Regulation - What is it Good For?

Can the FTC Regulate Broadband?

When the FCC wrote themselves out of the regulation of broadband, one of the primary arguments made by Chairman Ajit Pai was that the Federal Trade Commission (FTC) would still be empowered to step in to stop any ISP abuses of broadband customers. The FTC has the general mandate to stop large corporations from engaging in unfair or abusive practices and Pai’s argument was made that ISPs are no different than other large corporations and that FTC oversight is sufficient.

There are several reasons why this argument is full of holes and the FTC cannot be an adequate replacement for the FCC. First, the FTC is not structured to regulate monopolies. We are now watching cable companies become a virtual broadband monopoly for residential service in most markets. The FCC loves to point out that there is still usually a telco DSL option, but when Comcast increases minimum broadband speeds to 150 Mbps while DSL is at a small fraction of that speed, then cable broadband and DSL are no longer equivalent services. The cable companies are winning the broadband war and becoming broadband monopolies as DSL disappears from the conversation.

One of the natural roles of government is to regulate monopolies. FERC heavily regulates local electric companies. The FCC was originally created to deal with the monopoly power that the old Ma Bell held over 95% of the country’s telephony needs. The government regulates industries where a few players hold all of the power like airlines and banks.

The government has always dealt with monopolies in one of two ways – regulate them to curtail abuse of monopoly power or else break up the monopolies up to create competition. The government forced the divestiture of the Bell System when it became apparent that their continued existence was a natural barrier to competition. It seems ironic that the FCC would wash its hands of regulating broadband at the point in time when cable companies are becoming classic monopolies.

The other primary reason that the FTC cannot regulate broadband is that they regulate purely by exception. The agency is empowered to pursue specific abuses by a specific corporation and can require and fine a given company for bad behavior. This puts the FTC in the role of corporate policeman – they can go after an ISP for a bad business practice but that doesn’t directly prohibit other ISPs from engaging in the same behavior. The FTC’s powers are pale compared to the ability of a regulatory agency like the FCC to make a ruling that instantly applies to every ISP in the industry. Ajit Pai’s argument that the FTC can take the FCC’s place is faulty because policing is not regulating.

As weak as the FTC’s power is over regulating broadband there is a chance they will lose even that ability. The FTC sued AT&T in 2014 because the company throttled data usage by unlimited customers to try to get them to drop their unlimited data plans. AT&T challenged that lawsuit and argued that the FTC had no authority over the company. Recall that this was at a time when the FCC still claimed jurisdiction over broadband issues.

The US District Court of Northern California recently ruled against AT&T in favor of the FTC. AT&T has until May 29 to appeal that ruling to the Supreme Court. If the company appeals, it will be to directly ask the Supreme Court if the FTC has jurisdiction over them. A ruling in AT&T’s favor would remove the last vestige of broadband regulation and would make broadband a completely unregulated industry.

It’s not hard to imagine how a truly unfettered broadband industry would react over time if not regulated. We will see big price increases, data caps, the free use and abuse of customer personal data and a violation of all of the principles of net neutrality. This would push broadband in the wrong direction by making it too expensive for many households while degrading the online experience for all broadband customers. The Internet as we know it can be broken if the ISPs are allowed to ignore customers and answer only to Wall Street.

We are already near to this point even if the AT&T suit against the FTC doesn’t conclude with an AT&T victory at the Supreme Court. After the FCC washed their hand of broadband regulation we now have the only regulation of the industry being the FTC which can tackle bad behavior at a single ISP on a single topic. Mass bad behavior by all of the big ISPs will quickly swamp the FTC, and within a few years the higher prices and bad ISP behavior will likely become the industry norm.

The fact that only a few companies own the wires of the broadband network makes this industry a natural monopoly just like electricity, water and natural gas delivery. Nobody likes to be regulated and I can’t even fully believe I am advocating for more regulation. Even before the FCC withdrew from broadband regulation it was one of the mostly lightly regulated monopoly industries in the country. Big ISPs have always fought against being regulated, but I don’t think even they thought that all broadband regulation would be removed in one fell swoop. We are going to have to somehow put regulations back in place or watch our industry go down a very ugly path.

5 replies on “Can the FTC Regulate Broadband?”

“The FTC sued AT&T in 1984 because the company throttled data usage by unlimited customers to try to get them to drop their unlimited data plans.”

What year was that supposed to be? I don’t think any kind of data plans existed in 1984. 🙂

I enjoy your articles, however, this one is pretty off base in my opinion. You miss a slew of reasons, laws and rationale why Net Neutrality is drafted is flawed and unenforceable. In addition if allowed to prevail as is, this will affect all the ISP’s large and small in terms of pricing, reporting published price sheets, bundling, creative marketing , buildouts, and startups.

Here is a the first take I had on this a while back, part 2 needs to be written now…:)

Thanks for the research and your well written article, as you brought up quite a few interesting points to consider going forward

I don’t think I’m off base, but rather that we just have a different opinion on the topic – it’s certainly is a topic where there are pros and cons to every argument.

The District Courts had sided with the FCC order and ruled that the FCC had the authority to use Title II legislation and to enact the net neutrality rules. That case could have been appealed up one more level to the Supreme Court, but it’s not clear that there was a valid basis for a further appeal. This became moot after the new FCC simply vacated the old FCC order.

What I will agree with you on is that Title II authority is perhaps the clumsiest way possible to regulate broadband. What really is needed if regulation is the goal would be new regulations from Congress. But since that’s never coming, Title II was the best tool the FCC could cook up.

Thank you for the courteous reply, my first response was a little brash to say the least.

And I certainly agree there are so many facets, and points to consider on this, you can’t just do a simple few lines of do’s and don’ts and say “We did good”.

I enjoy your viewpoints, and thanks for the response again!

Leave a Reply Cancel reply

Exit mobile version