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Ninth Circuit Decision is Big Victory for FTC and FCC

Posted by Andrew Regitsky

Mar 2, 2018 10:09:02 AM

BroadbandIn a February 26, 2018 Opinion, the full Ninth Circuit Court in San Francisco gave the Federal Trade Commission (FTC) a huge victory when it found that a company is regulated as if it were a common carrier based on a specific "activity" rather than by "status." In other words, a non-common carrier cannot become a common carrier and escape FTC regulation for its non-common carrier services simply by providing a single common carrier service. Instead, as per usual, its common carrier services would be regulated by the FCC, but its non-common carrier services would fall under FTC authority.   

The significance of this is clear. The non-common carrier services such as broadband Internet access service provided by ISPs like AT&T and Verizon will be regulated under section 5 of the FTC rules, as the FCC envisioned in its recently released Restoring Internet Freedom Order.

Here is the background for this important Opinion.

The case (Federal Trade Commission v. AT&T Mobility) arose from a 2014 FTC complaint charging AT&T with failing to adequately warn unlimited-data customers that their data speeds would be reduced, or throttled, if they used too much data in a given billing cycle.

The FTC had alleged that AT&T began throttling data speeds in 2011 and, overall, throttled at least 3.5 million unlimited data customers a total of more than 25 million times. AT&T did not offer new unlimited plan contracts after June 2010, but customers who had them could keep them. AT&T and other carriers that offered unlimited plans at the time argued that at some point they must throttle customers who used excessive amounts of data as part of network management. (US Today online, August 26, 2016).

AT&T fought the complaint and lost in a California district court. The ISP then appealed the decision to the Ninth Circuit and won, with a panel of three judges stating that the FTC's rules do not enable it to regulate common carriers:

The common carrier exemption in section 5 of the FTC Act carves out a group of entities based on their status as common carriers. Those entities are not covered by section 5 even as to non-common carrier activities. Because AT&T was a common carrier, it cannot be liable for the violations alleged by the FTC. The district court’s denial of AT&T’s motion to dismiss is reversed, and the case is remanded for entry of an order of dismissal. (FTC v. AT&T Mobility, August 29, 2016 Opinion of Ninth Circuit Court, at p. 21).

Refusing to give up, The FTC, supported by the FCC, requested the full Ninth Circuit to hear its appeal, and the full Court had a different finding:

Section 5 of the Federal Trade Commission Act (“FTC Act”), which gives the agency enforcement authority over “unfair or deceptive acts or practices,” exempts, among others, “common carriers subject to the Acts to regulate commerce"...The question is whether the common-carrier exemption is activity-based, meaning that a common carrier is exempt from FTC jurisdiction only with respect to its common-carrier activities, or status-based, such that an entity engaged in common-carrier activities is entirely exempt from FTC jurisdiction. We affirm the district court’s denial of AT&T’s motion to dismiss. Looking to the FTC Act’s text, the meaning of “common carrier” according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission (“FCC”), and legislative history, we conclude that the exemption is activity-based. The phrase “common carriers subject to the Acts to regulate commerce” thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services. (Federal Trade Commission v. AT&T Mobility, February 26, 2018 Opinion at pp. 5-6).

The Opinion was treated as a big victory by FCC Chairman Ajit Pai, who defended his decision to reclassify both fixed and mobile broadband as information services by claiming that these services are more appropriately regulated by the FTC and not by his agency.

The Ninth Circuit’s decision is a significant win for American consumers. Among other things, it reaffirms that the Federal Trade Commission will once again be able to police Internet service providers after the Restoring Internet Freedom Order takes effect. In the months and years ahead, we look forward to working closely with the FTC to ensure the protection of a free and open Internet. (February 26, 2018 statement of Ajit Pai).

Whatever your feelings about losing net neutrality, we should all be encouraged that at least one government agency – the FTC – will have the opportunity to regulate the Internet. It is certainly true that almost everyone outside the FCC believes that it should maintain regulatory authority, but if the Commission is no longer willing to perform its long-time regulatory mission, at least there will not be a "regulatory gap," for ISPs to exploit.

Topics: terminating traffic, direct connections, wireless, wireless carriers, bill-and-keep, small providers, service providers, Inteliquent, wholesale traffic, AT&T, ILECs, inter-carrier compensation, clec, CLECs, terminating access charges, FCC, IXC, switched access