The regulatory environment surrounding Voice over Internet Protocol (VoIP) services in the United States has reached a breaking point. VoIP providers are increasingly burdened by regulations that closely resemble those applied to traditional telecommunications companies, yet without the legal protections afforded to common carriers under Title II of the Communications Act. As predicted in an earlier Tele-Tech Talk article, the convergence of state and federal laws & regulations has turned what should be an agile and innovative sector into a compliance minefield. Recent developments, such as the Smartbiz Telecom decision (AG v. SmartBiz Case Number: 22-23945 (Doc. 110)(S.D. Fl Sept. 19, 2024)), highlight how these companies are navigating a complex and often contradictory regulatory landscape that imposes many of the same obligations as Title II without offering the corresponding benefits.
The Smartbiz Telecom Case: A Snapshot of VoIP Vulnerabilities
The case against Smartbiz Telecom, prosecuted by the Florida Attorney General, provides a critical look at how VoIP providers are treated under current regulatory frameworks. In this ruling, Smartbiz was held liable for facilitating illegal robocalls, despite not being a traditional telecommunications carrier. This case underscores a troubling reality: while VoIP companies are not classified as common carriers under Title II, they are still expected to comply with a myriad of regulations that significantly increase their operational burdens. The Smartbiz decision reflects this regulatory paradox, where VoIP companies face obligations under multiple laws:
- Telephone Consumer Protection Act (TCPA): Smartbiz was penalized for failing to prevent illegal robocalls on its network, highlighting the stringent expectations placed on VoIP providers to monitor and mitigate illegal traffic.
- Telemarketing Sales Rule (TSR): The company was found responsible for aiding telemarketers in violation of the TSR, reinforcing the active role VoIP providers must play in preventing misuse of their services.
- Truth in Caller ID Act: Smartbiz’s liability for enabling misleading caller ID information reflects how VoIP providers are increasingly held accountable for fraudulent activity facilitated on their platforms.
- Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA): The application of this state-level law to Smartbiz underscores the heightened regulatory exposure VoIP providers face, which includes not only federal laws but also varying state regulations.
(Almost) All the Burdens of Common Carrier Regulation, But None of the Benefits
The case of Smartbiz Telecom is just one example of the broader trend in which VoIP providers are being subjected to a regulatory framework that imposes many of the same obligations as Title II common carrier regulation. Yet, these companies do not receive any of the protections traditionally afforded to common carriers. This disparity can be traced back to the distinction between common carriers and non-common carriers.
Under Title II of the Communications Act, common carriers—such as traditional telecommunications companies—are subject to exclusive FCC jurisdiction. This provides a more predictable regulatory environment where obligations such as fair pricing and non-discriminatory practices are enforced under a single federal framework. Common carriers benefit from FCC oversight, which often preempts state-level regulations and shields them from a patchwork of legal requirements.
By contrast, VoIP providers, often classified as non-common carriers, face a much broader regulatory exposure. They fall under the jurisdiction of the Federal Trade Commission (FTC) and the 50 state Attorneys General, in addition to various consumer protection laws at the federal and state levels. This fragmented regulatory landscape means VoIP providers must navigate not only the rules imposed by the FCC but also the enforcement actions taken by state authorities and other federal agencies. The result is a more complex, costly, and risk-laden compliance environment.
The Role of State Attorneys General and Broader Regulatory Exposure
The involvement of State Attorneys General is a significant factor in the regulatory challenges facing VoIP providers. Unlike common carriers, which benefit from the FCC’s uniform oversight, VoIP providers are often subject to state-level enforcement actions, particularly when it comes to consumer protection issues such as illegal robocalls and deceptive practices. The Smartbiz Telecom case is a prime example of how state laws like Florida’s FDUTPA can further complicate compliance for VoIP providers, layering state regulations on top of already stringent federal requirements.
It is worth noting that few in the industry, including our firm, advocate for VoIP services to be subjected to full Title II common carrier regulations. However, the reality is that nearly all material and impactful Title II-like obligations have already been extended to VoIP providers. These obligations include regulatory fees and contributions such as the Universal Service Fund (USF) and Telecommunications Relay Services (TRS), as well as outage reporting requirements, Section 214 discontinuance procedures, and various other regulatory mandates that the FCC has imposed over the years.
What remains largely excluded are Sections 201 and 202 of Title II, which deal with prohibitions on unreasonable and discriminatory practices, as well as certain transfer of control regulations. Yet, despite these exclusions, VoIP providers continue to face increasing pressure from the Federal Trade Commission (FTC), state Attorneys General, and the plaintiff’s bar, all while their common carrier counterparts benefit from the relative safety and predictability afforded by the FCC’s exclusive jurisdiction. This regulatory disparity leaves VoIP providers exposed to a patchwork of federal and state regulations, compounding their compliance burdens.
A Call for Regulatory Reform: The Briar Patch Dilemma
This growing regulatory burden begs the question: is it time for VoIP providers to push for a more formal classification under Title II? While full Title II regulation may sound onerous, the reality is that the existing framework places most of its burdens on VoIP providers without extending any of the benefits. As the current environment shows, VoIP companies are already expected to comply with stringent oversight and consumer protection obligations that closely resemble those of common carriers. What they lack, however, is the protection that comes from FCC preemption of state laws and the predictability of a more centralized regulatory system.
VoIP providers are, in effect, stuck in a regulatory “briar patch.” They are ensnared by both federal and state regulations, constantly exposed to liability, and unable to enjoy the streamlined oversight that common carriers benefit from under the FCC. As in the old tale of Brer Rabbit, one has to wonder: would VoIP providers prefer the briar patch of state and federal regulations, or would they be better off under the fox’s watch, fully regulated but also fully protected by Title II?
Conclusion: Navigating the Regulatory Minefield
The Smartbiz case illustrates the precarious position of VoIP providers in today’s regulatory landscape. Burdened with nearly all the obligations of Title II without any of its benefits, VoIP companies must carefully navigate a minefield of state and federal laws, constantly at risk of enforcement actions from multiple fronts.
As the VoIP industry grows and evolves, it is time for stakeholders to engage in meaningful dialogue about the future of its regulation. While few advocate for full Title II classification, the current approach is unsustainable. VoIP providers are increasingly finding themselves at the mercy of state laws and multiple regulatory bodies, all while lacking the protections common carriers enjoy under FCC jurisdiction. A more balanced regulatory framework is needed—one that acknowledges the unique nature of VoIP services and provides a path to sustainable, compliant growth.
