## Facts

- Vonage provided “nomadic” interconnected Voice over Internet Protocol (VoIP) service, allowing customers to place and receive calls using broadband Internet access from varying physical locations.
- Nomadic VoIP calls could not be reliably assigned to a specific state because VoIP endpoints may be used anywhere an Internet connection is available, and calls may originate and terminate at IP addresses without a fixed geographic point.
- The FCC required interconnected VoIP providers to contribute to the federal Universal Service Fund (USF) and adopted a 64.9% “interstate safe harbor” for calculating federal contributions, reflecting the difficulty of classifying VoIP traffic as interstate or intrastate.
- Nebraska’s Telecommunications Universal Service Fund Act authorized the Nebraska Public Service Commission (NPSC) to impose a state universal-service surcharge.
- The NPSC ordered nomadic interconnected VoIP providers to collect and remit a state surcharge on 35.1% of VoIP revenues, treating that remainder (after the FCC safe harbor) as “intrastate.”
- Vonage refused to collect the state surcharge and sought declaratory and injunctive relief in federal district court, arguing federal preemption and exclusive federal regulatory authority over nomadic interconnected VoIP.
- The district court permanently enjoined enforcement of the NPSC order as applied to nomadic interconnected VoIP, and the NPSC appealed.

## Issues

1. Whether federal law and the FCC’s regulatory framework preempt Nebraska’s requirement that nomadic interconnected VoIP providers collect and remit a state universal-service surcharge on presumed intrastate revenues.
2. Whether nomadic interconnected VoIP is subject to exclusive federal regulatory authority because jurisdictional separation into interstate and intrastate components is impracticable.

## Decision

- The Eighth Circuit affirmed the permanent injunction.
- The court held that Nebraska’s attempt to impose the state universal-service surcharge on nomadic interconnected VoIP was preempted by federal law as implemented through FCC action.
- The court concluded that nomadic interconnected VoIP could not be meaningfully separated into intrastate and interstate components for state-by-state regulation.
- The court determined that Nebraska’s surcharge conflicted with the FCC’s federal approach to universal-service contributions for interconnected VoIP and therefore could not be enforced.

## Legal Principles

- State regulation is preempted when it conflicts with federal law or stands as an obstacle to accomplishing federal objectives implemented by a federal agency acting within its authority.
- Where a communications service cannot be practically subjected to jurisdictional separation, federal authority may be exclusive for the regulatory subject matter at issue.
- The FCC’s establishment of a federal universal-service contribution mechanism for interconnected VoIP, including a safe-harbor allocation, may preclude states from imposing separate universal-service assessments based on independent intrastate designations for nomadic VoIP revenues.

## Conclusion

The court held that Nebraska could not require nomadic interconnected VoIP providers to pay a state universal-service surcharge based on a presumed intrastate revenue share because the FCC’s federal universal-service regime for interconnected VoIP and the impracticability of jurisdictional separation preempted Nebraska’s state assessment.


Vonage Holdings Corp. v. Nebraska Public Service Commission, 564 F.3d 900 (8th Cir. 2009)