Ohlhausen: Congressional Action Needed to Define FCC, FTC Regulatory Spheres

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By Lydia Beyoud

April 1 — Congress should consider eliminating the common carrier exception from the FTC Act, even though a federal court determined that the agency continues to have the jurisdiction to bring enforcement actions against mobile carriers, Commissioner Maureen Ohlhausen said April 1.

The issue of Federal Trade Commission authority comes in the wake of the recent Federal Communications Commission action to reclassify broadband services as common carriers.

Ohlhausen, a Republican, told the American Enterprise Institute, a libertarian think tank in Washington, that silo regulatory models no longer make sense in an era in which businesses compete by offering suites of products and services that cut across categories.

“We have to have our antitrust rule account for that,” and the innovation occurring in the technology and telecommunications sector is a fundamental reason the common carrier exception no longer makes sense, she said, speaking on her own behalf.

Section 5 of the FTC Act generally prohibits the FTC from taking enforcement actions against common carriers, which fall under the jurisdiction of the Federal Communications Commission.

The exception became a point of contention in a complaint brought by the FTC against AT&T Mobility, LLC, a division of AT&T Inc., of allegations that the mobile wireless provider deceived customers by not disclosing its practice of throttling the data speeds of “unlimited” data plan users who exceeded their monthly data cap.

In a March 31 order, Judge Edward M. Chen of the U.S. District Court Northern District of California denied an AT&T motion to dismiss the FTC suit based on the argument that the Feb. 26 FCC decision to reclassify broadband Internet service providers as common carriers under Title II of the Communications Act of 1934 removed the agency's jurisdiction to bring a case at all (FTC v. AT&T Mobility LLC, 2015 BL 91298, N.D. Cal., No. 3:14-cv-04785-EMC, 3/31/15).

The court determined that the common carrier exception “applies only where the entity has the status of common carrier and is actually engaging in common carrier activity.” The AT&T mobile data service wasn't regulated as common carrier activity by the FCC when the FTC suit was filed, Chen said.

Further, once the FCC Open Internet order goes into effect, the FTC will still have jurisdiction over past alleged misconduct, Chen said. The effective date of the Open Internet order, which has yet to be published in the Federal Register, would set the date after which the FTC can no longer bring actions against common carriers.

Were the court to uphold the AT&T assertion that the common carrier exception is predicated on status alone, such an interpretation would result in numerous and significant regulatory gaps, Chen said.

“AT&T’s reading of the common carrier exemption would open a giant loophole that would threaten to swallow the FTC Act,” he said. Companies engaging in de minimus common carrier activity would be able to shield all of their operations from FTC scrutiny.

Regulatory Overlap 

While AT&T argued that there shouldn't be regulatory overlap between the two agencies, the court said such overlap “is not damning in and of itself, particularly in the absence of any apparent conflict with respect to agency regulation.”

The court noted that “FCC action is not, however, a substitute for the relief sought by the FTC” because the FCC isn't authorized to seek refunds for injured consumers and its enforcement authority is limited to conduct going back one year.

“AT&T’s throttling program has been in effect for more than three years, and has, over the course of that time, inflicted economic harm on millions of customers,” Chen said.

“We are gratified that the court concluded that the common carrier exemption does not insulate AT&T's conduct from FTC enforcement action,” FTC Chairwoman Edith Ramirez said in an e-mailed statement. “We look forward to proving that AT&T's marketing of its ‘unlimited’ data plans was unfair and deceptive and returning money to the millions of consumers who were harmed by AT&T's action.”

“We’re obviously disappointed in, and disagree with, the decision and will seek to appeal it as soon as possible,” an AT&T spokesman told Bloomberg BNA in an e-mailed statement.

Ohlhausen said the court's decision underscored the need for lawmakers to engage in “some serious thinking” about the best regulatory approach for the industry.

In a March 25 House Judiciary Committee hearing on the FCC Open Internet order, at least two members of Congress took note of both FCC and FTC commissioners' calls for Congress to do away with the common carrier exception . Reps. John Conyers (D-Mich.) and Zoe Lofgren (D-Calif.) said the two agencies' enforcement tools could complement one another in the telecommunications space. Rep. Tom Marino (R-Pa.), however, said having two agencies overseeing broadband providers amounted to duplicative government.

Privacy, Data Security Regulation 

One of the loopholes that could be exploited by broadband providers if AT&T interpretation of the common carrier exception were to apply would be in the area of privacy and data security enforcement, Chen said.

“For example, Internet giants that introduce a small measure of common carrier business would be shielded from the FTC’s active privacy and data security enforcement because of their “status” as a common carrier,” he said.

The judge noted that recent announcements from Google Inc. of the edge provider's intention to become a virtual wireless carrier underscore that his example isn't just hypothetical.

Ohlhausen said she had concerns about how the FCC reclassification order could affect issues such as online behavior advertising. The FCC didn't detail how its consumer privacy rules under Section 222 of the Communications Act would apply to reclassified broadband providers, because it intends to begin a new rulemaking procedure on the issue in the future.

How the rules on customer proprietary network information (CPNI), the data collected on consumers' phone calls, will be applied to the broadband space is a key concern for carriers, several telecom practitioners have told Bloomberg BNA.

Trying to apply the CPNI rules to how information is collected and consumers are notified in the context of online behavior advertising is “very unsettling,” Ohlhausen said. “I pity the person who has to figure out how you continue to do online behavioral advertising when using CPNI rules” that were designed for telephone technology, she said.

A focus on whether certain practices cause substantial harm to consumers in the broadband context is important for light-touch regulation that encourages innovation, Ohlhausen said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Text of the order is at http://www.bloomberglaw.com/public/document/Federal_Trade_Commission_v_ATT_Mobility_LLC_Docket_No_314cv04785_/2.