Internet-Enabled Networks Bring FTC Into Telecom Act Rewrite Conversation

With the Internet-enabled ubiquity of high-speed communications, definitions of the FCC’s once sector-specific market have expanded to touch other government agencies, including the FTC. This year’s U.S. Court of Appeals for the District of Columbia Circuit decision striking down some FCC net neutrality rules (CD Jan 15 p1), but empowering the commission to regulate the Internet under Telecom Act Section 706, further overlapped the agencies, said some observers in interviews.

The changes have pushed the FTC into the conversation as never before while Congress starts the long process of trying to rewrite the act to address these shifting, amorphous definitions. Academics, lawyers, former lawmakers and policy experts have said some FCC work should be transferred to, structured more similarly to, or even merged with the FTC, which has been taking the lead on Internet consumer protection for more than a decade. Opponents caution that the agencies are complementary, and the FCC’s “public interest” competition analysis -- maligned by those wanting it to cede power to the FTC -- is valuable for a communications market that historically trends toward consolidation.

In 1996, Congress rewrote the commission’s mandate to better account for the Internet’s presence and let LECs compete in long-distance service, and vice versa, said former Rep. Jack Fields, R-Texas, a principal author of the act as then-chairman of the Subcommittee on Telecommunications and Finance. Fields now lobbies for Verizon and Time Warner Cable. “The purpose was to create a roadmap by which competition could be met.” The House Commerce Committee wanted to “erase these lines of demarcation” that put different segments of the industry in “different regulatory boxes,” he said.

But the FCC quickly got away from congressional intent, Fields said. The committee was “trying to leave latitude and discretion for the FCC, knowing the technology was going to change, knowing there are going to be new applications, new methodologies,” he said. That worked, Fields said, unleashing competition and innovation. The discretion also had a downside: “The FCC began to add its own interpretation, began to drag its feet, I thought for no good reason,” Fields said. “Those involved felt congressional intent was ignored,” he said. “In retrospect,” the leeway granted the FCC “was a mistake,” said Fields.

The FCC has used its “very amorphous” public interest mandate “to impose conditions” on mergers “that are sometimes extraneous,” said former Rep. Rick Boucher, D-Va., originator of the House Internet Caucus and former chairman of the Subcommittee on Communications, Technology and the Internet. That’s led to calls to leave merger reviews to the FTC and Justice Department, he and others said. FTC and DOJ antitrust analysis makes the FCC work in this area superfluous, said Richard Bennett, a visiting fellow at the American Enterprise Institute (AEI), which often backs deregulation. A new act should grant the FTC and DOJ sole authority over communications transactions, said Boucher and the Internet Innovation Alliance, of which he is honorary chairman and with members including Alcatel-Lucent, AT&T and Ciena.

Merge Agencies?

Bennett and AEI would go much further than Boucher. The act should merge FCC competition and consumer protection lawyers, economists and engineers with the FTC, “thus combining the FCC’s industry expertise and capabilities with the generic statutory authority of the FTC,” AEI told the House Commerce Committee (http://1.usa.gov/1itLyq6). The change would allow “the communications industry to be policed more by competition than by regulators,” Bennett told us. And it streamlines the FCC, he said.

A more restrained approach -- and some say more realistic -- would restructure the FCC to resemble the FTC’s after-the-fact enforcement, or ex post adjudication. “There has been traditionally more of a rule of law culture at the FTC compared historically to how the FCC has behaved,” said Wilkinson Barker communications lawyer Raymond Gifford. Much of it lies in the difference between “the FTC’s reactive, ex post adjudicatory model,” and the “FCC’s prophylactic ex ante rulemaking, with enforcement as an afterthought,” Gifford told House Commerce (http://1.usa.gov/1itLyq6). Ex post adjudication “requires more focused pleading and more focused attention on what matters as opposed the oftentimes anything goes matter” with FCC rulemaking, Gifford told us. “Hopefully, we lose a lot of the administrative costs and uncertainty” with this new FCC structure, he said. Free State Foundation President Randolph May agreed: “It would constrain the FCC’s tendency to, at times, overregulate without a proper consideration of the cost and benefits."

Regulatory uncertainty has also arisen among telecom providers, cable providers, ISPs and technology companies because of ill-defined Internet oversight, observers said. The FTC has been active in its data privacy work for over a decade -- with more than 50 enforcement actions on the issue -- but the D.C. Circuit’s January net neutrality ruling raised questions about the regulatory breakdown between the FCC and FTC (CD Feb 3 p12). This had led some, like May, to say a new Communications Act should transfer all consumer protection issues “outside of the purview of traditional economic regulation of service providers” to the FTC, he told House Commerce (http://1.usa.gov/1mXRyyl).

Some Want Separate Agencies

Not all are on board with such agency mergers or restructuring. “When it comes to the broader public interest concerns, and a marketplace that historically lends itself toward market consolidation -- and even monopoly -- it’s important to have an agency with expertise under these market dynamics,” said Chris Lewis, vice president-government affairs for net neutrality advocate Public Knowledge. Lewis spent more than three years at the FCC, finishing his tenure in 2012 as deputy director of the commission’s Office of Legislative Affairs. “There are benefits to such institutional multiplicity,” said Richard Taylor, telecom professor at Pennsylvania State University. “Each has its own rules, interests, skill sets and precedents which protect the public’s interests.”

Arguments that the communications market is trending away from consolidation are overblown, Lewis said. Comcast planning to buy Time Warner Cable -- under government review (see separate report in this issue) -- is a recent example of an emerging trend, Lewis told us. There was AT&T’s attempt in 2011 to buy T-Mobile that the FCC signaled it would oppose (http://fcc.us/1kLN0qy), and there are numerous potential deals on the horizon, Lewis said. “If we continue to see all of the mergers that we've seen and heard rumored recently,” market conditions are going to trend towards “minimal competition,” he said. “To have an agency that is empowered as these things change ... is important.” Certain communications markets, like last-mile networks, are less dynamic, and always trend toward monopoly, Lewis said.

Most we spoke with said some clarity between agencies is in order. “If you look from 1934 [when the Communications Act first passed] to 1996, you did not have the [communications] paradigm shift that you had after the ‘96 act,” said Fields, who doesn’t support transferring FCC authority to the FTC, but rather being more “prescriptive” with a Communications Act rewrite. Penn State’s Taylor -- who supports “expanding” and “extending” both agency’s jurisdictions, “as necessary,” to “embrace the entire broadband ecosystem” -- said: “What is lacking is a coherent vision of the future.”