In the ongoing interagency turf war over privacy and data security between the Federal Trade Commission and the Federal Communications Commission, the FTC faced a major setback in August with its loss to AT&T. But as the FTC appeals the ruling, whether the decision is a victory for the heavily regulated telecommunications industry remains to be seen.
Two years ago this month, the FTC sued AT&T, alleging that the mobile phone provider acted deceptively when it sold “unlimited” data plans because the plans were not in fact unlimited. Instead, according to the FTC, AT&T throttled customer data service when a customer exceeded a set data limit.
The FTC is the federal agency that patrols the marketplace for unfair or deceptive acts or practices. The FTC Act exempts certain categories of companies from this scrutiny: common carriers, banks, and air carriers. Typically, these companies are regulated by a different federal agency, like the FCC.
Telecommunications businesses are no strangers to the “common carrier” designation. Providers of “telecommunications service,” defined as “the offering of telecommunications for a fee directly to the public,” are generally common carriers subject to the full spectrum of laws and regulations that are baked into Title II of the Communications Act. This can include regulatory fees and compliance requirements related to universal service contributions and programs, disability access, E911 mandates, administration of the North American Numbering Plan (NANP), local number portability, privacy, and compliance with lawful law enforcement requests. Non-common carriers, which include providers of information services or “telecommunications” not offered to the public for a fee, do not have as many regulatory compliance responsibilities.
The FTC v. AT&T case threw a wrench in this analysis. In October 2014, when the FTC brought its case, AT&T’s mobile data service was not regulated as a common carrier service. During the pendency of the case, in March 2015, the FCC reclassified broadband internet access services (BIAS), including mobile data services, as common carrier services subject to Title II. Given the reclassification, would the court treat AT&T’s service as unregulated or as a common carrier BIAS service provider outside the purview of the FTC?
The court’s answer: none of the above
In August, a Federal Appellate Court panel in Northern California dismissed the FTC’s lawsuit holding that AT&T as a company is immune from FTC jurisdiction because it is a common carrier, regardless of the status of mobile data services. The FTC is seeking a rehearing of the case.
So how did AT&T manage to get off the hook?
The decision did not focus on the services AT&T provided, such as mobile data service. Instead, the court decided that common carriage in the FTC Act was a status-based exemption. Even non-common carrier activities would be exempt from FTC scrutiny, as long as the company itself is a common carrier.
In the context of telecommunications common carrier regulation, the court’s decision makes little sense. FCC history and precedent make clear that the common carrier designation does not impute common-carrier status of one activity on a company as a whole. Telecommunications companies should always carefully analyze their services to distinguish regulated common carrier services from unregulated services.
If the court’s precedent applied to FCC regulation, it would distort the marketplace, advantaging companies without common carrier service offerings. Providers of common carrier services seeking to add non-common carrier services to their service offerings would be at a disadvantage against their non-common carrier rivals.
But for now, the court’s decision does not impact FCC regulation. The decision is instead limited only to the scope of the FTC’s oversight. Based on that limited impact, the court’s decision actually creates asymmetric relief from FTC regulatory scrutiny that benefits common carriers over their non-common carrier communications company rivals, allowing only the common carriers to avoid FTC scrutiny.
As the FCC expands its enforcement work with new regulatory powers from the Open Internet Order and Open Internet Transparency Rule, this relief could help common carrier communications companies focus their efforts on compliance with rules from just one agency. Meanwhile, the decision could create loopholes enabling savvy companies to escape FTC oversight. For example, as one commentator observed, the decision could enable Google to avoid FTC scrutiny by owning Google Fiber, and Amazon to escape FTC scrutiny by registering its truck fleet as common carriers.
During the appeals process, companies should not make business decisions based on this interim court opinion. But if the court’s decision holds, one outcome is clear: the common carrier status of regulated telecommunications companies could, for once, convey a benefit.
Alexander Schneider is an attorney in the Information Privacy, Data Security and Consumer Protection practice group at Marashlian & Donahue, PLLC, The CommLaw Group (www.CommLawGroup.com). This piece originally appeared here.
Published October 26, 2016