## Facts

- Minnesota required providers offering telephone service in the state to comply with traditional telecommunications regulation, including certification and submission of a 911 plan.
- Vonage offered interconnected, “nomadic” VoIP service that could be used from any broadband connection and did not reliably reveal a user’s physical location.
- Vonage petitioned the FCC for a declaratory ruling that Minnesota’s requirements were preempted because the service’s intrastate and interstate components could not feasibly be separated and state regulation would interfere with federal policy.
- The FCC’s 2004 “Vonage Order” found the service’s interstate and intrastate aspects inseverable and preempted Minnesota from applying its traditional telephone regulations to Vonage’s service.
- Minnesota and other state commissions petitioned for review; the petitions were consolidated in the Eighth Circuit.
- After the preemption order, the FCC adopted a separate VoIP 911 order requiring interconnected VoIP providers to offer E-911 capabilities through VoIP-specific methods (such as registered location information).

## Issues

1. Whether the FCC could invoke the Communications Act § 2(b) “impossibility exception” to preempt state regulation of a jurisdictionally mixed service when intrastate and interstate components cannot be separated and state regulation would interfere with federal policy.
2. Whether the FCC reasonably concluded that applying Minnesota’s traditional telephone and 911-plan requirements to Vonage’s nomadic VoIP would effectively regulate interstate communications and conflict with federal policy.
3. Whether the FCC’s order unlawfully preempted, on a categorical basis, state regulation of fixed-location VoIP or other IP-enabled services beyond Vonage’s nomadic service.
4. Whether the FCC’s decision was arbitrary or capricious under the APA, including in light of the FCC’s later VoIP 911 rules.

## Decision

- The court denied the petitions for review and upheld the FCC’s preemption of Minnesota’s regulation of Vonage’s nomadic interconnected VoIP service.
- The court held that the FCC may preempt under the § 2(b) impossibility exception when (1) separation of intrastate and interstate components is impossible or impractical and (2) state regulation would negate valid federal rules or policies.
- The court agreed that Vonage’s nomadic service met the standard because user location could not be identified and there was no workable method to isolate intrastate calls.
- The court rejected the claim that the FCC had issued a final, binding blanket preemption for fixed-location VoIP; it read the order as limited to Vonage’s service and not a definitive ruling on other services.
- The court found the FCC’s action not arbitrary or capricious on the record before the agency when it issued the Vonage Order; the later VoIP 911 order did not retroactively invalidate the earlier preemption decision.

## Legal Principles

- Under Communications Act § 2(b), states retain authority over intrastate communications, but the FCC may preempt state regulation of a mixed interstate/intrastate service when intrastate and interstate components cannot feasibly be separated and state regulation would conflict with federal policy.
- When a service is functionally inseverable across state lines, a state cannot regulate the “intrastate portion” in a way that necessarily affects interstate communications.
- APA review focuses on whether the agency’s decision was reasonable on the administrative record at the time of decision; subsequent regulatory developments do not automatically render an earlier order arbitrary.
- Broad language in an agency order does not create reviewable, final preemption as to services not definitively addressed by the agency’s factual findings and operative ruling.

## Conclusion

The Eighth Circuit upheld the FCC’s preemption of Minnesota’s traditional telephone-service requirements as applied to Vonage’s nomadic interconnected VoIP, holding that inseverability of interstate and intrastate components and conflict with federal policy justified preemption under the § 2(b) impossibility exception, while treating the order as not a final preemption ruling for fixed-location VoIP services.


Minnesota Pub. Utils. Comm’n v. FCC, 483 F.3d 570 (8th Cir. 2007)