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.

The Google Telephone Company?

Google has undertaken a beta-test of a telephony platform that includes the opportunity to route incoming calls to multiple devices and telephone numbers as well as free domestic long distance service. See http://www.google.com/googlevoice/about.html.

Google offers a service that fits somewhere between computer-to-computer, Internet telephony and Voice over the Internet Protocol telephony with access to and from the public switched telephone network. These service categories present polar opposites for U.S. regulatory purposes. The FCC’s Declaratory Ruling in Pulver.com clearly states that computer-mediated voice communications constitutes a largely unregulated information service. Without stating that PSTN accessible VoIP constitutes a regulated telecommunications service, the FCC has increasingly treated is as such. Using its elastic “ancillary jurisdiction,” provided under Title I of the Communications Act, the Commission has opted to apply Title II, common carrier duties on PSTN accessible VoIP service providers. These duties reduce the competitive advantages of VoIP as they impose significant costs including: financial contributions to universal service funding, wiretapping cooperation with law enforcement officials, emergency 911access, number portability to and from VoIP telephone numbers, and accessibility for people with disabilities.

Most recently the FCC specified that interconnected VoIP service providers must comply with Sec. 214 of the Communications Act that requires common carriers to file applications with the FCC and state public utility commissions before discontinuing any service. See IP Enabled Services, Report and Order, WC Dkt 04-36 (FCC 09-40 May 13, 2009); available at http://www.qsiconsulting.com/pdf/FCC_VoIP_order_5-13-09.pdf.

Does the launch of Google Voice create the potential for the company to become a major regulated telephone company? On one hand, the service clearly provides access to and from the PSTN. But on the other hand, Google Voice requires subscribers to launch an Internet browser and to enter instructions using a Web interface. Does computer-initiated voice communications migrate the service into the “computer-to-computer” Internet telephony classification, despite the PSTN link? Eventually at stake will be millions and possibly billions of dollars in revenues and universal service funding.

Can Common Carrier Regulated Telephone Companies Limit Service Plans to Bundled Subscribers?

Several press outlets have disclosed that Verizon may offer very low cost telephone service options available only to subscribers who already have Verizon-provided Internet access. See http://uk.reuters.com/article/rbssTechMediaTelecomNews/idUKN1735246920090217.
One $5 plan would limit outbound calling to 911 emergency and Verizon customer service, while a $10 plan would include some regular outbound calls.

The last time I checked Verizon remained a common carrier telecommunications service provider obligated to file local telephone service tariffs and subject to non-discrimination requirements contained in Title II of the Communications Act. I do not believe Verizon can lawfully offer a telecommunications service limited to a select group of customers who “qualify” to take this service if and only if they also buy Internet access from Verizon.

Perhaps this low cost Verizon service is not circuit switched telephone service, but Voice over the Internet Protocol (“VoIP”) service instead. Arguably Verizon would have no tariff filing obligation, or nondiscrimination obligation for VoIP if classified as an information service. However if the FCC allows Verizon to offer this sort of pre-qualified customer access to VoIP service, the Commission may in effect validate the view that VoIP is not a telecommunications service, something Comcast recently emphasized in response to an FCC letter inquiring whether the company was favoring its VoIP service by exempting it from network management functions that could throttle VoIP offered by competitors. See Letter from Dana R. Shafer, Chief Wireline Competition Bureau and Matthew Berry, General Counsel to Katheryn A. Zachem, Vice President Regulatory Affairs, Comcast Corp. (Jan. 18, 2009); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-288047A1.pdf;
Comcast’s response is available at: http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6520194593.

Heretofore the FCC has managed to avoid having to make an either/or (telecommunications service vs. information service) classification for retail VoIP. Verizon may not even have anticipated that a marketing tactic to stave off complete wireline customer migration may force the FCC to make an important regulatory call.

Comcast Letter Hints at the Potential Common Carrier Regulation of VoIP Service

While the FCC has classified cable modem and DSL Internet access an information services, the Commission has not specified whether VoIP similarly qualifies. On one hand software applications, riding along a cable modem or DSL link, create VoIPs services. But on the other hand high level FCC managers recently noted that when an Internet Service Provider markets VoIP as a facilities-based service separate from Internet access the service constitutes a common carrier, regulated telecommunications service. [1]

The FCC managers made this nonbinding and nonenforceable conclusion in a letter to Comcast Corporation primarily inquiring about potential discriminatory treatment of competitors’ VoIP services vis a vis Comcast’s offering and the apparent nonpayment of interconnection fees to other telecommunications service providers. Having noted violations of its 2005 Internet Policy Statement, [2] the Commission had required Comcast to file a document showing how the company would comply with the duty to operate in a nondiscriminatory manner. [3] In its response Comcast reported that a subscriber would experience a noticeable deterioration in service, including VoIP service not provided by Comcast whenever a subscriber uses 70% of his or her “provisioned bandwidth” for 15 minutes or more when such use causes congestion in the vicinity, labeled as the Cable Modem Termination System Node by Comcast, for more than 15 minutes. Because Comcast separately provisions its VoIP service, a congestion causing subscriber of Comcast’s cable modem service, who also subscribers to Comcast’s VoIP service, would not experience any degradation of the Comcast VoIP service.

The letter to Comcast seeks an explanation for the disparate treatment of VoIP services, particularly in light of Comcast’s assertion that its VoIP service is “facilities-based.” The letter appears to infer that facilities-based means that Comcast physically partitions its data bandwidth, thereby creating for its VoIP service stand alone links. The letter infers that when Comcast by provisions its VoIP service, separate and apart from broadband access, Comcast may be offering a regulated, retail telecommunications service and a largely unregulated information service. [4] In The Letter requests that Comcast explain why it should be regulated as a telephone company and bear conventional common carrier responsibilities including the duty to compensate other carriers for terminating Comcast generated VoIP traffic.

Most analysts have concentrated on the potential that Comcast may not have fully remedied all instances of Internet access discrimination and whether the company may use network management features to create incentives for subscribers to use Comcast VoIP services over competitors. But perhaps more important is the interpretation whether and how a largely unregulated information service provider triggers conventional common carrier telecommunications service regulation when offering a VoIP service.

[1] Letter from Dana R. Shafer, Chief Wireline Competition Bureau and Matthew Berry, General Counsel to Katheryn A. Zachem, Vice President Regulatory Affairs, Comcast Corp. (Jan. 18, 2009); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-288047A1.pdf [hereinafter cited as Comcast VoIP Letter].

[2] Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, Policy Statement, 20 FCC Rcd. 14986 (2005).

[3] See Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation for Secretly Degrading Peer-to-Peer Applications, File No. EB-08-IH-1518, Memorandum Opinion and Order, FCC 08-183 (rel. Aug. 20, 2008); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-183A1.doc.

[4] “Given that Comcast apparently is maintaining that its VoIP service is a ‘separate facilities-based’ telephone service that is distinct from its broadband service and differs from the service offered by [competing] ‘VoIP providers that reply on delivering calls over the public Internet’ . . . it would appear that Comcast’s VoIP service is a telecommunications service subject to regulation under Title II of the Communications Act of 1934, as amended.” Comcast VoIP Letter at 2.