Net Neutrality: Will the FTC Have Authority Over Broadband Service Providers?

Net Neutrality: Will the FTC Have Authority Over Broadband Service Providers?

Legal Sidebari

Net Neutrality: Will the FTC Have Authority
Over Broadband Service Providers?
March 20, 2018
The U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit), sitting en banc, recently decided FTC v.
AT&T Mobility, which may affect the ability of the Federal Trade Commission (FTC) to police certain
broadband Internet access service (BIAS) providers in the near future. Specifically, the court held that
although common carrier services (e.g., landline and wireless telephone services) are generally exempted
from FTC oversight, if an entity provides both common carrier and non-common-carrier services, the
FTC is not precluded from regulating that entity’s non-common-carrier services.
The ruling has ramifications in light of the recent decision by the Federal Communications Commission
(FCC) repealing so-called “net neutrality” rules. The new FCC rule would classify BIAS as an
“information service” largely unregulated by the FCC. If the Ninth Circuit had held that the FTC lacks
jurisdiction over an entity that provides common carrier services, it would have resulted in the FTC
having jurisdiction over some BIAS providers (those that do not provide common carrier services), but
lacking jurisdiction over others (those that also provide common carrier services). The Ninth Circuit’s
decision clarifies that, when the FCC’s order goes into effect later this year, the FTC will have jurisdiction
over BIAS providers that also provide common carrier services.
Background
The FCC has robust authority to regulate telecommunications services, which are “common carrier”
services under the Communications Act of 1934, as amended (Communications Act). The FCC’s
authority to regulate information services (e.g., email, search engines, or video streaming services) is
more limited. The FCC’s “Restoring Internet Freedom” Order (2017 Order) would change the
classification of BIAS from telecommunications services to information services, effectively narrowing
the FCC’s authority over BIAS.
The FTC, on the other hand, has broad authority to oversee the trade practices of entities across numerous
market sectors under Section 5 of the Federal Trade Commission Act (FTC Act). However, certain entities
and activities are exempted from Section 5’s coverage. These exemptions include one for common
carriers regulated either under the Communications Act, such as landline or wireless telephone services,
or the Interstate Commerce Act (ICA), which addresses railroads.
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The dispute in AT&T Mobility centered on whether Section 5’s exemption for “common carriers” is
status-based, meaning it applies to all the activities of entities that are common carriers under the
Communications Act and the ICA, or activity-based, meaning the exemption applies only insofar as those
entities are engaged in the common carrier services covered by those laws. This question is particularly
relevant to the regulation of broadband services once the FCC’s 2017 Order takes effect because many
BIAS providers, like AT&T and Verizon, also provide common carrier services, such as landline and
wireless telephone service. Some observed that, if the FTC could not enforce Section 5 against the non-
common carrier activities of entities that also provide common carrier services, the FCC decision to
classify BIAS as a non-common carrier service could open a “regulatory gap,” where neither the FTC nor
the FCC would police the behavior of BIAS providers that are also common carriers. The Ninth Circuit’s
decision, if it is not appealed, opens the door to FTC enforcement of Section 5 against BIAS providers for
non-common-carrier services that they provide.
FTC v. AT&T Mobility
In reaching its decision that Section 5’s common carrier exemption is activity-based, the Ninth Circuit
relied primarily on the text of the statute, but also found support in the legislative history of the FTC Act,
historical judicial interpretations of common carriers, and the opinions of the FCC and FTC on the matter.
Beginning with the text of the statute, the court noted that certain types of institutions (e.g., banks, federal
credit unions) are exempted under Section 5 if they are “described” in a specified provision of federal law.
The court construed this language to mean that such institutions are wholly exempted from Section 5,
regardless of the particular activities in which they are engaged. On the other hand, Section 5 exempts
common carriers when they are “subject” to the Communications Act or the ICA. The Ninth Circuit
believed this difference in phraseology was significant, in that Section 5 was not intended to provide a
blanket exemption for entities that are common carriers, but only for those activities of common carriers
that are “subject” to regulation under the Communications Act or ICA.
To support its conclusion, the court also examined the legislative history of Section 5, which the court
described as indicating that the FTC Act is a remedial statute, deliberately designed to confer broad
enforcement powers on the FTC. Additionally, the court found that statements made by some Members of
Congress when debating the FTC Act illuminated the intended scope of the common carrier exemption. In
particular, the court pointed to a statement by the floor manager of the House bill that eventually became
the FTC Act, which claimed that “where a railroad company engages in work outside that of a [common]
carrier[,] ... such work ought to come within the scope of [the FTC] for investigation.”
The court also examined previous judicial interpretations of the term common carrier and concluded it
buttressed the court’s interpretation of Section 5’s common carrier exemption as activity-based. Although
the FTC Act does not define the term, according to the common-law understanding, common carriers are
entities compelled to offer their services on a non-discriminatory basis and at reasonable prices, among
other requirements. Prior courts had ruled that entities offering services subject to common carrier
obligations could be common carriers for some purposes, but not others. “In other words, being a
common carrier entity was not a unitary status for regulatory purposes.”
Finally, the court acknowledged the long-standing interpretations of both the FTC and the FCC, in
accordance with judicial precedent, that Section 5’s common carrier exemption is activity-based. The
court further declared that construing the common carrier exemption as activity-based “accords with
common sense,” because such a construction would not create a regulatory gap where certain
communications entities are regulated by neither the FCC nor the FTC. Under an activity-based
interpretation, the FCC maintains full authority over entities’ common carrier communications services,
while the FTC may police the non-common carrier activities of those entities. Furthermore, to the extent
that the agencies’ authorities over non-common carrier services might overlap, the agencies had reached a

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Memorandum of Understanding outlining the contours of their concurrent jurisdiction. “Ultimately,” the
court summarized, “the structure of the statute and its contemporaneous legislative history, coupled with
more than a century of judicial interpretation, align with the preferred reading and expertise of the two
most important regulators with an interest in” the case.
Potential Considerations for Congress
As noted earlier, FTC v. AT&T Mobility could have important ramifications for broadband services after
the FCC’s order repealing its net neutrality rules becomes effective. The Ninth Circuit’s ruling endorses
the FTC’s ability to regulate BIAS providers via Section 5 of the FTC Act, notwithstanding those
providers may also engage in common carrier services that are regulated by the FCC. While the decision
means there will be no “regulatory gap” between the FTC and FCC’s authorities over BIAS providers that
also provide common carrier services, Congress may consider legislation addressing the respective roles
and authorities of the two agencies.
As the recent repeal of the FCC’s net neutrality rule illustrates, the FTC and FCC have some degree of
discretion in how they choose to exercise and coordinate their respective authorities. Indeed, if the FCC’s
2017 Order goes into effect, the regulatory status of BIAS under the Communications Act will have
changed twice in three years. Considering these recent changes, and the potential for future changes in the
status of BIAS, some Members have advocated for statutory clarification as to how BIAS providers
should be regulated, though disagreement may exist as to which federal agency should have primary
oversight responsibilities. In the wake of the FCC’s 2017 Order, Representative Marsha Blackburn,
Chairwoman of the House Energy and Commerce Committee, introduced a bill which would statutorily
define the scope of the FCC’s authority over BIAS. The bill would not alter the FTC’s jurisdiction or
authority. Commentators noted that the bill may open the door to legislative negotiations. Senator John
Kennedy has introduced a companion to the House bill in the Senate.
Additionally, a number of Members of the House and Senate are co-sponsoring joint resolutions under the
Congressional Review Act that would disapprove of the FCC’s 2017 Order classifying BIAS as a non-
common carrier service. If enacted, broadband services would remain common carrier services subject to
the Communications Act and exempt from FTC jurisdiction.

Author Information

Kathleen Ann Ruane

Legislative Attorney

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