The Federal Communications Commission is intervening in a court case in order to help Charter Communications avoid utility-style consumer protections related to its phone service in Minnesota. The FCC and Charter both want to avoid a precedent that could lead other states to impose stricter consumer protection rules on VoIP (Voice over Internet Protocol) phone service offered by cable companies.

The FCC has never definitively settled the regulatory status of VoIP. By contrast, traditional landline phone service and mobile phone service are both classified as "telecommunications services" by the FCC, a distinction that places them under the same Title II common carrier regulatory framework that applies to broadband Internet access. But the FCC has never decided whether VoIP services offered by cable companies are telecommunications or "information services," which aren't as heavily regulated.

The Minnesota Public Utilities Commission (MPUC) hoped to fill this regulatory void by trying to re-impose utility rules on Charter's Spectrum phone service. (Charter used to be subject to Minnesota's utility rules but evaded them starting in 2013 by transferring its phone customers to a different subsidiary.) Minnesota wants Charter to collect fees from customers in order to contribute to state programs that help poor people and people who are deaf or hard of hearing access telephone service. Customers should also be able to appeal to the MPUC in the event of disputes with Charter, the state regulatory body says.

The FCC is trying to prevent that from happening.

"The Minnesota PUC's sweeping demand that Charter comply with the state's full panoply of legacy telephone regulations, even though the FCC has not classified VoIP as a telecommunications service, threatens to disrupt the national voice services market," the FCC said on October 27 in an amicus brief supporting Charter.

Pressure to preempt states

The court case is being decided as the telecom industry steps up pressure on FCC Chairman Ajit Pai to preempt state regulations. For example, Comcast and Verizon have asked the FCC to prevent states from imposing net neutrality rules and other regulations on broadband service.

In the VoIP case, Charter beat the Minnesota PUC at the US district court level, and Minnesota appealed to the US Court of Appeals for the 8th Circuit. Though the 8th Circuit handles cases from just seven states, the FCC says the case has nationwide ramifications:

The potential ramifications of the PUC's actions here extend far beyond the confines of Minnesota. A judicial declaration that VoIP is a telecommunications service—which is what Appellants seek in this appeal—could potentially subject VoIP providers not only to Minnesota's state regulatory scheme, but also to the full panoply of federal common carriage requirements found in Title II of the Communications Act. And if the Minnesota PUC's efforts to regulate VoIP service were upheld, all 50 states could potentially seek to impose a patchwork of separate and potentially conflicting requirements on VoIP service.

The FCC justified its inaction on VoIP by noting that it regulates aspects of VoIP despite never classifying it as either telecommunications or an information service. For example, the FCC imposes requirements on VoIP related to 911, customer privacy, accessibility and funding for people with disabilities, and universal service contributions.



“Virtually all meaningful consumer protection would be eliminated”

The Minnesota case is "the first opportunity for a federal court of appeals" to address the question of whether VoIP is an information service or telecommunications under federal law, a brief filed by AT&T, Verizon, and the trade group USTelecom said.

Consumer groups warned that a Charter victory would bring the loss of consumer protection rules that guarantee universal access to basic telephone service at fair prices.

"Virtually all meaningful consumer protection would be eliminated," argued Mid-Minnesota Legal Aid, a non-profit law firm for poor people, seniors, and people with disabilities. "Undue price, geographical, and other discrimination would become unrestricted, threatening the availability and maintenance of these indisputably essential services."

How Charter evaded state regulations

A court filing by the Minnesota PUC explains how Charter evaded the state's utility rules.

Charter's phone service in Minnesota used to be provided through a subsidiary called Charter Fiberlink, which is regulated by the state as a telecommunications company. Despite using VoIP technology, it was regulated like a traditional phone company until 2013.

"As an authorized Competitive Local Exchange Carrier (CLEC), Charter Fiberlink is required to comply with the consumer protection requirements under Minnesota law," the state's legal filing explains.

But in March 2013, MPUC says, "Charter unilaterally transferred all its Minnesota residential consumers" served by Fiberlink "to its new Charter Advanced subsidiaries, which it contends are not subject to the MPUC's jurisdiction. Charter Advanced does not have and has not sought authority from the MPUC to provide telecommunications service in Minnesota." Charter did this "without notice to or approval by the MPUC," the state says.

The state utility commission's brief also said:

After accepting the MPUC's jurisdiction under state law for over a decade, Charter quietly declared its offering of IP-enabled telephone service in Minnesota free from the MPUC's oversight through this corporate transaction. Charter Advanced admits that this unilateral customer transfer was for the purpose of evading state regulation.

With its newfound avoidance of rules requiring contributions to state programs for poor people and the deaf, deafblind, and hard of hearing, Charter boasted in advertising that its phone service doesn't require payment of the "added fees like the phone company charges you," MPUC wrote.

Charter is the second-biggest cable company in the US after Comcast, with 25.5 million residential customers in 41 states. Of those, 10.4 million subscribe to voice service.

Rule of law rendered obsolete?

Minnesota argues that VoIP phone service shouldn't come with fewer consumer protections simply because it is provided over a different kind of network than traditional circuit-switched landline phones.

"This case presents an important question of nationwide significance: whether the rule of law may be rendered obsolete by technological innovation," the state utility commission said.

The district court's finding that Charter's VoIP service is not telecommunications "strips the MPUC of its authority to regulate VoIP telephone service, [and] is contrary to binding decisions of this Court, FCC precedent, and the longstanding system of cooperative federalism established under the Telecommunications Act," the state commission said.

The PUC also urged the appeals court to declare that Charter's phone service is telecommunications "under the plain language of the Telecommunications Act." The federal statute defines telecommunications as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received."

Charter’s argument

Charter argues that the case hinges on just one question: whether Charter's VoIP phone service is an information service under the federal communications statute.

Charter phone service "offers the ability to convert the protocol of calls when Charter's network interconnects with other carriers," thus fitting the statutory definition of information services as those that offer the "capability for... transforming [or] processing... information via telecommunications," Charter wrote.

Minnesota is the only state in Charter's footprint that "seeks to extend its regulatory reach to encompass advanced services," the company wrote.

"Its approach not only ignores text and precedent, but would allow every state to impose idiosyncratic rules, creating a nationwide patchwork of requirements that would frustrate the FCC's longstanding policy of insulating advanced services from such a regulatory morass," Charter wrote.

Charter got support from other telecom companies that want to avoid stricter regulation of VoIP phone services. The brief filed by AT&T, Verizon, and USTelecom argues that VoIP is an information service because it converts voice signals from one format to another in order to carry phone calls to and from traditional landlines. AT&T and Verizon both offer utility landline phone services but are shifting toward VoIP services and want to shed the utility regulations that have long applied to phone networks.

Cable industry lobby group NCTA-The Internet & Television Association similarly filed a brief supporting Charter. "Preventing the imposition of utility regulation on VoIP will promote continued competition and benefit consumers," NCTA wrote.

Backing for state consumer protection rules

Minnesota got support from consumer advocates and utility commissions in other states. A brief filed by the National Association of Regulatory Utility Commissioners (NARUC) and the National Association of State Utility Consumer Advocates (NASUCA) says that VoIP is a telecommunications service based on the "unambiguous text of the statute."

But even if VoIP is an information service, Minnesota can still regulate it, NARUC and NASUCA argued. The Communications Act "nowhere provides specific authority to preempt state oversight of information services," the groups said. (Federal law pre-empts state regulation of interstate communications but allows state regulation of intrastate communications as long as state rules do not conflict with FCC rules, the FCC brief said.)

The AARP also supported Minnesota, telling the court that preemption of state authority would interfere with the goal of "providing universal access to high-quality, reliable, and affordable telephone service."

Disclosure: The Advance/Newhouse Partnership, which owns 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.