Finally Naming the Duck? Eighth Circuit Decides VoIP is an Information Service, Preempts Minnesota Regulation

After more than twenty years, VoIP’s unclassified status may be coming to an end. Last month, the Eighth Circuit Court of Appeals issued a decision in Charter Advanced Services LLC v. Lange in which it considered whether an interconnected VoIP service offered by Charter can be regulated like a telecommunications service by the Minnesota Public Utilities Commission (“MPUC”). The court recognized that the Federal Communications Commission (“FCC”) has repeatedly failed to resolve the issue of VoIP service regulatory classification. However, the Eight Circuit upheld the district court’s finding that Charter’s VoIP service is an information service that is federally preempted from state regulation based on its interpretation of the Telecommunications Act of 1996 (the “Act”) and FCC orders.

This case came about because of an effort by Charter to move Spectrum Voice, its VoIP offering in Minnesota, to a separate corporate entity, Charter Advanced. The MPUC decided to regulate Charter Advanced’s VoIP service as a telecommunications service due to its interconnection with the PSTN. Charter filed suit in response and asserted that its VoIP service is an information service and thus, state regulation is preempted under the Act. The district court decided in Charter’s favor ruling that the VoIP service was an information service and MPUC regulation was preempted.

Here, the Circuit Court affirmed the lower court decision by emphasizing the way in which Charter’s service must transform analog signals into IP information to facilitate a call between a VoIP service and a traditional telephone service. The appellate court found a transformation occurs wherein information (i.e., a phone call) enters Charter’s network in one format and leaves in another via a protocol conversion and such transformation is the “touchstone of the information services inquiry.” The Eighth Circuit’s analysis also briefly assessed the exclusions to Act’s information service definition and found they were not applicable to the characteristics of Charter’s VoIP service. The court specifically noted:

  • The first exception is not applicable because Spectrum Voice is a service that is “between or among users” and the network protocol technology that allows users to call traditional telephony users is critical to the service.
  • Regarding the second exclusion, the service is not aimed at providing backwards compatibility for existing customer premises equipment (“CPE”) but rather provides users with a new type of equipment to use the VoIP service.
  • Finally, the service does not fit the internetworking exclusion because the conversion of information happens outside the carrier’s network, at the point of the CPE.

The Charter v. Lange decision makes a definitive determination, an action the FCC has repeatedly forgone, by concluding that VoIP service like Charter’s is in fact an information service as defined by the federal statue. Notably, Commissioner Michael O’Rielly has recently pushed for the FCC to end its own, self-induced uncertainty and declare VoIP to be an information service. (Former Commissioner Clyburn had a similar plea in 2015 statements). The FCC, while submitting an Amicus Brief supporting Charter in the case, did not go that far – at least not yet.

The issue of appropriate regulatory treatment of VoIP services continues to be a point of disagreement and confusion for telecommunications regulators as well as those possibly subject to this form of regulation in many states. While this case will only have precedential value over a segment of state regulators, it represents an unmistakably clear analysis of the issue that could be referenced in future cases considering regulatory treatment of VoIP. FCC Chairman Pai’s supportive statement in response to the decision bolsters the validity of the decision (and perhaps presages a change in the policy at the FCC) by noting that: “[F]ederal law for decades has recognized that states may not regulate information services. The Eighth Circuit’s decision is important for reaffirming that well-established principle: ‘[A]ny state regulation of an information service conflicts with the federal policy of nonregulation’ and is therefore preempted.” The Chairman has also referenced the decision more recently in supporting a DoJ lawsuit against California’s net neutrality law, calling Internet policy strictly the domain of the federal government.

The MPUC has petitioned the Eighth Circuit for en banc review of the decision in Charter v. Lange. The MPUC argues that Charter’s VoIP service should be treated in the same way as traditional wireline telephone service and be subject to state regulation because otherwise “it invites carriers to artificially alter technical aspects of their service to evade regulation and it undermines competitive neutrality.” Stay tuned for further developments in this matter.