8th Circuit Rules VoIP an Information Service

            By a 2-1 vote, the 8^th Circuit Court of Appeals upheld a lower court’s determination that Voice over the Internet Protocol (“VoIP”) telephone service constitutes an information service subject to FCC preemption of state regulation. [1] The court decided to make an explicit determination considering the FCC’s decades long disinclination to do, because an explicit information service classification would jeopardize the Commission’s ability to regulate VoIP service and perhaps also the lawfulness of requiring subscribers to contribute to universal service funding.  On the other hand, the decision bolsters the FCC’s selective assertion of federal preemption to prevent inconsistent and “balkanized” policies when state establish their own regulations.

            The court determined that VoIP falls within the information service classification, because a protocol conversion occurs when calls originate, or terminate on the conventional public switched telephone network, but are transmitted via broadband networks:

            We conclude that the VoIP technology used by Charter Spectrum is an “information service” under the Act. As the district court put it, “the touchstone of the information services inquiry is whether Spectrum Voice acts on the consumer’s information—here a phone call—in such a way as to ‘transform’ that information.” 259 F.Supp.3d at 987; see 47 U.S.C. § 153(24). IP-TDM calls involve just such a transformation. For those calls, because information enters Charter’s network “in one format (either IP or TDM, depending on who originated the call) and leaves in another, its system offers ‘net’ protocol conversion, which the FCC has defined as occurring when ‘an end-user [can] send information into a network in one protocol and have it exit the network in a different protocol.’” [2]

            The court majority opted to consider the explicit language in the definitions of telecommunications service and information service rather than consider the functional equivalency of VoIP with earlier vintage circuit-switched telephony, even though they use different technical protocols.  The court considered the information service category as applicable because VoIP service providers must use software to convert the format of calls from and to legacy wired and wireless telephone networks even though both telecommunications services and information services use telecommunications networks to transmit and deliver traffic:

            Spectrum Voice’s service is an information service because it “mak[es] available information via telecommunications” by providing the capability to transform that information through net protocol conversion. Cf. Nat’l Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967, 988 (2005) (explaining that “all information-service providers . . . use ‘telecommunications’ to provide consumers with [their] service”). [3]

            The court did not consider VoIP protocol conversion as fitting within three categories where some processing takes place, but not in a significant way that fundamentally changes the nature and composition of the composite service. [4] This view parallels the analysis contained in the FCC’s Restoring Internet Freedom order which reclassified broadband access as an information service thereby removing common carrier regulatory oversight.

            The court quickly rejected as inapplicable each of the three carve-outs that the FCC uses to allow some degree of information processing without converting a basic telecommunications service into information service. The court rejected the first exception, because VoIP connects users of a service and not users with a network.  The second exception was considered inapplicable, because the court emphasized that protocol conversions are necessary for new equipment that VoIP subscribers must use even though more broadly the conversions also promote compatibility and interconnection between users of legacy voice telephone services and newer VoIP options.

            The third exception also was considered inapplicable, but some stakeholder may dispute the court’s rationale that emphasizes the need for protocol conversions to make the required new equipment function on customers’ premises.  The court briefly stated that the required customer premises equipment is not physically a part of the VoIP provider’s network, nor does its protocol conversion occur within a network. By emphasizing the location of the device performing the protocol conversion, the court could ignore that the device provides internetworking between two types of networks that consumers consider functionally equivalent.

            Judge Grasz, in dissent, rejected the majority’s rationale noting that the court overemphasized the location where protocol conversions take place and in so doing possibly provided a way for telecommunications service providers to evade most of the FCC’s regulatory oversight for any service where a device can be installed on consumer premises:

            If performing the conversion from TDM to IP inside a customer’s home is sufficient to convert a telecommunications service into an information service, then AT&T, or any similarly situated provider, could greatly reduce its regulatory burden simply by moving converter boxes inside customers’ homes. A simple change of physical location would transform what used to be telecommunications services to information services. This may explain why the FCC has yet to make categorical pronouncements on protocol conversions. An overarching category for all net protocol conversions would create a potential pathway for every company to escape the heavier telecommunications service regulations. [5]

            Judge Grasz also noted language in the definition of telecommunication service that deemphasizes the type and location of facilities used to provide a telecommunications service. [6] He even rejects the possibility that VoIP protocol conversions can trigger the information service classification, because the broadband service venture provides a telecommunication transmission link and the protocol conversion does not change the nature of voice communications between the caller and call recipient:

If we assume that interconnected VoIP services “provide” “telecommunications” as defined in statute, then we must presume that no “change” occurs between the two phone sets on either end of the interconnected VoIP line. . . . As a result, when addressing the question of whether Charter’s media gateway transforms information, in order to rule in favor of Charter, we would have to conclude that a device that does not change the form or content of information (because it is part of telecommunications) is also a device that transforms information (because it is an information service). See id. § 153(24), (50). The first conclusion forecloses the second one. In short, if Charter’s service provides telecommunications (as defined in statute), then its net protocol conversion cannot be part of an information service, but instead must be part of a telecommunications service. [7]

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[1]           Charter Advanced Services(MN), LLC v. Lang, No. 17-2290, slip op. (8^th Cir. Sep. 7, 2018); available at: http://media.ca8.uscourts.gov/opndir/18/09/172290P.pdf.

[2]              Id. at 6.

[3]              Id. at 7.

[4]              “The definition of ‘information service’ excludes services that comprise a ‘capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.’ 47 U.S.C. § 153(24). The FCC has further defined this exception to include ‘(1) services ‘involving communications between an end user and the network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users;’ (2) protocol processing ‘in connection with the introduction of a new basic network technology (which requires protocol conversion to maintain compatibility with existing [CPE])’ and (3) services ‘involving internetworking (conversions taking place solely within the carrier’s network to facilitate provision of a basic network service, that result in no net conversion to the end user).’” Id. at 7-8.

[5]              Judge Grasz dissent at 11.

[6]           “The statute contemplates such transitions because it defines a telecommunications service as ‘offering [] telecommunications for a fee directly to the public . . . regardless of the facilities used.” Id. at 10 citing 47 U.S.C. § 153(53).

[7]              Id. at 12.

Network Neutrality and the Court of Public Opinion

            Ask most people a basic question about Internet neutrality and the clear majority support it.  Who likes biased networks, particularly if the bias appears to subordinate the views and interests of you and like-minded people?

            On the other hand, ask people about what they think Netflix and their broadband carriers ought to do should network congestion bogging down bandwidth intensive video streams.  The likely answer: fix it!  Okay, but what kind of fix constitutes “reasonable network management” vs. something akin to prioritization of traffic?  The former universally qualifies for exemption from mandatory neutrality, but the latter triggers disputes.  ISPs can tier service by bit rate delivery speeds and monthly allotment of data.  Should they also have additional market segmentation opportunities to exempt certain traffic from debiting a data plan, so-called zero rating, or to slow down (throttle) entire categories of content, e.g., video streaming?

            The Court of Public Opinion seems clearly in favor of service arrangements described by words like free and unlimited. Of course, in the wireless world, nothing is free and unlimited does not have the common meaning.  Free comes with upselling to a more expensive service tier, e.g., “free” and “unlimited” streaming of a Direct Broadcast Satellite operator’s content. 

            “Unlimited data” has several fine print exceptions.  Throttling typically reduces bit transmission rate to 2G speed incapable of delivering video streams when a subscriber exceeds a ceiling of 20 or more Gigabytes of data delivery.  Also, wireless subscribers have to make do with video streaming that reduces the video line resolution of all streaming content, presumably a trade-off for a much higher monthly data allowance.

            Does the Court of Public Opinion favor zero rating and even tolerance for less video line resolution?  We may soon find out how California broadband consumers react if such options become illegal.  The legislature there enacted legislation that restores the consumer safeguards created in the FCC’s 2015 Open Internet Order and in several instances reaches further into the Internet marketplace.

            SB-822 current rests on the desk of California Governor Jerry Brown.  Does the Governor sign the legislation that deems illegal zero rating, most types of throttling and possibly even the paid peering arrangement that Netflix and Comcast negotiated to resolve a traffic delivery dispute? If he does we will see just how ticked off California broadband consumers get when state law mandates strict neutrality that forecloses “better than best efforts routing” and other market enhancements available at a premium price.

            For my part, I part company with my network neutrality friends, because I believe elected officials should rarely stand in the way of allowing a maturing Internet ecosystem to delivery different tiers of service at varying price points.