FTC Acting Chairman: Put the FTC Cop Back on the Beat

In a November 28, 2017 speech, Acting Chairman Maureen Ohlhausen of the Federal Trade Commission addressed how the FCC’s Restoring Internet Freedom proposal revives and even enhances the FTC’s ability to protect broadband consumers. This proposal, which is on the agenda for the FCC’s December 14, 2017 meeting, would restore the FTC protections broadband customers had before the FCC imposed utility-like regulation of Internet service providers (ISPs) in 2015.

Acting Chairman Ohlhausen described the FTC’s extensive history of enforcing Internet privacy and consumer protections:

We’ve reviewed mergers involving ISPs and online content, such as AOL/TimeWarner, and brought consumer protection cases against companies like Apple, AT&T, Dish, Facebook, Google, T-Mobile, and many others. Indeed, the FTC closely watched the behavior of the early on-ramps to the Internet and brought cases against AOL, Compuserve, Juno, and Prodigy for deceiving consumers about their services. And we have an ongoing case against AT&T Mobility for allegedly unfairly and deceptively throttling broadband speeds on unlimited wireless data plan. Wireless provider TracFone settled with us for similar behavior.

The FTC is also the primary enforcer of online consumer privacy and data security. In fact, I was at the FTC when we brought the first online privacy case against GeoCities in 1998. The FTC has brought more than 500 privacy- and security-related enforcement actions and held more than 20 workshops and events on privacy and data security topics….

Indeed, the FTC has regularly addressed the kinds of anticompetitive behaviors that concern net neutrality advocates. For example, the FTC has sued companies for foreclosing rival content in an exclusionary or predatory manner. We have challenged problematic access, discrimination, pricing, and bundling practices (citations omitted).

She then explained the problem with the approach taken by the FCC in its 2015 Open Internet Order:

Although the 2015 rules purported to be about consumer choice, they likely limited the options available to the consumer. This point is worth emphasizing: in the marketplace, companies seek to deliver what consumers want. But under prescriptive regulation, companies seek to deliver what regulators want. Case-by-case antitrust enforcement focused on competitive harm will allow ISPs, edge providers, and content providers to all experiment with innovative business models that will face the ultimate marketplace test: whether they benefit consumers….

Now some criticize the FTC’s enforcement-based approach. But, as our bipartisan 2007 report concluded, case-by-case enforcement is the best tool for the types of practices that often benefit consumers but might harm consumers in certain instances. This approach allows beneficial practices while curbing abuse. In contrast, per se prohibitions – the inflexible approach taken by the FCC in 2015 – prevent beneficial practices, and, because rules don’t enforce themselves, government would still have to bring specific cases to address any abuses (citations omitted).

Acting Chairman Ohlhausen concluded:

In short, the FTC has tools that are capable of protecting consumers and competition online. We’ve done so across the economy, throughout the Internet, and until 2015, we did so for broadband consumers as well. Yet in the last week, I’ve read a lot of anxious theorizing over the future of the Internet. But the Internet was a success long before the 2015 regulations. And the FCC’s repeal of those regulations doesn’t mean that neutral practices will disappear. Indeed, where consumers desire neutrality, they’ll get it through market competition, facilitated by the FCC’s transparency rules and by antitrust and consumer protection law enforced by the FTC, DOJ, state attorney generals, and private plaintiffs. And companies across the entire Internet ecosystem will remain free to experiment with innovative business models that benefit consumers.

FTC Acting Chairman: Current Antitrust Framework Is Sufficient for Technology Sector

In a September 12, 2017 speech at the Global Antitrust Enforcement Symposium at Georgetown University, Acting Chairman Maureen Ohlhausen of the Federal Trade Commission addressed the proper role of antitrust enforcement in an increasingly digital world.

Acting Chairman Ohlhausen noted the problems with increasing reliance on regulators to control the development of competition in digital markets:

If you want to put your faith in the hands of the regulators, think about some of the subsidiary questions you are actually asking the government to decide. Can these technology firms branch out into new markets, or must they narrowly focus on their original, core competency? When a technology company lowers prices, should that be permitted by regulators because it helps consumers or prohibited because it makes some other business less likely to succeed? How should a regulator weigh these effects against each other?

She concluded:

Although the analysis in the technology sector may be different from other industries, I believe the current framework is sufficiently flexible to address these important issues, but we should continue to refine our understanding on future competitive conditions.

New FTC Task Force Will Focus on Occupational Licensing

The Acting Chair of the Federal Trade Commission (FTC), Maureen Ohlhausen, says that occupational licenses are a “particularly egregious example of this erosion in economic liberty” and she recently implemented a task force at the Commission to help reduce the burden imposed by occupational licenses.

In a speech at the George Mason Law Review’s 20^th Annual Antitrust Symposium, FTC Acting Chair Ohlhausen discussed how unnecessary occupational licenses can have a negative effect on consumers:

The public safety and health rationale for regulating many of those occupations ranges from dubious to ridiculous. Consumers can, and do, easily evaluate the quality of interior designers, make-up artists, hair-braiders, and others. I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows. Market dynamics will naturally weed out those who provide a poor service, without danger to the public. For many other occupations, the costs of added regulation limit the number of providers and drive up prices. These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services.  

In response to the proliferation of unnecessary occupational licenses that has occurred throughout the United States, Acting Chair Ohlhausen created the Economic Liberty Task Force with a particular focus on occupational licensing regulations. The Task Force will work with Governors and state and local leaders to analyze how such regulations impact competition and consumer choice.

In a July 2015 blog, I specifically discussed how Maryland’s occupational licensing regime is harming poor people in two ways. First, the licenses restrict labor competition, harming poor entrepreneurs who cannot afford the mandated training and licensing fees. Second, the reduction in labor competition increases prices that disproportionately harm the poorest consumers. Of course, occupational licensing harms all consumers with higher prices and lower productivity because the barriers to entry created by licenses discourage competition from outside entrepreneurs.

Moreover, the Obama Administration published a July 2015 report entitled “Occupational Licensing: A Framework for Policymakers” which said that “by one estimate, licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars.”

Thank you to FTC Acting Chair Maureen Ohlhausen for creating the Economic Liberty Task Force. Hopefully, Maryland and other states will work with the Task Force to reduce the overall burden of occupational licensing.

The FCC’s Privacy Proposal Would Still Harm Consumers

In March 2016 the FCC adopted a Notice of Proposed Rulemaking (NPRM) purporting to protect “the privacy of customers of broadband and other telecommunications services.” The Commission is scheduled to vote on this item at the open meeting on October 26, 2016. FSF scholars submitted comments to the FCC in May 2016 explaining the reasons why the proposal would adversely impact consumers.

On October 6, 2016, FCC Chairman Tom Wheeler circulated a new proposal supposedly narrowing the regulatory reach of the opt-in requirement for only sensitive information. However, the definition of “sensitive information” in the FCC’s Fact Sheet is far too broad, including even all web browsing and app usage history. As Free State Foundation President Randolph May said regarding the Chairman’s new proposal in a Communications Daily report:

The latest revision to the privacy proposal seemingly may be a step in the right direction on a purely conceptual level, but it is not very helpful as a matter of reality. The categories of information requiring opt-in are much broader than necessary to protect consumer choice and, as importantly, broader than the framework the [Federal Trade Commission] FTC applies. This will lead to inequitable regulation and consumer confusion. And, to boot, the FCC lacks authority to go as far as it proposes.

Thus, the FCC’s proposed privacy regulation remains fatally flawed.

This proceeding originates, in an oddly circuitous way, out of the FCC’s Open Internet Order. The FCC reclassified broadband as a telecommunication service, imposing public utility-like regulation on Internet service providers (ISPs). The FCC failed to find evidence of a market failure, other than claiming that ISPs are “gatekeepers.” And although the Commission makes this unsupported “gatekeeper” claim when proposing regulations, it recently found in its Nineteenth Mobile Wireless Competition Report that competition in the mobile wireless industry has led to “lower prices and higher quality for American consumers, and [is] producing innovation and investment in wireless networks, devices, and services.” But as I suggested in a February 2016 blog, the FCC likely will continue to use its “gatekeeper theory” to impose additional regulations on ISPs.

FSF scholars went into further detail in their May 2016 comments to the FCC:

The Commission mistakenly relies on a factually unsupportable “gatekeeper theory” of competition and incentives in the broadband market as a basis for its proposed privacy regulations. The Commission now apparently relies on a “gatekeeper” claim as a regulatory prop of last resort when traditional market power analysis fails to support its expansive regulatory designs. The switching costs rationale upon which the Commission bases its proposed regulations is undermined by data demonstrating pro-competitive, pro-choice marketplace trends – documented in the Eighteenth Wireless Competition Report – favoring easier ability and incentives to switch providers.

The FCC’s privacy proposal would severely restrict the manner in which ISPs can collect and use consumer information. But as FSF scholars stated in their May 2016 comments, ISPs’ data collection practices do not pose a consequential threat to consumer privacy, and certainly not on the order of the large Internet content companies:

[A]s Peter Swire and his colleagues estimate in their paper, “Online Privacy and ISPs: ISP Access to Consumer Data is Limited and Often Less than Access by Others,” 70% of Internet traffic will be encrypted by the end of 2016. That means ISPs will, at best, only have access to roughly 30% of consumer data. Leading operating systems, web browsers, and video applications will have primary access to consumer personal information.

By subjecting ISPs to privacy regulations in the way it has proposed to do, the FCC is creating disparate regulations in the Internet ecosystem, confusing consumers as to the relevant applicable privacy policies because consumers do not distinguish between the two different categories of providers based on regulatory classifications, especially newly-adopted ones. Moreover, many large Internet companies have access to more information and a wider range of user information than ISPs. (See this FSF infographic.) For example, Google has access to 64% of online searches and holds over 61% of the mobile operating system market, allowing it to collect data on subscribers' location and app use.

FSF scholars explained further in their May 2016 comments:

By proposing to subject only broadband ISPs to its new privacy regulations, the Commission runs afoul of the rule of law principle that laws should be applied equally to all. Service providers that collect consumer personal information should be subject to the same rules unless clear reasons exist for treating them differently. The Commission fails to offer any reasons to justify the disparate treatment of ISPs embodied in its proposed regulations. The Commission should not adopt any privacy policy reflecting that degree of regulatory favoritism.

The Federal Trade Commission, the expert agency with jurisdiction over privacy violations within the entire Internet ecosystem, addresses consumer complaints on a case-by-case basis and focuses “on whether the collection and use of information is consistent with the context of a consumer’s interaction with a company and the consumer’s reasonable expectations.” Therefore, it should be no surprise that the former FTC Chairman Jon Leibowitz opposes the FCC’s NPRM. Additionally, it should be acknowledged that consumers have different preferences regarding how and if they want their data collected, and ISPs often update their settings to adjust to consumer trends. At the 2016 Advertising and Privacy Law Summit in June, FTC Commissioner Maureen Ohlhausen said:

Beneficial uses of consumer data go far beyond targeted advertising, of course. In the ISP context, such benefits could include lower prices and improved security and services. Regulatory restrictions on use of consumer data may foreclose these benefits, imposing significant costs on consumers – a fact often overlooked by advocates who may have different privacy preferences than average consumers.

Despite the fact that ISPs do not have access to the amount of data to which non-ISPs have access, ISPs still can use consumer data to offer targeted benefits. (See my August 2016 Perspectives from FSF Scholars entitled “FCC Privacy Rules Would Harm Consumers by Creating Barriers for Advertising.”) Many ISPs and edge providers incorporate advertising into their business model. Instead of consumers paying subscription fees for access to online information, consumers send personal non-sensitive information, which the ISP or edge provider then uses to sell targeted advertisements. If the FCC’s proposal is adopted, ISPs would be restricted with regard to the manner in which they use the advertising business model. This potentially could stifle the implementation of “free” data programs or other innovative services which use consumer information to develop such targeted offerings.

As the FSF scholars’ May 2016 comments explained:

If imposed, the nearly ubiquitous “opt-in” requirements regarding PII risk would discourage ISPs from offering consumers targeted marketing deals, selling advertisements to personally design consumer experiences, or offering sponsored data as well as free data or zero-rated plans – all of which potentially could benefit them. The Commission’s contemplation of a ban on certain ‘financial inducement practices, such as offering discounts for use of PII, would deprive consumers of their choice to enjoy free or inexpensive services. Consumers are competent to decide for themselves what form of ‘payment – whether in the form of the exchange of personal information or money – that they are willing to make for services.

An alternative approach to privacy that would benefit consumers was proposed:

Instead of imposing uneven, sector-specific, choice-limiting regulations, the better policy approach to protecting consumer privacy on the Internet is to establish common standards under the jurisdiction of a common enforcer. The digital privacy framework proposed by the White House in 2012 offers a realistic means of establishing a set of common rules with a common enforcer. Under this approach, privacy codes of conduct are to be established through a voluntary multi-stakeholder process. The Federal Trade Commission (FTC) would have authority to enforce those codes against providers who agree to abide by them but fail to do so in practice. Significant efforts have already been expended in that process. Obviously, the proposed regulations effectively would doom the prospects of the multi-stakeholder process for establishing consumer privacy protections for ISP subscribers. The far better approach for protecting consumer privacy is to refocus resources and attention on the multi-stakeholder process in order to forge a common set of rules and a common enforcer to protect consumer privacy on the Internet.

With a vote now scheduled for the October open meeting, it is important that the Commission recognizes how the FCC’s proposal would harm and confuse consumers by creating disparate – and overly restrictive – regulations within the Internet ecosystem. 

Remarks from Chairman Boucher, Commissioner Ohlhausen, and Commissioner Tate at FSF's 'Future of the Internet' Conference

The videos are up from the Free State Foundation’s seventh annual telecom policy conference entitled “The Future of the Internet: Free Market Innovation or Government Control?” The distinguished series of panels and speakers delivered insightful discussions and statements on various issues within telecommunications policy.

In one of the sessions, Free State Foundation President Randolph May had the privilege of speaking with a panel which included Honorary Chair of the Internet Innovation Alliance and former Chairman of the Subcommittee on Communications and the Internet Rick Boucher, FTC Commissioner Maureen Ohlhausen, and FSF Distinguished Adjunct Senior Fellow and former FCC Commissioner Deborah Taylor Tate. The conversation covered many aspects of the FCC’s recent Open Internet order and the Commission’s regulatory authority.

In her opening statement (around the 8-minute mark of the video), Commissioner Tate listed all of the issues that FCC’s Open Internet order does not address. Despite having 400 pages of regulations, she said that the FCC’s Open Internet order does not:

• Provide broadband to all citizens
• Try to reach the most rural, remote, or tribal lands
• Ensure that schools have the broadband connections they need for our global educational competitiveness
• Provide cybersecurity or trusted environments
• Encourage investment, innovation, or infrastructure expansion
• Streamline government regulations or make them easy to understand
• Reduce costs, whether that be direct costs or indirect costs
• Make data driven decisions

Commissioner Tate then added:

These are all the things that I believe the Commission should be focused on, whether it's cybersecurity, incentivizing private investment, ensuring that our education is globally competitive, certainly providing broadband to our entire nation, and of course reducing the costs to consumers. Those are the areas I think we should be concentrating on. I don’t think this [Open Internet] order does any of these.

In his opening statement (around 11:45 in the video), Chairman Boucher said that the FCC’s Open Internet order is the not correct way to solve Network Neutrality issues. He said:

I’m just going to endorse the statement Commissioner Pai made when he said effectively [the Open Internet order] is using a sledgehammer to hit a nail.

In today’s modern broadband world [with] multimedia [and] many competitors in the space, this [Commission action] is truly a poor fit.

Chairman Boucher then said that Congressional legislation regarding Network Neutrality is the only way to finally put an end to this decade-long debate. He added:

The Title II guarantees for Network Neutrality are highly impermanent. They really rest on a bed of sand. They literally can be swept away in the next presidential election, which in time would create a 3-2 Republican majority in the FCC. And one can be relatively certain that an early order of business for an FCC with a 3-2 Republican majority would be to reclassify broadband as a Title I, lightly-regulated information service.

So the Democrats are, at the moment, celebrating what is a temporary victory. 

Now, the Republicans, ten years after the start, have come to the point where they are saying to Democrats, ‘we will provide the Network Neutrality assurances from the 2010 Open Internet order.’ They have offered that and Democrats should seize that victory.

In her opening remarks (about 23 minutes into the video), Commissioner Ohlhausen showed concern that the FCC’s regulatory overreach will adversely impact the effectiveness of the FTC. She added:

I’m concerned that moving ahead [the Open Internet order] might create some challenges for the FTC to be able to continue to protect consumers online in the way it’s so actively and efficiently done until now.

Given the troubling, very broad language of the FCC’s order, [the FCC] will, at the very least, take up a lot of the FTC’s resources, and perhaps, shut us out of some of the very active consumer protection we’ve been able to do.

Around the 35-minute mark of the video, Chairman Boucher said “Congress created the FCC to be an independent agency and to exercise its independence apart from policy positions announced by the administration.” He then talked about President Obama’s unprecedented announcement in support Title II reclassification and why it is unfortunate that this announcement impacted the FCC’s rulemaking:

In the 25 years that I was a member of the House Energy and Commerce Committee and served for virtually all of that time on what we use to call the Telecommunications and Finance Subcommittee…I can’t remember a single time in that quarter of a century period when any president, Democratic or Republican, was as explicitly directive of the FCC as President Obama chose to be. I think it really is extraordinary. And frankly, I was quite surprised.

I think the White House involvement made a difference. I think it’s unfortunate. It is extraordinary. And to come back to the precise question you ask, yes, I think it does put in question the extent to which the Commission is truly going to be able to function as an independent body in those instances where the White House announces such clear determination with regard to any particular issue the Commission’s considering.

About 44 minutes into the video, Commissioner Ohlhausen talked about the vast transformation that has occurred in the communications market over the past couple decades. She said that we’ve seen broadband and telecommunications transform from highly concentrated markets to very competitive ones and that such a transformation has allowed antitrust and consumer protection to become useful tools for addressing the occasional problems that might arise.

Commissioner Tate subsequently added to this point. While holding up a news article, she stated:

I have actually brought the headline that the FTC is suing AT&T for throttling, so the FTC is already involved in many of these issues. They have so much of the expertise, as Maureen so eloquently stated, to be able to protect us, consumers!

Commissioner Tate also added that the FCC’s Open Internet order has huge problems “from the individual to the international,” and not to mention that states will be able to use Title II reclassification to levy taxes, fees, and additional rules on Internet Service Providers.

Towards the end of the discussion (around the 54-minute mark of the video), Chairman Boucher discussed how the FCC’s Open Internet order could adversely impact applications, such as Facebook and Twitter:

It seems to me that any application that has any kind of two-way communication component could very well now be classified as a telecommunications service and fall under the ambit of Title II regulation.

Chairman Boucher concluded that the uncertainty about the extent to which applications will regulated by the FCC “is going to have a major adverse effect on investment, and not just investment in the broadband sphere but investment among edge providers.”

The FCC’s Open Internet Order was a popular topic at the conference but other topics such as video policy, spectrum auctions, and universal service were also discussed. Check out and subscribe to the Free State Foundation’s YouTube page for more videos from the conference and past events.

Procrustes at the FCC

The Federal Communications Commission has a Procrustean problem. The agency would do well to acknowledge it as a means of reforming its regulatory process.

I borrow from FTC Commissioner Maureen Ohlhausen's address, "The Procrustean Problem with Prescriptive Regulation," delivered at the Free State Foundation's Sixth Annual Telecom Policy Conference on March 18. If you missed the conference and haven't seen the C-SPAN video of Commissioner Ohlhausen's speech or read it, you should. It ought to be required reading at the FCC.

In her speech, Commissioner Ohlhausen briefly relates the Greek myth of Procrustes:

"Procrustes was a rogue blacksmith, a son of the sea god Poseidon, who offered weary travelers a bed for the night. He even built an iron bed especially for his guests. But there was a catch: if the visitor was too small for the bed, Procrustes would forcefully stretch the guest’s limbs until they fit. If the visitor was too big for the bed, Procrustes would amputate limbs as necessary to fit them to the bed. Eventually, Procrustes met his demise at the hand of Greek hero Theseus, who fit Procrustes to his own bed by cutting off his head."

According to Commissioner Ohlhausen, "[t]he general lesson of Procrustes is a warning against the tendency to squeeze complicated things into simple boxes, to take complicated ideas, technologies, or people, and force them to fit our preconceived models." Hence, regulators should resist the urge to simplify – to think they have the expertise or knowledge to simplify – and learn to tolerate complexity.

How should regulators confront the Procrustean problem? Commissioner Ohlhausen offers two fundamental principles, especially for those regulators who exercise authority in markets in which technology plays a large role: (1) embrace regulatory humility and (2) focus on evaluating consumer harm. As Commissioner Ohlhausen puts it: "Because it is so difficult to predict the future of technology, government officials…must approach new technologies and new business models with a significant dose of regulatory humility."

With regard to the second principle, what Commissioner Ohlhausen says about the FTC should be equally applicable to the FCC as well: "By focusing on practices that are actually likely to harm consumers, the FTC has limited its forays into speculative harms, thereby preserving its resources for clear violations. I believe this self-restraint has been important to the FTC’s success in tackling a wide range of disparate problems without disrupting innovation." The emphasis is on protecting consumers, not protecting competitors.

To adhere to the principles of embracing regulatory humility and focusing on consumer harm, Commissioner Ohlhausen emphasizes a point I have made in this space (literally) countless times: an ex post enforcement approach, based on the filing of individual complaints, is preferable to ex ante prescriptive regulations. As she puts it, the ex post enforcement method, employed by the FTC, "typically focuses on actual, or at least specifically alleged, harms rather than having to predict future harms more generally." In contrast, the FCC's general resort to prescriptive ex ante rulemakings necessarily suffers from systemic knowledge problems that are exacerbated in the context of a dynamic market with fast-changing business models and technologies.

Finally, and importantly, Commissioner Ohlhausen rightly takes on the invocation of the now common shibboleth, "data-driven." Too many regulators, including those at the FCC, believe that if they simply repeat the well-worn mantra "our decisions are data-driven" that their actions ought to be accepted, without question, as proper. As Commissioner Ohlhausen reminds us: "[D]ata isn't knowledge or wisdom. 'Data-driven' decisions can be wrong. Even worse, data-driven decisions can seem right while being wrong."

I was pleased that Commissioner Ohlhausen suggested some skepticism is warranted regarding ritual incantations of "data-driven" decision-making because, frankly, I have been doing the same for years. As I said in a blog three years ago, "data, no matter how sweet-sounding the oft-repeated 'data-driven' mantra … is viewed differently, and put to different uses, depending upon one's regulatory philosophy and perspective." Or, to the very same point, in a 2010 piece I suggested Chairman Genachowski's "data driven" mantra, even then, already was being overworked because "regulatory philosophy matters a lot" in deciding how to interpret and make use of data.

I'm certain that Commissioner Ohlhausen doesn't mean to imply that regulators should not seek to obtain relevant, accurate data, or ignore it when they have it. And I don't either.

But I do want to suggest that, by following Commissioner Ohlhausen's two fundamental principles – embracing regulatory humility and focusing on consumer harm – the temptation of regulators to cover shoddy reasoning by invoking the "data-driven" mantra may be lessened. That is to say that abiding by the principles enunciated by Commissioner Ohlhausen will lead to sounder decisions that are less dogmatically pro-regulatory. Overall consumer welfare is more likely to be improved by such decision-making.

In the next year, the FCC will be making some important decisions in major proceedings – for example, in the incentive auction, the Comcast-Time Warner Cable merger, and IP transition proceedings, to name but three. Free State Foundation scholars have addressed issues in each of these proceedings before, and I am certain we will do so again in the months to come. I don't want to do so here.

Except to say, in closing, that I am confident the Commission's decisions in these matters, and others, will benefit consumers most if Chairman Tom Wheeler and his colleagues take to heart Commissioner Ohlhausen's message concerning the virtue of regulatory humility.

That means slaying Procrustes in his own bed at the FCC.