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A Bad Ruling for Those Who Want to Throttle AT&T

Noah Feldman is a Bloomberg View columnist. He is a professor of constitutional and international law at Harvard University and was a clerk to U.S. Supreme Court Justice David Souter. His books include “Cool War: The Future of Global Competition” and “Divided by God: America’s Church-State Problem -- and What We Should Do About It.”
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Ma Bell came back from the grave Monday, saving AT&T from the supervision of the Federal Trade Commission. The FTC had sued the company for intentionally “throttling” the mobile internet for its unlimited data customers when they passed a certain usage. A federal appeals court rejected the suit on the ground that as a common carrier, AT&T is exempt from FTC regulation. The outcome is wrong, the product of a literalist reading of the laws that produces terrible real-world consequences. It should be reversed, by the courts or by Congress.

AT&T’s throttling practice is fairly outrageous. It’s the result of the deal AT&T struck in 2007 to be the sole provider of data services for Apple’s iPhones. As part of that arrangement, AT&T offered an unlimited data plan that many customers adopted -- I know I did.

In 2010, AT&T stopped offering the unlimited data plan to new customers. But it allowed old customers to keep the plan -- or so they were led to believe. In reality, AT&T allocated a certain amount of data usage to its unlimited customers. Once those customers passed the threshold set by the company, however, AT&T “throttled” those customers by slowing the speed of their data access for the rest of the billing cycle.

AT&T has claimed that it needed to throttle those customers in order to “prevent harm” to its network. As the FTC asserted, and two federal courts have recognized, “AT&T’s throttling program is not actually tethered to real-time network congestion.” Supposedly unlimited-data-use customers are throttled “even if AT&T’s network is capable of carrying the customers’ data.” And customers who don’t have unlimited plans are not ordinarily throttled, even if they use vast amounts of data.

It should be obvious that this throttling is an abuse, at least insofar as customers weren’t clearly informed that their unlimited-data-use plans weren’t really unlimited anymore. It’s part of the FTC’s job to look out for such consumer abuses, especially when they arise from a quasi-monopoly situation like the initial AT&T-Apple arrangement. So it made sense for the FTC to bring a lawsuit, and for a federal district court to allow the suit to go forward.

But AT&T had a legal trick up its sleeve. It argued that it’s exempt from regulation by the FTC altogether. Its reasoning was that Section 5 of the Federal Trade Commission Act exempts “common carriers” from the FTC’s jurisdiction.

In some of its business dealings -- most notably, the wired phone communications going back to the company’s origins as Bell Telephone -- AT&T is a common carrier. That term, which originally included companies that transported people or goods along set routes at fixed rates, was extended over time to include telecommunication services, which function as utilities.

It isn’t as though no one regulates common carriers. In the case of telecommunications, that job ordinarily falls to the Federal Communications Commission.  Indeed, in 2015, the FCC officially declared internet service providers to be common carriers and thus subject to its regulation for purposes of ensuring net neutrality.

But when the FTC brought its claims against AT&T, the company’s mobile services hadn’t been classified as common carriers. AT&T didn’t try to claim otherwise.

Instead, AT&T maintained that to the extent that the company is a common carrier at all, it’s completely exempt from the FTC’s supervision.

The district court rejected this claim on several grounds. The essence of its holding was that it makes no sense to treat AT&T’s non-common-carrier functions as exempt from FTC supervision. The court showed that prior to the FTC’s creation, common carriers ordinarily didn’t get full on exemptions from regulation when they were performing non-common-carrier tasks. And it offered a snippet of 1914 legislative history in which a drafter of the FTC Act said that “even as to [common carriers] I do not know but that we include their operations outside of public carriage regulated by the interstate-commerce acts.”

The U.S. Court of Appeals for the 9th Circuit reversed the district court’s decision. The three-judge panel was made up entirely of George W. Bush appointees. It held unanimously that the statute must be read literally. It exempts common carriers, not common carriers engaged in common-carrying activity. And that, said the court, was the end of the matter. The 1914 legislative history was vague, it said, because the congressman said he did “not know but that” common carriers were included when they did non-common-carrying things.

The 9th Circuit panel as much as admitted that it was disagreeing with a 4th Circuit decision going back to 1959. The judges said that the facts of that case were different, because the defendant company in that case had only trivial common-carrier operations, which it had apparently acquired precisely in order to try to avoid FTC regulation.

That’s important mostly because it gives the FTC good grounds to demand rehearing by the full 9th Circuit and, if necessary, review by the U.S. Supreme Court. A split between a new decision and one from 1959 isn’t the most ordinary basis for Supreme Court review. But a split is a split, no matter how chronologically lopsided. And it definitely matters for the FTC, which ought to have the same jurisdictional reach throughout the country, and not have to regulate in a patchwork manner depending on the circuit where a defendant is located.

Above all, the panel’s decision is an object lesson in how courts shouldn’t interpret statutes literally without regard to their actual functions. The point of federal regulatory law is to protect consumers and enable business to function rationally. The job of judges is to enforce those goals. When they don’t, it’s bad for consumers -- and for the rule of law.

  1. Disclosure: As I write this, I realize I may have been subject to throttling myself a couple of years back, though I didn’t realize it at the time.

  2. The FCC is also upset with AT&T's throttling, but that’s another story.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Feldman at nfeldman7@bloomberg.net

To contact the editor responsible for this story:
Stacey Shick at sshick@bloomberg.net