Court Reverses AT&T Order Seen Harming Consumer Protection

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A U.S. appeals court restored regulators' role in consumer-protection cases against telecommunications companies like AT&T.

The court said the Federal Trade Commission can regulate non-telephone activities by the communications giant, which also owns DirecTV.

AT&T Credit: Andrew Harrer/Bloomberg

The case drew dire warnings from the FTC and the Federal Communications Commission that without a reversal of a 2016 ruling, some telecommunications companies would fall into a regulatory gap where specific business practices could evade oversight, inhibiting consumer-protection cases. AT&T had argued that its activities fall under the supervision of the FCC under an exemption for common carriers like phone companies.

The FTC's view is that it has broader powers than the FCC to carry out consumer protection enforcement in the area of broadband, including the authority to obtain money back for customers. The agency was worried about the wider implications of the 2016 ruling, which could have provided a road map for companies to avoid FTC enforcement.

"The phrase 'common carriers subject to the acts to regulate commerce' thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services," the 11-judge panel of the Ninth Circuit Court of Appeals said in a unanimous opinion Monday. The ruling also "accords with common sense," the judges said, given the new regulatory challenges generated by new technologies.

New Services

Companies that aren't common carriers today could gain that status by offering new services or through acquisitions, the FTC has argued, citing Verizon Communications Inc.'s acquisition of Yahoo Inc.'s core business. Even energy companies like Exxon Mobil Corp. could have been immune, according to the FTC.

The FTC sued AT&T in 2014, accusing the carrier of intentionally slowing data speeds of millions of phone customers who had paid for unlimited data plans. Once those customers hit an arbitrary data-use ceiling imposed by the company, AT&T throttled speeds so that web browsing and watching video became difficult or impossible, according to the FTC.

AT&T countered that the FTC can't sue it because only the FCC has jurisdiction. A three-judge panel of the appeals court agreed in 2016, saying AT&T's "status" as a common carrier shielded it from FTC enforcement.

Beyond Phones

That worried the FTC, which argued the exception for common carriers hinges on the activity at issue. The agency said phone companies could mislead consumers in other parts of their businesses outside phone service -- such as selling smart phones, advertising and maintaining consumers' data privacy -- and end up exempt from any FTC enforcement action. Companies also could evade FTC enforcement by acquiring a common-carrier service, it said.

In December, the FCC rescinded its so-called net neutrality rules under which that agency had designated internet service providers as common carriers that it could regulate. The FCC justified that move in part by saying consumers would still be protected by the FTC.

An appeals court ruling in favor of AT&T Mobility would have undercut that rationale. The case was re-heard in September by the 11-judge panel.

A representative of AT&T didn't respond to a request for comment on the ruling.

The FTC welcomed the ruling "as good news for consumers."

"It ensures that the FTC can and will continue to play its vital role in safeguarding consumer interests including privacy protection, as well as stopping anti-competitive market behavior," Maureen Ohlhausen, acting chairman, said in an emailed statement.

--Bloomberg News

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