Does It Ring a Bell?

By Andrew Delaney

In re Investigation into Regulation of Voice over Internet Protocol (VoIP) Services, 2013 VT 23

Here’re a few things we’re willing to wager you don’t think about every day—is your phone service classified as a telecommunications service or an information service?  What’s the difference?  What is Voice over Internet Protocol (VoIP) service?  The answers to these questions are explored in this appeal from the Public Service Board (PSB). 

Stay tuned . . . .   

First, let’s talk about “traditional” phone service.  Traditional phone service works on a public switched telephone network (PSTN).  This is more or less a direct-line setup—point A to point B using an analog signal over copper wires according to the ten-digit North American Numbering Plan (NANP) number that corresponds with geographic location.  We are talking about good ol’ Ma Bell and telephones as we always thought about them.

Did I mention we’d be using a lot of acronyms today?

VoIP uses internet protocol (IP) to transmit digital data over computer networks.  In simple terms, VoIP-to-VoIP communication begins and ends in cyberspace, but interconnected VoIP uses special equipment to allow VoIP users to access the PSTN with a broadband connection.  Nomadic interconnected VoIP can be used anywhere a user can get a broadband connection, and specific geographic endpoints can't easily be pinpointed (super-geeks should take note that the original opinion states “not possible”—you’re welcome).  Interconnected fixed VoIP, on the other hand, most closely resembles a traditional landline telephone—but it has different technology making it work.  Either way we are talking about information going from a phone into a computer, going out over the internet, to another computer, and then a phone.  Same voice calling to Watson but radically different sausage inside the casing.

So what does all this have to do with the SCOV?   

Well, the PSB concluded that VoIP is a “telecommunications service” and subject to Vermont regulation.  Comcast—a provider of VoIP services in Vermont—didn’t like that.  Comcast argues that its VoIP service is an information service and thus any Vermont regulation is preempted by federal law and Vermont is preempted.  Because the PSB didn’t address the question of whether VoIP is a telecommunications or an information service, the SCOV sends this one back to the kitchen.

Comcast offers cable television, internet, and phone services.  The only thing we care about here is the “phone” service.   Basically, phone customers get a device that converts voice data into internet-transmissible format.  The issue before the PSB was whether it could regulate this service as it does telephone service or if regulation was preempted by federal law because it was an information/internet service.

Telecommunications are governed by a federal-state, authority-splitting partnership.  Individual states regulate intrastate services; the feds regulate interstate and foreign telecommunications services.  There’s a lot of law and history in the opinion, but the fundamental premise is that telecommunications services are subject to both state and federal control.  Strict data services, however, are not subject to state control because of federal preemption.  Vermont has a broad definition of what constitute “telecommunications” services—a definition that on its face would seem to include fixed VoIP services.    

In 2007, the Department of Public Service (DPS) sent a letter to the PSB suggesting that the PSB commence an investigation into VoIP services.  The PSB began such an investigation, and a hearing officer was assigned.  Several companies participated in the proceedings, and several other entities were given intervenor status, which is how we end up with more lawyers than you can shake a stick at.   (Editor’s Note: It’s probably not a good idea to shake a stick at a bunch of lawyers—as they will all know the elements of assault.) 

The parties agreed to a phased proceeding: in Phase I, the PSB was to determine facts and its jurisdiction; in Phase II, the PSB was to determine the extent to which it would exercise its jurisdiction.  The PSB held a technical hearing.  The DPS argued that the “fixed” services are intrastate and to that extent subject to Vermont law.  Comcast made the “information service” federal-law-preemption argument.

Based on expert-witness testimony, the PSB hearing officer found that “interconnected VoIP is covered by Vermont’s definition of ‘telecommunications services,’” and thus subject to the PSB’s jurisdiction.  This was totally a surprise because Vermont’s definition probably covers those tin-can phones you may have made as a kid.  At any rate, the hearing officer opined that this this made public-policy sense because “VoIP services compete directly with traditional voice services and are marketed to replace them.”  And so, to the extent that fixed VoIP is intrastate, the hearing officer concluded that the PSB’s jurisdiction was not preempted.  However, because nomadic VoIP can’t really be separated into intrastate and interstate components, the hearing officer concluded that nomadic service is not subject to state regulation. 

Though Comcast argued that the hearing officer had to make a telecommunications-versus-information-service determination under federal law, the hearing officer rejected the argument, noting that the question could be addressed in Phase II in making the extent-of-regulation determination.   Comcast tried to reopen the evidence to add some more expert testimony, but the hearing officer said no because the proposed evidence was directed toward the federal-preemption argument and the hearing officer had already decided that issue wasn’t relevant during Phase I. 

So it goes to the full PSB Board.  The Board adopts the hearing officer’s findings and conclusions.  The Board rejects Comcast’s initial-determination argument for three reasons: (1) unless preempted the Board has authority to act and because there’s isolatable intrastate service involved, it’s within the PSB’s jurisdiction; (2) the PSB noted that the FCC had taken the federal classification under consideration, so the Board wanted to defer and allow the FCC to make an initial determination; and (3) the Board would address the preemption question during Phase II, so an initial determination is unnecessary.  Comcast appealed.   

Comcast’s primary gripe is that the Board screwed up when it held that it could resolve the jurisdictional issue without first determining whether Comcast Digital Voice is an information or telecommunications service under federal law.  Comcast also raises the federal-preemption argument, and asks for a remand and permission to present certain excluded evidence. 

As the SCOV frames it: “[T]he critical question is whether the Board’s authority to regulate fixed interconnected VoIP telephony is preempted by federal law.”  There are three main ways in which federal law can preempt state law: (1) express preemption; (2) field preemption; and (3) conflict preemption.  Express preemption occurs when there is explicit or clearly implied congressional intent to preempt state law.  Field preemption occurs when the federal law is so pervasive that there’s no room for concurrent state regulation; and conflict preemption occurs when state law frustrates the purpose of a federal law. 

Comcast argues that VoIP is an information service and thus expressly preempted by federal law.  The PSB doesn’t see it that way.  The PSB did not discern any express preemption, and when it considered field preemption, it found that federal law did not preempt intrastate regulation of VoIP communication.  Although the PSB recognizes the possibility of conflict preemption, it concluded that was a question best left for Phase II of the proceeding.

There’s a 2004 FCC proceeding on point.  Vonage is a VoIP provider, as many of you know.  The key difference between Vonage and Comcast is that Vonage is “portable,” which means the interstate and intrastate components of the service can’t be separated.  In considering Vonage’s service, the FCC concluded that state regulation is preempted because it’s impossible to make the separation between intrastate and interstate service, which is what allows for the dual regulation scheme. 

Based on the Vonage proceeding, the PSB concluded that because the separation between intrastate and interstate service can be made in regards to Comcast’s service, regulation is not preempted. 

The SCOV acknowledges the “strong presumption that orders issued by the Public Service Board are valid,” and basically makes clear that Comcast has an uphill battle in making its case. 

First, the SCOV holds that Comcast’s service falls within the PSB’s purview as a telecommunications service offered to the public on a common carrier basis.  The SCOV also rejects an amici argument that Comcast’s service can’t be separated by interstate and intrastate components, citing the PSB’s substantial discretion in factual findings, and concluding that the PSB’s decision was “amply supported” by the evidence.     

The SCOV also sees no error with the PSB’s general approach: determining whether the components can be separated is an appropriate threshold issue because it can be dispositive—if the components cannot be separated, then state regulation is preempted. 

The SCOV notes that it doesn’t agree with Comcast that a federal designation of VoIP as an information service would necessarily result in express preemption of any state regulation.  And the SCOV further explains that “[i]nformation services are not wholly exempt from regulation, and state regulations are preempted only to the extent they conflict with federal law or policy.”   As such, the SCOV concludes that conflict preemption is the applicable type of preemption, if any.

But Comcast finally wins a point on the PSB’s decision not to reach the telecommunications-versus-information-service determination.  Though the DPS argues that the Board didn’t have to reach the issue in Phase I, the SCOV disagrees.  The reason is that if Comcast’s service is classified as an information service, some amount of preemption will necessarily apply.  Thus, before the PSB can consider a regulatory scheme, it must determine what Comcast’s VoIP service is. 

The SCOV rejects the PSB’s reasoning in declining to reach the issue.  First, because the service can be separated into interstate and intrastate components, there isn’t automatic federal preemption and the preemption issue remains unresolved.

The SCOV also rejects the PSB’s desire to defer to the FCC’s definitional determination as to VoIP services.  The FCC hasn’t yet made that decision, and the SCOV concludes that “In the interim, the Board is fully capable of deciding the scope of federal law and determining whether that law preempts state regulation, and there is no reason not to do so.” 

The SCOV doesn’t make a decision on Comcast’s as-a-matter-of-law-Comcast-Digital-Voice-is-an-information-service argument, concluding that the Board is better equipped to make that determination.   Finally, the SCOV directs the PSB to reconsider its decision in excluding the further testimony from Comcast’s expert in light of the remand. 

As a practical matter, this case is worth reading just for the acronyms—after a quick read, you should have no problem getting into the Acronym Sense Society.