Tag: Federal Trade Commission

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Regulation - What is it Good For?

The Problem with FTC Regulation

As part of the decision to kill Title II regulation, the FCC largely ceded its regulatory authority over broadband to the Federal Trade Commission. FTC regulation is exceedingly weak, meaning that broadband is largely unregulated.

A great example of this is the recent $60 million fine levied on AT&T by the FTC. This case stretched back to 2014 when the company advertised and charged a premium price for an unlimited cellular data plan. It turns out the plan was far from unlimited and once a customer reached an arbitrary amount of monthly usage, AT&T throttled download speeds to the point where the broadband was largely unusable.

This is clearly an unfair consumer practice and the FTC should be applauded for fining AT&T. Unfortunately, the authority to levy fine for bad behavior is the practical extent of the FTC’s regulatory authority.

A strong regulator would not have taken five years to resolve this issue. In today’s world, five years is forever, and AT&T has moved far past the network, the products, and the practices they used in 2014. In 2014 most of the cellular network was still 3G, moving towards 4G. It didn’t take a lot of cellular data usage to stress the network. It was a real crisis for the cellular networks when people started watching video on their phones, and the cellular companies tamped down on usage by enforcing small monthly data caps, and apparently by capping unlimited users as well.

A strong regulator would have ordered AT&T to stop the bad practice in 2014. The FTC doesn’t have that authority. The regulatory process at the FTC is to bring suit against a corporation for bad behavior. Often companies will stop bad behavior immediately to soften the size of potential fines – but they are not required to do so. The FTC suit is like any other lawsuit with discovery and testimony. Once the FTC finds the corporation guilty of bad behavior, the parties often negotiate a settlement, and it’s routine for corporations to  agrees to never undertake the same bad practices again.

A strong regulator would have ordered the whole cellular industry to stop throttling unlimited data customers. The FCC fine applied strictly to AT&T and not to any other cellular carriers. T-Mobile has advertised unlimited data plans for years that get throttled at some point, but this FTC action and the fine against AT&T has no impact on T-Mobile and the other wireless carriers. AT&T got their wrist slapped, but the FTC doesn’t have the authority to tell other cellular companies to not engage in the same bad behavior. The FCC regulates by punishing bad corporate actors and hopes that similar companies will modify their behavior.

A strong regulator would develop forward-thinking policies to head off bad behavior before it happens. One of the bulwarks of regulation is establishing policies that prohibit bad behavior and that reward corporations for good behavior. The FTC has no authority to create policy – only to police bad behavior.

Even if they wanted to regulate broadband more, the FTC doesn’t have the staffing needed to monitor all broadband companies. The agency is responsible for policing bad corporate behavior across all industries, so they only tackle the worst cases of corporate abuse, and more often than not they go after the largest corporations.

At some point, Congress will have to re-regulate broadband. Unregulated corporations inevitably abuse the public. Without regulation, broadband prices are going to go sky-high. Without regulation there will be ISP policies that unfairly punish customers. Without regulation the big ISPs will eventually engage in all of the practices that net neutrality tried to stop. Having the FTC occasionally levy a big fine against a few big ISPs will not deter bad behavior across the whole ISP sector.

What we really need is an FCC that does what it’s supposed to do. If the FCC refused to regulate broadband – the primary product under its umbrella – then the agency is reduced to babysitting spectrum auctions, and not much else of consequence.

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Regulation - What is it Good For?

Court Upholds Repeal of Net Neutrality

The DC Circuit Court of Appeals ruled on the last day of September that the FCC had the authority to kill Title II regulation and to repeal net neutrality. However, the ruling wasn’t entirely in the FCC’s favor. The agency was ordered to look again at how the repeal of Title II regulation affects public safety. In a more important ruling, the courts said that the FCC didn’t have the authority to stop states and municipalities from establishing their own rules for net neutrality.

This court was ruling on the appeal of the FCCs net neutrality order filed by Mozilla and joined by 22 states and a few other web companies like Reddit and Etsy. Those appeals centered on the FCC’s authority to kill Title II regulation and to hand broadband regulation to the Federal Trade Commission.

Net neutrality has been a roller coaster of an issue. Tom Wheeler’s FCC put the net neutrality rules in place in 2015. An appeal of that case got a court ruling that the FCC was within its power to implement net neutrality. After a change in administration, the Ajit Pai FCC killed net neutrality in 2017 by also killing Title II regulation. Now the courts have said that the FCC also has the authority to not regulate net neutrality.

The latest court order will set off another round of fighting about net neutrality. The FCC had quashed a law in California to introduce their version of net neutrality and this order effectively will allow those California rules to go into effect. That battle is far from over and there will be likely new appeals against the California rules and similar rules enacted in Washington. It wouldn’t be surprising to see other states enact rules in the coming year since the net neutrality issue is overwhelmingly popular with voters. It’s possibly the worst of all worlds for big ISPs if they have to follow different net neutrality rules in different states. I think they’d much prefer federal net neutrality rules rather than different rules in  a dozen states.

The reversal of net neutrality rules only went effect in June of 2018 and there have been no major violations of the old rules since then. The ISPs were likely waiting for the results of this court ruling and also are wary of a political and regulatory backlash if they start breaking net neutrality rules. The closest thing we had to a big issue was mentioned in this ruling. Verizon had cut off broadband for firemen in California who were working on wildfires after the firemen exceeded their monthly data caps. It turns out that wasn’t a net neutrality violation, but rather an enforcement issue on a corporate cellular account. But the press on that case was bad enough to prompt the courts to require the FCC to take another look at how ISPs treat public safety.

This issue is also far from over politically. Most of the democratic presidential candidates have come out in favor of net neutrality and if Democrats win the White House you can expect a pro-net neutrality chairman of the FCC. Chairman Pai believes that by killing Title II regulation that a future FCC will have a harder time putting the rules back in place. But the two court appeals have shown that the courts largely believe the FCC has the authority to implement or not implement net neutrality as they see fit.

While net neutrality is getting all of the press, the larger issue is that the FCC has washed its hands of broadband regulation. The US is the only major economy in the world to not regulate the broadband industry. This makes little sense in a country where are a large part of the country is still controlled by the cable/telco duopoly, which many argue is quickly becoming a cable monopoly. It’s easy to foresee bad behavior from the big ISPs if they aren’t regulated. We’ve seen the big ISPs increase broadband rates in the last few years and there is no regulatory authority in the country that can apply any brakes to the industry. The big ISPs are likely to demand more money out of Google, Facebook and the big web companies.

The FCC handed off the authority to regulate broadband to the Federal Trade Commission. That means practically no regulation because the FTC tackles a single corporation for bad behavior but does not establish permanent rules that apply to other similar businesses. The FTC might slam AT&T or Comcast from time to time, but that’s not likely to change the behavior of the rest of the industry very much.

There is only one clear path for dealing with net neutrality. Congress can stop future FCC actions and the ensuing lawsuits by passing a clear set of laws that either implements net neutrality or that forbids it. However, until there is a Congress and a White House willing to together implement such a law this is going to continue to bounce around.

The big ISPs and Chairman Pai argued that net neutrality was holding back broadband investments in the country – a claim that has no basis when looking at the numbers. However, there is definitely an impact in the industry from regulatory uncertainty, and nobody is benefitting from an environment where subsequent administrations alternately pass and repeal net neutrality. We need to resolve this once way or the other.

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Who Owns Customer Data?

Our homes are starting to get filled with Internet-enabled devices. I recently looked around my own home, and in addition to the expected devices like computers, printers, tablets and smartphones we have many other devices that can connect to the Internet. We have a smart TV, an eero WiFi network, three Amazon Echos, several fitness trackers, and a smart watch. Many homes have other Internet-connected devices like smart burglar alarms, smart thermostats, smart lighting and even smart major appliances. Kids can have smart toys and game consoles these days which have more computing power than most PCs.

Every one of these devices gathers data on us and a good argument can be made that we are all being spied on by our devices. Each device witnesses a different part of our lives, but add them all together and they paint a detailed picture of the activity in your home and of each person living there.

There are numerous examples of companies that we know are using our data:

  • Last year it was revealed that Roomba was selling detailed information about the layouts of homes to data brokers.
  • The year before we found out that Samsung smart TVs were capable of listening to conversations in our living rooms and also had backdoor connections to the Internet.
  • There has been an uproar about smart talking toys that not only interact with kids but also listen and essentially build profiles on them.
  • Smart devices like smart phones, tablets and computers come with software that is aimed at gathering data on us for marketing purposes. This software generally is baked in and can’t be easily removed. Some companies like Lenovo (and their Superfish malware) went even further and hijacked user web traffic in favor of vendors willing to pay Lenovo.
  • Buyers of John Deere tractors found out that while they own the tractor they don’t own the software. The company penalizes customers who try to repair their tractor by anybody other than an authorized John Deere repairperson.

Probably the most insidious result of all of this spying is that there are now data brokers who gather and sell data that can paint a detailed profile of us. These data profiles are then used to market directly to us or are sold to politicians who can target those most sympathetic to their message. It’s also been reported that smart criminals are using this data to choose victims for their crimes.

I’m sure by now that everybody has searched for something on the web, and then noticed that for the next few weeks they are plastered with ads trying to sell them the subject of their search. This happened to me a few years ago when I was looking at new pick-up trucks on the web. But today this goes a lot farther and people complain about getting medical ads after they have searched the web about an illness.

To make matters worse, we have a government regulatory policy in this country that benefits the corporations that are spying on us. Last year Congress passed privacy rules that let ISPs and anybody else gathering raw digital data off the hook. There are essentially no real privacy rules today. Data privacy is now under the purview of the Federal Trade Commission. They might intervene in a particularly egregious case of invasion of privacy, but their rules are not proactive and only can be used to find companies that have already broken the rules. Unless fines grow to be gargantuan it’s unlikely that the FTC will change much of the worst practices using our data.

The European Union is in the process of enacting rules that will clamp down on data gathering. Their rules that go into effect in a few months will require that customers buy-in to being monitored. That is great in concept, but my guess that it’s going to take a decade of significant fines to get the attention of those companies that gather our data. Unless the fines are larger than the gains from spying on people then companies will continue to monitor us, and they will just work harder to hide evidence of spying from the government.

I think there are very few of us who don’t believe our data should belong solely to us. Nobody really wants outsiders knowing about their web searches. Nobody wants unknown companies tracking their movement inside their homes, their purchases and even their conversations. But for now, the companies that are gathering and using our data have the upper hand and are largely free do nearly anything they want with our data.

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Regulation - What is it Good For?

The FTC and Net Neutrality

One of the lynchpins of the FCC’s plans to reverse net neutrality is their assertion that the Federal Trade Commission (FTC) is ready to step in and protect consumers from any abuse by the big ISPs. FCC Chairman Ajit Pai argues that the FTC should always have been the go-to agency for privacy issues and issues like broadband rates. However, it’s possible, and perhaps even likely that the FTC will be legally unable to take on that role.

There is an open lawsuit that challenges whether the FTC has any authority over big ISPs like AT&T. The FTC sued AT&T and levied a $100 million fine on the company for abuses of their unlimited cellular data plans. AT&T stopped selling unlimited data plans in 2011. But the company had sold millions of limited plans that had promised that customers could keep the plans for life. This is about the time that customers could actually begin using large amounts of cellular data due to the burgeoning OTT video market, and AT&T started to pressure customers to drop the grandfathered unlimited plans. AT&T eventually took steps to throttle unlimited data users and even went so far as to block customers from using Facetime, the Apple product that lets customers video chat.

AT&T immediately appealed the FTC decision using the argument that Section 5 of the original FTC charter precluded the agency from regulating ‘common carriers’. The original Telecommunications Act of 1934, which established the FCC, had defined common carrier to be a company that provide public telecommunications facilities – which has been taken to mean facility-based telecom providers. Originally the common carrier definition meant the old Ma Bell and other regulated telephone companies, but over the years the FCC has expanded that definition to include other telecom facility-based providers including cellular carriers and long-haul fiber owners.

In February of 2016 the appeals court agreed with AT&T and said that the FTC had no jurisdiction to regulate a common carrier, even for “non-common carrier activities”. This means that the FTC could not regulate AT&T for its telecom business, but also couldn’t regulate other endeavor that the company might undertake, such as AT&T’s actions as the owner of DirecTV or their future actions as a programmer after a merger with Time Warner.

The FTC appealed that decision and the case is still open. The agency pointed out that the ruling created a huge enforcement gap. At the time it of the FTC appeal it was assumed that the FCC would continue to regulate telecom-related issues for common carriers, but the FTC pointed out that the ruling meant that nobody was regulating non-common carrier activities of common carriers like AT&T.

Almost immediately after this court ruling the formerly unthinkable happened and the FCC now wants to walk away from regulating broadband – the most important of the common carrier activities of AT&T and other ISPs. In doing so, the FCC argues that the FTC will be able to take over the regulation of issues like privacy, billing abuses, excessive rates, etc. However, the 2016 court ruling says that the FTC has no jurisdiction over any of the actions of a common carrier like AT&T.

The fact that the FCC is walking away from its responsibilities does not somehow create the right for the FTC to step in and regulate common carriers. This means that after the FCC reverses Title II authority that there might be no agency in the federal government able to regulate any consumer activities of common carriers like AT&T, even in areas that are not telecom related. It would free up AT&T and other common carriers to subject customers to enormous abuses with nobody able to step in to protect customers. AT&T and other common carriers could inflict unimaginable abuses on customers without consequence, up perhaps to the point of outright fraud, at which point the Justice Department could probably intervene.

To make matters worse, the FTC is not sure that they can really regulate companies like AT&T even should they win the appeal of the AT&T lawsuit. FTC Commissioner Terrell McSweeny says in this opinion piece that the FTC is ill-equipped to regulate companies like AT&T. He says the agency is underfunded for such activities and doesn’t have a staff that has the technical expertise to understand complex telecom issues – exactly the kind of expertise that resides at the FCC.

https://qz.com/1144994/the-fcc-plans-to-kill-the-open-internet-dont-count-on-the-ftc-to-save-it/

 

McSweeny further says that even if the FTC is able to take on this role that the agency doesn’t really regulate companies. Instead, the agency punishes companies for consumer abuses, many years after transgressions. That is not the same thing as proactively establishing rules to regulate corporations. He says that the FTC could not really preclude AT&T from abusing customers, and at best could occasionally fine them for the worst of such abuses, many years after they occurred.

Sadly, we have an FCC that is aware of the regulatory gap and which is still willing to walk away from regulating broadband. It’s not hard to imagine what a company like AT&T might do with zero constraints. It’s likely that we’ll see huge price increases, unsavory practices like stringent data caps, constant violations of customer privacy through the mining of customer data, etc. The only constraint against such practices would be competitive pressures, but the other big ISPs in the market would also be unregulated and it’s not hard to imagine that cable companies would match AT&T abuses rather than compete against them.

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Regulation - What is it Good For?

FCC’s Net Neutrality Myths

We’ve been having the policy debate over creating net neutrality since at least 2005. During that time there have been a lot of arguments made on both sides of the issue. But overall it’s been a policy debate that is similar to the many other issues discussed in the telecom regulatory world. Both sides make their arguments and eventually a decision is made to regulate or not regulate according to the arguments. Politics has always played a role in these debates and issues tend to slew a bit according to the political leanings of the FCC at any given time.

FCC Chairman Ajit Pai recently released a document that argues strenuously for the end of net neutrality. This document lists various ‘myths’ associated with net neutrality and then describes why each myth is untrue. If you look back at the history of the net neutrality debate you’ll see that his list is a summary of the arguments being made over time by the big ISPs. This is a document that one would expect from AT&T, Comcast, USTA or ALEC – but not from the Chairman of the FCC.

I have a problem with the Chairman’s list because most of the conclusions drawn are factually incorrect. It’s expected for the big ISPs to make arguments in their favor, even if those arguments are not wholly true – but it’s disturbing to see these same arguments coming from the FCC, which is supposed to be the arbiter for telecom policy issues.

I don’t think I have any bias that makes me see these statements as false. Anybody whose been reading my blogs knows that I am as biased as anybody else in the industry. My bias is towards policies that allows smaller ISPs to compete. And I am strongly in favor of policies that try to solve the rural broadband gap and the overall digital divide. But other than that I am largely neutral on other telecom policies and am receptive to hear all arguments on the various issues. Other than as a consumer I have no strong bias in the net neutrality debate because I don’t believe that small ISPs will violate net neutrality even if there aren’t any rules. The net neutrality argument really only concerns the behavior of the largest and most powerful ISPs in the telecom market. I could go through the document and discuss each ‘myth’ – but that doesn’t lend itself to a blog-length discussion. But I think every one of the Chairman’s arguments is stretching the truth.

For example, the document rolls out the old big-ISP argument that broadband investments have dropped due to Title II regulation. This argument goes back to shoddy work done by one researcher on the big ISP payroll and has been debunked numerous times. The numbers tell a different story and investments have not dropped. So do the actions of the big ISPs – AT&T, Verizon, Comcast and most of the other big ISPs are all undertaking aggressive expansion and upgrades. Look at what each of these companies is telling their stockholders and you don’t see an industry in retreat. Title II regulation has had almost zero impact on investment decisions (and regulation rarely has ever done so).

Chairman Pai also argues that the Internet was free and open before we had Title II regulation. That’s not the way I remember it. The net neutrality debate has been going on since 2005 and the ISPs have been held in check by the threat of net neutrality regulation. Even without Title II regulations in place the FCC was able in the past to pressure the ISPs on practices like data caps and zero-rating by the threat of future regulation – and for the last decade this has largely worked. Title II regulation didn’t just appear out of thin air with the FCC order in 2014 – the net neutrality principles were the backbone of FCC regulation and actions for a decade before then.

This FCC document also argues that the Federal Trade Commission is well equipped to police unfair, deceptive and anticompetitive behavior from ISPs. That gives the FCC cover to duck out of regulating broadband. What this doesn’t mention is that the big ISPs are now attacking the FTC’s right to regulate broadband (a blog will be coming on this soon). I find it extraordinary that the FCC would declare that it should have no role in regulating broadband – the most important telecommunications product. Regulating broadband seems to be their role in the industry almost by definition.

I guess more than anything else this document disappoints me. While there have always been some politics involved in the decisions made in our industry, past FCCs have largely decided issues on their merits. My own business was founded largely due to the Telecommunications Act of 1996 which unleashed much-needed competition into the industry. But I look at this current FCC and see that the pendulum has swung to one far extreme and the merit of issues aren’t even part of policy discussions. That saddens me.

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Regulation - What is it Good For?

Big ISPs Want to be Regulated

I’ve always contended that the big ISPs, regardless of their public howling, want to be regulated. It is the nature of any company that is regulated to complain about regulation. For the last decade as AT&T and Verizon made the biggest telecom profits ever they have released press release after press release decrying how regulation was breaking their backs. The big telcos and cable companies spent the last few years declaring loudly that Title II regulation was killing incentives to make investments, while spending record money on capital.

A few months ago Comcast, Charter, and Cox filed an amicus brief in a lawsuit making its way through the US. Court of Appeals for the Ninth Circuit. In that brief they asked the federal appeals court to restore the Federal Trade Commission’s jurisdiction over AT&T. The specific case being reviewed had to do with deceptive AT&T marketing practices when they originally offered unlimited cellular data plans. It turns out that AT&T throttled customer speeds once customers reached the meager threshold of 3 – 5 GB per month.

In 2014 the FTC sued AT&T for the practice and that’s the case now under appeal. It’s a bit extraordinary to see big ISPs siding with the government over another ISP, and the only reason that can be attributed to the suit is that these companies want there to be a stable regulatory environment. In the brief the cable companies expressed the desire to “reinstate a predictable, uniform, and technology-neutral regulatory framework that will best serve consumers and businesses alike.”

That one sentence sums up very well the real benefit of regulation to big companies. As much as they might hate to be regulated, they absolutely hate making huge investments in new product lines in an uncertain regulatory environment. When a big ISP knows the rules, they can plan accordingly.

One scenario that scares the big ISPs is living in an environment where regulations can easily change. That’s where we find ourselves today. It’s clear that the current FCC and Congress are planning on drastically reducing the ‘regulatory burden’ for the big ISPs. That sounds like an ideal situation for the ISPs, but it’s not. It’s clear that a lot of the regulations are being changed for political purposes and big companies well understand that the political pendulum swings back and forth. They dread having regulations that change with each new administration.

We only have to go back a few decades to see this in action. The FCC got into and then back out of the business of regulating cable TV rates several times in the late 1970s and the 1980s. This created massive havoc for the cable industry. It created uncertainty, which hurt their stock prices and made it harder for them to raise money to expand. The cable industry didn’t become stable and successful until Congress finally passed several pieces of cable legislation to stop these regulatory swings.

Big companies also are not fond of being totally deregulated. That is the basis for the amicus brief in the AT&T case. The big ISPs would rather be regulated by the FTC instead of being unregulated. The FTC might occasionally slap them with big fines, but the big companies are smart enough to know that they have more exposure without regulations. If the FTC punishes AT&T for its marketing practices that’s the end of the story. But the alternative is for AT&T to have to fend off huge class action lawsuits that will seek damages far larger than what the FTC will impose. There is an underlying safety net by being regulated and the big ISPs understand and can quantify the risk of engaging in bad business practices.

In effect, as much as they say that hate being regulated, big companies like the safety of hiding behind regulators who protect them as much as they protect the public. It’s that safety net that can allow a big ISP to invest billions of capital dollars.

I really don’t think the FCC is doing the big ISPs any favors if they eliminate Title II regulations. Almost every big ISP has said publicly that they are not particularly bothered by the general principles of net neutrality – and I largely believe them. Once those rules were put into place the big companies made plans based upon those rules. The big ISPs did fear that some future FCC might use Title II rules to impose rate regulation – much as the disaster with the cable companies in the past. But overall the regulation gives them a framework to safely invest in the future.

I have no doubt that the political pendulum will eventually swing the other way – because it always does. And when we next get a democratic administration and Congress, we are likely to see much of the regulations being killed by the current FCC put back into place by a future one. That’s the nightmare scenario for a big ISP – to find that they have invested in a business line that might be frowned upon by future regulators.

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Regulation - What is it Good For? Technology

Regulating the IoT

The FCC has joined other government agencies and private organizations that are concerned about the lack of security with the Internet of Things. The agency issued a 50-page research paper that discussed the issue and came to some troubling conclusions.

From the report: The large and diverse number of IoT vendors, who are driven by competition to keep prices low, hinders coordinated efforts to build security by design into the IoT on a voluntary basis. Left unchecked, the growing IoT widens the gap between the ideal investment from the commercial point of view and from society’s view.

That’s not nearly as strident as the sentiment expressed by most industry experts who understand that most IoT device makers look at security only as an afterthought. It’s been demonstrated repeatedly that almost every IoT device on the market can be hacked, often quite easily. There are exceptions, but a large percentage of devices have little or no defense against hacking.

The Department of Homeland Security is also looking at IoT and issued a set of guidelines they want to the industry to adopt. DHS believes that unprotected IoT devices are a national security threat. We now saw good evidence of this last month after massive denial of service attacks were launched from security cameras and home appliances. The DHS guidelines suggest some common sense requirements like allowing devices to have unique passwords and allowing IoT devices to receive needed software updates.

The Federal Trade Commission is also looking at IoT security issues. The agency recently announced a $25,000 prize to anybody who could offer a security solution for dealing with outdated software in IoT devices.

The Department of Commerce also recently issued IoT guidelines, but the guidelines seem to be aimed internally at the agency and not at the wider world.

This all raises the question of who should be regulating IoT? Right now the answer is nobody – there is no agency that has clear jurisdiction to impose any requirements on the IoT industry. And that is because such authority can only be granted by Congress. We’ve seen this same thing happen many times in the last fifty years as new technologies spring into existence that don’t fit neatly into any existing jurisdictional bucket.

The closest process we have to what is needed to regulate at least part of the IoT today is the way the FCC certifies new wireless and other telecom devices. Most people don’t realize it, but all phones and many other kinds of telecom gear undergo vigorous testing at the FCC to make the sure the devices do what they say they do and to make sure that they won’t interfere with the rest of the world. We need a similar process to tst and certify IoT devices because we can’t ever just take the IoT manufacturers’ words that their devices meet and standards that are developed.

But the FCC today has zero authority to regulate the IoT. For now they have created the ability to regulate ISPs through Title II regulations – but that is expected to be reversed or watered down soon. But even that authority doesn’t give them any jurisdiction over the IoT. Like many technologies, the IoT is something new that doesn’t fit into any existing regulatory framework.

It’s not really comforting, but there are a bunch of other new industries with the same situation. There is no agency that has any clear regulatory authority over driverless cars. Nobody has any real authority to regulate artificial intelligence. There are only very minimal regulations for gene-splicing.

I think most of us believe that some level of regulation is good for these big society-changing technologies. Certainly if nobody regulates the IoT we will have disaster after disaster from misuse of the technology. I hope we don’t wait too long to tackle this until it’s too late and there are billions of poorly manufactured IoT devices in the world that can’t be fixed.

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Regulation - What is it Good For?

What is Anti-Competitive Behavior?

The Federal Trade Commission (FTC) recently clarified a long-standing policy specifically defining, for the first time in history, how it is going to judge anti-competitive behavior.

As a little background, the FTC has always been tasked with enforcing the Sherman Antitrust Act and the Clayton Act. But those laws are aimed at stopping anti-competitive behavior at the national level when a company is stifling a whole market. It has been exceedingly hard to apply those laws to a smaller market or to the actions of a large company stifling only a single tiny competitor.

In the telecom industry there are numerous cases where the large cable companies went after a small competitor, but these small companies have never had any legal recourse. I don’t think there are any examples of a small company using the law to stop anti-competitive behavior by the big cable companies. In every case I have ever worked with, the smaller company has gotten legal advice that it’s almost impossible to win an anti-competition claim against a big cable company.

And that has been a shame since there are cases where the behavior of the incumbents has been egregious. I’ve seen large cable companies cut rates significantly in a market to try to harm a new competitor while jacking up the rates in surrounding communities to make up for the losses in the one market. Those are the kinds of things that monopolies aren’t supposed to be able to do, but there has never been a mechanism for stopping this anti-competitive behavior.

I’m not a lawyer and I don’t know if the new FTC language fixes this problem, but my layman’s interpretation is that it offers hope. Here is how the FTC now defines how it will look at anti-competitive behavior:

  • The commission will be guided by public policy behind antitrust law, namely, consumer welfare.
  • An act or practice challenged by the FTC must cause or be likely to cause harm to competition or the competitive process, while taking into account related efficiencies and business justifications.
  • The commission is less likely to challenge acts or practices on the sole basis that they constitute unfair competition if the Sherman or Clayton Acts would be enough to address them.

It’s the second bullet point that I think holds out hope. It’s clear that the actions of large companies can cause harm to competition and the competitive process, and this makes it clear that the FTC feels they have the right to oversee such practices. As that second bullet also notes, sometimes small competitors get crushed inadvertently when a large company implements a nationwide practice for efficiency or business reasons. The FTC is not likely to tackle those cases, but should be open to investigating cases where a large company specifically goes after a small company in one market.

The timing of this is interesting for our industry. For many years the place to take a complaint against a large cable company would have been the FTC since the FCC didn’t regulate the cable companies as carriers. The FCC has regulated cable practices and requirements for being a cable company, but not issues like anti-competitive behavior.

But recently, with the changes coming from the net neutrality rule, the FCC has turned the cable companies into carriers under its jurisdiction. The FCC has always heard complaints from small telephone carriers against the larger telcos, so perhaps now the FCC might also be willing to entertain complaints from small cable providers against the larger cable companies.

It would be ironic that now the FTC is willing to perhaps hear such anti-competition claims that they might no longer hold the jurisdiction over the cable market. Those two agencies are certainly engaged currently in an arm-wrestling match over this issue and it might take a while to figure out which agency would be the one to take an anti-competition claim.

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Current News Regulation - What is it Good For?

The FTC and Technology

Last week I wrote about how the Federal Trade Commission was going to start watching the Internet of Things. I will admit that this is maybe only the second or third time in my career that I can recall the FTC being involved in anything related to telecom. So I did some digging and I think we are going to be hearing about them a lot more. The FTC is turning into one of the primary watchdogs of technology.

The FTC was created by President Woodrow Wilson in 1914 to fight against big trusts. In those days large corporations like Standard Oil and America Tobacco held monopoly power in their industries. The Sherman Act was passed as a way to battle the largest monopolies, but Congress wanted a second mechanism to control the worst practices of all corporations. The FTC was created 100 years ago to protect consumers against the practices of large corporations.

The FTC got their powers expanded in 1938 when Congress gave them explicit authority to combat “unfair methods of competition”. Since then the agency became increasingly active in protecting the public against unfair trade practices.

It is not surprising to see the FTC getting involved with technology since it is becoming the primary way that companies interface with people. The FTC has been engaged for years in a few areas that involve the telecom industry. For instance, they have been the watchdog for years for issues like deceptive advertising, poor billing practices, and violations of customer privacy.

As an example, there have been a number of FTC actions over the years with AT&T. Not that I particularly want to single out AT&T, because the FTC has been engaged with all of the large carriers over the years. However, just last year the FTC got AT&T to refund $80 million to wireless customers who had been crammed with fraudulent third party charges. In 2009, the FTC faulted the company for denying phones to people based upon having poor credit since they had not explained the policy to the public. And now the FTC is going after AT&T for fraudulent advertising since their unlimited mobile data plans are not actually unlimited.

One area of FTC focus for the last few years has been the security of customer data. For example, they have fined a number of companies that had security breaches that released customer credit card and other personal information if those companies had not taken reasonable precautions to protect the data.

While companies sometimes fight the FTC, the more normal response is for the agency and a company to come to a mutually acceptable change in behavior through a consent decree. Following are a few cases related to our industry that were not amicably resolved and that instead resulted in suits by the FTC to stop bad corporate behavior:

  • Amazon. Last year the FTC sued Amazon to get them to stop the practice where children could rack up huge bills on cell phones by purchasing add-ons for computer games without parental approval. There were even game apps for pre-school age kids who clearly cannot yet read that allowed a player to buy extra features of the game by hitting a button.
  • Snapchat. Last year the FTC sued Snapchat because they told customers that their data on the network was private and protected, while it wasn’t.
  • Dish Network. In 2012 the FTC sued Dish Network for making telemarketing calls in violation of the Do Not Call rules.
  • Robocalling. In 2009 the FTC sued to stop numerous companies who were using robocalls to sell fraudulent products.
  • Data Brokers. The FTC sued LeapLab of Arizona for selling consumer data that included details like bank account numbers.
  • Spam. The FTC took legal steps to shut down Triple Fiber Networks (3FN.net) which hosted huge quantities of spam emails.
  • Intel. In 2009 the FTC sued Intel for using its monopoly power to artificially inflate the cost of computer chips.

As privacy and data security become even more important, we will probably see the FTC become very active in our industry. Interestingly, most of the FTC’s work is done quietly and without press. It contacts companies against which there are multiple public complaints. They generally investigate the complaints and try to get companies to change their bad behavior. And most companies agree to make changes. But the FTC has the ability to levy large fines and will do so for companies who repeat bad behavior or who violate a prior consent decree.

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