Vonage Holdings Corp. v. Nebraska Public Service Commission

Vonage Holdings Corp. and a related entity (together, Vonage) (plaintiffs) provided “nomadic” voice-over-Internet-protocol (VoIP) services as well as “fixed” VoIP services. VoIP was an Internet application that transmitted voice communications over broadband Internet. VoIP-to-VoIP communications originated and terminated at IP addresses. Fixed VoIP communications originated from a fixed geographic location that a cable television company might provide from cable running to and from a customer’s residence. For nomadic VoIP, a customer could use the service wherever a broadband connection was available, and thus the originating and terminating locations of nomadic VoIP-to-VoIP communications were difficult or impossible to determine. In 1997, Nebraska enacted a law that allowed the Nebraska Public Service Commission (NPSC) (defendant) to establish a universal-service fund (USF) that would subsidize telecommunication services in high-cost or remote areas. In 2006, the Federal Communications Commission (FCC) directed VoIP service providers to collect a federal USF surcharge. The FCC recognized the difficulty with determining the interstate portion of VoIP communications and, accordingly, set a safe-harbor percentage of 64.9 to which the federal USF applied. Thereafter, Nebraska ordered nomadic VoIP service providers to collect a state USF, or NUSF, surcharge on intrastate communications. Following the lead of the FCC, the NPSC adopted the remaining 35.1 as the percentage of nomadic VoIP communications deemed to be intrastate. Vonage refused to collect the NUSF surcharge and sued NPSC to obtain a declaratory judgment as to whether NUSF was preempted by federal law and the FCC’s oversight. The district court found that the NUSF was preempted and that nomadic VoIP services were subject only to FCC regulation. The NPSC appealed.