Court Opinion

ID: 4310649
Source: CourtListenerOpinion
Date Created: 2018-09-07 16:00:28.93763+00
Date Added: 2024-06-11T14:44:13.045128
License: Public Domain

United States Court of Appeals
                           For the Eighth Circuit
                       ___________________________

                               No. 17-2290
                       ___________________________

Charter Advanced Services (MN), LLC; Charter Advanced Services VIII (MN), LLC

                                     Plaintiffs - Appellees

                                         v.

 Nancy Lange, in her official capacity as Chair of the Minnesota Public Utilities
 Commission; Dan M. Lipschultz, in his official capacity as Commissioner of the
  Minnesota Public Utilities Commission; John Tuma, in his official capacity as
Commissioner of the Minnesota Public Utilities Commission; Matthew Schuerger,
   in his official capacity as Commissioner of the Minnesota Public Utilities
 Commission; Katie Clark Sieben, in her official capacity as Commissioner of the
                      Minnesota Public Utilities Commission

                                   Defendants - Appellants

                            ------------------------------

     Mid-Minnesota Legal Aid; National Association of Regulatory Utility
   Commissioners; National Association of State Utility Consumer Advocates;
              AARP; AARP Foundation; Barbara Ann Cherry

                               Amici on Behalf of Appellant(s)

    Federal Communications Commission; NCTA-The Internet & Television
     Association; USTelecom; Voice on the Net Coalition; AT&T; Verizon

                               Amici on Behalf of Appellee(s)
                                ____________
                     Appeal from United States District Court
                    for the District of Minnesota - Minneapolis
                                   ____________

                             Submitted: June 12, 2018
                             Filed: September 7, 2018
                                  ____________

Before LOKEN, ERICKSON, and GRASZ, Circuit Judges.
                           ____________

ERICKSON, Circuit Judge.

       Charter Communications is a provider of video, internet, and voice
communications services. This case arose when Charter underwent a corporate
reorganization in order to segregate its Voice over Internet Protocol (“VoIP”) services
from its regulated wholesale telecommunications services. As part of the
reorganization, Charter moved its VoIP accounts from “Charter Fiberlink” to a newly
created affiliate named “Charter Advanced.” This led the Minnesota Department of
Commerce to lodge a complaint with the Minnesota Public Utilities Commission
(“MPUC”) alleging that Charter had violated various state laws. Charter responded
that state regulation was preempted by the Telecommunications Act of 1996. The
MPUC ruled against Charter.

       Charter commenced an action in the United States District Court for the
District of Minnesota seeking: 1) declaratory relief finding that state regulation is
preempted, and 2) injunctive relief prohibiting Defendants from enforcing regulation
of its VoIP services. The district court1 denied defendants’ motion to dismiss and
allowed discovery to proceed. Following competing motions for summary judgment,

      1
       The Honorable Susan Richard Nelson, United States District Judge for the
District of Minnesota.

                                         -2-
the district court ruled that Charter’s VoIP service is an “information service” under
the Telecommunications Act and that state regulation of Charter’s VoIP services was
therefore preempted. Because we agree with the district court, we affirm.

      I.     Background

       Spectrum Voice is a VoIP service operated by Charter Advanced. Spectrum
Voice offers a voice calling feature that allows subscribers to exchange calls with
traditional telephones, transmitting voice signals as Internet Protocol (“IP”) data
packets via a broadband internet connection. Spectrum Voice is an “interconnected”
VoIP service because of its ability to interface with traditional or legacy telephone
operations. It is also a “fixed” service because it is tethered to the user’s home.

       Spectrum Voice subscribers receive an embedded Multimedia Terminal
Adapter (“eMTA”) from Charter Advanced. The eMTA is combined with a modem
(for broadband internet access service) into a single device. The eMTA transforms
voice calls from analog electrical signals into IP “packets,” which are then carried on
Charter’s network. Under FCC classifications for hardware, the eMTA is considered
Customer Premises Equipment (“CPE”).

       In order to facilitate Spectrum Voice’s interconnected VoIP service, Charter
must interconnect with traditional providers. Traditional telephone networks
(collectively known as the public switched telephone network or “PSTN”) utilize
“circuit switching” technology, which establishes a dedicated pathway for the
duration of a call. A technique called Time Division Multiplexing (“TDM”) allows
multiple circuit-switched calls to share the same line.

       As the district court stated, “[t]he eMTA alters the format of voice calls
between an analog electrical signal—as transmitted by the customer’s handset—and
the IP data packets transmitted over Charter Advanced’s cable network . . . When a

                                         -3-
Charter Advanced customer calls or receives a call from a subscriber of a traditional
telecommunications carrier, the call must be converted between IP and TDM.”
Charter Advanced Servs. (MN), LLC v. Lange, 259 F. Supp. 3d 980, 982 (D. Minn.
2017). This process is known as “protocol conversion.” Charter accomplishes the
conversion by routing IP-TDM calls through a “Media Gateway” on Charter
Advanced’s side of its connection with a TDM-based network.

       Spectrum Voice provides customers access to additional features. For example,
the service offers: 1) a web portal to access voicemails as digital files, convert
voicemails to text, and forward them via email; 2) the ability to display caller ID info
on connected cable televisions; 3) a “softphone” feature to access Spectrum Voice via
a tablet or smartphone app; and other features.

       Charter moved its Spectrum Voice offerings from Charter Fiberlink to Charter
Advanced for the purpose of decreasing its state regulatory burden. Under the
Telecommunications Act of 1996, a “telecommunications service” is “the offering of
telecommunications for a fee directly to the public, or to such classes of users as to
be effectively available directly to the public, regardless of the facilities used.” 47
U.S.C. § 153(53). An “information service,” by contrast, is “the offering of a
capability for generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications, . . . but does not
include any use of any such capability for the management, control, or operation of
a telecommunications system or the management of a telecommunications service.”
47 U.S.C. § 153(24).

      How a service is classified affects a state’s ability to regulate the service.
Telecommunications services are generally subject to “dual state and federal
regulation.” See Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 375 (1986).
By contrast, “any state regulation of an information service conflicts with the federal
policy of nonregulation,” so that such regulation is preempted by federal law. See

                                          -4-
Minnesota Pub. Utilities Comm’n v. FCC, 483 F.3d 570, 580 (8th Cir. 2007); see also
47 C.F.R. § 64.702. The FCC has so far declined to classify VoIP services as either
information or telecommunications services, despite repeated opportunities to do so.2
See Clark v. Time Warner Cable, 523 F.3d 1110, 1113 (9th Cir. 2008) (footnotes
omitted) (quoting In re IP–Enabled Services, 19 F.C.C.R. 4863, 4880-81 ¶¶ 26-27,
4886 ¶ 35 (2004)) (explaining that the FCC “solicited comment on whether VoIP
services should be classified as ‘telecommunications services’ or ‘information
services’ under the Act”).

       The MPUC sought to regulate Charter Advanced by asserting that VoIP is a
“telecommunications service” as defined by the Act. Charter responded by filing an
action in the district court arguing that Spectrum Voice is an “information service”
under the Act, requiring preemption of state regulation. In the absence of direct
guidance from the FCC explicitly classifying VoIP services, the district court
interpreted the Act with reference to prior FCC orders, and concluded that Spectrum
Voice was an information service. The MPUC now appeals.

      II.    Discussion

       We review the district court’s grant of summary judgment de novo, “viewing
all evidence and drawing all reasonable inferences in the light most favorable to” the
nonmovant. Riddle v. Riepe, 866 F.3d 943, 946 (8th Cir. 2017) (quoting Helmig v.
Fowler, 828 F.3d 755, 760 (8th Cir. 2016)). Summary judgment is appropriate if “the
movant shows that there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

      2
       The FCC’s amicus brief in this case is illustrative. See Brief of the FCC as
Amicus Curiae Supporting Appellees at 13-15 (“[T]he agency has not yet resolved
the overarching classification issue . . . the agency has not needed to definitively
resolve the overarching regulatory classification of . . . VoIP service at this time.”).

                                          -5-
       As we have noted, “any state regulation of an information service conflicts with
the federal policy of nonregulation.” Minnesota Pub. Utilities Comm’n v. FCC, 483
F.3d 570, 580 (8th Cir. 2007). We may therefore affirm the district court if Charter’s
VoIP offerings are an information service under the Act.

       We conclude that the VoIP technology used by Charter Spectrum is an
“information service” under the Act.3 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.’” See id. at 986 (quoting
Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the
Communications Act of 1934, As Amended, 11 F.C.C.R. 21905, 21956 ¶ 104 (1996)
(“Non-Accounting Safeguards Order”)). While the Non-Accounting Safeguards

      3
        We note that while the FCC would be able to announce a classification
decision regarding VoIP, it has so far declined to do so. See, e.g., USF-ICC
Transformation Order, 26 F.C.C.R. 17663, 18013-14 ¶ 954 (2011) (explaining that
“the Commission has not classified interconnected VoIP services or similar one-way
services as ‘telecommunications services’ or ‘information services’”) (footnote
omitted). We sometimes stay our hand “while seeking the guidance of an
administrative agency’s perceived expertise” when resolving a question concerning
a statute ordinarily interpreted by the agency. See Owner-Operator Indep. Drivers
Ass’n, Inc. v. New Prime, Inc., 192 F.3d 778, 785 (8th Cir. 1999) (discussing the
doctrine of primary jurisdiction). Here the agency has “decline[d] to provide
guidance” for well over a decade, so that we may, in our discretion, proceed
“according to [our] own light.” Id. (quoting Atchison, Topeka & Santa Fe Ry. v.
Aircoach Transp. Ass’n, 253 F.2d 877, 886 (D.C. Cir. 1958)).

                                         -6-
Order did not specifically discuss VoIP technology, its rationale suggests that
Spectrum Voice’s protocol conversion is a “transformation” of the relevant
communications.4 See Non-Accounting Safeguards Order, 11 F.C.C.R. at 21956 ¶
104 (1996) (explaining that “conversion and protocol processing services are
information services under the 1996 Act”); see also Vonage Holdings Corp. v.
Minnesota Pub. Utilities Comm’n, 290 F. Supp. 2d 993, 999 (D. Minn. 2003) (citing
47 C.F.R. § 64.702(a)) (explaining that the “process of transmitting customer calls
over the Internet require[d]” a VoIP provider to “‘act on’ the format and protocol of
the information” and finding that such providers use telecommunications services,
rather than providing them). 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”).

       We briefly address the Act’s carve-out from the definition of “information
service.” 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

      4
       The FCC took the position in this case that none of “the various FCC
authorities invoked by the district court” should be read to “definitively resolve” the
regulatory classification of Charter’s VoIP services. See Brief of the FCC as Amicus
Curiae Supporting Appellees at 26-29. To be clear, we do not resolve the statutory
question solely on the basis of those authorities—though like the FCC, we believe
they “continue to provide important guidance on how to interpret and apply the
Communications Act.” Id. at 27.

                                         -7-
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).’” 259 F. Supp. 3d at 988-89 (quoting Non-Accounting
Safeguards Order, 11 F.C.C.R. at 21957 ¶ 106).

       None of the exceptions alter our conclusion that Spectrum Voice is an
information service. The first exception is inapplicable because the service at issue
is “between or among users.” The network protocol technology is an essential feature
of Spectrum Voice’s offerings, as the ability to call users of legacy telephony services
via Spectrum Voice is a vital selling point for consumers. The second exception is
also inapplicable. Spectrum Voice’s service is not aimed at providing backwards
compatibility for existing CPE. Instead, Spectrum Voice’s customers must receive
new CPE (the eMTA) to utilize its services. Finally, the “internetworking” exception
does not apply. The FCC defines CPE as falling outside a carrier’s network. See In
re Federal–State Joint Board on Universal Service, 18 F.C.C.R. 10958, 10067 ¶ 18
(2003) (defining CPE as “equipment that falls on the customer side of the
demarcation point between customer and network facilities”). As such, the eMTA
is located outside of the carrier’s network by definition. Since any conversion back
into the original form of the information takes place outside of the network (in the
eMTA), the “internetworking” exception is inapplicable.

      III.   Conclusion

      We agree with the district court that Spectrum Voice is an “information
service” under the Act. Preemption of state regulation of Spectrum Voice is therefore
warranted. Accordingly, we affirm the district court’s grant of summary judgment to
Charter Advanced.

                                          -8-
GRASZ, Circuit Judge, dissenting.

      Because I do not believe net protocol conversions qualify as information
services under the federal Communications Act, I would reverse the district court’s
conclusion that federal law preempts state regulation of Charter’s Spectrum Voice
service.

                                   I. Background

       The FCC and the telecommunications industry have long debated the question
of how best to address protocol conversions when categorizing services. In its
Computer II inquiry in 1980, the FCC created a “relatively clear-cut” distinction
between “basic services” and “enhanced services.” In the Matter of Amendment of
Section 64.702 of the Commission’s Rules and Regulations (Second Computer
Inquiry), 77 F.C.C.2d 384, 420–21 ¶ 97 (1980) (“Computer II”). Basic services were
the typical telecommunications services, while any improvement on that service was
an enhanced service, including protocol conversions. Id. at ¶ 97, 99. This conclusion
was not unanimous because, as a dissenting commissioner argued, some type of
protocol conversion may be necessary to provide any service. Id. at 511–12, 516
(Fogarty, Comm’r, dissenting in part). In 1983, the FCC clarified that some protocol
conversion is necessary to basic services, but it narrowly construed which protocol
conversions are necessary while indicating that it would consider waiver applications
for basic service providers that wanted to add other protocol conversions. See In the
Matter of Communications Protocols under Section 64.702 of the Commission’s
Rules and Regulations, 95 F.C.C.2d 584, 590–92 ¶¶ 14–16 (1983).

       The Telecommunications Act of 1996, which amended the Communications
Act, largely adopted the FCC’s basic service and enhanced service categories in its
definitions of telecommunications service and information service, respectively, with
a very important change that is relevant here: it did not include protocol conversions

                                         -9-
in the definition of information service. Compare 47 U.S.C. § 153(24) with
Computer II at ¶ 5. In a 1998 report to Congress, the FCC admitted that its prior
discussion of protocol processing in its 1996 Non-Accounting Safeguards Order may
be incorrect in light of that statutory definition, and it deferred the categorization of
net protocol conversions to another day. In the Matter of Fed.-State Joint Bd. on
Universal Serv., 13 FCC Rcd. 11501, 1998 WL 166178, at ¶¶ 49–52 (1998) (the
“Stevens Report”) (discussing Non-Accounting Safeguards Order at ¶¶ 104–07). It
remained unclear whether protocol conversions amounted to transforming
information, making the service an “information service,” or were simply part of
transmitting information, making it a “telecommunications service.”

       Twenty years later, the lack of clarity continues. This is at least in part because
the entire telephone network is in the process of changing from time-division
multiplex (“TDM”) to internet protocol (“IP”). 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.” 47 U.S.C. § 153(53) (emphasis added). If the converters used to pass calls
between old and new network lines during a transition are the defining feature of an
information service, then any telecommunications service would become a lightly
regulated information service while using conversion and revert back to being a
heavily regulated telecommunications service as soon as the transition from TDM to
IP is complete. Such an understanding would create a functional end-run around the
statutory language stating a telecommunications service remains such “regardless of
the facilities used.”

       While the FCC has not completely resolved the categorization of VoIP, it has
issued some orders regarding IP lines, and Charter is avoiding that precedent based
on a technicality regarding where conversion occurs. The FCC previously declared
that AT&T’s service is a telecommunications service, even though it uses IP lines in
the middle of its network, because the call still enters and exits the network on

                                          -10-
traditional phone lines. See In the Matter of Petition for Declaratory Ruling that
AT&T’s Phone-to-Phone IP Telephony Services Are Exempt from Access Charges,
19 FCC Rcd. 7457 (2004) (“IP-in-the-Middle Ruling”). Here, Charter’s calls
technically begin on IP lines and end on traditional phone lines — even though their
customers use traditional phone lines to begin calls — because the converter box is
inside the customer’s home. The only practical difference between Charter’s network
and AT&T’s network is whether the first converter box is inside or outside
customers’ homes.

       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.

       The FCC started a proceeding to address the categorization of interconnected
VoIP in 2004. See IP-Enabled Services, 19 FCC Rcd. 4863 (2004). In its amicus
brief to this Court, the FCC confirmed that this proceeding is still pending, stating
that none of its prior authorities “purport[] to decide (nor should be read to
definitively resolve) the regulatory classification” at issue here.

                                    II. Analysis

      In my view, the net protocol conversion in Charter’s service makes it either a
telecommunications service or something entirely outside the primary categories of

                                        -11-
services in the Communications Act. The one thing it cannot be is an information
service.

       Under its statutory definition, an information service includes
“transforming . . . information via telecommunications.” 47 U.S.C. § 153(24). A
telecommunications service is “the offering of telecommunications for a fee directly
to the public.” Id. § 153(53). Both types of services involve “telecommunications,”
which is defined 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.” Id. § 153(50).

       If we assume that interconnected VoIP services “provide”
“telecommunications” as defined in statute,5 then we must presume that no “change”
occurs between the two phone sets on either end of the interconnected VoIP line. See
id. Charter argues that the telecommunications portion of its service is between the
customer’s premises and the media gateway that performs the protocol conversion,
but this argument is incorrect since the receiving phone, not the media gateway, is the
“point[] specified by the user.” Id. 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.

      5
       The Parties agreed on this point, but it appears that no circuit court has ever
addressed whether interconnected VoIP is by definition “telecommunications.” See,
e.g., Vonage Holdings Corp. v. FCC, 489 F.3d 1232, 1241 (D.C. Cir. 2007)
(declining to reach the issue because it was not preserved for review).

                                         -12-
        On the other hand, if a net protocol conversion does “change” the information
sent and received by users, it is not telecommunications by definition and is thus
neither a part of a telecommunications service nor an information service (which,
again, is offered “via telecommunications”). Id. § 153(24) (emphasis added), (50),
(53). To be clear, protocol conversions do not necessarily place a service outside
telecommunications as defined in the Communications Act. As the FCC has
observed, whether a protocol conversion changes the form or content is assessed “as
sent and received” by end users, meaning that a conversion that makes no net change
to the information can be part of a telecommunications service. See Non-Accounting
Safeguards Order at ¶ 106; IP-in-the-Middle Ruling at ¶¶ 12–13. But for our
purposes, we need not attempt to resolve the decades-long dispute of how to
categorize various types of protocol conversions.6 It is sufficient that if Charter’s net
protocol conversion does not change the information (because it provides
telecommunications), then its service cannot at the same time involve transforming
the information (so as to make it an information service); and conversely, if Charter’s
net protocol conversion does change the information, then it is not
telecommunications and thus not part of either category of service.

      I also reach no conclusions about whether the Communications Act or the FCC
could preempt MPUC’s regulations on other grounds. For example, the
Communications Act requires that state regulation of universal service be consistent
with FCC regulations. 47 U.S.C. § 254(f). Furthermore, some portions of the
Communications Act treat interconnected VoIP as distinct from other services, see,

      6
        I find no merit in the MPUC’s arguments that net protocol conversions meet
the current telecommunications management exception categories for reasons similar
to the majority, but I also see nothing in the statute that prevents the FCC from
recognizing additional categories should it find that approach to be the best way to
resolve an issue.

                                          -13-
for example, 47 U.S.C. §§ 222(g), 615a-1(g);7 but see id. § 620(a),8 which suggests
that a regulatory solution is needed beyond the narrow issue in this case. If new
technology has made federal law insufficient to adequately address interconnected
VoIP and its relationship to state law, then the FCC should use its existing authority
to solve the problem or Congress should make any necessary statutory fixes.

       The question presented to us is rather narrow: whether the federal
Communications Act categorizes net protocol conversions in interconnected VoIP as
an information service. I conclude it does not. I also agree with the FCC that none
of its prior orders purport to decide or should be read to definitively resolve the
regulatory classification at issue here. Thus, I would reverse the district court’s
finding of preemption.
                        ______________________________

      7
      The term “IP-enabled voice service” in these statutes refers to interconnected
VoIP. See 47 U.S.C. § 615b(8) (set out first).
      8
       The term “advanced communications” includes interconnected VoIP. See 47
U.S.C. § 153(1).

                                        -14-