AT&T dream comes true

AT&T’s throttling victory may hinder FTC’s power to protect consumers

Ruling raises questions about FTC ability to regulate Google, Verizon.

Jon Brodkin – Sep 1, 2016 1:26 pm | 30

Credit: Getty Images | Andy Cross

AT&T’s court victory over the Federal Trade Commission (FTC) this week had the immediate effect of helping the carrier avoid punishment for throttling the Internet connections of customers with unlimited data plans. The judges’ decision could also have a long-term impact on the FTC’s ability to enforce consumer protection laws.

The FTC’s charter from Congress already prohibited the FTC from regulating common carriers, a designation that the Federal Communications Commission (FCC) has long applied to AT&T and other phone companies. But the FTC thought it could police non-common carrier activities regardless of whether another part of a company’s business falls under the FCC’s common carrier designation.

When the FTC sued AT&T in October 2014, the company was a common carrier for phone service but not for Internet access. The FTC argued that it could regulate AT&T’s non-common carrier mobile data business, but AT&T argued that it was entirely exempt from FTC jurisdiction because it was a common carrier for voice service.

Judges at the US Court of Appeals for the Ninth Circuit sided with AT&T, saying that the common carrier exception is a “status-based exemption” and not an “activity-based exemption.” This protects AT&T from FTC regulations designed to protect consumers from unfair or deceptive practices, even when AT&T is conducting non-common activities. The FTC said it’s disappointed in the ruling and is considering whether to appeal.

Google probably still faces FTC oversight

The outcome raises a question: is every company with a common carrier business, no matter how small, now exempt from FTC regulations when pursuing non-common carrier activity?

The AT&T case was filed months before the FCC reclassified Internet access as a common carrier service. The new status of Internet access thus had no bearing on the decision; judges wrote that they had no need to address “the effect of the FCC’s reclassification order.” But now that Internet access is common carriage, some companies that weren’t traditionally common carriers have gained common carrier status. Google Fiber is now a common carrier because it offers Internet service—does that mean Google search and all other Alphabet-owned services are suddenly exempt from FTC oversight?

The answer is probably not, but the ruling might still limit the FTC’s authority to regulate the non-common carrier activities of phone and Internet providers, according to attorney Harold Feld, an expert on communications law and senior VP of advocacy group Public Knowledge.

The appeals court decision did not set any clear boundaries on whether a company qualifies for a status-based exemption to FTC authority. But the judges did say that “AT&T’s status as a common carrier is not based on its acquisition of some minor division unrelated to the company’s core activities that generates a tiny fraction of its revenue.”

“Taking this at face value, it would seem that simply buying a small rural wireless company would not provide a massive company like Facebook with ‘common carrier status.’ Nor does it seem that Google Fiber, now owned by Alphabet, should provide ‘common carrier status’ to Google Search, also owned by Alphabet,” Feld wrote in an analysis of the ruling.

Google escaping FTC oversight would have been a major change, given how frequently the agency files complaints against the company.

Verizon may have reason to celebrate

But in less extreme cases, the FTC is in danger of losing regulatory powers, Feld wrote. “Verizon Enterprise owns Verizon Wireless, probably the largest wireless common carrier,” he wrote. “It also owns other wireline common carrier services. And it owns AOL, a content and advertising company. Does AOL share Verizon Wireless’ ‘common carrier status?’”

Unfortunately, that isn’t clear yet. Feld writes that “Google Search still remains subject to FTC jurisdiction, [but] this case will have serious consequences for overall consumer protection. Even within the bounds of tech and telecom, it raises new questions as to where the border of FTC jurisdiction ends, and where FCC jurisdiction must pick up the slack.”

FCC exerts new power over ISPs

The regulatory effects of the FCC’s decision to reclassify broadband varies depending on what kind of company is offering broadband. Cable companies like Comcast were not common carriers until the FCC reclassified broadband, so they are exempt from FTC oversight for the first time. But telcos like AT&T and Verizon were always common carriers because of their phone service, and so this week’s court decision would have expanded their exemptions from FTC oversight even if the FCC hadn’t reclassified broadband.

For both cable and telcos, the FCC will be taking on some of the FTC’s traditional consumer protection role. For example, the broadband reclassification triggered a new FCC proceeding to develop privacy rules that cover ISPs.

The privacy proceeding isn’t over yet. Republican FCC Commissioner Ajit Pai and other critics of FCC Chairman Tom Wheeler argue that the FTC’s privacy framework was doing a fine job until the FCC’s reclassification of broadband effectively “tore [it] apart.”

But even if the FCC hadn’t reclassified broadband, this week’s court decision would have cast doubt on the FTC’s ability to enforce its own privacy rules for telcos like AT&T and Verizon.

“Needless to say, the assertions of FTC Commissioner Maureen Ohlhausen, former FTC Commissioner Joshua Wright, and everyone else who insisted that the Federal Trade Commission could adequately protect consumers instead of the FCC turned out to be utterly, totally, and completely wrong,” Feld wrote. “Thank goodness the FCC did not listen.”

Listing image: Getty Images | Andy Cross

Jon Brodkin Senior IT Reporter

Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.

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