The Ftc and Modern Common Carrier Regulation in the Telecom Context

• Publication year: 2017

The FTC and Modern Common Carrier Regulation in the Telecom Context

Cody Lee Shubert
University of Georgia School of Law

THE FTC AND MODERN COMMON CARRIER REGULATION IN THE TELECOM CONTEXT

Cody Lee Shubert^*

[Page 41]

TABLE OF CONTENTS

I. INTRODUCTION.............................................................................................42

II. BACKGROUND................................................................................................42

A. FTC ACT GENERALLY.............................................................................42
B. COMMUNICATIONS REGULATION.......................................................44
C. RECENT DECISIONS IN AT&T CASES...................................................45

III. DISCUSSION....................................................................................................49

A. LEGAL CONCLUSIONS............................................................................50
B. POLICY RESULTS......................................................................................51

IV. CONCLUSION..................................................................................................54

[Page 42]

I. INTRODUCTION

In Federal Trade Commission v. AT&T Mobility, LLC,¹ the Ninth Circuit recently ruled that common carriers, whether or not they are acting in their common carrier capacity, are exempt from regulation under the Federal Trade Commission Act (FTC Act).² The case concerned whether or not AT&T was liable, under the unfair and deceptive practices prong of the statute, for slowing down data services to customers who used too much data, even though many of these customers were under contract for "unlimited data" plans.³

Although AT&T has long been recognized as a common carrier in actions pertaining to its landline services, its mobile services were not considered a common carrier at the time that the case was filed.⁴ Reversing the District Court's denial of AT&T's motion to dismiss, the Ninth Circuit ruled that the statue's plain language and legislative history suggested that the exception was intended to apply to all actions by a common carrier.⁵ Thus, common carriers are no longer subject to Federal Trade Commission (FTC) regulation for unfair and deceptive practices.⁶

Until the Ninth Circuit's decision, courts and the FTC have interpreted this exception oppositely, i.e., to apply only when the common carrier was acting in its capacity as a common carrier.⁷ This Note argues that the Ninth Circuit decision is both wrong and will lead to bad results. The decision is wrong because the court assumes that the plain language of the statute unambiguously closes to door to the FTC argument, which it does not. The Ninth Circuit also said that even if the statute's language was ambiguous, the legislative history suggests a ruling in AT&T's favor.⁸ A closer look at the legislative history reveals that this is also untrue. Because the statute is ambiguous and the legislative history is not clear, the FTC's interpretation of the statute should win the day.

II. BACKGROUND

A. FTC ACT GENERALLY

In order to respond to the growing concern over monopolies and their effect on consumers, competitors, and the marketplace as a whole, Congress

[Page 43]

passed the FTC Act⁹ in 1914.¹⁰ Of particular import in Congress's decision to enact the statute was to create an administrative agency powerful enough to handle regulation of large corporations after the consolidation and merger wave of the late nineteenth and early twentieth centuries.¹¹

The Act, among other things, allows the FTC to regulate "unfair or deceptive acts or practices in or affecting commerce,"¹² and gives the FTC the power to enforce this provision through administrative proceedings, cease and desist orders subject to judicial review, and injunctive relief in federal courts.¹³ The FTC uses § 45 of the Act to regulate a variety of business activities affecting commerce. These activities range from violations of antitrust laws under the "unfair" prong¹⁴ to misrepresentation in advertising to consumers under the "deceptive acts or practices" prong.¹⁵ In the intellectual property context, the FTC has used § 45 to regulate things like the deceptive use of trademarks¹⁶ and patents.¹⁷

To prevent the FTC from stepping on other regulating agencies' toes, Congress inserted a provision exempting a number of different kind of institutions from regulation under the FTC Act. The Act exempts:

banks, savings and loan institutions described in section 57a(f)(3) of this title, Federal credit unions described in section 57a(f)(4) of this title, common carriers subject to the Acts to regulate commerce, air carriers and foreign air carriers subject to part A of subtitle VII of Title 49, and persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act, 1921.¹⁸

This was not the original language in the Act's exception. Congress later added the "insofar as" language to the Packers and Stockyards exception.¹⁹ As will be discussed later, Congress's intent in amending the Act and the ramifications that

[Page 44]

this amendment may have are in debate.²⁰ The language of the Packers and Stockyards exception is important for this Note because it helps color how the common carrier exception should be interpreted. Some courts and commentators have said that Congress added this language to make a change in the way that those subject to the Packers and Stockyards Act were regulated,²¹ while others argue that Congress was simply ensuring that lower courts were interpreting its existing intent correctly.²²

B. COMMUNICATIONS REGULATION

Generally, a common carrier is a business that holds itself out to the public as one that will carry goods or services indiscriminately so long as the person attempting to use the common carrier pays the going rate.²³ Because the businesses hold themselves out to the public in such a way, they are generally regulated to a much higher degree, and they generally must do business on "just and reasonable terms."²⁴ Because of this, they must refrain from discriminating, for any reason, against those who want to use their services.²⁵

Although this distinction originally applied only to businesses engaged in transportation, Congress began treating communications companies as common carriers in 1910.²⁶ Because of neglect by the Interstate Commerce Commission, the federal agency tasked with common carrier regulation at the time, Congress created the Federal Communications Commission (FCC) with the Communications Act of 1934²⁷ and tasked it with regulating the communications industry.²⁸ Many types of communications entities are implicated by the definition because they generally reward the carriage of the communication so long as the customer pays for the service. This may include entities carrying radio, television, and cellular services.²⁹ Recently, the FCC has reclassified broadband services as common carrier services. Thus, many of the large corporations that consumers have the most contact with offer some form of common carrier services.

[Page 45]

In an effort to reduce regulation and barriers to competition in the telecommunications industry, Congress passed the Telecommunications Act of 1996.³⁰ The main effect of the Act was to eliminate many of the cross-ownership rules previously promulgated by the FCC.³¹ Under the previous regime, telephone and cable providers could not be owned by the same entity, nor could cable providers and broadcasting companies. The Act has been heavily criticized as producing results that are adverse to its stated goals and furthering an antiquated regulatory framework in a rapidly changing telecommunications industry.³²

C. RECENT DECISIONS IN AT&T CASES

Recently, the FTC attempted to use its § 45 regulation powers to punish "data throttling" by AT&T.³³ In 2007, AT&T became the sole provider of Apple's iPhones and began to offer unlimited data plans.³⁴ Under these plans, customers could pay a higher rate for their plan but be able to use as much data as they wanted without worrying about overage charges.³⁵ In 2010, AT&T stopped offering these plans for unlimited data usage and began forcing customers to purchase "tiered plans," where customers must pay a certain amount per month for a plan with a fixed data cap and extra charges for those who go over the cap.³⁶

When AT&T did so, it informed its customers that those who had previously purchased an unlimited data package would be able to keep their unlimited data plan, even after they renewed their contract.³⁷ AT&T claims this excessive data usage harmed its overall network and in 2011 began "throttling," or reducing data speed, of those on the unlimited data plan after the customer

[Page 46]

had used more than a specified amount of data in any given month.³⁸ The FTC's complaint against AT&T states that AT&T's existing agreements with the unlimited data customers did not mention reduced speeds, AT&T did not inform unlimited data users of the data throttling at the time of renewal, and AT&T's data throttling was not tied to any existing network conditions.³⁹ In other words, customers who had gone over their data cap were throttled no matter if there was ample room on the network to support their use or not.⁴⁰

Although AT&T did tell its customers about the data throttling program, the FTC contended that its disclosures were inadequate to support its later actions.⁴¹ AT&T informed its customers through monthly bills sent prior to renewal, along with text messages and e-mails.⁴² According to the FTC, these disclosures were inadequate because the monthly bill disclosures did not inform customers of the degree of data speed reduction or the fact that the reduction would be imposed after the customers had exceeded their data limits, regardless of data congestion on the network.⁴³ Furthermore, only a few customers received the e-mails and text messages.⁴⁴

Because of this, the FTC contended...