Magistrate Judge Supports Charter in Minnesota VoIP Case

A magistrate judge recommended against dismissing Charter’s challenge of a Minnesota Public Utilities Commission order asserting state authority over interconnected VoIP services. The report and recommendation (in Pacer) by U.S. Magistrate Judge Hildy Bowbeer isn't an order or judgment, and parties may object to the recommendation within 14 days. The U.S. District Court in Minnesota can issue an order 14 days after objections and responses are filed.

Charter’s complaint alleged the Minnesota PUC overstepped its authority by imposing state regulations for traditional phone services on VoIP services. The case began in March 2013, when Charter transferred overnight 100,000 Minnesota customers to an affiliate, Charter Advanced Services, which provided VoIP phone service that wasn't certified by the PUC (see 1508210040). In its motion to dismiss, the Minnesota PUC asked the court to determine that Charter Advanced’s VoIP service is a telecommunications service under the Telecom Act and therefore subject to state regulation.

“The Court concludes, however, that Defendants have not established as a matter of law … that Charter Advanced’s VoIP service is a telecommunications service,” wrote Bowbeer. “It remains plausible that Charter Advanced’s VoIP service is an information service and that state regulation should be preempted. The FCC has refused to issue a broadly applicable rule on the classification of VoIP services, and the relevant administrative decisions and case law establish that the classification is fact-driven and dependent on numerous factors.”

The Minnesota PUC said the Charter service is a telecommunications service for several reasons: It's fixed, not nomadic; it functions like a telecom service and customers regard it as such; it falls within the telecommunications systems management exception of the definition of information services under the Telecom Act; public policy supports state regulation; the impossibility exception to classification of a service as a telecom service doesn't apply; it's offered to the public for a fee; and it's substantially similar to services the FCC has found to be telecom services. In response, Charter said whether a service is fixed or nomadic doesn't determine whether it's a telecom or information service and said its VoIP service is an information service because the service “involves net protocol conversions and the calling features are inextricably intertwined with other data-processing capabilities,” the judge wrote.

NARUC disagreed with the magistrate. “The judge is correct that the definition of information services is fact-driven [and] the federal statute includes a functional definition,” said NARUC General Counsel Brad Ramsay. “But it is not remotely plausible that Charter’s VoIP service is anything but a telecommunications service. There is no jurisprudence or any provision in the federal law that supports the idea that point-to-point voice service marketed for a fee to the public using telephone numbers is an information service. And as the traffic is clearly severable -- there simply is no basis to preempt any aspect of state oversight.” Ramsay cited a 2006 FCC order requiring VoIP providers to contribute to the Universal Service Fund, which he said made clear that no matter how interconnected VoIP is classified -- whether as an information service or telecommunications service -- states have jurisdiction if the traffic can be separated.

In the recommendation, the magistrate said she wasn’t persuaded by the Minnesota PUC’s arguments on the USF order. “First, the statement is no more than an indication of what the FCC might do, should it ever decide to answer the question of whether interconnected VoIP services are information services or telecommunications services, a decision it has steadfastly refused to make,” Bowbeer wrote. “Second, the context in which the statement was made weakens its impact. The FCC was discussing whether interconnected VoIP providers could rely on actual interstate telecommunications revenues to calculate their contributions to the universal service fund. The FCC’s remark about a possible effect on preemption if a provider concedes an ability to track the location of calls, embedded in the middle of a detailed discussion of three calculation options, was more likely intended as a warning to providers to recognize the possible unintended consequences of their choices, rather than a determination about the nature of fixed services in general.”

The VON Coalition supported the magistrate judge recommendation​. “We believe that when the case is fully litigated, the court will find that VoIP is an information service and state regulation should be preempted,” said VON (Voice on the Net) Coalition Executive Director Glenn Richards. VON intervened in the case in support of Charter. Charter declined to comment, and the Minnesota PUC didn’t respond to a request to comment.