Tag Archives: FTC

Click to Cancel

The Federal Trade Commission voted on May 9 to delay the implementation of click to cancel until July 19. This was originally scheduled to be implemented last week. This blog is a heads up for any ISPs that takes orders online that you are required to offer online process to allow customers to disconnect service that is as easy as the process to buy online. This new rule has become labeled as click to cancel.

More specifically, the FTC rules include a negative option rule that says that a business can’t require customers who want to cancel to go through a different process than the one they used to buy a service. If a customer bought a service or an upgrade online, they must be able to cancel that service online.

This means an ISP can’t do things like making customers contact customer service during limited hours or endure lengthy phone menus to cancel. The new rules imply that an ISP might not be able to divert customers to a win-back process during the cancellation process, but could perhaps contact customers later.

The new rules also require a company to provide information about its cancellation policy before collecting customer payment information – online ordering systems should be modified to provide this information before asking for credit card or bank debit details.

The original rules were adopted by the FTC in 2024. Since taking office, President Trump has controversially fired two democratic FTC Commissioners, but the remaining three Republican Commissioners voted to continue the implementation of this process with the slight delay to give companies more time. The Commissioners recognized pleas from companies of the complexity of implementing the new process.

Another part of the new rules is that a company that sells online must be truthful and clear with customers about what they are buying. For instance, if a customer is subscribing to a promotional product, the instructions must make it clear how long the low price lasts. A seller needs to be able to demonstrate that buyers know what they are agreeing to, which means not putting important facts into fine print. ISPs are already subject to broadband labels required by the FCC, but this new requirement might require clearer language in the description of products and not just in the label.

These new rules might lead some ISPs to consider not offering sales online. However, even if you don’t sell online, the cancellation process can’t be any more complicated than the process to buy a service.

Customer Friendly Regulation

It always takes a new administration a while to start implementing new ideas and initiatives, and we’re finally seeing many consumer-friendly initiatives from the Biden administration coming to fruition after four years.

The White House recently announced a Time is Money initiative that would require corporations to implement customer-friendly practices to eliminate long hold times and excessive paperwork for customers. The announcement for the initiative said, “Companies often deliberately design their business processes to be time-consuming or otherwise burdensome for consumers in order to deter them from getting a rebate or refund they are due or canceling a subscription or membership they no longer want – all with the goal of maximizing profits.”

This is a follow-up to a proposed rule from the Federal Trade Commission in March that would require companies to make it as easy to cancel service as it is to subscribe. They are calling this a click-to-cancel initiative.

Additionally, the Consumer Financial Protection Bureau has initiated a rulemaking that would provide customers the ability to talk to a human by pressing a single button. That would put a crimp on companies that are trying to provide customer service using only AI chatbots. This would also eliminate having to wade through interminable mazes of bot questions to talk to somebody.

Earlier this year, the White House issued an executive order to eliminate junk fees, which are hidden fees for services that are not advertised to customers. The FCC reacted to that order by proposing rules to eliminate the gigantic hidden fees for cable TV service that can sometimes double the advertised price of a cable package.

I’ve read that the FCC is thinking of taking up a few of these issues, although the recent court ruling that puts Title II regulation on hold could put a real crimp in that effort. The FCC might have to defer to more generic rules from the FTC rather than having industry-specific rules for broadband.

I am sure there are those that who will say that the government shouldn’t be meddling in how companies treat their customers. However, that is one of the basic role for regulators. Regulators are supposed to balance the need of consumers with the needs of the companies they regulate. In the broadband world, regulation have often tended to favor big companies over consumers.

Sadly, giant companies inevitably adopt bad practices in the search for higher profits. Even big companies with good intentions will stray over time to have harsh and abusive policies for customers, and regulators need to step in to stop the worst practices of big companies. As is to be expected, big ISPs are at the forefront of those lobbying against all of these efforts to make them treat customers better.

Interestingly, at least in the broadband world, smaller ISPs engage in very few of the bad practices being that are being addressed by the various federal regulators. Small ISPs understand that their marketing advantage is offering friendly live customer service for customers and otherwise treating customers right.

I find it funny that these various regulatory initiatives are aimed at making large ISPs act more like small ones. Since big ISPs have most of the customers in the country, this is needed. However, small companies thrive best when their big competitors act poorly.

Tackling Junk and Hidden Fees

The Federal Trade Commission recently proposed rules that would stop businesses from charging hidden fees. The agency estimates that junk fees cost consumers tens of billions of dollars per year.

The new rules would prohibit companies from jacking up bills with hidden and bogus fees and instead require that businesses clearly disclose their fees to customers. The new rules would also allow the FTC to order full refunds to consumers for any business that continues to bill the prohibited fees.

Specifically, the new rules ban the following practices by businesses:

  • Many companies advertise a low price and then spring hidden fees on customers at the time of purchase. Companies would be required to advertise the true cost of their products or services.
  • Companies would also be forbidden from using bogus fees, which are fees that seemingly have no purpose other than jacking up the price.

Hidden fees are a problem in numerous industries. Recently, several of the large ticket companies agreed to eliminate hidden fees after a loud public outcry after the sale of Taylor Swift tickets. Some hotel chains and airlines layer on extra fees that drive up the costs far above the advertised price.

Other federal agencies are joining the fight against these fees, including the FCC, The Consumer Financial Protection Bureau (CFPB), the Department of Housing and Urban Development (HUD), and the Department of Transportation (DOT).

The FCC proposed rules in June that would stop cable and satellite companies from charging hidden fees for cable TV service. The hidden fees for cable TV have grown so large that they sometimes exceed the advertised price of the cable product. Customers don’t generally find out about the hidden fees until they have signed a contract for the low advertised price and get the first bill. The FCC is tackling hidden fees for cable since it’s an industry that the agency still regulates. Hidden fees on cable have been outrageous for years, and it’s a fair question to ask why the FCC never addressed the issue in the past.

There are some hidden fees on broadband, but for now, the FCC can’t address these since broadband isn’t regulated – so I guess these fall under the FTC’s purview. The biggest such fees are mandatory modems, which some ISPs now charge as much as $15 per month. Another big hidden fee for some families is data caps that hit when customers use more than some arbitrary amount of broadband in a month. There are also smaller hidden fees like Frontier’s $1.99 fee for an Internet Infrastructure Charge – a bogus fee for which there is no specific underlying cost.

The initiative to eliminate hidden and bogus fees comes from prodding from the White House. President Biden made it clear to federal agencies a year ago that he expects them to tackle the issue.

This is something that has been badly needed for a long time. It’s too bad that the FTC is the agency doing this. The FTC typically only brings proceedings against specific companies, so compliance with this rule is going to be hit or miss. Smaller companies might continue to use the practice in the hope that they are small enough to stay under the FTC’s radar. But perhaps the FTC will levy large fines while also ordering full refunds against a few companies that don’t comply and scare most companies into compliance.

Beware the Fake Reviews

The Internet is awash with fake reviews. The reviews on sites like Amazon, Yelp, Tripadvisor, Google, and numerous review sites have grown to be totally untrustworthy since many of the reviews are fake. It’s not hard to find evidence of fake reviews, such as for a sketchy product on Amazon that has a thousands 5-star reviews. The problem is so widespread that last year Amazon sued the leaders of over 10,000 fake review sites.

You may ask what this has to do with broadband. When I read review sites about experiences with smaller ISPs, I almost always find fake reviews sprinkled in with real ones. For every review that talks about a technician that was late for an installation or that complains about the price, there are short flowery reviews that say that the ISP is amazing at customer service or that the ISP is perfect. The problem is that it’s hard to completely know which reviews are fake, although many of the short saccharine reviews are likely not real.

The Federal Trade Commission has proposed new regulations to deter fake reviews. Fake reviews are already illegal – it’s against the law to purposefully try to deceive consumers.  The FTC is proposing giant fines to try to stop the practice. The agency is proposing a fine of up to $50,000 for each fake review, which can be levied for each consumer that sees the fake review. The agency says that officially creating and enforcing these rules and penalties will help the agency in court when it pursues companies and people who post fake reviews.

The FTC particularly wants to tamp down the companies that buy and sell fake reviews. Some of the consumer advocates who track the issue say that as many as 40% of all reviews are fake and that most fake reviews are coming from a fake-review industry that pays people to write fake reviews. (how do people who write fake reviews for a living describe their jobs – writer or con artist?)

The penalties would apply to a wide variety of deceptive practices. Fines can be levied against the people who write fake reviews, the companies that pay for them, and the companies that buy fake reviews. There are other categories of fakes spelled out in the proposed rules, such as reviews that are written by people who don’t exist or reviews written by employees of the company being reviewed.

The new rules would prohibit companies from posting fake reviews on its own website where it sells products. The rules would stop businesses from suppressing bad reviews by intimating people to take them down – a practice a friend of mine saw first-hand when an angry restaurant owner called after he left a so-so review.

An ISP does not want to be the poster child for this new law because the fines can quickly become gigantic, and your reputation could be quickly shot in your local market. People assume that the FTC only goes after giant companies, but it also chases small offenders as a way to dissuade bad practices. Reviews from customers are powerful, and most of us are swayed when somebody says something good about a company. This rule is a warning to avoid taking the easy path of creating fake positive reviews instead of encouraging customers who love you to write and sign real positive reviews.

Are Cable Companies a Broadband Monopoly?

One of the products my consulting firm offers are statistically valid surveys, and conducting surveys has let us get a close look in many communities at the mix between cable broadband and telco DSL. In the last few years, the percentage of DSL subscribers in towns with a good cable company network has plummeted.

It’s not unusual to see DSL market penetration in bigger towns of 10% or less, meaning in most cases that the cable company has essentially won the competitive battle. In most of these towns, we rarely see many DSL customers getting speeds faster than 15 Mbps on the DSL connection, and often a lot less.

We still occasionally see a town with a higher DSL penetration, often due to a telco like AT&T that upgraded the market to offer 50 Mbps DSL that uses two copper lines. But even in these markets, the cable companies have won most of the customers.

The primary reason we see people keeping DSL is price. We often find people paying $35 to $45 for a DSL connection who can’t or won’t upgrade to a more expensive cable modem connection. Many of these folks will hang on to the low-price connection until the day when the telco inevitably retires the telephone copper.

It’s obvious to me that the cable companies are already monopolies in most markets. Any company in any other sector that captured 85% to 95% market share would be deemed a monopoly. I think the cable companies now meet the simple market share test.

Another way to identify monopolies is by noting examples of monopoly behavior. Economists have created a list of changes that are typical monopoly behavior. For example:

  • Price Gouging. Monopolies raise prices over time when there are no competitors to keep them in check. Wall Street has been encouraging the big cable companies to aggressively raise broadband prices. All of the big ISPs have started the process of annually raising rates.
  • Poor Service. Customer service tends to worsen from monopolies because they have no incentive to do better. The big ISPs were already rated as being the worst among all industries at customer service, and there is no reason to think it will ever get any better.
  • Monopsony Power. This term refers to the tendency of monopolies to exploit their purchasing power by forcing low prices on their supply chain. Perhaps the best example of this is Comcast swallowing up the programmers that supply cable TV content.

The reason it’s important to always refer to the big cable companies as monopolies is that we have laws that can kick-in to curb monopoly abuses. However, it likely takes widespread recognition that the cable companies are monopolies to have any hope of awakening monopoly remedies.

The government has a wide range of possible ways to regulate and/or curb monopoly abuses:

  • Governments can fund or support competitors. In this country that likely means having grant programs to support those who would build networks to compete against the cable companies. There are no grants I know of that will fund a competitor to a cable HFC network.
  • The remedy that monopolies hate the most is price regulation. We don’t have to harken back very far into the past to a time when the FCC enforced price regulations over cable companies.
  • One of the most natural ways to regulate monopolies is to enforce some kind of rate of return regulation. Capping monopoly profits will hold down rates.
  • Both the FCC and the Federal Trade Commission have the authority to fine companies for monopoly abuses. These companies are so large that it’s hard to hurt them through penalties, but it is an arrow in the regulatory quiver.
  • Another interesting solution is divestiture – like was imposed on AT&T in 1984. Companies like Comcast are now conglomerations of multiple businesses including broadband networks, entertainment and content creation, and side businesses like cellular, smart home, and numerous other sidelines. Breaking these giant companies into pieces has some merit.

The FCC has gone out of its way to declare that it no longer has any authority over broadband, and thus little or no control over the big cable companies. But this could be changed quickly by by changing the law, and a new Telecom Act could push the FCC back into its original role as a broadband regulator. If the monopoly abuses grow too great, this can also end up at the Justice Department, which had a major role in the divestiture of AT&T.

The Consequences of No Broadband Regulation

A few weeks ago when the COVID-19 pandemic became apparent we saw the ridiculous spectacle of an FCC chairman begging ISPs to not disconnect customers during a pandemic that would likely throw tens of millions of people out of work. Chairman Pai was reduced to begging because a few years earlier he had voted to strip the FCC if its power to regulate broadband. Before that decision, Chairman Pai could simply have ordered ISPs to be on their best behavior during the pandemic.

This is the most recent demonstrations of the negative impact of deregulating an industry that is controlled by a tiny handful of carriers. In most urban markets the big cable companies have become de facto monopolies – and even most markets that haven’t quite reached monopoly status are, at best, duopolies. There is little broadband competition in most major metropolitan areas, and even in many rural county seats.

It’s not hard to see that the ISP industry thinks it’s bullet-proof against regulation. Consider what’s happened with prices in just the past few years:

  • When comparing data prices around the world, the US has the highest data rates among industrialized countries. Our cellular data prices are nearly the highest anywhere in the world other than a few remote places like Antarctica and war zones.
  • All the major ISPs have raised broadband rates in the last year – when everybody in the industry knows that broadband is already a product with huge margins. These rate increases serve no other purpose other than padding the bottom line. What’s worse is that Wall Street analysts are pushing the ISPs to raise rates much higher.
    • ISP bills are now full of hidden fees. Consumer Reports said last year that the average monthly company-imposed fees for the bills they analyzed averaged to $22.96 for AT&T U-verse, $31.28 for Charter, $39.59 for Comcast, $40.16 for Cox, and $43.79 for Verizon FiOS. They estimate that these fees could total to at least $28 billion per year nationwide.
  • Some ISPs like AT&T, Comcast, Cox, and Mediacom are making big money on data caps. It’s clear that the argument of having data caps to protect networks against overuse has zero basis in fact. Data caps are just a quiet way to raise rates and billings. We now know that over 8% of homes now use over a terabyte of data per month – and that was before the COVID-19 pandemic.
  • ISPs feel brave to openly gouge customers, like Frontier that is billing a monthly fee for WiFi modems that the customers purchased. Even when challenged publicly, the company won’t remove the charges because they don’t fear regulatory retribution.

One of the worst things about the deregulation of broadband is that the average consumer has no idea this happened. The FCC was slick enough to bury the deregulation of broadband in the net neutrality topic. Most people don’t realize that when the FCC killed net neutrality that they also gave away their authority to regulate broadband. People still look to the FCC to correct broadband injustices, without realizing that when they file an FCC complaint against a broadband provider that the agency is powerless to intercede on their behalf.

The FCC will argue that they didn’t kill broadband regulation, but they instead handed the responsibility to the Federal Trade Commission. That claim falls apart quickly once you realize that the FTC has zero authority to regulate industries – they can’t write a rule that applies to all ISPs. The FTC’s power is limited to fining ISPs that have blatantly injured the public – and this must be done by an agency that is also overlooking all other US corporations.

Other than to dole out spectrum for 5G, it’s hard to even justify the FCC any longer. If the US isn’t going to regulate one of the most important industries in the country – many would say during the current pandemic the most important – then perhaps we ought to stop pretending to do so.

Only Congress can fix the problem and they’ve shown no inclination to do so. Congress hasn’t done anything meaningful concerning broadband since the 1996 Telecommunications Act that was signed just as people were subscribing to AOL and Compuserve.

The FCC should be taking drastic action during this pandemic. The agency could have been leading the charge looking for ways to get broadband to kids stuck at home. They could have been taking actions to make it easier for telemedicine in the last few months. They could have reacted to the pandemic with plans to finally solve the broadband gap. Instead, all we got was a powerless FCC Chairman politely asking ISPs to not harm people during a national emergency.

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.

A Corporate Call for Privacy Legislation

Over 200 of the largest companies in the country are proposing a new set of national privacy laws that would apply to large companies nationwide. They are pushing to have this considered by the upcoming Congress.

The coalition includes some of the largest companies in Silicon Valley like Apple and Oracle, but it doesn’t include the big three of Facebook, Google and Amazon. Among the other big businesses included the group are the largest banks like Bank of America and Wells Fargo, big carriers like AT&T and big retailers like Walmart.

As you might expect, a proposed law coming from the large corporations would be favorable to them. They are proposing the following:

  • Eliminate Conflicting Regulations. They want one federal set of standards. States currently have developed different standards for privacy and for issues like defining sensitive information. There are also differing standards by industry such as for medical, banking and general corporations;
  • Self-regulation. The group wants the government to define the requirements that must be met but don’t want specific methodologies or processes mandated. They argue that there is a history of government technical standards being obsolete before they are published;
  • Companies Can Determine Interface with Consumers. The big companies want to decide how much rights to give to their customers. They don’t want mandates for defining how customer data can be used or for requiring consumer consent to use data. They don’t want mandates giving consumers the right to access, change or delete their data;
  • National Standard for Breach Notification. They want federal, rather than differing state rules on how and when a corporation must notify customers if their data has been breached by hackers;
  • Put the FTC in Charge of these Issues. They want the FTC to enforce these laws rather than State Attorney Generals;
  • Wants the Laws to Only Apply to Large Corporations. They don’t want rigid new requirements on small businesses that don’t process much personal data.

There are several reasons big companies are pushing for legislation. There are currently different privacy standards around the country due to actions brought by various State Attorney Generals and they’d like to see one federal standard. But like most laws the primary driver behind this legislation is monetary. Corporations are seeing some huge hits to the bottom line as a result of data breaches and they hope that having national rules will provide a shield against damages – they hope that a company that is meeting federal standards would be shielded from large lawsuits after data breaches.

I look at this legislation both as a consumer and as somebody working in the small carrier industry. With my consumer hat on there are both good and bad aspects of the proposed rules. On the positive side a set of federal regulations ought to be in place for a complex issue that affects so many different industries. For example, it is hard for a corporation to know what to do about a data breach if they have to satisfy differing rules by state.

But the negatives are huge from a consumer perspective. It’s typical political obfuscation to call this a privacy law because it doesn’t provide any extra privacy for consumers. Instead it would let each corporation decide what they want to disclose to the public and how companies use consumer data. A better name for the plan might be the Data Breach Lawsuit Protections Act.

There are also pros and cons for this for small carriers. I think all of my clients would agree that we don’t need a new set of regulations and obligations for small carriers, so small carriers will favor the concept of excusing smaller companies from some aspect of regulations.

However, all ISPs are damaged if the public comes to distrust ISPs because of the behavior of the largest ISPs. Small ISPs already provide consumer privacy. I’ve never heard of a small ISP that monitors customer data, let alone one that is trying to monetize their customers’ data. Small ISPs are already affording significant privacy rights to customers compared to the practices of AT&T, Verizon or Comcast who clearly view customer data as a valuable asset to be exploited rather than something to protect. The ISP industry as a whole would benefit by having rules that foster greater customer trust.

I’m not sure, however, that many small ISPs would automatically notify customers after a data breach – it’s a hard question for every corporation to deal with. I think customers would trust us more if there were clear rules about what to do in the case of a breach. This proposed law reminds me that this is something we should already be talking about because every ISP is vulnerable to hacking. Every ISP ought to be having this conversation now to develop a policy on data breaches – and we ought to tell our customers our plans. Small ISPs shouldn’t need a law to remind us that our customers want to trust us.

Killing FTC Regulation?

NCTA, the lobbying group for the big cable companies filed a pleading with the Federal Trade Commission (FTC) asking the agency to not get involved with regulating the broadband industry. When the FCC killed net neutrality, Chairman Ajit Pai promised that it was okay for the FCC to step away from broadband regulation since the FTC was going to take over much of the regulatory role. Now, a month after net neutrality went into effect we have the big cable ISPs arguing that the FTC should have a limited role in regulation broadband. The NTCA comments were filed in a docket that asks how the FTC should handle the regulatory role handed to them by the FCC.

Pai’s claim was weak from the outset because of the nature of the way that the FTC regulates. They basically pursue corporations of all kinds that violate federal trade rules or who abuse the general public. For example, the FTC went after AT&T for throttling customers who had purchased unlimited data plans. However, FTC rulings don’t carry the same weight as FCC orders. Rulings are specific to the company under investigation. Rulings might lead other companies to modify their behavior, but an FTC order doesn’t create a legal precedent that automatically applies to all carriers. In contrast, FCC rulings can be made to apply to the whole industry and rulings can change the regulations for every ISP.

The NCTA petition asks the FTC to not pursue complaints about regulatory complaints against ISPs. For example, they argue that the agency shouldn’t be singling out ISPs for unique regulatory burdens, but should instead pursue the large Internet providers like Facebook and Google. The NCTA claims that market forces will prevent bad behavior by ISP and will punish a carrier that abuses its customers. They claim there is sufficient competition for cable broadband, such as from DSL, that customers will leave an ISP that is behaving poorly. In a world where they have demolished DSL and where cable is a virtual monopoly in most markets they really made that argument! We have a long history in the industry that says otherwise, and even when regulated by the FCC there are long laundry lists of ways that carriers have mistreated their customers.

One of the more interesting requests is that the ISPs want the FTC to preempt state and local rules that try to regulate them. I am sure this is due to vigorous activity at the state level currently to create rules for net neutrality and privacy regulations. They want the FTC to issue guidelines to state Attorney Generals and state consumer protection agencies to remind them that broadband is regulated only at the federal level. It’s an interesting argument to make after the FCC has punted on regulating broadband and when this filing is asking the FTC to do the same. The ISPs want the FTC to leave them alone while asking the agency to act as the watchdog to stop others from trying to regulate the industry.

I think this pleading was inevitable since the big ISPs are trying to take full advantage of the FCC walking away from broadband regulation. The ISPs view this as an opportunity to kill regulation everywhere. At best the FTC would be a weak regulator of broadband, but the ISPs don’t want any scrutiny of the way they treat their customers.

The history of telecom regulation has always been in what I call waves. Over time the amount of regulations build up to a point where companies can make a valid claim of being over-regulated. Over-regulation can then be relieved either by Congress or by a business-friendly FCC who loosens regulatory constraints. But when regulations get too lax the big carriers inevitably break enough rules that attracts an increase of new regulation.

We are certainly hitting the bottom of a trough of a regulatory wave as regulations are being eliminated or ignored. Over time the large monopolies in the industry will do what monopolies always do. They will take advantage of this period of light regulation and will abuse customers in various ways and invite new regulations. My bet is that customer privacy will be the issue that will start the climb back to the top of the regulatory wave. The ISPs argument that market forces will force good behavior on their part is pretty laughable to anybody who has watched the big carriers over the years.

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.