasonable approaches to the allocation issue.  

Click here for a copy of Friday’s FCC order responding to a petition for declaratory ruling filed by the Nebraska and Kansas commissions.