Federal Communications Commission FCC 10-185
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Universal Service Contribution Methodology
Petition of Nebraska Public Service Commission
and Kansas Corporation Commission
for Declaratory Ruling or, in the Alternative,
Adoption of Rule Declaring that State Universal 
Service Funds May Assess Nomadic VoIP 
Intrastate Revenues
)
)
)
)
)
)
)
)
)
)
WC Docket No. 06-122
DECLARATORY RULING
Adopted:  October 28, 2010 Released:  November 5, 2010
By the Commission:
I. INTRODUCTION
1. In this Declaratory Ruling, we advance the goals of universal service by ruling on a 
prospective basis that states may extend their universal service contribution requirements to future 
intrastate revenues of nomadic interconnected Voice over Internet Protocol (VoIP) service providers, so 
long as a state’s particular requirements do not conflict with federal law or policies.  Specifically, we 
conclude that state universal service fund contribution rules for nomadic interconnected VoIP are not 
preempted if they are consistent with the Commission’s contribution rules for interconnected VoIP 
providers and the state does not enforce intrastate universal service assessments with respect to revenues 
associated with nomadic interconnected VoIP services provided in another state.  In so doing, we resolve 
a petition of the Nebraska and Kansas state commissions (collectively, Petitioners) for a “declaratory 
ruling with prospective only effect” that states are not preempted from imposing universal service 
contribution requirements on “the future intrastate revenues” of nomadic interconnected VoIP providers.1  
Because the amended petition seeks a declaratory ruling with prospective only effect and does not present 
the question of retroactivity, we need not and do not reach that question in this Declaratory Ruling.
  
1 Amendment to Petition of Nebraska Public Service Commission and Kansas Corporation Commission, WC 
Docket No. 06-122, at 1 (Sept. 14, 2010) (State Petition Amendment); Petition of Nebraska Public Service 
Commission and Kansas Corporation Commission for Declaratory Ruling or, in the Alternative, Adoption of Rule 
Declaring State Universal Service Funds May Assess Nomadic VoIP Intrastate Revenues, WC Docket No. 06-122 
(July 16, 2009) (State Petition).  The Petitioners additionally requested a separate declaratory ruling that states have 
discretion to establish mechanisms to avoid double assessment of nomadic interconnected VoIP revenues by 
different states and urge the Commission to establish a “safe harbor” method for allocating nomadic interconnected 
VoIP revenues among the states for universal service purposes.  Id. at 3.  Although we defer action on this request 
until the Commission takes up long-term reform of the universal service contribution system, see FCC, National 
Broadband Plan:  Broadband Action Agenda, http://www.broadband.gov/plan/broadband-action-agenda.html (last 
visited Sept. 22, 2010), we suggest below one method states may use, see infra para. 21 & note 58.
Federal Communications Commission FCC 10-185
2
II. BACKGROUND
A. The Act and the Commission’s Requirements
2. Statutory Framework for Universal Service.  Section 1 of the Communications Act of 
1934, as amended (the Act), states that the Commission is created “[f]or the purpose of regulating 
interstate and foreign commerce in communication by wire and radio so as to make available, so far as 
possible, to all the people of the United States . . . a rapid, efficient, Nation-wide, and world-wide wire 
and radio communication service with adequate facilities at reasonable charges,” and that the agency 
“shall execute and enforce the provisions of th[e] Act.”2 Universal service is a key component in 
communications policy for ensuring that charges are reasonable.  Section 254(b) of the Act instructs the 
Commission to establish universal service support mechanisms with the goal of ensuring the delivery of 
affordable telecommunications services to all Americans.3 Section 254(b) also provides that Commission 
policy on universal service shall be based, in part, on the principles that contributions should be equitable 
and nondiscriminatory and that the support mechanisms should be specific, predictable, and sufficient.4  
The Act mandates universal service contributions from “[every telecommunications carrier that provides 
interstate telecommunications services” and authorizes the Commission to assess contributions on “[a]ny 
other provider of interstate telecommunications . . . if the public interest so requires.”5
3. Regulation of Interconnected VoIP Services.  The Commission’s rules define 
“interconnected VoIP service” as a service that (1) enables real-time, two-way voice communications; 
(2) requires a broadband connection from the user’s location; (3) requires Internet protocol-compatible 
customer premises equipment; and (4) permits users generally to receive calls that originate on the public 
switched telephone network (PSTN) and to terminate calls to the PSTN.6 Interconnected VoIP services 
may be fixed or nomadic.  A fixed interconnected VoIP service can be used at only one location, whereas 
a nomadic interconnected service may be used at multiple locations.
4. On March 10, 2004, the Commission initiated a proceeding to examine issues relating to 
Internet-Protocol (IP)-enabled services—services and applications delivered over broadband networks 
including, but not limited to, interconnected VoIP services.7 In the IP-Enabled Services Notice, the 
Commission asked commenters to address, among other things, the universal service contribution 
obligations of both facilities-based and non-facilities-based providers of IP-enabled services.8 The 
Commission sought comment on its authority, including mandatory and permissive authority under 
section 254(d), to require universal service contributions by IP-enabled service providers.9
5. In the 2004 Vonage Preemption Order, the Commission preempted an order of the 
Minnesota Public Utilities Commission (the Minnesota Vonage Order) that “assert[ed] regulatory 
jurisdiction over” an interconnected VoIP service offered by Vonage (known as DigitalVoice) and 
  
2 47 U.S.C. § 151.
3 47 U.S.C. § 254(b).
4 47 U.S.C. § 254(b)(4), (5).  The Commission adopted the additional principle that federal support mechanisms 
should be competitively neutral, neither unfairly advantaging nor disadvantaging particular service providers or 
technologies.  See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, 12 FCC Rcd 8776, 8801–
03, paras. 46–51 (1997) (Universal Service First Report and Order) (subsequent history omitted).
5 47 U.S.C. § 254(d).
6 47 C.F.R. § 9.3.
7 See IP-Enabled Services, WC Docket No. 04-36, Notice of Proposed Rulemaking, 19 FCC Rcd 4863, 4864, para. 1 
& n.1 (2004) (IP-Enabled Services Notice).
8 See id. at 4905, para. 63.
9 See id.
Federal Communications Commission FCC 10-185
3
“order[ed] the company to comply with all state statutes and regulations relating to the offering of 
telephone service in Minnesota.”10 Even though Minnesota purported to regulate only the intrastate 
aspects of Vonage’s service, the Commission concluded that preemption was warranted to avoid a 
conflict with federal rules and policies applicable to the interstate and international components of 
Vonage’s service.11 In so doing, the Commission relied upon the “impossibility doctrine” articulated by 
the courts, which allows the Commission to preempt state regulation when “(1) it is not possible to 
separate the interstate and intrastate aspects of the service, and (2) federal regulation is necessary to 
further a valid federal regulatory objective, i.e., state regulation would conflict with federal regulatory 
policies.”12 Specifically, the Commission found the impossibility test satisfied with respect to Vonage’s 
service because there was “no practical way to sever DigitalVoice into interstate and intrastate 
communications” such that the state regulations at issue could “apply only to intrastate calling 
functionalities.”13 As a result, the Commission explained, the Minnesota order “unavoidably reach[ed] 
the interstate components of [Vonage’s service] that are subject to exclusive federal jurisdiction” and 
preemption was necessary to prevent a conflict “with our pro-competitive deregulatory rules and policies” 
governing VoIP services.14
6. Since the Vonage Preemption Order, the Commission has issued several orders 
addressing the regulatory obligations of VoIP providers in a variety of areas.15 Of particular relevance to 
this proceeding, the Commission in 2006 adopted rules requiring interconnected VoIP providers to 
contribute to the federal Universal Service Fund.16 The Commission explained that interconnected VoIP 
  
10 Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public 
Utilities Commission, WC Docket No. 03-211, Memorandum Opinion and Order, 19 FCC Rcd 22404, 22409, para. 
11 (2004) (Vonage Preemption Order), aff’d, Minn. Pub. Utils. Comm’n v. FCC, 483 F.3d 570 (8th Cir. 2007) 
(MPUC).
11 For simplicity, we will hereafter use the term “interstate” when referring to the interstate and international 
communications subject to the Commission’s exclusive jurisdiction.
12 MPUC, 483 F.3d at 578; see also La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 375 n.4 (1986).
13 Vonage Preemption Order, 19 FCC Rcd at 22423, para. 31.
14 Id. at 22418, para. 23.
15 See, e.g., IP-Enabled Services; 911 Requirements for IP-Enabled Service Providers, WC Docket Nos. 04-36, 05-
196, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245 (2005) (VoIP E911 Order) 
(E911), aff’d, Nuvio Corp. v. FCC, 473 F.3d 302 (D.C. Cir. 2006); Communications Assistance for Law 
Enforcement Act and Broadband Access and Services, ET Docket No. 04-295, First Report and Order and Notice of 
Proposed Rulemaking, 20 FCC Rcd 14989 (2005) (assistance for law enforcement); IP-Enabled Services, WC 
Docket No. 04-36, Report and Order, 22 FCC Rcd 11275 (2007) (disability access); Implementation of the 
Telecommunications Act of 1996: Telecommunications Carriers’ Use of Customer Proprietary Network Information 
and Other Customer Information, CC Docket No. 96-115, Report and Order and Further Notice of Proposed 
Rulemaking, 22 FCC Rcd 6927 (2007) (customer privacy); Telephone Number Requirements for IP-Enabled 
Services Providers, WC Docket No. 07-243, Report and Order, Declaratory Ruling, Order on Remand, and Notice 
of Proposed Rulemaking, 22 FCC Rcd 19531 (2007) (local number portability and numbering administration); IP-
Enabled Services, WC Docket No. 04-36, Report and Order, 24 FCC Rcd 6039 (2009) (discontinuance 
notifications).
16 See Universal Service Contribution Methodology; Federal-State Joint Board on Universal Service; 1998 Biennial 
Regulatory Review Streamlined Contributor Reporting Requirements Associated with Administration of 
Telecommunications Relay Service, North American Numbering Plan, Local Number Portability, and Universal 
Service Support Mechanisms; Telecommunications Services for Individuals with Hearing and Speech Disabilities, 
and the Americans with Disabilities Act of 1990; Administration ofthe North American Numbering Plan and North 
American Numbering Plan Cost Recovery Contribution Factor and Fund Size; Number Resource Optimization; 
Telephone Number Portability; Truth-in-Billing and Billing Format; IP-Enabled Services, WC Docket Nos. 04-36, 
06-122, CC Docket Nos. 90-571, 92-237, 95-116, 96-45, 98-170, 98-171, 99-200, NSD File No. L-OO-72, Report 
and Order and Notice of Proposed Rulemaking, 21 FCC Rcd 7518, 7536, para. 34 (2006) (Interim Contribution 
(continued . . .)
Federal Communications Commission FCC 10-185
4
providers, like other contributors, “benefit from universal service because much of the appeal of their 
services to consumers derives from the ability to place calls to and receive calls from the PSTN [Public 
Switched Telephone Network].”17 The Commission also concluded that requiring interconnected VoIP 
providers to contribute to universal service would promote the “principle of competitive neutrality” by 
“reduc[ing] the possibility that carriers with universal service obligations will compete directly with 
providers without such obligations.”18
7. Federal universal service contributions are currently calculated on the basis of the end-
user revenues that contributors earn from their provision of interstate services; contributors are not 
assessed based on revenues from intrastate communications.19 Because of the difficulty that nomadic 
interconnected VoIP providers have in identifying whether calls are interstate as opposed to intrastate, the 
Commission in the Interim Contribution Methodology Order established a “safe harbor” under which an 
interconnected VoIP provider may presume that 64.9 percent of its revenues arise from its interstate 
operations.20 In the alternative, an interconnected VoIP provider may conduct a traffic study (i.e., a 
statistical sampling) to estimate the percentage of its revenues attributable to interstate traffic and use that 
percentage to calculate its contribution amount.21 Interconnected VoIP providers that are able to 
determine the jurisdictional nature of their calls may calculate their federal contribution amounts using 
actual revenue allocations.22
B. Vonage v. Nebraska Public Service Commission
8. On April 17, 2007, the Nebraska Public Service Commission (NPSC) entered an order 
requiring interconnected VoIP service providers to contribute to Nebraska’s universal service fund based 
on their intrastate revenues.23 Under the NPSC USF Order, the amounts that interconnected VoIP 
providers must contribute to the Nebraska fund are calculated solely on the basis of their intrastate 
revenues.24 To separate intrastate and interstate revenues for purposes of determining providers’ 
contribution amounts, the NPSC USF Order provides that interconnected VoIP service providers may 
choose among three options that are based on this Commission’s Interim Contribution Methodology 
Order: (1) a safe harbor under which 35.1 percent of the provider’s revenues is allocated to the intrastate 
jurisdiction (calculated by subtracting our interstate safe-harbor of 64.9 percent from 100 percent); (2) the 
provider’s actual Nebraska intrastate revenues; or (3) the provider’s Nebraska intrastate revenues 
(. . . continued from previous page)   
Methodology Order), aff’d in part and rev’d in part, Vonage Holdings Corp. v. FCC, 489 F.3d 1232 (D.C. Cir. 
2007).
17 Interim Contribution Methodology Order, 21 FCC Rcd at 7540–41, para. 43.
18 Id. at 7541, para. 44.
19 47 C.F.R. § 54.706; Tex. Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 447 (5th Cir. 1999) (TOPUC).
20 Interim Contribution Methodology Order, 21 FCC Rcd at 7544–45, para. 53.
21 Id. at 7547, para. 57; see also id. at 7535 n.115, 7547 n.190.  The Commission initially required interconnected 
VoIP providers to obtain the agency’s approval of their traffic studies before using them to calculate universal 
service payments.  Interim Contribution Methodology Order, 21 FCC Rcd at 7547, para. 57.  The D.C. Circuit, 
however, vacated the preapproval requirement.  See Vonage v. FCC, 489 F.3d at 1243–44.  Accordingly, 
interconnected VoIP providers currently may use traffic studies to calculate the amount of their universal service 
contribution without the Commission’s prior approval.
22 Interim Contribution Methodology Order, 21 FCC Rcd at 7544, para. 52.
23 See Nebraska Public Service Commission, on its own motion, seeking to establish guidelines for administration of 
the Nebraska Universal Service Fund, App. No. NUSF-1, Prog. No. 18 (Apr. 17, 2007) (NPSC USF Order).
24 NPSC USF Order at 4.
Federal Communications Commission FCC 10-185
5
determined through a Commission-approved traffic study.25 The NPSC USF Order states that 
interconnected VoIP providers should use their “customer’s billing address . . . to determine [the] state 
with which to associate [intrastate] telecommunications revenues” in calculating the amount of state 
universal service payments.26
9. Vonage challenged the NPSC USF Order in the U.S. District Court for the District of 
Nebraska.27 On March 3, 2008, the district court granted Vonage’s request for a preliminary injunction 
against enforcement of the NPSC USF Order, concluding that Vonage was likely to succeed on the merits 
of its argument that the rationale of the FCC’s Vonage Preemption Order preempted the NPSC USF 
Order.28 The NPSC appealed to the U.S. Court of Appeals for the Eighth Circuit, which affirmed the 
district court’s preliminary injunction.29 The Eighth Circuit concluded that “[b]ecause Vonage’s nomadic 
interconnected VoIP service cannot be separated into interstate and intrastate usage, the impossibility 
exception is determinative” of Vonage’s likely success on the merits of its preemption claim.30 The 
Eighth Circuit noted that, in the Vonage Preemption Order, the Commission “ma[de] clear that [the 
FCC], not the state commissions, has the responsibility and obligation to decide whether certain 
regulations apply to [Vonage’s service] and other IP-enabled services having the same capabilities.”31 A 
“reasonable interpretation of this language,” the court continued, “is the [Commission] has determined, 
given the impossibility of distinguishing between interstate and intrastate nomadic interconnected VoIP 
usage, it must have sole regulatory control,” and “while a universal service fund surcharge could be 
assessed for intrastate VoIP services,” the Commission must “decide if such regulations will be 
applied.”32 The Eighth Circuit further observed that the “potential for conflict between state regulations” 
that use conflicting methods for allocating intrastate revenue among the states also “militates in favor of 
finding preemption.”33
10. On July 16, 2009, in the wake of the Eighth Circuit’s decision, the Nebraska and Kansas 
commissions filed their instant petition for declaratory ruling, which they amended on September 14, 
2010.  As amended, the Petitioners request a declaratory ruling, solely with prospective effect, that states 
are not preempted from imposing universal service contribution requirements on future intrastate 
revenues of nomadic interconnected VoIP providers.34
  
25 Id. at 13.  The NPSC USF Order was issued before the D.C. Circuit invalidated the requirement that 
interconnected VoIP service providers obtain the Commission’s preapproval before relying on the results of a traffic 
study.  See supra note 21.
26 NPSC USF Order at 14.
27 See Verified Complaint for Declaratory and Injunctive Relief, Vonage Holdings Corp. v. Nebraska Public Service 
Comm’n, 543 F. Supp. 2d 1062 (D. Neb. 2008) (Case No. 4:07-cv-03277-LSC-FG3).
28 Vonage Holdings Corp., 543 F. Supp. 2d at 1071.
29 Vonage Holdings Corp. v. Nebraska Public Service Comm’n, 564 F.3d 900, 905 (8th Cir. 2009).  The 
Commission was not a party to the litigation, but did file an amicus brief in the Eighth Circuit supporting the 
Nebraska commission’s argument against preemption.  The Eighth Circuit’s opinion did not address or acknowledge 
the Commission’s amicus brief.
30 Id.
31 Id. (quoting Vonage Preemption Order, 19 FCC Rcd at 22404–05, para. 1).
32 Id.
33 Id. at 905–06.
34 See State Petition at 5; State Petition Amendment at 1.
Federal Communications Commission FCC 10-185
6
III. DISCUSSION
11. The petition before us is narrowly focused and requests only a determination whether, in 
light of current circumstances, we should preempt states from imposing universal service contribution 
requirements on the future intrastate revenues of nomadic interconnected VoIP providers.  We conclude, 
for the reasons discussed below, that we should not preempt the imposition of such requirements on 
nomadic interconnected VoIP providers so long as (1) the relevant state’s contribution rules are consistent 
with the Commission’s universal service contribution rules and (2) the state does not apply its 
contribution rules to intrastate interconnected VoIP revenues that are attributable to services provided in 
another state.
12. The parties to this proceeding disagree about the implications of the Vonage Preemption 
Order and how that decision should affect our analysis. On the one hand, the Nebraska and Kansas 
commissions emphasize that the Vonage Preemption Order did not expressly declare that states were 
preempted from imposing universal service contribution requirements.  They note that the Commission’s 
only specific reference to universal service in that order was for the purpose of noting that matters related 
to universal service requirements for interconnected VoIP providers were not being resolved therein, but 
rather would be addressed in the separate IP-Enabled Services proceeding.35 The Commission in the 
Vonage Preemption Order concluded that “the Minnesota Commission may not require Vonage to 
comply with its certification, tariffing or other related requirements as conditions to offering [its VoIP 
service] in that state.”36 Thus, as the states note, the Vonage Preemption Order can be read to preempt 
only state conditions to entry.  Because state universal service contribution requirements typically do not 
impose any burden on a provider until after the provider actually has entered the market, the Vonage 
Preemption Order can be read not to preempt such requirements.  On the other hand, as Vonage and other 
interconnected VoIP providers point out, because the Vonage Preemption Order used broad language in 
preempting the Minnesota Commission from “applying its traditional ‘telephone company’ regulations to 
Vonage’s DigitalVoice service,”37 which included universal service contribution requirements, the 
Commission’s reference to “telephone company regulations” can be construed to encompass universal 
service contributions requirements.38
13. Indeed, the Vonage Preemption Order has been subject to differing interpretations on this 
point.  When the Nebraska Public Service Commission appealed the district court’s ruling preliminarily 
enjoining the imposition of state universal service contribution requirements on Vonage, the United States 
and the FCC filed an amicus brief with the Eighth Circuit taking the position that the Vonage Preemption 
Order would best be construed not to preempt Nebraska from requiring Vonage to contribute to the 
state’s universal service fund.39 The Eighth Circuit neither addressed nor acknowledged the 
Commission’s amicus brief, but adopted a different reading of the Vonage Preemption Order.  In 
particular, the court focused on the statement in the Vonage Preemption Order that “this Commission, not 
the state commissions, has the responsibility and obligation to decide whether certain regulations apply to 
  
35 See Vonage Preemption Order, 19 FCC Rcd at 22432, para. 44; id. at 22411 n.46.
36 Id. at 22434, para. 46.
37 Id. at 22404, para. 1.
38 In footnote 30 of the Vonage Preemption Order, 19 FCC Rcd at 22409 n.30, the Commission stated that the 
“telephone company regulations” subject to preemption included all of the state laws identified in note 28 of the 
order, 19 FCC Rcd at 22408, n.28.  One of the state laws listed in note 28 contained a provision directing the 
Minnesota Commission to “require contributions to a universal service fund, to be supported by all providers of 
telephone services.”  See Minn. Stat. § 237.16, subd. 9.
39 Brief for Amici Curiae United States and Federal Communications Commission Supporting Appellants’ Request 
for Reversal, Vonage Holdings Corp. v. Nebraska Public Service Commission, 8th Cir. No. 08-1764 (filed Aug. 5, 
2008), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284738A1.pdf.
Federal Communications Commission FCC 10-185
7
[Vonage’s service] and other IP-enabled services having the same capabilities.”40 Although the court did 
not find that this language clearly mandated preemption of Nebraska’s universal service contribution 
regulations, it declared:  “A reasonable interpretation of this language is the FCC has determined, given 
the impossibility of distinguishing between interstate and intrastate nomadic interconnected VoIP usage, 
it must have sole regulatory control.”41 On the basis of this interpretation of the Vonage Preemption 
Order, the Eighth Circuit concluded that “the FCC has made clear it, and not state commissions, has the 
responsibility to decide” whether intrastate VoIP services should be subject to universal service 
assessments.42
14. The Eighth Circuit’s reading of the Vonage Preemption Order rested on the premise that 
it is impossible to distinguish “between interstate and intrastate nomadic interconnected VoIP usage.”43  
Two years after the Vonage Preemption Order, however, the Commission determined that the interstate 
and intrastate operations of interconnected VoIP providers can be distinguished for the limited purpose of 
assessing universal service contributions.  In the 2006 Interim Contribution Methodology Order, the 
Commission amended its rules to require providers of interconnected VoIP services to contribute to the 
federal Universal Service Fund on an interim basis.44 To implement these revised rules, the Commission 
developed a mechanism that enables providers of interconnected VoIP service to separate their interstate 
and intrastate revenues for purposes of calculating the amount of their federal universal service 
contributions.45 Specifically, the Commission established a “safe harbor” under which an interconnected 
VoIP provider may presume that its interstate operations produce 64.9 percent of its revenues.46  
Alternatively, under the new rules, an interconnected VoIP provider may conduct a traffic study to 
estimate the percentage of its revenues that can be attributed to interstate traffic.47 The Commission 
further recognized that some interconnected VoIP providers have the capability to track the jurisdiction of 
their calls.  It said that those providers could base their federal universal service contributions on their 
actual interstate revenues.48
15. While the Interim Contribution Methodology Order did not address the subject of 
preemption, its establishment of a mechanism for separating interstate and intrastate revenues in the 
specific context of universal service contribution requirements has important implications for our 
preemption analysis in this proceeding.  Now that the Commission has shown that it is possible to 
separate the interstate and intrastate revenues of interconnected VoIP providers for purposes of 
calculating universal service contributions, we find no basis at this time to preempt states from imposing 
universal service contribution obligations on providers of nomadic interconnected VoIP service that have 
  
40 Vonage Preemption Order, 19 FCC Rcd at 22404–05, para. 1, quoted in Vonage Holdings Corp., 564 F.3d at 905.
41 Vonage Holdings Corp., 564 F.3d at 905.
42 Id. Two months later, a federal district court in New Mexico adopted the Eighth Circuit’s interpretation of the 
Vonage Preemption Order.  See New Mexico Public Regulation Commission v. Vonage Holdings Corp., 640 F. 
Supp. 2d 1359, 1367–68 (D. N.M. 2009).  Neither this Commission nor the United States participated in that case.
43 Vonage Holdings Corp., 564 F.3d at 905.
44 Interim Contribution Methodology Order, 21 FCC Rcd at 7536–49, paras. 34–62.
45 As we explained above, see supra para. 7 & note 19, federal universal service contributions are currently 
calculated solely on the basis of interstate revenues; they cannot be assessed on the basis of intrastate revenues.  See
47 C.F.R. § 54.706; TOPUC, 183 F.3d at 447.  Therefore, to ensure the proper calculation of federal universal 
service contributions, the contributor must be able to distinguish its interstate revenues from its intrastate revenues.
46 Interim Contribution Methodology Order, 21 FCC Rcd at 7544–45, para. 53.
47 Id. at 7547, para. 57.
48 Id. at 7544, para. 52; see also id. at 7546, para. 56.
Federal Communications Commission FCC 10-185
8
entered the market, so long as state contribution requirements are not inconsistent with the federal 
contribution rules and policies governing interconnected VoIP service.
16. In light of the Interim Contribution Methodology Order, we conclude that the application 
of state universal service contribution requirements to interconnected VoIP providers does not conflict 
with federal policies, and could, in fact, promote them. Such providers benefit from state universal 
service funds, just as they benefit from the federal Universal Service Fund, because their customers value 
the ability to place calls to and receive calls from users of the PSTN.  Similarly, extending state 
contribution requirements to nomadic interconnected VoIP providers promotes the principle of 
competitive neutrality by “reduc[ing] the possibility that carriers with universal service obligations will 
compete directly with providers without such obligations.”49
17. We further conclude that state universal service contribution requirements do not conflict 
with federal rules to the extent that states calculate the amount of their universal service assessments in a 
manner that is consistent with the rules adopted in the Interim Contribution Methodology Order.  Under 
the Commission’s rules, an interconnected VoIP provider contributes to the federal fund on the basis of 
its revenues from interstate and international traffic; revenues from intrastate traffic are excluded. As 
described above, the Commission’s rules give providers three options by which they can establish their 
federal universal service revenue base:  (1) use a safe harbor under which 64.9 percent of their revenues 
are deemed to be jurisdictionally interstate (and therefore not intrastate); (2) conduct a traffic study to 
allocate revenues by jurisdiction; or (3) develop a means of accurately classifying interconnected VoIP 
communications between federal and state jurisdictions.50 Therefore, to avoid a conflict with the 
Commission’s rules, a state imposing universal service contribution obligations on interconnected VoIP 
providers must allow those providers to treat as intrastate for state universal service purposes the same 
revenues that they treat at intrastate under the Commission’s universal service contribution rules.  This 
will ensure that state contribution requirements will not be imposed on the same revenue on which an 
interconnected VoIP provider is basing its calculation of federal contributions.51 To the extent a state fails 
to comply with this limitation in the future, it may be subject to preemption consistent with the 
prospective Declaratory Ruling we issue today.
  
49 Id. at 7541, para. 44.
50 Id. at 7544–45, paras. 52–54.
51 Vonage is correct that when the Commission established how interconnected VoIP providers should determine 
their interstate revenues, it did not explicitly authorize states to assess the corresponding intrastate revenues to fund 
state-level universal service programs.  The Act, however, explicitly delegates authority to states to “determine[]” 
how state-level universal service programs should be funded so long as they are “not inconsistent with the 
Commission’s rules,” 47 U.S.C. § 254(f), and the Commission has never explicitly delegated authority to the states 
when it has established safe harbors for providers to report their interstate revenues.  See, e.g., Federal-State Joint 
Board on Universal Service; 1998 Biennial Regulatory Review – Streamlined Contributor Reporting Requirements 
Associated with Administration of Telecommunications Relay Service, North American Numbering Plan, Local 
Number Portability, and Universal Service Support Mechanisms; Telecommunications Services for Individuals with 
Hearing and Speech Disabilities, and the Americans with Disabilities Act of 1990; Administration ofthe North 
American Numbering Plan and North American Numbering Plan Cost Recovery Contribution Factor and Fund 
Size; Number Resource Optimization; Telephone Number Portability; Truth-in-Billing and Billing Format, CC 
Docket Nos. 90-571, 92-237, 95-116, 96-45, 98-170, 98-171, 99-200, Report and Order and Second Further Notice 
of Proposed Rulemaking, 17 FCC Rcd 24952, 24964–68, paras. 20–27 (2002); Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45, Memorandum Opinion and Order and Further Notice of Proposed 
Rulemaking, 13 FCC Rcd 21252, 21254–60, paras. 5–15 (1998); Petition of Pittencrieff Communications, Inc. for 
Declaratory Ruling Regarding Preemption of the Texas Public Utility Regulatory Act of 1995, File No. WTBIPOL 
96-2, Memorandum Opinion and Order, 13 FCC Rcd 1735, 1754, para. 37 (1997) (clarifying that section 332 of the 
Act does not preempt states from imposing state universal service contribution obligations on wireless service 
providers).
Federal Communications Commission FCC 10-185
9
18. The Commission in the Interim Contribution Methodology Order established a 
framework for allocating interconnected VoIP revenues between federal and state jurisdictions for 
purposes of calculating the federal universal service assessment.  It did not, however, establish a 
mechanism for allocating intrastate revenues from interconnected VoIP providers among the states.  As a 
result, the interim regulations adopted in the Interim Contribution Methodology Order do not protect 
against the possibility that an interconnected VoIP provider may be subject to double assessment on the 
same revenues if two states adopt inconsistent methods for determining the intrastate revenue base used to 
calculate state universal service payments.  For example, if State A requires an interconnected VoIP 
provider to use its customers’ billing addresses to allocate revenue while State B relies on the address 
interconnected VoIP users register for 911 purposes,52 then the same intrastate revenue associated with an 
interconnected VoIP user with a billing address in State A and a registered 911 location in State B could 
be subject to assessment in both State A and State B.  This possibility arises because, as the Commission 
explained in the Vonage Preemption Order, an interconnected VoIP user’s billing address is not 
necessarily tied to the physical locations where interconnected VoIP services are used.53
19. We conclude that duplicative state assessments conflict with the federal rules and policies 
governing interconnected VoIP services because their practical effect is to increase the portion of 
interconnected VoIP revenue assigned to the intrastate jurisdiction beyond that contemplated under the 
rules adopted in the Interim Contribution Methodology Order.  The following calculation demonstrates 
this effect.  Assume (for simplicity) that all of an interconnected VoIP provider’s customers have a billing 
address in State A and service address in State B, and those customers have no connection with any other 
state.  Assume further that State A and State B use billing addresses and service addresses, respectively, 
to determine the state universal service revenue base.  In this scenario, the interconnected VoIP provider, 
if it relies on the federal safe harbor, would be subject to combined federal and state universal service 
assessments on 135.1 percent of its revenues (64.9 percent for the federal fund, 35.1 percent for State A’s 
fund, and 35.1 percent for State B’s fund).  This is mathematically equivalent to a rule that allocates 52 
percent of interconnected VoIP revenues to the intrastate jurisdiction and 48 percent to the federal 
jurisdiction—a result that conflicts with the federal safe harbor adopted in the Interim Contribution 
Methodology Order.54
20. Double assessments also conflict with the federal policy of competitive neutrality.55 In 
the Interim Contribution Methodology Order, the Commission emphasized the important federal policy of 
competitive neutrality in concluding that interconnected VoIP providers should pay into the federal 
Universal Service Fund to ensure that they would not have an artificial competitive advantage over 
contributing carriers.56 For similar reasons, we conclude that duplicative state assessments on 
interconnected VoIP providers would violate the principle of competitive neutrality by placing 
  
52 See 47 C.F.R. § 9.5(d).
53 Vonage Preemption Order, 19 FCC Rcd at 22406–08, paras. 5–9.
54 In reality, the effect of double assessments would likely not be as pronounced as in this example because, among 
other things, some states do not have universal service contribution requirements, state assessment methodologies
may not conflict, and the billing and service addresses of most interconnected VoIP customers are likely located in 
the same state.  Theoretically, because not every state imposes contribution requirements on interconnected VoIP 
providers, any double assessments by states that do impose such requirements might not have the effect, in the 
aggregate, of causing an interconnected VoIP provider to pay on more than 35.1 percent of the cumulative intrastate 
revenue it earns from all the states.  Even in that situation, however, allowing double assessment would conflict with 
the federal policy of competitive neutrality.  See infra para. 20.
55 See Universal Service First Report and Order, 12 FCC Rcd at 8801–03, paras. 46–51 (adopting competitive 
neutrality as an additional federal universal service principle).  State rules for preserving and advancing universal 
service must comport with federal rules and policy.  See 47 U.S.C. § 254(f).
56 Interim Contribution Methodology Order, 21 FCC Rcd at 7541, para. 44.
Federal Communications Commission FCC 10-185
10
interconnected VoIP providers at an artificial competitive disadvantage with respect to their traditional 
telephony competitors, which are generally not subject to double assessments.
21. As long as states have a policy against collecting universal service assessments with 
respect to interconnected VoIP revenue that an interconnected VoIP provider has properly allocated to 
another state under that state’s rules, we do not preempt states from imposing universal service 
contribution requirements on future intrastate revenues of nomadic interconnected VoIP providers.  This 
issue of duplicative assessments is not one of first impression for the states.  Concern about potential 
double billing of intrastate revenues exists in the wireless context as well, because a wireless customer’s 
principal place of use may be different from his or her billing address.  Evidence in the record indicates 
that states have successfully resolved allocation of wireless intrastate revenues for purposes of state 
universal service contributions without the need for Commission intervention.57 In fact, an allocation of 
revenues among the states modeled on the Mobile Telecommunications Sourcing Act, but adapted to 
provide interconnected VoIP service providers a means of determining a customer’s primary place of use 
of service, could be a method of ensuring against double assessments in the context of interconnected 
VoIP.58 Although there may be an administrative burden on interconnected VoIP providers to allocate 
their revenues among the states under various state rules, it is similar to what other providers, including 
wireless providers, have been doing for years.  We also believe that any administrative burden is 
outweighed by the harm to competitive neutrality and to universal service that would occur if we were to 
preempt all state assessments in this prospective Declaratory Ruling.  We will continue to monitor state 
implementation and enforcement of universal service assessments on interconnected VoIP providers, and 
we have the authority to reconsider our decision if presented with evidence that states are imposing undue 
burdens on interconnected VoIP providers’ ability to avoid double assessment.
22. We disagree with commenters who argue that state universal service contribution 
requirements must be preempted to prevent frustration of the federal policies of encouraging the 
development of IP-based services and promoting the deployment of broadband infrastructure.59 We do 
not believe that those policies are best advanced by giving one class of providers an unjustified regulatory 
advantage over its competitors; indeed, that is one reason that the Commission extended federal universal 
service requirements to interconnected VoIP providers in the Interim Contribution Methodology Order.  
More generally, our efforts to promote those policies have not precluded us from requiring interconnected 
VoIP providers to comply with important federal regulatory obligations that advance disability access, 
public safety, and other important policy goals.60 We believe similar considerations justify our 
conclusion not to preempt states from imposing universal service contribution requirements that are 
competitively neutral and consistent with the Commission’s rules, especially where, as here, we see no 
record evidence (aside from bare allegations) that applying competitively neutral state universal service 
  
57 Letter from Elizabeth H. Ross, Counsel, Nebraska Public Service Commission and Kansas Corporation 
Commission, to Marlene H. Dortch, Secretary, FCC, at 1–2 (filed Nov. 3, 2009) (Petitioners Nov. 3 Ex Parte Letter) 
(discussing how state commissions have worked through the allocation of intrastate revenues in the wireless context 
with the aid of the NARUC Staff Subcommittee on State Universal Service Fund Administrator).
58 See Mobile Telecommunications Sourcing Act, Pub. L. No. 106-252, § 117(b), 114 Stat. 626, 627 (2000), codified 
in relevant part at 4 U.S.C. § 117(b); see also Petitioners Nov. 3 Ex Parte Letter at 2 (noting that a number of states 
use a customer’s primary place of use for state universal service contribution assessments, consistent with the 
Mobile Telecommunications Sourcing Act).  We note that to the extent an interconnected VoIP provider cannot 
determine a customer’s primary place of use, it would be reasonable if a state allowed the provider to use a proxy for 
the primary place of use, such as the customer’s registered location for 911 purposes.  See 47 C.F.R. § 9.5(d).
59 See Google Comments at 4–9; 8x8 Comments at 4–7; VON Coalition Comments at 7; see also Letter from Glenn 
S. Richards, Executive Director, VON Coalition, to Marlene H. Dortch, Secretary, Federal Communications 
Commission, WC Docket No. 06-122, at 2–3 (filed Dec. 10, 2009) (VON Coalition Ex Parte Letter).
60 See supra note 15.
Federal Communications Commission FCC 10-185
11
contribution requirements to interconnected VoIP providers would have a deleterious effect on the 
development of IP-based services or broadband deployment.
23. The VON Coalition suggests that allowing states to impose universal service payment 
obligations on interconnected VoIP providers could imply that state commissions may enforce those 
obligations by denying nonpaying providers the authority to operate in those states.61 Because we do not 
have before us any dispute concerning state enforcement against an interconnected VoIP provider, we 
decline at this time to consider the limits of state enforcement authority in this area.  We note, however, 
that nothing in this Declaratory Ruling affects our conclusion in the Vonage Preemption Order
concerning preemption of rate regulation, tariffing, or other requirements that operate as “conditions to 
entry.”62 Nor should this order be construed as interpreting or determining the scope of the Vonage 
Preemption Order.
24. Nothing in this Declaratory Ruling in any way prejudices our authority to adopt a 
different approach in the context of a broader contribution reform proceeding and, if necessary, to 
preempt state laws and regulations that frustrate the achievement of federal universal service policies.63
IV. ORDERING CLAUSES
25. Accordingly, IT IS ORDERED that, pursuant to sections 1, 2, 3, 4(i), 4(j), 201(b), 253(a), 
and 303(r), of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 152, 153, 154(i), (j), 
201(b), 253(a), 254, and 303(r), and Section 1.2 of the Commission’s rules, 47 C.F.R. § 1.2, the Petition 
for Declaratory Ruling, as amended, filed by Nebraska Public Service Commission and the Kansas 
Corporation Commission IS GRANTED IN PART to the extent specified in this Declaratory Ruling.
26. IT IS FURTHER ORDERED, pursuant to section 1.103(a) of the Commission’s rules, 47 
C.F.R. § 1.103(a), that this Declaratory Ruling SHALL BE EFFECTIVE upon release.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
  
61 See VON Coalition Ex Parte Letter at 2.
62 See Vonage Preemption Order, 19 FCC Rcd at 22415–16, 22422–23, 22430–31, 22432, paras. 20, 29, 42–43, 46.
63 8x8 suggests that because section 254(f) of the Act requires that “[e]very telecommunications carrier that provides 
intrastate telecommunications services shall contribute” to state funds and does not expressly provide states with 
authority to impose contribution requirements on non-carrier providers of telecommunications, states may not 
impose contribution requirements on interconnected VoIP providers to the extent interconnected VoIP services are 
information services.  8x8 Comments at 2.  We have not determined whether interconnected VoIP services should 
be classified as telecommunications services or information services under the Communications Act.  Nor do we see 
any need to do so here.  The express obligation of telecommunications carriers under section 254(f) to support state 
universal service programs does not limit state authority to extend contribution requirements on interconnected VoIP 
providers, regardless of their classification, so long as such requirements do not conflict with federal rules and 
policies.  See 47 U.S.C. § 254(f) (authorizing states to fund universal service not only through assessing intrastate 
telecommunications carriers but also through “additional specific, predictable, and sufficient mechanisms”).
Federal Communications Commission FCC 10-185
12
APPENDIX
List of Commenters
Commenter Abbreviation
8x8, Inc. 8x8
AT&T Inc. AT&T
California Small ILECs California Small ILECs
CenturyLink CenturyLink
District of Columbia Public Service Commission D.C. Commission
Google Inc. Google
National Association of Regulatory Utility Commissioners NARUC
National Association of State Utility Consumer Advocates NASUCA
National Exchange Carrier Association, Inc.; National NECA et al.
Telecommunications Cooperative Association; Organization
For The Promotion And Advancement Of Small
Telecommunications Companies; Independent Telephone
And Telecommunications Alliance; Eastern Rural Telecom
Association; Western Telecommunications Alliance; Arizona
Local Exchange Carriers Association; Georgia Telephone
Association; New Hampshire Telephone Association; Rural
Arkansas Telephone Systems; Tennessee Telecommunications
Association; Wisconsin State Telecommunications Association
Nebraska Rural Independent Companies & Nebraska Nebraska Independents
Telecommunications Assoc.
New Mexico Public Regulation Commission New Mexico Commission
New York Public Service Commission New York Commission
Oregon Telecom Association and Washington Independent Pacific Independents
Telecom Association
Rural Iowa Independent Telephone Association Iowa Independents
TCA, Inc. TCA
Tennessee Regulatory Authority Tennessee Commission
Verizon and Verizon Wireless Verizon
Voice on the Net Coalition VON Coalition
Vonage Holdings Corporation Vonage
Reply Commenter Abbreviation
Massachusetts Department of Telecommunications and Cable Massachusetts Commission
National Exchange Carrier Association, Inc.; National NECA et al.
Telecommunications Cooperative Association; Organization
For The Promotion And Advancement Of Small
Telecommunications Companies; Western Telecommunications
Alliance; Eastern Rural Telecom Association; Independent
Telephone And Telecommunications Alliance; Arizona Local
Exchange Carriers Association; Georgia Telephone Association;
New Hampshire Telephone Association; Rural Arkansas
Telephone Systems
Nebraska Public Service Commission and Kansas Nebraska/Kansas Commissions
Corporation Commission
Nebraska Rural Independent Companies Nebraska Independents
Qwest Communications International Inc. Qwest
Vonage Holdings Corp. Vonage