Minnesota's Public Utilities Commission unanimously decided two weeks ago that the New Jersey-based voice over IP (VoIP) provider is subject to the rules and regulations that cover traditional phone companies.
The state has ordered Vonage to get the proper telephone company business licenses and to immediately pay fees to the state's Department of Administration to support 911 services, according to a representative for the Minnesota PUC.
Bill Wilhelm, an attorney for Vonage, called the decision into question Thursday, pointing out that the company's calls travel rather than over a traditional phone network.
"We believe the Minnesota PUC is incorrect in its findings," he said.
Vonage, which lays claim to 40,000 subscribers, is exploring all its options, he said--which include suing the Minnesota PUC in a state or federal court.
Minnesota is the first U.S. state to attempt to regulate VoIP, according to Vonage. VoIP is a new breed of cheaper phone service that lets people place calls through the Internet, avoiding telephone companies' local and long-distance networks.
The Minnesota PUC decision could have a widespread impact. While it only targets Vonage, it has set a precedent that regulators from all 50 U.S. states can use with regard to other VoIP providers. Michigan authorities have said they are considering a similar move, for instance.
The ruling could also help sway the Federal Communications Commission (FCC), which is in the process of deciding whether it considers VoIP a traditional phone service.
Such VoIP regulations are backed by major telephone companies. These carriers have come under competitive pressure from Vonage and major cable providers, which sell the lion's share of the 2.3 million VoIP calling plans in the United States.
Vonage was given 30 days from the publication of the Minnesota PUC order to comply with the state's phone company regulations--which should come in five to 10 days.