FTC Gives ISPs Green Light to Block Applications as Long as They Disclose It

By Jon Brodkin, Ars Technica

02 April 19

Despite Ajit Pai's assurances, FTC can't fully police net neutrality.

hen repealing net neutrality rules, Federal Communications Commission Chairman Ajit Pai and fellow Republicans argued that consumers had nothing to worry about because the Federal Trade Commission would protect them from discriminatory practices by Internet service providers.

But there was never any good reason to think the FTC could come close to replacing FCC oversight of broadband providers, and FTC Chairman Joseph Simons essentially confirmed as much in a speech last week.

Simons said that "blocking, throttling, or paid prioritization would not be per se antitrust violations." By contrast, the now-repealed FCC rules prohibited all three classes of behavior on a per se basis, Simons noted. Simons made the remarks at a telecom policy conference hosted by the Free State Foundation, a free-market think tank (see transcript).

The FCC gutted its own authority over ISPs by deciding that broadband is no longer telecommunications or a common-carrier service. That decision also gave the FTC some power to oversee ISPs, because the FTC is authorized to regulate non-common carriers, but the FTC can't issue its own net neutrality rules.

"The FTC is, principally, a law enforcement agency. It is not a sector regulator like the FCC," Simons said.

ISPs can block if they disclose it

The FTC can punish US companies for unfair or deceptive practices. But in regard to net neutrality, this simply means that ISPs must disclose any behavior that would have violated the old net neutrality rules.

"Under Section 5 of the FTC Act, we may prosecute unfair or deceptive acts or practices... Simply stated, we have a strong interest in ensuring that companies stand by their promises to consumers," Simons said.

The FTC would review whether ISPs keep their promises just as it reviews whether other companies keep their promises. "We would review ISPs' activities in the same way," Simons said. "For example, we could take action against ISPs if they block applications without adequately disclosing those practices or mislead consumers about what applications they block or how."

How would the FTC handle throttling of websites or online services? Simons explained:

To determine whether particular instances of throttling are deceptive, we would first evaluate what claims an ISP made to consumers about their services and how those claims are supported. We would look closely at any relevant research and evaluate the study's design, scope, and results and consider how a study relates to a particular claim. To evaluate whether a practice was unfair, we would consider whether the alleged throttling had countervailing benefits and whether there were reasonable steps consumers could have taken to avoid it. We would also consider consumer injury, the number of consumers affected, and the need to prevent future misconduct.

In previous years, the FTC has sued both TracFone and AT&T for failing to adequately disclose throttling on unlimited data plans. (TracFone agreed to pay $40 million, and the AT&T case is still pending.)

With TracFone and AT&T, the alleged violation wasn't the throttling itself. The violation was the act of deceiving consumers.

FCC member claimed blocking still “unlawful”

The FTC chair's comments about his agency's authority over ISPs are no surprise. In April 2017, eight months before Pai led the vote to repeal net neutrality rules, we wrote that, under FTC enforcement, "ISPs would only be bound by net neutrality requirements as long as they promise to follow them."

But as Gizmodo noted Friday, FCC Commissioner Brendan Carr claimed shortly before the net neutrality repeal vote that blocking and throttling would still be illegal after the repeal.

Carr, an FCC commissioner since August 2017, was previously the FCC's general counsel and before that was a legal advisor to Pai when Pai was merely a commissioner and not the chairman. In a November 2017 op-ed for The Washington Post, Carr wrote:

[F]ederal antitrust laws will apply. Section 1 of the Sherman Act renders anti-competitive agreements illegal. So, if ISPs reached agreements to act in a non-neutral manner by unfairly blocking, throttling or discriminating against traffic, those agreements would be per se unlawful. Moreover, Section 2 of the Sherman Act makes it illegal for a vertically integrated ISP to anti-competitively favor its content or services over that of an unaffiliated business.

Carr's statement had some qualifiers, such as "reached agreements" and the word "unfairly" before "blocking." But he was clearly trying to give the public the impression that the same kinds of behavior previously outlawed by the FCC would still be barred in a post-net neutrality legal system.

FCC admitted limitation in court

The FTC isn't the only antitrust enforcer. Businesses and individuals can bring lawsuits for violations of the Sherman Act, and antitrust lawsuits can also be brought by state attorneys general and the US Department of Justice. Perhaps Carr's theory could be tested in court even without FTC involvement, but winning a case against an ISP over blocking or throttling would be difficult at best if the ISP disclosed the blocking or throttling in advance.

FCC rules still require ISPs to disclose blocking, throttling, and paid prioritization to consumers. The FCC's legal team has defended its repeal in part by telling judges that the FTC and antitrust rules would be able to protect consumers in the absence of net neutrality rules. But in February, during oral arguments in the lawsuit seeking to reinstate net neutrality rules, an FCC lawyer admitted that blocking and throttling would not be punishable if an ISP discloses the blocking and throttling.

"If it's fully disclosed, there wouldn't be anything deceptive," FCC General Counsel Thomas Johnson said at the time.

All violations of the Sherman Act are also violations of the FTC Act, and as such the FTC notes that "it can bring cases under the FTC Act against the same kinds of activities that violate the Sherman Act." The FTC chair is thus a pretty good source on what violates antitrust law, and he clearly stated last week that blocking, throttling, and paid prioritization are not per se violations.

"I intend to use our authority aggressively to address violations of the laws we enforce, but there are key differences between conduct prohibited by the FCC's [now-repealed] Open Internet Order, and conduct that the FTC can reach now with our antitrust and consumer protection jurisdiction," Simons said.

Paid prioritization is “price discrimination,” but often legal

Simons noted that in the broadband market, "some conduct, such as horizontal agreements between ISPs to fix prices, allocate markets, or divide customers would be a per se antitrust violation."

That's not true for something like paid prioritization, in which ISPs would charge websites or online services for priority access to end users. Paid prioritization was outlawed by the Obama-era FCC's net neutrality rules in part because it could make it difficult for startups to compete against large companies that can afford to pay ISPs for better access.

But in other markets, paid prioritization is normal, Simons argued:

Paid prioritization is a type of price discrimination, which is ubiquitous in the economy. For example, think about when you walk into grocery store. Some customers get lower prices because they cut out coupons. Others might get a seniors discount. Others might get 2 percent off with their credit card. Yet others get discounts because they have a loyalty card with that supermarket... think about the express toll lanes on interstates 95 and 66. Or think about Amtrak's Acela service to New York, which is faster and more expensive than the local trains. Clearly, our transportation authorities think that allowing people to pay more for faster service is at least sometimes beneficial.

Simons allowed that ISP conduct including paid prioritization may be anti-competitive in some cases. "Where 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," he said.

But it's clear that antitrust law and FTC enforcement is not a full replacement for the FCC's repealed net neutrality rules. While Simons called antitrust law "sufficiently flexible and dynamic to cover a wide range of activities," he said the laws are "limited to prohibiting conduct that is anti-competitive, not simply perceived to be unfair or discriminatory."

As noted earlier in this story, the FCC's claim that the FTC can handle net neutrality violations has played a role in the lawsuit seeking to reverse the repeal. As petitioners including Mozilla and consumer advocacy groups told a federal appeals court, "The FCC may not delegate to DOJ and the FTC responsibility for addressing fundamental questions of national telecommunications policy when Congress expressly assigned that job to the FCC."