Vonage 2010 Annual Report Download - page 85

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
OTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(
In thousands, except per share amounts
)
R
egu
l
at
i
o
n
T
elephon
y
services are subject to a broad spectrum o
f
s
tate and federal regulations. Because of the uncertaint
y
o
v
e
rwh
e
th
e
rV
o
IP
s
h
ou
l
dbe
tr
ea
t
ed as a
t
e
l
e
-
communications or information service, we have bee
n
i
nvolved in a substantial amount of state and federal re
g
u-
l
atory activity. Implementation and interpretation of th
e
existin
g
laws and re
g
ulations is on
g
oin
g
and is subject to
l
iti
g
ation by various
f
ederal and state a
g
encies and courts
.
Due to the uncertainty over the re
g
ulatory classi
f
ication o
f
VoIP service, there can be no assurance that we will not b
e
s
ubject to new re
g
ulations or existin
g
re
g
ulations unde
r
new interpretations, and that such chan
g
e would not
i
ntr
oduce
m
a
t
e
ri
a
l
add
iti
o
n
a
l
cos
t
s
t
oou
r
bus
in
ess.
Federal —
C
ALEA
O
nAu
g
ust 5, 2005, the Federal Communications
C
ommission (the “FCC”) released an Order extendin
g
the
obli
g
ations of the Communications Assistance for Law
Enforcement Act
(
“CALEA”
)
to interconnected VoIP
p
ro
-
v
iders. Under CALEA, telecommunications carriers must
assist law en
f
orcement in executin
g
electronic surveillance
,
which include the capability o
f
providin
g
call content an
d
call-identi
f
yin
g
in
f
ormation to a local en
f
orcement a
g
ency,
or LEA,
p
ursuant to a court order or other law
f
ul author
-
i
z
a
t
io
n
.
T
he F
CC
required all interconnected VoIP providers to
b
ecome full
yC
ALEA compliant b
y
Ma
y
14, 2007. To date
,
we have taken significant steps towards
C
ALEA com
-
p
liance, which include testing a
C
ALEA solution with th
e
Federal Bureau of Investigation and delivering lawful
C
ALE
A
r
equests.
W
e
h
ave a
l
so
i
mp
l
emente
d
a
l
ternat
i
ve so
l
ut
i
ons
t
hat allow
C
ALEA access to call content and call-identifying
i
nformation. The F
CC
and law enforcement officials hav
e
b
een advised as to our
C
ALEA pro
g
ress and our efforts at
i
mplementin
g
alternative solutions. We could be subject to
an enforcement action by the F
CC
if our
C
ALEA solution is
deemed not fully operational
.
F
e
d
era
l
–
L
oca
lN
um
b
er
P
orta
bili
t
y
O
nMa
y
13, 2009, the F
CC
adopted an order tha
t
r
educed to one business day the amount of time that a
t
elecommunications
p
rovider such as us have to
p
ort a
t
ele
p
hone number to another
p
rovider. If we, or third
p
arties
we rely upon for portin
g
, have difficulty executin
g
the ne
w
one-day portin
g
requirement, we could be subject to F
CC
e
n
fo
r
ce
m
e
nt
ac
ti
o
n.
F
e
d
era
l
–
N
et
N
eutra
li
t
y
C
lear and enforceable net neutrality rules would mak
e
i
t more di
ff
icult
f
or broadband Internet service
p
roviders t
o
b
lock or discriminate a
g
ainst Vona
g
e service. Also explicitly
applyin
g
net neutrality rules to wireless broadband Interne
t
s
ervice could create
g
reater opportunities
f
or VoIP applica
-
t
i
o
n
s
th
a
tr
u
n
o
n wir
e
l
ess b
r
oadba
n
d
Int
e
rn
e
t
se
rvi
ce
.I
n
O
ctober 2009, the F
CC p
ro
p
osed the ado
p
tion of enforce
-
able net neutrality rules for both wired and wireless broad-
b
and Internet service
p
roviders. The
p
ro
p
osed rules woul
d
p
rohibit wired and wireless broadband Internet servic
e
p
roviders
f
rom blockin
g
or hinderin
g
law
f
ul content
,
applications, or services and
f
rom unreasonabl
y
discriminatin
g
when transmittin
g
law
f
ul network tra
ff
ic. I
n
addition, broadband Internet service
p
roviders would hav
e
t
o publicly disclose certain in
f
ormation about their networ
k
mana
g
ement practices. In December 2010, the FC
C
adopted en
f
orceable net neutrality rules based on it
s
O
ctober 2009
p
ro
p
osal. All of the
p
ro
p
osed rules in th
e
O
ctober 2009 proposal apply to wired broadband Internet
p
roviders. The FCC, a
pp
lied some but not all of the
p
ro
-
p
osed rules to wireless broadband service. Wireless
b
roadband Internet services
p
roviders are
p
rohibited
f
ro
m
b
lockin
g
or hinderin
g
voice or video applications tha
t
com
p
ete with the broadband Internet service
p
rovider’s
v
oice or video services. Wireless
p
roviders are also sub
j
ect
t
o transparency requ
i
rements,
b
ut t
h
ey are not su
bj
ect t
o
th
e
p
ro
hibi
t
i
on on unreasona
bl
e
di
scr
i
m
i
nat
i
on t
h
at a
ppli
e
s
t
o wired broadband Internet services providers. Several
b
roadband Internet service providers have
f
iled appeals o
f
t
he FCC’s new rules in the D.C. Circuit Court alleging tha
t
t
he FCC lacks authorit
y
to appl
y
its rules to broadband
I
nternet serv
i
ce prov
id
ers
.
S
tate Telecommunications Re
g
ulation
In general, the focus of interconnected VoIP tele
-
communications re
g
ulation is at the federal level.
On
November 12, 2004, the F
CC
issued a declaratory rulin
g
p
rovidin
g
that our service is subject to federal re
g
ulation
and
p
reem
p
ted the Minnesota Public Utilities
C
ommissio
n
from imposin
g
certain of its re
g
ulations on us. The F
CC
’s
dec
i
s
i
o
nw
as based o
nit
sco
n
c
l
us
i
o
nth
a
t
ou
r
se
rvi
ce
i
s
i
nterstate in nature and cannot be se
p
arated into interstat
e
and intrastate com
p
onents.
O
n March 21, 2007, the Unite
d
S
tates Court of A
pp
eals for the 8th Circuit affirmed th
e
FCC’s declaratory rulin
g
preemptin
g
state re
g
ulation of our
s
ervice. The 8th Circuit found that it is im
p
ossible for us t
o
s
e
p
arate our interstate tra
ff
ic
f
rom our intrastate tra
ff
i
c
b
ecause o
f
the nomadic nature o
f
the service. As a result
,
t
he 8th
C
ircuit held that it was reasonable for the F
CC
to
p
reempt state re
g
ulation of our service. The 8th Circuit wa
s
clear, however, that the
p
reem
p
tive effect of the FCC’s
declaratory rulin
g
may be reexamined i
f
technolo
g
ica
l
advances allow
f
or the se
p
aration o
f
interstate and intra
-
s
tate com
p
onents o
f
the nomadic VoIP service. There
f
ore,
t
he preemption o
f
state authority over our service under thi
s
r
ulin
gg
enerally hin
g
es on the inability to separate the inter-
s
tate and intrastate com
p
onents o
f
the service
.
While this rulin
g
does not exempt us
f
rom all stat
e
oversi
g
ht o
f
our service, it e
ff
ectively prevents state tele
-
communications re
g
ulators
f
rom imposin
g
certain bur
-
densome and inconsistent market entry requirements and
certain other state utility rules and re
g
ulations on our serv-
i
ce. State re
g
ulators continue to probe the limits of federa
l
p
reemption in their attempts to apply state tele-
communications re
g
ulation to interconnected VoIP service
.
F-30
VO
NA
G
E ANN
U
AL REP
O
RT 2010