A federal appeals court upheld a decision by the Federal Communications Commission that barred states from regulating Internet-based phone services, an Associated Press report said. The Associated Press report said a three-judge panel of the 8th Circuit Court of Appeals agreed with the FCC's determination in 2004 that companies like Vonage Holdings provide an interstate service that puts them outside state control.

Vonage uses VoIP, which involves converting the sound of a voice into packets of data and reassembling them into sound at the other end of the call. In 2003, Minnesota's Public Utilities Commission tried to register Vonage as a phone company, which would have subjected it to state tariffs and rate regulations, the report said. A federal judge barred Minnesota from doing so, and a year later at Vonage's request the FCC ruled that the company's services could not be regulated by the states.

Regulatory agencies in a number of states, including Minnesota, appealed that ruling, the report said. In the decision authored by Fargo, N.D.-based 8th Circuit Judge Kermit Bye, the court agreed with the FCC's determination that the nature of VoIP telephone calls allows customers to place "home" phone calls from nearly anywhere, irrespective of state lines, the report added.

When the FCC issued its ruling in 2004, officials with the agency indicated that they believed streamlined regulation was key to the growth of the fledgling industry.

The report further quoted Vonage CEO Mike Snyder as saying that the decision was good news for the company's 2.2 million subscribers.