On December 1, 2025, the Administrative Law Judge (ALJ) presiding over the California Public Utilities Commission’s (CPUC) VoIP rulemaking (R.22-08-008) issued a ruling seeking comments (due January 12, 2026) on the CPUC Communications Division’s Phase 2 Staff Proposal. The Staff Proposal builds on the CPUC’s Phase 1 decision by refining California’s new VoIP licensing framework, clarifying registration pathways, and tightening financial and bonding requirements.
For any company offering interconnected VoIP service in California—fixed, nomadic, or hybrid—the Proposal represents a substantial regulatory inflection point. It creates new obligations, new penalties, and—for some providers—a time-limited opportunity to reclassify into a more appropriate (and less burdensome) regulatory category.
I. Background: California’s Two-Tier VoIP Framework
The CPUC’s evolving VoIP regime divides interconnected VoIP into two categories:
- Digital Voice Fixed (DVF) – For providers offering fixed interconnected VoIP at a specific service address, including offerings tied to wireline or broadband infrastructure.
- Digital Voice Nomadic (DVN) – For nomadic-only interconnected VoIP (e.g., mobile/softphone applications) not tied to a fixed service location.
Phase 2 is designed to complete the transition into this two-tier model, correct misclassifications from Phase 1, and impose clearer compliance standards.
II. Summary of Key CPUC Phase 2 Staff Proposals
- Streamlined DVF Authorization for Existing Wireline Carriers
Wireline carriers holding a CPCN or §1013 registration that are already offering fixed VoIP may obtain a DVF designation by filing a Tier 1 advice letter within 12 months of the Phase 2 decision.
Required disclosures include:
- Confirmation that fixed VoIP is being offered in California and identification of service areas
- Status of wireline facilities (full, limited, reseller) and whether the VoIP offering is facilities-based or non-facilities-based
- The date fixed VoIP service began in California
- Number of fixed VoIP customers and access lines
Practical impact: Allows established carriers to regularize their fixed VoIP offerings without a full new license application.
2. New Opt-Out Window for Nomadic-Only Providers
Providers automatically classified as DVF in Phase 1—but who, in fact, only offer nomadic/non-fixed VoIP—will receive a new 12-month window to:
- Surrender DVF authority (Tier 2 advice letter), and
- Register as DVN, accompanied by a sworn attestation confirming nomadic-only service.
Staff acknowledges that many providers did not understand the DVN pathway or missed the initial 45-day opt-out period. The new window is intended to reduce misclassifications and administrative churn.
Practical impact: This is a critical second chance for nomadic-only providers to avoid being locked into more burdensome DVF requirements.
- Retroactive Surcharge Obligations for Nomadic Providers
Staff proposes clarifying that:
- All nomadic-only interconnected VoIP providers must remit surcharges from the date service began in California, regardless of when they registered.
- Providers operating nomadic VoIP prior to filing DVN registration on or after May 13, 2025, should be penalized $1,000 per month for failure to register—until their registration is approved.
Practical impact: Providers may face meaningful retroactive liability for unremitted public-purpose surcharges, plus penalties.
- Financial Documentation and Performance Bond Clarifications
Staff proposes modest updates to financial documentation requirements for all providers seeking operating authority—not just VoIP carriers.
More significantly, Staff recommends clarifying performance bond obligations:
- A carrier more than 120 days late in submitting its executed performance bond (without an approved extension) may have its authority revoked.
- Failure to meet annual bond-renewal requirements may trigger a citation with monetary penalties; failure to cure may result in revocation.
- VoIP affiliates of ILECs and providers of last resort remain exempt from bond requirements.
- Initial bond filings must include an attestation that electronic copies represent the original instrument; if an original hard copy exists, it must be mailed to CPUC.
Practical impact: Providers with weaker balance sheets or constrained liquidity may struggle to satisfy tightened bonding requirements.
III. Strategic Considerations and Risks
- Correct Classification Is Mission-Critical
Accurate alignment between a provider’s operational model and its CPUC classification is essential. Misclassification can trigger unnecessary compliance obligations, financial exposure, and administrative oversight.
- DVF classification subjects a provider to significantly higher compliance burdens, including annual financial reporting, bonding requirements, and potential tariff filings.
- DVN classification, by contrast, carries a lower regulatory risk profile with fewer ongoing obligations.
For nomadic-only VoIP providers, the CPUC’s new opt-out window represents a timely opportunity to review and, if appropriate, transition to the DVN classification—potentially reducing compliance costs and reporting exposure.
- Financial and Bonding Exposure
DVF applicants must demonstrate adequate capitalization and maintain a performance bond as a condition of continued registration. Providers operating on limited capital reserves or with variable cash flow may encounter challenges sustaining these requirements.
- Failure to maintain bonding or meet CPUC financial thresholds could lead to suspension or revocation of authorization.
- Providers with light infrastructure investment and predominantly nomadic operations may find DVN classification more consistent with their financial structure and operational risk tolerance.
- Retroactive Liability and Financial Reporting Risk
Nomadic-only providers that historically have not remitted California surcharges should prepare for potential retrospective exposure. If CPUC determines that a provider was misclassified as DVN when it should have been DVF, liabilities may include:
- Past-due surcharges covering multiple reporting periods
- Interest and late-payment penalties
- Amended filings and documentation requirements
- Reserve accounting on financial statements to reflect potential contingent liabilities
Providers should assess potential exposure early and coordinate with accounting teams to quantify and disclose any material liabilities.
- M&A, Financing, and Investor Implications
DVF classification designates an entity as a “telephone corporation” under California law, triggering enhanced disclosure and compliance obligations. This designation can directly affect transaction strategy and deal mechanics in mergers, acquisitions, and financings.
Key implications include:
- Expanded due diligence scope for regulatory compliance
- Bonding and financial assurance requirements that may affect enterprise valuation
- Additional state-level regulatory disclosures in transaction documents
- Potential purchase-price adjustments or indemnification obligations tied to regulatory status
Nomadic providers considering capital raises, restructuring, or exit events should evaluate whether maintaining or transitioning to DVN classification presents a cleaner, lower-risk profile for investors.
- Emerging Multi-State Fragmentation Risk
California’s bifurcated approach—distinguishing fixed vs. nomadic VoIP and layering financial and bonding requirements—may signal a broader regulatory trend. If other states adopt similar frameworks, multi-state providers could face:
- Inconsistent classification standards across jurisdictions
- Increased compliance monitoring costs
- Duplicative bonding or reporting obligations
- Complexity in nationwide compliance coordination
Proactive classification analysis and documentation now can position providers to manage regulatory fragmentation and avoid reactive compliance costs if similar frameworks emerge elsewhere.
IV. Recommended Immediate Actions
- Conduct a California VoIP Compliance Audit
- Determine Proper Classification (DVF or DVN)
- Prepare Required Advice Letters
- Review and Update Financials and Bonds
- Assess Retroactive Surcharge Exposure
- Update Compliance Calendars
V. Conclusion: Act Early to Minimize Risk
The Phase 2 Staff Proposal signals a decisive shift in how California regulates interconnected VoIP—particularly nomadic providers historically treated under lighter frameworks. For many carriers, the Proposal will mean elevated compliance obligations, tighter financial scrutiny, and heightened enforcement risk. However, the new opt-out window provides a meaningful—if time-limited—opportunity for misclassified providers to realign their regulatory posture with their actual operations.
Because the operational and financial consequences may be significant, we recommend evaluating the Proposal now and preparing to act promptly once the CPUC adopts a final Phase 2 decision.
If you would like assistance with classification strategy, surcharge exposure evaluations, or preparation of DVF/DVN advice letters, our team is available to help. Please contact Jackie McHugh at jrm@commlawgroup.com for assistance.