FTC Seeks End to Communications Common Carrier Exemption

June 11, 2003. The Federal Trade Commission (FTC) proposed to the Congress that it amend the Federal Trade Commission Act (FTCA) to end the exemption for common carriers subject to the Communications Act from the FTCA's prohibitions on unfair or deceptive acts or practices and unfair methods of competition.

The FTC has general statutory authority over unfair and deceptive trade practices. Many regulatory agencies that have authority over industry sectors have statutory authority over trade practices of companies in these specific sectors. And hence, various statutory grants of authority to the FTC contain exemptions for certain industry sectors.

FTC Chairman Timothy Muris submitted lengthy prepared testimony on behalf of the FTC at Congressional hearings on FTC reauthorization on June 11 in which he stated that "This exemption dates from a period when telecommunications services were provided by government authorized, highly regulated monopolies. The exemption is now outdated. In the current world, firms are expected to compete in providing telecommunications services."

Muris (at right) continued that the Congress and FCC "have replaced much of the economic regulatory apparatus formerly applicable to the industry with competition. Moreover, technological advances have blurred traditional boundaries between telecommunications, entertainment, and high technology. Telecommunications firms have expanded into numerous non-common-carrier activities. For these reasons, FTC jurisdiction over telecommunications firms' activities has become increasingly important."

He added that "The FTC Act exemption has proven to be a barrier to effective consumer protection, both in common carriage and in other telecommunications businesses. The exemption also has prevented the FTC from applying its legal, economic, and industry expertise regarding competition to mergers and other possible anticompetitive practices, not only involving common carriage but also in other high-tech fields involving telecommunications. The FTC believes that Congress should eliminate the special exemption to reflect the fact that competition and deregulation have replaced comprehensive economic regulation."

"The common carrier exemption sometimes has stymied FTC efforts to halt fraudulent or deceptive practices by telecommunications firms. While common carriage has been outside the FTC's authority, the agency believes that the FTC Act applies to non-common-carrier activities of telecommunications firms, even if the firms also provide common carrier services. Continuing disputes over the breadth of the FTC Act's common carrier exemption hamper the FTC's oversight of the non-common-carrier activities. These disputes have arisen even when the FCC may not have jurisdiction over the non-common-carrier activity", wrote Muris. "It may have additional serious consequences to new areas of industry convergence, e.g., high technology and entertainment, where the FTC's inability to protect consumers can undermine consumer confidence."

Muris also addressed antitrust authority. He wrote that "The common carrier exemption also significantly restricts the FTC's ability to engage in effective antitrust enforcement in broad sectors of the economy.  The mix of common carrier and non-common-carrier activities within particular telecommunications companies frequently precludes FTC antitrust enforcement for much of the telecommunications industry. Further, because of the expansion of telecommunications firms into other high-tech industries and the growing convergence of telecommunications and other technologies, the common carrier exemption increasingly limits FTC involvement in a number of industries outside telecommunications."

Rep. Bill Tauzin (R-LA), the Chairman of the House Commerce Committee, does not agree. He stated in his prepared statement that "Another aspect of the Commission's proposal is the removal of the jurisdictional exemption over telecommunications common carriers. Currently, common carriers are subject to rigorous regulation by the Federal Communications Commission as well as by the states. Moreover, to the extent that common carriers are engaged in non-common carrier activities, courts have found that the FTC has the jurisdiction necessary to enforce its regulations. If there is a need to codify this judicial interpretation, that is a course of action we can discuss."

Rep. Tauzin (at right) added that "I do not, however, believe that a wholesale removal of the exemption is necessary. If there are instances where common carrier activities are so intertwined with non-common carrier activities, I encourage the FTC and the FCC to work together and coordinate a joint enforcement response. However, dual regulation is not the answer."

Similarly, Sen. Conrad Burns (R-MT), Chairman of the Senate Commerce Committee's Communications Subcommittee, stated in a prepared statement that "The request put forward by the FTC for common carrier jurisdiction strikes me as misguided and over-reaching. I agree with the well-reasoned, commonsense position of FCC Consumer Affairs Bureau Chief Snowden, who in a recent letter to the FTC indicated that the FCC has far greater resources available to deal with common carrier issues and also a greater scope for enforcement. For example, if the FCC takes action against a common carrier it may revoke licenses, unlike the FTC."

Sen. Burns added that "I simply do not believe that having two federal agencies performing essentially the same core functions is effective. Rather, I am supportive of the idea of a Memorandum of Understanding between the Commissions that would clarify the role of each agency to prevent the inefficiencies and duplication of work which inevitably arise from overlapping jurisdictions."

In contrast, Rep. John Dingell (D-MI), the ranking Democrat on the Committee, stated in his prepared statement that "In furtherance of its consumer protection mandate, the Commission is now requesting new authorities from Congress. In particular, despite some initial misgivings, I urge this Committee to carefully examine the FTC’s request for jurisdiction over telecommunications common carriers. The FTC has a long and established record of enforcing consumer protection laws, and the agency has made strong arguments with regards to how the present exemption hinders its ability to protect consumers against unscrupulous industry behavior."

Rep. Dingell (at right) added that "I think it is fair to say that the present FCC has become so enamored with some of the industries it is assigned to regulate, that it has become unable to act as the aggressive consumer advocate that is so needed at this time. For this reason, I will carefully consider the FTC’s request for jurisdiction over common carriers, and I ask my colleagues to do the same."

Rep. Cliff Stearns (R-FL), the Chairman of the House Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection, wrote in a prepared statement that "As the subtitle of this hearing is ``[p]ositioning the Commission for the Twenty-First Century,´´ I would attentively be listening to the Commission's arguments as the exemption was written into the statute some 70 years ago."