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Last week I had the privilege of participating in the Free State Foundation’s Eleventh Annual Telecom Policy Conference. This year’s theme was “Internet providers and platforms: Getting law and policy right.” As in previous years, the event included a remarkable array of experts from government, industry, and academia and touched on many of today’s hottest tech policy issues.
Perhaps the most interesting presentation was the closing keynote by Federal Trade Commission (FTC) Chairman Joseph Simons, who addressed how his agency’s mission applies to the internet ecosystem. Since the Federal Communications Commission (FCC) passed the Restoring Internet Freedom Order in late 2017, much ink has been spilled over the question of whether antitrust law would be sufficient to protect consumers without FCC rules. Chairman Simons’ remarks helped further this conversation by sharpening the pencil on how FTC enforcement would and would not differ from the now-defunct Open Internet Rules.
FTC statutory authority
Simons opened his remarks by noting that the FTC and FCC are different agencies with different statutory mandates. Unlike the FCC, the FTC is not a sector regulator. Rather, it is a law enforcement agency charged with enforcing the nation’s antitrust laws. In the internet sector, the agency’s primary tool is Section 5 of the Federal Trade Commission Act, which allows the agency to challenge alleged “unfair methods of competition,” which is generally understood to encompass anticompetitive conduct. Section 5 also allows the agency to combat “unfair or deceptive acts or practices,” which gives the agency jurisdiction over consumer protection matters.
Net neutrality and anticompetitive conduct
Simons noted that the agency’s antitrust authority extends to many of the practices most often cited by net neutrality advocates. But the agency’s enforcement would be different than that practiced by the Obama-era FCC. The FCC’s Open Internet Order adopted a nearly per se ban on blocking, throttling, and paid prioritization. But Simons explained that under antitrust law, per se rules are rare, reserved for those categories of agreements that are “so manifestly anticompetitive” that the law deems them illegal without examining their effects in individual cases.
As Simons explained, blocking, throttling, and paid prioritization do not fall into this category, because they have ambiguous effects on competition. Using paid prioritization as an example, Simons noted that such agreements would be a type of price discrimination — which, despite its nefarious-sounding title, is ubiquitous in our economy. Simons noted that coupons, senior discounts, credit card rewards, movie matinees, and happy hour discounts are all forms of price discrimination but are permissible under antitrust law because they have a benign effect on consumers and competition.
But this does not mean the agency will turn a blind eye to such practices. Rather, it will analyze them under the rule of reason: “When an ISP excludes certain content, applications, or services, we would engage in a fact-specific analysis to see whether that foreclosure harmed competition through raising rivals’ costs or excluding competitors.” As I and many of my AEI colleagues have argued over the years, this is a better approach to net neutrality issues. Simons is right that some forms of prioritization can be beneficial — for example, by prioritizing congestion-sensitive applications such as video conferencing over applications that could be deprioritized with no appreciable impact on the consumer’s experience. A rule-of-reason approach allows providers to experiment with innovative new business models while still providing a remedy to punish behavior that harms consumers or competition.
Net neutrality and consumer protection
Simons also noted that the agency’s consumer protection jurisdiction can extend to ISP network management practices. The FTC’s deception authority extends to conduct that is likely to mislead reasonable consumers, as well as those likely to affect a consumer’s purchase or use decisions. So, for example, the agency might take action against ISPs that block or throttle without adequately disclosing those practices, or which mislead consumers about what applications they block or throttle and how they do so. This would involve a careful study of what claims or promises the ISP did or did not make to consumers and how well it supported those claims or fulfilled those commitments. It may also determine whether a particular practice is unfair by considering whether the conduct causes harm, whether it has any countervailing benefits, and whether there were reasonable steps the consumer could take to avoid the conduct at issue.
Simons listed several instances in which the agency has, in fact, exercised its enforcement authority against ISPs for such practices. For example, it sued TracFone and AT&T for promising unlimited data plans but then throttling traffic for customers whose monthly use exceeded certain data limits, and it prosecuted other ISPs for poor data security practices. He also highlighted the agency’s research and policymaking efforts, noting in particular a recently launched investigation into ISP privacy policies, which seeks to determine how ISPs collect, use, and disclose consumer data. The FTC also launched a new Technology Task Force to stay abreast of developments in this space.
Simons is correct that a case-by-case investigation of broadband provider practices is preferable to per se rules, which can be over- and underinclusive and could prevent new products and services that benefit consumers from reaching the market because of a fear of abuse. As with most government action, prohibitions should be fact-based and turn on actual or likely effects rather than agency speculation. Moreover, the chairman’s remarks highlight the value of placing this authority in the hands of a general antitrust authority rather than a sector-specific regulator. The FTC’s determination about alleged misconduct can be informed by its experience with similar conduct elsewhere in the economy, giving it a more holistic view that is less likely to be affected by the tunnel vision that a sector-specific authority may inadvertently develop.
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