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Charter Advanced Services (MN), LLC v. Lange

United States Court of Appeals, Eighth Circuit

September 7, 2018

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 Amid 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)

          Submitted: June 12, 2018

          Appeal from United States District Court for the District of Minnesota - Minneapolis

          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 court[1] denied defendants' motion to dismiss and allowed discovery to proceed. Following competing motions for summary judgment, 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 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 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 ΒΆΒΆ 26-27, 4886 ...


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