The FTC, not the FCC, Should Police Internet Abuses

Alden Abbott —  21 May 2015

The FCC’s proposed “Open Internet Order,” which would impose heavy-handed “common carrier” regulation of Internet service providers (the Order is being appealed in federal court and there are good arguments for striking it down) in order to promote “net neutrality,” is fundamentally misconceived.  If upheld, it will slow innovation, impose substantial costs, and harm consumers (see Heritage Foundation commentaries on FCC Internet regulation here, here, here, and here).  What’s more, it is not needed to protect consumers and competition from potential future abuse by Internet firms.  As I explain in a Heritage Foundation Legal Memorandum published yesterday, should the Open Internet Order be struck down, the U.S. Federal Trade Commission (FTC) has ample authority under Section 5 of the Federal Trade Commission Act (FTC Act) to challenge any harmful conduct by entities involved in Internet broadband services markets when such conduct undermines competition or harms consumers.

Section 5 of the FTC Act authorizes the FTC to prevent persons, partnerships, or corporations from engaging in “unfair methods of competition” or “unfair or deceptive acts or practices” in or affecting commerce.  This gives it ample authority to challenge Internet abuses raising antitrust (unfair methods) and consumer protection (unfair acts or practices) issues.

On the antitrust side, in evaluating individual business restraints under a “rule of reason,” the FTC relies on objective fact-specific analyses of the actual economic and consumer protection implications of a particular restraint.  Thus, FTC evaluations of broadband industry restrictions are likely to be more objective and predictable than highly subjective “public interest” assessments by the FCC, leading to reduced error and lower planning costs for purveyors of broadband and related services.  Appropriate antitrust evaluation should accord broad leeway to most broadband contracts.  As FTC Commissioner Josh Wright put it in testifying before Congress, “fundamental observation and market experience [demonstrate] that the business practices at the heart of the net neutrality debate are generally procompetitive.”  This suggests application of a rule of reason that will fully weigh efficiencies but not shy away from challenging broadband-related contractual arrangements that undermine the competitive process.

On the consumer protection side, the FTC can attack statements made by businesses that mislead and thereby impose harm on consumers (including business purchasers) who are acting reasonably.  It can also challenge practices that, though not literally false or deceptive, impose substantial harm on consumers (including business purchasers) that they cannot reasonably avoid, assuming the harm is greater than any countervailing benefits.  These are carefully designed and cabined sources of authority that require the FTC to determine the presence of actual consumer harm before acting.  Application of the FTC’s unfairness and deception powers therefore lacks the uncertainty associated with the FCC’s uncabined and vague “public interest” standard of evaluation.  As in the case of antitrust, the existence of greater clarity and a well-defined analytic methodology suggests that reliance on FTC rather than FCC enforcement in this area is preferable from a policy standpoint.

Finally, arguments for relying on FTC Internet policing are based on experience as well – the FTC is no Internet policy novice.  It closely monitors Internet activity and, over the years, it has developed substantial expertise in Internet topics through research, hearings, and enforcement actions.

Most recently, for example, the FTC sued AT&T in federal court for allegedly slowing wireless customers’ Internet speeds, although the customers had subscribed to “unlimited” data usage plans.  The FTC asserted that in offering renewals to unlimited-plan customers, AT&T did not adequately inform them of a new policy to “throttle” (drastically reduce the speed of) customer data service once a certain monthly data usage cap was met. The direct harm of throttling was in addition to the high early termination fees that dissatisfied customers would face for early termination of their services.  The FTC characterized this behavior as both “unfair” and “deceptive.”  Moreover, the commission claimed that throttling-related speed reductions and data restrictions were not determined by real-time network congestion and thus did not even qualify as reasonable network management activity.  This case illustrates that the FTC is perfectly capable of challenging potential “network neutrality” violations that harm consumer welfare (since “throttled” customers are provided service that is inferior to the service afforded customers on “tiered” service plans) and thus FCC involvement is unwarranted.

In sum, if a court strikes down the latest FCC effort to regulate the Internet, the FTC has ample authority to address competition and consumer protection problems in the area of broadband, including questions related to net neutrality.  The FTC’s highly structured, analytic, fact-based approach to these issues is superior to FCC net neutrality regulation based on vague and unfocused notions of the public interest.  If a court does not act, Congress might wish to consider legislation to prohibit FCC Internet regulation and leave oversight of potential competitive and consumer abuses to the FTC.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.

2 responses to The FTC, not the FCC, Should Police Internet Abuses

  1. 

    We all should be really careful about these things, it makes a big difference to our work, I am always careful with doing anything on internet, but one thing is pretty clear that it can be really handy if used for right reasons, I am doing Forex trading and that’s something which would never be possible without internet or my broker OctaFX. I am trading using their service and it’s just brilliant with having 50% bonus on each deposit, it helps us getting really good results.

  2. 

    Alden may be a bit too kind in referring to the FTC’s “carefully designed and cabined sources of authority” and “highly structured, analytic, fact-based approach” to the regulation of Internet service providers under its antitrust and consumer protection authority, even if the FTC’s approach is likely “superior to FCC net neutrality regulation based on vague and unfocused notions of the public interest.”