Last week, California’s telecommunications regulator, the California Public Utilities Commission (“CPUC”), adopted a new regulatory framework for providers of interconnected voice over Internet protocol (“iVoIP”) that marks a significant shift in regulation of a service that has long been lightly regulated both at the state and federal level.  Under the new rules adopted at Thursday’s CPUC meeting, iVoIP providers are now subject to registration and licensing requirements in California, which also will require that these companies notify the CPUC of – and in some cases, seek prior approval for – any transfers of control or assignments of their assets.

The new rules could have significant and far-reaching ramifications for carriers providing iVoIP services in the largest market in the United States.  For example, because the CPUC’s decision now requires at least some form of filing with the regulator before transfer of control of an iVoIP provider may occur, financial or strategic investors focused on the telecommunications space should take note that regulatory requirements may apply to any acquisition or investment in an iVoIP provider with operations in California.  In some circumstances, a transfer of control of a California iVoIP provider or assignment of iVoIP provider assets may require prior approval from the CPUC, a process that tends to be the lengthiest state regulatory approval process for communications transactions that require state review.

Substantively, the CPUC’s order concerns the creation of new utility classifications (and corresponding authorization types) for iVoIP providers, which are subject to different licensing or registration requirements depending on the nature of the iVoIP services they provide.  The following is a summary of the three new utility types and the key requirements for each from the CPUC’s order.

New iVoIP Utility Categories

The regulatory framework established by the CPUC’s order creates two new categories of iVoIP providers: (1) Digital Voice Nomadic providers and (2) Digital Voice Fixed providers.  However, the CPUC divides the latter into two sub-types based on whether the iVoIP entity provides facilities-based or non-facilities-based service.  This creates the following new utility categories, each of which is subject to new rules governing transfers of control:

1. Digital Voice Nomadic (“DVN”) Provider.DVN Providers are entities offering only “nomadic” iVoIP service, which the CPUC describes as a network-agnostic service offering that is decoupled from physical infrastructure or specific devices such that the provider cannot distinguish between intrastate and interstate communications.As an illustrative example, the CPUC’s decision cites the voice service at issue in the Federal Communications Commission’s (“FCC’s”) 2004 Vonage Order, in which the agency preempted the Minnesota Public Utilities Commission’s proposed application of traditional telephone regulations to Vonage’s “DigitalVoice” service.

DVN Providers are subject to the lightest regulation under the new regulatory framework and need only submit and keep updated an information-based registration form.  This is similar to the existing registration process the CPUC requires for wireless carriers. 

However, this registration process applies only if an iVoIP provider’s service offering is “exclusively nomadic.”  If a provider of fixed iVoIP service (discussed below) also provides some portability features (e.g., the ability to receive calls through an app on a mobile device), that does not qualify the provider for the lighter-touch registration process.  Consistent with this requirement, registration as a DVN Provider (through submission of a “Nomadic Registration Form”) requires that the provider submit along with its registration a sworn affidavit attesting to the following, which intends to limit eligibility to providers of iVoIP services similar to the Vonage DigitalVoice service the FCC addressed in 2004:

  • The service can be accessed from any broadband connection without a requirement to subscribe to Internet access at any one location or from any particular Internet access provider;
  • The service is provided to nomadic (portable) IP compatible communication devices; and
  • The associated telephone number(s) is not tied to user’s physical location for assignment or use, and calls may be received by customers unrestricted by location.

Transfer of Control Requirements.  For any transfer of control involving a DVN Provider (or assignment of its assets), the DVN Provider must notify the CPUC 30 days in advance by submitting an information-only filing intended to update the DVN Provider’s registration.  However, the CPUC has discretion to require prior approval if it finds the transaction involves special circumstances warranting further review.

2. Digital Voice Fixed (“DVF”) Provider.DVF Providers are entities providing iVoIP service that is not exclusively nomadic – i.e., any iVoIP provider whose service does not qualify under the criteria outlined above.Under the CPUC’s new framework, these companies are regulated more like traditional wireline telephone service providers.

DVF Providers fall into two sub-categories based on whether the provider owns all or part of the network facilities over which it provides iVoIP service.  Both classes of DVF Providers must hold a license (called a “Certificate of Public Convenience or Necessity” or “CPCN”) under the new framework, but a streamlined application process applies to those providers that do not have their own network assets.

a. Non-Facilities-Based DVF Provider.Non-Facilities-Based DVF Providers are those iVoIP providers that do not own telecommunications infrastructure.These providers must hold a CPCN, but they can use a streamlined application process (referred to as “Section 1013 Registration”) that traditionally has applied to other non-facilities-based carriers (e.g., carriers providing resold long-distance services).

b. Facilities-Based DVF Provider.Facilities-Based DVF Providers are any iVoIP providers that own the network facilities used to serve their customers.These entities are subject to the long-form CPCN application process that the CPUC has long required for companies seeking to provide facilities-based telephone services.

Transfer of Control Requirements.  For any transfer of control (or assignment of assets) of a DVF Provider to an entity that already holds a CPUC authorization or is affiliated with such an entity (e.g., a parent or subsidiary), the parties must seek prior approval from the CPUC through the CPUC’s “Tier 2 Advice Letter” process.  These Advice Letters are deemed approved 40 days after filing, provided the CPUC does not “suspend” the submission for further review. 

However, for any transfer of control that would involve the acquisition of a DVF Provider or its assets by an entity without an existing CPUC certification (or by an entity that is not a parent or subsidiary of a “certificated” entity), the CPUC’s long-form approval process applies.  This could present significant burdens for future investments in California iVoIP providers – traditionally, the CPUC’s long-form approval process is resource- and time-intensive (in some cases, approval can take 8–12 months, and sometimes longer).

Automatic Migration to New Utility Types

To implement the new regulatory framework, the CPUC’s decision provides for automatic migration of California iVoIP providers to the new utility types.  The type of authorization to which currently operating iVoIP providers will be migrated depends on their existing regulatory status before the CPUC, as follows:

  • iVoIP Providers Currently Registered.Some California iVoIP providers previously registered with the CPUC pursuant to procedures the CPUC discontinued in April 2021.These providers (listed here), which currently are designated as Digital Voice Service (“DVS”) utilities in the CPUC’s carrier database, will be automatically granted a CPCN as a Non-Facilities-Based DVF Provider effective 45 days from the CPUC’s decision.Providers may elect to opt out of the automatic migration process during the 45-day window by either (1) demonstrating that they qualify as a DVN Provider or (2) filing with the CPUC to surrender their authorization and exit the California market.
  • iVoIP Providers with CPCNs.During the pendency of the CPUC’s iVoIP proceeding, some iVoIP providers filed for a California CPCN as an interexchange reseller (utility type “IER”; full list here).Others had previously filed for CPCN as another utility type (e.g., Competitive Local Carrier (“CLC”), Competitive Local Reseller (“CLR”)).These providers will be automatically migrated to the new DVF Provider CPCN and utility type, though IER-designated VoIP providers will have the opportunity opt out within 45 days, provided they qualify as a DVN Provider.

*          *          *

Please note that the above summary is not comprehensive – the CPUC’s decision is far-reaching and covers many additional issues, including several related to the CPUC’s implementation of its new regulatory framework.  Some of these issues (including the CPUC’s definition of whether a DVF Provider’s service is “facilities-based”) will be covered in a second phase of the CPUC’s rulemaking, which the CPUC’s decision extends to August 1, 2026.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Yaron Dori Yaron Dori

Yaron Dori has over 25 years of experience advising technology, telecommunications, media, life sciences, and other types of companies on their most pressing business challenges. He is a former chair of the firm’s technology, communications and media practices and currently serves on the…

Yaron Dori has over 25 years of experience advising technology, telecommunications, media, life sciences, and other types of companies on their most pressing business challenges. He is a former chair of the firm’s technology, communications and media practices and currently serves on the firm’s eight-person Management Committee.

Yaron’s practice advises clients on strategic planning, policy development, transactions, investigations and enforcement, and regulatory compliance.

Early in his career, Yaron advised telecommunications companies and investors on regulatory policy and frameworks that led to the development of broadband networks. When those networks became bidirectional and enabled companies to collect consumer data, he advised those companies on their data privacy and consumer protection obligations. Today, as new technologies such as Artificial Intelligence (AI) are being used to enhance the applications and services offered by such companies, he advises them on associated legal and regulatory obligations and risks. It is this varied background – which tracks the evolution of the technology industry – that enables Yaron to provide clients with a holistic, 360-degree view of technology policy, regulation, compliance, and enforcement.

Yaron represents clients before federal regulatory agencies—including the Federal Communications Commission (FCC), the Federal Trade Commission (FTC), and the Department of Commerce (DOC)—and the U.S. Congress in connection with a range of issues under the Communications Act, the Federal Trade Commission Act, and similar statutes. He also represents clients on state regulatory and enforcement matters, including those that pertain to telecommunications, data privacy, and consumer protection regulation. His deep experience in each of these areas enables him to advise clients on a wide range of technology regulations and key business issues in which these areas intersect.

With respect to technology and telecommunications matters, Yaron advises clients on a broad range of business, policy and consumer-facing issues, including:

  • Artificial Intelligence and the Internet of Things;
  • Broadband deployment and regulation;
  • IP-enabled applications, services and content;
  • Section 230 and digital safety considerations;
  • Equipment and device authorization procedures;
  • The Communications Assistance for Law Enforcement Act (CALEA);
  • Customer Proprietary Network Information (CPNI) requirements;
  • The Cable Privacy Act
  • Net Neutrality; and
  • Local competition, universal service, and intercarrier compensation.

Yaron also has extensive experience in structuring transactions and securing regulatory approvals at both the federal and state levels for mergers, asset acquisitions and similar transactions involving large and small FCC and state communication licensees.

With respect to privacy and consumer protection matters, Yaron advises clients on a range of business, strategic, policy and compliance issues, including those that pertain to:

  • The FTC Act and related agency guidance and regulations;
  • State privacy laws, such as the California Consumer Privacy Act (CCPA) and California Privacy Rights Act, the Colorado Privacy Act, the Connecticut Data Privacy Act, the Virginia Consumer Data Protection Act, and the Utah Consumer Privacy Act;
  • The Electronic Communications Privacy Act (ECPA);
  • Location-based services that use WiFi, beacons or similar technologies;
  • Digital advertising practices, including native advertising and endorsements and testimonials; and
  • The application of federal and state telemarketing, commercial fax, and other consumer protection laws, such as the Telephone Consumer Protection Act (TCPA), to voice, text, and video transmissions.

Yaron also has experience advising companies on congressional, FCC, FTC and state attorney general investigations into various consumer protection and communications matters, including those pertaining to social media influencers, digital disclosures, product discontinuance, and advertising claims.

Photo of Matthew DelNero Matthew DelNero

Matt DelNero provides expert regulatory counsel to companies of all sizes in the telecommunications, technology and media sectors. As a former senior official with the FCC and longtime private practitioner, Matt helps clients achieve their goals and navigate complex regulatory and public policy…

Matt DelNero provides expert regulatory counsel to companies of all sizes in the telecommunications, technology and media sectors. As a former senior official with the FCC and longtime private practitioner, Matt helps clients achieve their goals and navigate complex regulatory and public policy challenges.

Matt serves as co-chair of Covington’s Technology & Communications Regulation (“TechComm”) Practice Group and co-chair of the firm’s Diversity, Equity, & Inclusion initiative.

Matt advises clients on the full range of issues impacting telecommunications, technology and media providers today, including:

  • Structuring and securing FCC and other regulatory approvals for media and telecommunications transactions.
  • Obtaining approval for foreign investment in broadcasters and telecommunications providers.
  • Broadband funding under federal and state programs, including under the FCC’s Universal Service Fund (USF) and NTIA’s Broadband Equity, Access, and Deployment (BEAD) Program.
  • Representing broadcasters, media networks, and other content owners and producers on both existing and proposed FCC regulations and policies.
  • FCC enforcement actions and inquiries.
  • Online video accessibility, including under the Communications and Video Accessibility Act (CVAA) and Americans with Disabilities Act (ADA).
  • Equipment authorizations for IoT and other devices.
  • Spectrum policy and auctions, including for 5G.
  • Privacy and data protection, with a focus on telecommunications and broadband providers.

Matt also maintains an active pro bono practice representing LGBTQ+ and other asylum seekers, as well as veterans petitioning for discharge upgrades—including discharges under ‘Don’t Ask, Don’t Tell’ and predecessor policies that targeted LGBTQ+ servicemembers.

Prior to rejoining Covington in January 2017, Matt served as Chief of the FCC’s Wireline Competition Bureau. He played a leading role in development of policies around net neutrality, broadband privacy, and broadband deployment and affordability under the federal Universal Service Fund (USF).

Chambers USA ranks Matt within “Band 1” in his field and reports that he is a “go-to attorney for complex matters before the FCC and other federal agencies, drawing on impressive former government experience.” It also quotes clients who praise him as “an outstanding regulatory lawyer…[who] understands the intersection between what’s important for the client’s operations and how the law impacts those operations.”

Photo of Corey Walker Corey Walker

Corey Walker advises clients on a broad range of regulatory, compliance, and enforcement matters in the media, technology, satellite and space, and telecommunications sectors. Corey also provides strategic counsel to leading media, sports, and technology companies on gaming matters, with a focus on…

Corey Walker advises clients on a broad range of regulatory, compliance, and enforcement matters in the media, technology, satellite and space, and telecommunications sectors. Corey also provides strategic counsel to leading media, sports, and technology companies on gaming matters, with a focus on sports betting, fantasy sports, and online gaming.

Corey represents clients before the Federal Communications Commission in connection with a range of policy and compliance issues, including satellite and earth station operations, radiofrequency (RF) spectrum use and availability, and experimental licensing for new and innovative technologies. He also advises clients on structuring transactions and securing regulatory approvals at the federal, state, and local levels for mergers, asset acquisitions, and similar transactions involving FCC and state telecommunications licensees and companies holding private remote sensing space system licenses issued by the National Oceanic and Atmospheric Administration.

Corey also maintains an active gaming and sports betting practice, and routinely counsels companies on state licensing and compliance matters, including those that pertain to fantasy sports and online gaming.

Photo of Conor Kane Conor Kane

Conor Kane advises clients on a broad range of privacy, artificial intelligence, telecommunications, and emerging technology matters. He assists clients with complying with state privacy laws, developing AI governance structures, and engaging with the Federal Communications Commission.

Before joining Covington, Conor worked in…

Conor Kane advises clients on a broad range of privacy, artificial intelligence, telecommunications, and emerging technology matters. He assists clients with complying with state privacy laws, developing AI governance structures, and engaging with the Federal Communications Commission.

Before joining Covington, Conor worked in digital advertising helping teams develop large consumer data collection and analytics platforms. He uses this experience to advise clients on matters related to digital advertising and advertising technology.