On December 1, 2025, the Administrative Law Judge (ALJ) presiding over the California Public Utilities Commission’s (CPUC) VoIP rulemaking (R.22-08-008) issued a ruling seeking comments (due January 12, 2026) on the CPUC Communications Division’s Phase 2 Staff Proposal. The Staff Proposal builds on the CPUC’s Phase 1 decision by refining California’s new VoIP licensing framework, clarifying registration pathways, and tightening financial and bonding requirements.
For any company offering interconnected VoIP service in California—fixed, nomadic, or hybrid—the Proposal represents a substantial regulatory inflection point. It creates new obligations, new penalties, and—for some providers—a time-limited opportunity to reclassify into a more appropriate (and less burdensome) regulatory category.
I. Background: California’s Two-Tier VoIP Framework
The CPUC’s evolving VoIP regime divides interconnected VoIP into two categories:
Phase 2 is designed to complete the transition into this two-tier model, correct misclassifications from Phase 1, and impose clearer compliance standards.
II. Summary of Key CPUC Phase 2 Staff Proposals
Wireline carriers holding a CPCN or §1013 registration that are already offering fixed VoIP may obtain a DVF designation by filing a Tier 1 advice letter within 12 months of the Phase 2 decision.
Required disclosures include:
Practical impact: Allows established carriers to regularize their fixed VoIP offerings without a full new license application.
2. New Opt-Out Window for Nomadic-Only Providers
Providers automatically classified as DVF in Phase 1—but who, in fact, only offer nomadic/non-fixed VoIP—will receive a new 12-month window to:
Staff acknowledges that many providers did not understand the DVN pathway or missed the initial 45-day opt-out period. The new window is intended to reduce misclassifications and administrative churn.
Practical impact: This is a critical second chance for nomadic-only providers to avoid being locked into more burdensome DVF requirements.
Staff proposes clarifying that:
Practical impact: Providers may face meaningful retroactive liability for unremitted public-purpose surcharges, plus penalties.
Staff proposes modest updates to financial documentation requirements for all providers seeking operating authority—not just VoIP carriers.
More significantly, Staff recommends clarifying performance bond obligations:
Practical impact: Providers with weaker balance sheets or constrained liquidity may struggle to satisfy tightened bonding requirements.
III. Strategic Considerations and Risks
Accurate alignment between a provider’s operational model and its CPUC classification is essential. Misclassification can trigger unnecessary compliance obligations, financial exposure, and administrative oversight.
For nomadic-only VoIP providers, the CPUC’s new opt-out window represents a timely opportunity to review and, if appropriate, transition to the DVN classification—potentially reducing compliance costs and reporting exposure.
DVF applicants must demonstrate adequate capitalization and maintain a performance bond as a condition of continued registration. Providers operating on limited capital reserves or with variable cash flow may encounter challenges sustaining these requirements.
Nomadic-only providers that historically have not remitted California surcharges should prepare for potential retrospective exposure. If CPUC determines that a provider was misclassified as DVN when it should have been DVF, liabilities may include:
Providers should assess potential exposure early and coordinate with accounting teams to quantify and disclose any material liabilities.
DVF classification designates an entity as a “telephone corporation” under California law, triggering enhanced disclosure and compliance obligations. This designation can directly affect transaction strategy and deal mechanics in mergers, acquisitions, and financings.
Key implications include:
Nomadic providers considering capital raises, restructuring, or exit events should evaluate whether maintaining or transitioning to DVN classification presents a cleaner, lower-risk profile for investors.
California’s bifurcated approach—distinguishing fixed vs. nomadic VoIP and layering financial and bonding requirements—may signal a broader regulatory trend. If other states adopt similar frameworks, multi-state providers could face:
Proactive classification analysis and documentation now can position providers to manage regulatory fragmentation and avoid reactive compliance costs if similar frameworks emerge elsewhere.
IV. Recommended Immediate Actions
V. Conclusion: Act Early to Minimize Risk
The Phase 2 Staff Proposal signals a decisive shift in how California regulates interconnected VoIP—particularly nomadic providers historically treated under lighter frameworks. For many carriers, the Proposal will mean elevated compliance obligations, tighter financial scrutiny, and heightened enforcement risk. However, the new opt-out window provides a meaningful—if time-limited—opportunity for misclassified providers to realign their regulatory posture with their actual operations.
Because the operational and financial consequences may be significant, we recommend evaluating the Proposal now and preparing to act promptly once the CPUC adopts a final Phase 2 decision.
If you would like assistance with classification strategy, surcharge exposure evaluations, or preparation of DVF/DVN advice letters, our team is available to help. Please contact Jackie McHugh at jrm@commlawgroup.com for assistance.