FEDERAL COURT RULES THAT VoIP SERVICE IS EXEMPT FROM STATE REGULATION
May 19, 2017
On May 8, 2017, the United States District Court for the District of Minnesota ruled that state regulation of Charter Advanced Services (MN), LLC’s (“Charter”) Spectrum Voice VoIP Service is impermissible and preempted by federal law. In doing so, the Court ruled that Spectrum Voice is appropriately classified as an information service rather than a telecommunications service. This distinction is important because, among other reasons, telecommunications services are subject to state regulation, while information services are subject to a much lower level of state regulation.
This case was initiated when the Minnesota Department of Commerce filed a complaint on September 26, 2014 with the Minnesota Public Utility Commission (“MPUC”) alleging that Charter was in violation of several Minnesota statutes. Charter responded by arguing that state regulation of Spectrum Voice is preempted by federal law. On July 28, 2015, the MPUC issued an order rejecting Charter’s arguments and finding that state regulation of VoIP service offerings like Spectrum Voice is not preempted. In turn, Charter responded to the MPUC’s decision by instituting a proceeding in federal court. Charter’s federal complaint sought declaratory relief that state regulation of Spectrum Voice is preempted by federal law, and injunctive relief prohibiting the MPUC from seeking to enforce that regulation of its service.
In ruling that Spectrum Voice is free from state regulation, the Court found that Spectrum Voice engages in net protocol conversion, and that this feature renders it an “information service” under applicable legal and administrative precedent. The Court reasoned that the key question is whether Spectrum Voice acts on the customer’s information in such a way as to “transform” that information. The Court then found that by altering the protocol in which that information is transmitted from TDM to Internet Protocol (“IP”), Spectrum Voice clearly performs a net protocol conversion. The Court also held that the mere fact that Spectrum Voice calls do not always involve protocol transformation does not “render the service any less of an ‘offering’ of information services,” stating that federal law does not require that a customer use an information service’s transformative features all the time.
The Charter Court’s classification of a VoIP Service as an information service potentially has huge ramifications for providers of VoIP Service, including arguably whether number portability requirements or interconnection obligations would still apply to VoIP Service.
This Utilities and Telecommunications Alert is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions regarding the above, please contact Rob Gastner at 202.659.6674.