Can the FTC Really Regulate Broadband?

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By Paul Barbagallo and Bryce Baschuk  

The Federal Trade Commission's sweeping authority to protect the interests of consumers could thrust it to the forefront of broadband regulation. Whether that's best--and whether the agency wants the job--are vital questions to consumers and businesses alike.

By default and by design, right now, both the FTC and the Federal Communications Commission share jurisdiction over the Internet and the companies that profit from it.

Though both agencies were created by Congress in the first half of the last century to address specific problems of the time--the FTC to investigate and punish large corporations (trusts) for “unfair methods of competition” and “unfair or deceptive acts or practices,” and the FCC to uphold the public's interest in broadcasting and telecommunications--they have now evolved into unofficial Internet regulators. The FTC uses its law enforcement powers to protect the privacy of Americans online, while the FCC sets policies to hasten the deployment of Internet services nationwide and keep the Internet itself open and competitive for companies.

It is therefore not surprising that questions continue to mount over which of the two agencies is the more effective regulator. Whose enabling statute is better suited to defend fair play in America's vast and complex Internet ecosystem? Can both agencies play a role? If so, which agency should have more power?

Recently, these questions have taken on renewed urgency, driven in part by a pending decision by the U.S. Court of Appeals for the District of Columbia Circuit in Verizon Communications Inc. v. Federal Communications Commission.

In practical effect, a court's ruling overturning the FCC's Open Internet rules would leave the FTC as the only federal agency with the power to enforce the principles of net neutrality--to prevent companies like Comcast Corp., AT&T Inc., and Verizon Communications Inc. from blocking websites and treating their own web content better than that of rivals.

Faced with such an outcome, the FCC could try to re-establish jurisdiction by classifying broadband service as a common carrier “telecommunications service” under Title II of the Communications Act, which would require the agency to reverse a 2002 decision that was eventually affirmed by the Supreme Court. Congress could also decide to respond with legislation clarifying the FCC's authority, since the problem is largely a function of the limited powers that lawmakers have invested in the commission in the first place. Either course would take time and political capital. And in the end, the FTC could wind up assuming the job from the FCC, whether they want it or not.

Authority to Protect Consumers

“If we see anticompetitive or anti-consumer activity taking place, we could act now,” Republican FTC Commission Maureen Ohlhausen told Bloomberg BNA.

Before becoming a commissioner, Ohlhausen was the director of the FTC's Office of Policy Planning from 2004 to 2008, during which time she led the agency's Internet Access Task Force. In June 2007, at the direction of then-FTC Chairwoman Deborah Platt Majoras, Ohlhausen's staff released a report titled “Broadband Connectivity Competition Policy,” which argued strongly for an FTC role in enforcing net neutrality.

The report began by citing several instances in which the FTC--not the FCC--intervened on behalf of consumers online.

In 2000, for example, the FTC worked to ensure that customers continued to have open access to the Internet following the merger of America Online Inc. and Time Warner Inc., a deal that combined the world's leading Internet service provider and the nation's biggest media and entertainment conglomerate. As a condition of its approval, the FTC insisted that Time Warner's cable unit, which had about 20 percent of the national pay TV market, could not give preferential treatment to America Online's high-speed Internet service. But even before then, in 1997, the FTC had sued America Online, CompuServe, and Prodigy for deceptive practices in selling “free” trials of their Internet services.

“One of the things our statute has allowed us to be is flexible and to stay ahead of anti-consumer behavior,” said Ohlhausen.

She noted in particular Section 5 of the Federal Trade Commission Act, which authorizes the FTC to challenge any “unfair methods of competition … and unfair or deceptive practices in commerce.” In recent years, the FTC has used this broad grant of authority to discipline the likes of Google Inc. and Facebook Inc. for deceptive practices with their privacy settings; as part of settlements following separate FTC investigations, both companies have agreed to 20 years of third-party privacy audits.

Ohlhausen said Section 5 would also allow the FTC to intervene against an Internet service provider that was interfering with web traffic.

“If a company promised consumers not to block web sites, and [it] blocked web sites, that would be a clear-cut consumer protection issue,” she explained. Just as the FTC's role as a privacy regulator is generally confined to investigating whether Internet companies that have privacy policies keep their promises to consumers, so also could the FTC act under Section 5 to redress a net neutrality violation if an Internet service provider deceived a customer.

As for antitrust laws at the FTC's disposal, Ohlhausen said the alleged conduct would have to violate Section 2 of the Sherman Act, which makes it unlawful for any person to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations…” In such cases, she said, the FTC could easily apply a rule-of-reason analysis to protect the consumer.

Does the FTC's Common Carrier Exemption Still Make Sense?

But for Ohlhausen, the issue is not just that Congress and the industry should defer to the FTC on matters concerning the Internet's openness, but that the FTC should be granted new authority to regulate common carriers.

Today, the FTC can bring tough enforcement actions against any type of corporation in America save for banks, not-for-profits, and common carriers. The FCC, by contrast, has explicit authority to regulate “telecommunications carriers” as common carriers.

“It's an archaic exemption,” David Vladeck, formerly director of the FTC's Bureau of Consumer Protection under Chairman Jon Leibowitz, told Bloomberg BNA. “If you take a look at a smartphone: The FTC has jurisdiction over almost all of the players in the smart phone business--except for the telecoms. If Congress were to step back and take a look at this, they would come to the conclusion that the common carrier exemption should be repealed.”

By taking up the issue now, Congress would in effect give the FTC much broader powers to confront the many challenges posed by advancements in communications technology, while rendering the FCC redundant.

Back in 2002, the FCC under Chairman Michael Powell declared that broadband Internet service was not a “telecommunications service” subject to common carrier regulation like phone service, but was instead an “information service,” subject to lighter regulation. (It would follow that the FTC could, right now, regulate broadband providers, because they are not considered common carriers.)

But Vladeck, now a law professor at Georgetown University, was quick to underscore the importance of both the FTC and FCC as regulators in the 21st Century digital age.

“The [FTC's and FCC's] modes of operation are quite different,” Vladeck said. “The FTC regulates principally through policy and law enforcement. The FCC regulates principally by issuing prospective rules.”

“This is what happens when you have a whole new industry that has evolved unbelievably rapidly and two good-faith and reasonably effective regulatory agencies trying to figure out how to control the boundaries without double-teaming companies but making sure the law is respected. And I think we've done a pretty good job doing that.”

No Consensus on Issue Among GOP Commissioners

For years now, several of the big Internet service providers have been quietly lobbying Congress to strip some authority from the FCC to make the FTC a stronger communications regulator--if not through legislation than by dint of Congressional inaction.

But support for such an approach has not tended to fall along party lines, and has divided Republicans in the past.

“The antitrust laws have very little to say about net neutrality,” J. Thomas Rosch, a Republican FTC Commissioner who served on the agency from 2006 until this year, told Bloomberg BNA. “There is no question in my mind that [the FTC] can do consumer protection better than the FCC can, thanks to Section 5, but that doesn't mean we necessarily should.”

In a speech he delivered prior to leaving the commission, Rosch made the argument that claims of monopolization based on unilateral refusals to deal or the “essential facilities doctrine” will not likely succeed after the U.S. Supreme Court's decisions in both Verizon Communications Inc. v. Trinko and Pacific Bell Telephone Company Inc. v. linkLINE Communications Inc. In the Trinko case, Rosch noted, Justice Antonin Scalia openly questioned the role of antitrust in enforcing sharing obligations by putative monopolists that have invested in “an infrastructure that renders them uniquely suited to serve their customers.” And in the linkLINE case, Chief Justice John Roberts, for the same reasons, Rosch said, rejected a claim that AT&T had engaged in an anticompetitive “price squeeze” by charging competing providers of DSL Internet service a high wholesale price for access to its DSL network, and customers a low retail price for its own DSL internet service.

But current GOP FTC Commissioner Joshua Wright sees the matter differently. In a speech given just this April, Wright asserted that while the FTC's role in regulating broadband providers “remains unclear at the moment,” the agency is “up to the task of addressing competition and consumer protection issues arising in Internet markets generally, and more specifically, of applying our considerable experience and expertise in analyzing the vertical issues to the net neutrality context.”

“The critical question is not which approach captures all of the potentially anticompetitive arrangements, but rather which approach best enhances consumer welfare,” Wright said in the speech. “I am quite confident that if the antitrust regime, after 121 years of trying and developing institutional capacity and expertise in its application, has trouble applying the 'rule of reason’ in the context of vertical contracts by broadband providers, then it is difficult to imagine another approach doing any better.”

Is the FTC Really More Nimble?

Beyond the Federal Trade Commission Act and the Communications Act, another question that has stirred insular technology-policy circles is which agency would be more nimble to respond to allegations of blocking or degrading of web traffic.

As a law enforcement agency, the FTC naturally has a larger enforcement staff than the FCC, which “…allows it to have more bandwidth to tackle these problems when they arise,” said former FCC Commissioner Robert McDowell.

“It has economists and lawyers, can retain outside experts and is very well equipped to handle complaints in these areas,” McDowell told Bloomberg BNA.

In recent years, the FTC has hired famed technologists Edward Felten, a professor of computer science and public affairs at Princeton University, and Steven Bellovin, a professor of computer science at the Columbia University School of Engineering and a former computer security researcher at AT&T Bell Laboratories. The agency also brought in legal advisers with tech-centric outlooks: Paul Ohm, a University of Colorado law professor and former federal computer-crimes prosecutor, and Tim Wu, a Columbia University law professor who was an early architect of net neutrality policy.

Weighing in on the debate at a recent event hosted by the Technology Policy Institute, former FCC Chairman Reed Hundt said that while the FTC's staff may be competent and impressive, the FCC has “deep-bench strength in technology and in business models and in the history of the relevant industries.”

To Hundt, the FCC could actually be the more nimble agency, quickly resolving an issue by enacting a rulemaking rather than spending years in litigation like the FTC or the Justice Department.

Susan Crawford, a former special assistant to President Obama for science, technology, and innovation policy, agreed, noting that a dual FTC staff-FCC staff role could skew the regulatory process.

“There are 2,000 employees at the FCC who are experts in the telecommunications industry, whose engineering and economic and legal knowledge is relevant to the regulation of that industry,” Crawford told Bloomberg BNA. “Dividing that authority between two agencies would merely give the carriers a way to play [the] agencies off against each other and forum shop. That would not serve the country's interest in remaining competitive and ensuring consumers have access to high-capacity Internet service at a reasonable price.”

Limits Seen on FTC Authority?

Harold Feld, senior vice president at Public Knowledge, a public-interest group that focuses on information policy, offered one example in which the FTC could not, in his view, supplant the FCC: the Comcast BitTorrent case.

In 2007, the FCC censured Comcast Corp. for violating an agency policy statement by blocking and throttling the company's subscribers' use of BitTorrent file-sharing programs on its network. Though Comcast agreed to stop interfering with peer-to-peer networks applications like BitTorrent, the company argued that any interference with traffic at the time was a lawful network management activity, since the FCC's policy statement was just that--and did not have the force of codified rules. Comcast appealed the FCC's decision to the D.C. Circuit Court and won, a decision that led the FCC to enact the first-ever net neutrality rules, which are the subject of Verizon's pending appeal in the same court.

“The Comcast BitTorrent case is the archetypal example of where you had an ISP who said 'I don't like this application and I'm going to start blocking it without telling people,’” Feld told Bloomberg BNA. “The FTC arguably could have prohibited Comcast from not telling people and certainly could have prohibited Comcast from lying about the fact that they were blocking. But could the FTC have said to Comcast 'stop blocking peer to peer applications?’ …No, they couldn't.”

Another real-world example of the FTC's limitations came in the early 1990s, when the agency had rejected calls to define “recycled content” as requiring a minimum amount of post-consumer waste (25 percent). Essentially, if a company sold a product with only 5 percent post-consumer waste, the FTC decided to require adequate disclosure so consumers were not misled, but did not take the step of creating a minimum design standard for when something could in fact be called “recycled.”

“In the end, the FTC will not want to set communications policy,” Barry Cutler told Bloomberg BNA. Cutler, currently of counsel at the Cleveland firm BakerHostetler and previously director of the FTC's Consumer Protection Bureau, explained, “They will submit public comments about antitrust and consumer protection aspects of net neutrality, but the FTC will be happy for the FCC to make the final policy decision.”

Cutler said the FTC's main role is and will be a law enforcement function, to make sure that companies' practices are not unfair, deceptive, or misleading, and to ensure that they are not anticompetitive.

“When it comes to deciding regulatory policy issues that are outside their usual expertise, whether they involve food and drugs, or communications, or the environment,” Cutler said, “the FTC will typically focus on fair consumer and competition practices, but leave policy issues to other expert agencies.”

This is the second report in a three-part series.  

To contact the reporters on this story: Paul Barbagallo in Washington at and Bryce Baschuk in Washington at

To contact the editor responsible for this story: Bob Emeritz at