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State Deregulation

Federal Court Rules Charter VoIP Is Information Service

Charter's cable VoIP is an information service exempt from state regulation, a federal court in Minnesota ruled Monday. In an opinion (in Pacer) seen as having big ramifications for the jurisdictional question of whether states may regulate VoIP and other IP-based services, the U.S. District Court in St. Paul said the Minnesota Public Utilities Commission may not regulate Charter’s VoIP-based Spectrum Voice as a telecom service. The court granted Charter’s motion for summary judgment and denied the PUC’s separate motion for summary judgment.

Charter’s complaint alleged the PUC overstepped its authority by imposing state regulations for traditional phone services on VoIP services. The case began in March 2013, when Charter transferred 100,000 Minnesota customers to an affiliate that provided VoIP phone service that wasn't certified by the PUC. The agency said interconnected VoIP is a telecom service subject to state regulation, but Charter and intervenor the Voice on the Net (VON) Coalition said it’s an information service and subject only to FCC regulation.

The court “agrees with Charter Advanced that Spectrum Voice engages in net protocol conversion, and that this feature renders it an ‘information service’ under applicable legal and administrative precedent,” Judge Susan Nelson wrote. Net protocol conversion lets the service convert traffic between time-division multiplexing (TDM) and IP networks. That Spectrum Voice calls don’t always involve protocol transformation “does not render the service any less of an ‘offering’ of information services,” she said. “At no point does the Telecommunications Act suggest or require that a customer use an information service’s transformative features all the time. Indeed, the very language of the definition of an ‘information service,’ -- which merely mandates that there be an ‘offering of a capability’ to, inter alia, transform information -- belies such a conclusion.”

Spectrum Voice is an information service even by taking a functional view, the court said. Most customers don’t buy it stand-alone, but as an add-on to Charter’s broadband internet and cable services, Nelson said. “To these customers with broadband internet who wish to use their internet connection for voice communication, protocol conversion is a necessity -- without it, they would be unable to interface with the PSTN [public switched telephone network]. Thus, what Charter Advanced provides these individuals is the functionality necessary to utilize their internet connection for voice service. When combined with the provisioning of enhanced functionality (e.g., Voice Online Manager), what is ‘functionally offered’ to the consumer is an information service.”

"The Charter decision will be a critical point in determining whether VoIP can be regulated in any state," emailed National Regulatory Research Institute Principal Sherry Lichtenberg. The VON Coalition, representing VoIP providers, “is extremely pleased with the Court’s decision and hopes this will forestall further attempts at regulation of VoIP by state regulators,” emailed Executive Director Glenn Richards. Charter, the Minnesota Public Utilities Commission and state Commerce Department didn’t comment.

Other states are deciding their authority over VoIP services. Last month, West Virginia enacted a law restricting state regulation of VoIP and IP services (see 1704040043). Earlier this year, the Iowa Utilities Board ruled VoIP is an information service, while the Vermont Public Service Board proposed that the state may regulate VoIP as a telecom service. The Idaho PUC considered ruling on the issue, but held off in part to wait and see if federal lawmakers would resolve the debate in a rewrite of the 1996 Telecom Act (see 1702160038).

Vonage Decision Cited

The court previously found telecom services are subject to state regulation but information services aren't, said Nelson, citing the 2003 Vonage decision enjoining the Minnesota PUC from regulating the VoIP company. “The Vonage I decision has since formed the basis of several other district court opinions which, having considered facts broadly similar to those presented here, have found that the provision of IP-TDM net protocol conversion is sufficient to render an interconnected VoIP service an information service,” the judge wrote. “Having reviewed the decisions cited by Charter Advanced and the relevant orders of the FCC, the Court agrees that the logic espoused in Vonage I applies equally to the facts of this case.”

The judge disagreed with the Minnesota PUC's argument that the 2003 Vonage decision has been repudiated. “While it is true that subsequent decisions in the Vonage line of cases chose to classify Vonage as an information service based on reasons different from those deployed by the Court in Vonage I, they did not in any sense overrule that decision,” Nelson said.

Also, Nelson disagreed that Charter service falls within an exemption of the Telecom Act's definition of information service known as the telecommunications system management exception. “The purpose of IP-TDM protocol conversion, at least as applied by Spectrum Voice, is to facilitate communication between users of VoIP and legacy telephony services, not simply to facilitate connection between the user and the network," she said. Also, "Spectrum Voice does not engage in protocol conversion simply to maintain backwards compatibility with old [customer premises equipment].” A third part of the exception related to internetworking “applies only where there is no net protocol conversion, such that the only conversion occurs on the carrier’s network, for the carrier’s convenience.”

The FCC’s 2015 Open Internet Order didn’t require application of the exception to the Charter VoIP service, the judge said. “The FCC determined that caching and DNS were subject to the exception because they were ‘simply used to facilitate the transmission of information so that users can access other services,’” she wrote. “The main benefit of those particular functions was enhanced network efficiency. ... By contrast, the purpose of IP-TDM protocol conversion is not to enhance the efficient operation of Charter Advanced’s network, but rather to allow consumers to bridge different networks. That function is critical to Spectrum Voice’s operation, and the difference it entails is sufficient to vitiate any relevant similarities between the factual considerations in the Open Internet Order and the matter before the Court today.”