FCC Submits Report to Congress on Robocalls and Caller ID Scams

On December 23, the FCC submitted to Congress the latest version of its Report on Robocalls and Transmission of Misleading or Inaccurate Caller Identification Information. The annual report is required by the TRACED Act. It contains data regarding informal consumer complaints to the FCC regarding robocalls, Commission enforcement actions, and an overview of private efforts to combat unwanted and harmful robocalls.  

The report cites data indicating 37,736 informal consumer complaints were filed at the FCC regarding robocalls during the first eleven months of 2022. Thus, it appears likely that informal complaints about robocalls were slightly lower in all of 2022 compared to a year prior. There were 46,189 such complaints in 2021. Also, the report cites data indicating that 37,752 informal complaints regarding caller ID spoofing were filed in the first eleven months of 2022, indicating that yearly total for such complaints was notably less than the 57,075 complaints filed in 2021. (Note: A single filed complaint can involve more than one reported instance of an illegal robocall or a call from a spoofed ID.)

 

Among the actions taken by the FCC in 2022 to combat unwanted and illegal robocalls – many of which originate from foreign countries – the report acknowledged the Commission's 2022 Gateway Provider Order. The order requires gateway providers to respond to traceback requests within 24 hours, block calls that clearly are conduits for illegal voice traffic, and implement "known your upstream obligations." Under the order, gateway providers are required to apply STIR/SHAKEN caller ID authentication technology to all unauthenticated foreign-originated session-initiated protocol (SIP) calls with U.S. North American Numbering Plan (NANP) numbers by June 30, 2023. 

 

Regarding private efforts to combat robocalls and caller ID spoofing, the report provided an overview of the progress of the Industry Traceback Group to identify the path and origin of illegal robocalls in order to stop them. According to the report:

[B]etween January 1, 2022 and November 21, 2022, the Industry Traceback Group initiated over 2,600 tracebacks, a traceback initiation rate which is 10% higher than in 2021 and 20% higher than in 2020. The Industry Traceback Group also played a key role in combating the scourge of illegal robocalling campaigns from foreign-based providers. In addition to identifying 146 U.S.-based providers suspected of originating apparently illegal robocalls, the Industry Traceback Group also identified 82 foreign-based originating providers and 145 U.S. gateway providers. 

Additionally, the report notes that the Industry Traceback Group is working with providers to incorporate STIR/SHAKEN into the traceback process.  Hopefully, the expanded implementation of STIR/SHAKEN and traceback efforts will further curb illegal robocalls. 

However, it ought to be recognized that STIR/SHAKEN's utility is likely limited to the context of voice calls made using NANP numbers – and that it is not a technology that ought to be imposed by administrative agency rule on providers of text messaging services. 

That basic point is made in my January 4, 2023 Perspectives from FSF Scholars, "Innovation Will Protect Consumers From Illegal Text Messages Better Than New FCC Rules." As explained in that paper, the FCC has proposed a blocking and caller ID requirement on wireless providers for text messaging services despite the fact that there does not appear to be any solid evidence that text messages from invalid, unallocated, or unused numbers are a problem for wireless consumers. Wireless providers already provide up-front vetting for would-be senders of mass text messages. It is unlikely that such a costly mandate actually would reduce the volume of illegal robotexts and protect consumers. And although the Commission's notice of proposed rulemaking appears to favor requiring the STIR/SHAKEN to combat illegal texts, even the agency acknowledges that the technology doesn't exist for text messaging services. Voice and text messaging technologies are different, and so it should be no surprise that the best solutions to combatting illegal robocalls and robotexts also are different. For more details, see my Perspectives.

Supreme Court Makes a Sensible Ruling on Anti-Autodialing Statute

On April 1, the U.S. Supreme Court released its decision in Facebook v. Duguid regarding the scope of the federal statute that prohibits unwanted robocalls from "autodialers." Justice Sotomayor's opinion for the court, which was joined by seven other justices and unanimous in the result, sums up the anti-autodialing provision, the question before the court, and its ruling:

The Telephone Consumer Protection Act of 1991 (TCPA) proscribes abusive telemarketing practices by, among other things, imposing restrictions on making calls with an "automatic telephone dialing system." As defined by the TCPA, an "automatic telephone dialing system" is a piece of equipment with the capacity both "to store or produce telephone numbers to be called, using a random or sequential number generator," and to dial those numbers. 47 U. S. C. §227(a)(1). The question before the Court is whether that definition encompasses equipment that can "store" and dial telephone numbers, even if the device does not "us[e] a random or sequential number generator." It does not. To qualify as an "automatic telephone dialing system," a device must have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a random or sequential number generator. 

As the Court notes, the FCC has interpreted the anti-autodialing provision to apply to text messages. At issue in the case was Facebook's sending of text messages to users whose numbers it had stored. This blog takes no view on whatever specific processes or techniques that Facebook used. Rather, the decision was important in rejecting an over-expansive definition of an "autodialer" that potentially would subject countless American's to potential claims under the TCPA:

Expanding the definition of an autodialer to encompass any equipment that merely stores and dials telephone numbers would take a chainsaw to these nuanced problems when Congress meant to use a scalpel. Duguid’s interpretation of an autodialer would capture virtually all modern cell phones, which have the capacity to "store . . . telephone numbers to be called" and "dial such numbers." §227(a)(1). The TCPA's liability provisions, then, could affect ordinary cell phone owners in the course of commonplace usage, such as speed dialing or sending automated text message responses. See §227(b)(3) (authorizing a $500 fine per violation, increased to $1,500 if the sender acted "willfully" or "knowingly").  

Professor Daniel Lyons, a member of the Free State Foundation's Board of Academic Advisers, previewed the Court's just-released decision in his Perspectives from FSF Scholars paper titled "Trilogy of Supreme Court Cases Highlight Deficiencies in Anti-Robocall Statute."

Consumers Receive High Volumes of Spam Calls, Low Volumes of Spam Texts

Americans are inundated with high numbers of unwanted robocalls, but they receive much lower numbers of unwanted text messages. A survey released in December by Zipwhip, a leading provider of text messaging solutions for businesses, shows that whereas 51% of respondents "often" receive spam over the phone, only 18% "often" receive spam texts. 

The survey findings reaffirm the importance of the Commission's Title I non-regulatory policy for texting. Given the freedom and flexibility to implement solutions, text messaging service providers – not Title II public utility-like restrictions – have successfully curbed unwanted messages. Those providers should remain free to pursue innovative solutions to maintain quality of service. 

According Zipwhip's survey, about 51% responded that they receive spam "often" over the phone and 83% receive spam at least "somewhat often" over the phone. Furthermore, 70% receive spam "often" over email and 92% receive email spam at least "somewhat often." However: "Only 18% of respondents said they get text spam 'often' and only 17% said they receive scam attempts 'often.' Most said they 'rarely' receive these types of messages (41% and 40% for spam and scam, respectively)." Illegal scam rates also are notably higher for voice calls and emails than for texts.

Importantly, the Zipwhip survey figures regarding low rates of unwanted texts vindicates the FCC's determination in its Wireless Messaging Service Order (2018) that text messaging services are lightly- or non-regulated "information services" under Title I of the Communications Act. That determination was amply supported, first and foremost, by the fact that wireless text messaging service capabilities fit the statutory definition of "information services." But the Commission also justified its Title I classification of wireless text messaging services with the compelling policy rationale that entrepreneurial innovation protects subscribers from spam and unwanted texts better than the strictures of public utility regulation. The 2018 Order stated: "In the absence of a Commission assertion of Title II regulation, wireless providers have employed effective methods to protect consumers from unwanted messages and thereby make wireless messaging a trusted and reliable form of communication for millions of Americans." Survey findings of markedly lower rates of unwanted communications via text messaging compared to other media platforms indicate that, a year after the 2018 Order, the policy for non-regulation of texting is succeeding in protecting consumers.

Zipwhip survey figures regarding the high rates of robocalls and emails are consistent with other reports. According to YouMail's Robocall Index, about 58.5 billion robocalls were sent nationwide in 2019. A YouMail analysis found that while about 27% of robocalls provided consumers with important alerts or reminders for things such as a school closure or doctor's appointment, the remaining 73% of robocalls are unwanted or spam. And about 25% of robocalls are illegal scams. It is elsewhere estimated that spam constituted around 55% of global email traffic in 2019. 

The problem of unwanted robocalls and the closely related problem of caller ID spoofing prompted Congress to pass the TRACED Act, which President Trump signed into law on December 31, 2019. Under the TRACED Act, voice service providers are required to make available to consumers – free of charge – technologies to authenticate calls and block robocalls. The Act extends the statute of limitation and increases fines for making unwanted robocalls. Additionally, the Act directs the FCC to undertake rulemakings to further ensure subscribers are protected from one-ring scams as well as other unwanted calls or texts. 

In its implementation of the TRACED Act, the Commission should rightly take aim at the sky-high number of scam calls as well as other unwanted robocalls. And it should exercise its oversight authority over voice service providers to ensure consumers are protected. At the same time, it is imperative that the Commission adhere to its Title I policy for text messaging, which has an established track record in protecting consumers. 

Wireless Carriers Launch Next-Generation Text Messaging Initiative

On October 24, the four major national wireless carriers announced a new joint venture to develop a next-generation wireless text messaging system. The Cross Carrier Messaging Initiative (CCMI) will be based on the Rich Communication Services (RCS) protocol. In my Perspectives from FSF Scholars paper, "The FCC Should Halt Bogus Lawsuits Threatening Popular Texting Services," I explained:

Texting services are in the process of upgrading to a next-generation technology called Rich Communication Services (RCS). This new protocol, which is being made available for cell phones with Android operating systems, allows more interactive functions, including live group chats, as well as transmission of higher-quality audio and video files. 

The launch of CCMI will help accelerate the adoption of RCS and provide consumers more advanced texting functions. The market for texting and messaging services generally is innovative and competitive. RCS text messaging services ought to receive the same unregulated treatment under Title I of the Communications Act that SMS and MMS texting services receive pursuant to the FCC's Wireless Messaging Services Order (2018). (That order states: "To the extent that successor protocols share the characteristics of SMS and MMS that we find controlling here, we expect they would be similarly classified under the Act.")

FCC Should Follow District Court's Common-Sense Ruling on Autodialers

Free State Foundation President Randolph May and I have previously written about the federal ban on "autodialers" contained in the Telephone Consumer Protection Act (TCPA). In our Perspectives from FSF Scholars paper, "The FCC Should Stop Runaway Liability for Smartphone Owners," we called on the Commission to adopt a sensible definition of "autodialers" that tracks with a plain reading of the TCPA and its intent to combat commercial automated mass robocallers. Going forward, the Commission ought to consider the common-sense reading of the TCPA's "autodialer" provision by a federal district court's decision from September 2019. 

In Smith v. Premier Dermatology, Judge Jorge Alonso of the U.S. District Court for the Northern District of Illinois wrote:

[T]he plain text of the statutory definition provides that an ATDS [autodialer] is a device that (1) stores or produces telephone numbers that (2) were randomly or sequentially generated and (3) dials them automatically. 

Because the Court finds that the statutory definition is not ambiguous, it need not reach plaintiffs' arguments about "the context and the structure of the statutory scheme." …But even if the Court were to consider them, they are unpersuasive. 

The District Court's conclusion that the TCPA's language is unambiguous as well and interpretation of prohibited "autodialer" capabilities are both contrary to the Ninth Circuit's decision in Marks v. Crunch San Diego LLC(2018). As Mr. May and I explained in our Perspectives paper, the Ninth Circuit deemed the relevant statutory language and ambiguous and misinterpreted "autodialers" to include callers using equipment that is merely capable of dialing ortexting a stored telephone number. The court disregarded the TCPA's provision that autodialer equipment also must have number generating capability – and dial the telephone numbers automatically. In consequence, the Ninth Circuit's decision in Marks makes anyone with a smartphone potentially liable under the TCPA for making a single unwanted phone call or text. (I also addressed the autodialer issue in my Perspectives paper, "The FCC Should Halt Bogus Lawsuits Threatening Popular Texting Services.")

A federal district court decision does not create binding precedent. So the legal uncertainty caused by the Ninth Circuit's misguided decision in Marks remains a problem that requires the FCC's attention. However, the Commission should take stock of the District Court's sensible ruling in Premier Dermatology. And the Commission should adopt a narrower autodialer definition that targets mass robocallers while avoiding open-ended liability for all smartphone owners.

Plaintiff Not Going Away in Dubious Lawsuit Threatening Texting Services

On September 18, Plaintiff John Salcedo filed a request with the U.S. Court of Appeals for the Eleventh Circuit for a rehearing en banc in Salcedo v. Hanna. My Perspectives from FSF Scholars paper titled "The FCC Should Halt Bogus Lawsuits Threatening Popular Texting Services" analyzed the Eleventh Circuit's panel decision in Salcedo. The case is a putative class action in which the alleged violation of the Telephone Consumer Protection Act of 1991 (TCPA) was a single unsolicited text message by an attorney to his former client. The Eleventh Circuit panel's decision in Salcedo acknowledged that just a single allegedly text message constitutes an alleged violation under the FCC's current interpretation of the TCPA provision prohibiting "autodialers." Although the Eleventh Circuit held against the Plaintiff for other good reasons, this latest filing indicates the lawsuit isn't going away – at least not yet. 

Salcedo is a case in point for why the FCC needs to modify its TCPA rules to target the real problem robocallers that Congress had in mind rather than leave the door open to lawsuits that appear frivolous. For more, read the Perspectives paper.  

FCC Should Close Its Toll-Free Texting Proceeding and Tackle Robocalls

There were nearly 5 billion robocalls in February, according to press reports. A substantial number of robocalls are scams or unwanted calls. Yet during that same month, there likely were zero instances of toll-free phone numbers being enabled to receive text messages without authorization by business subscribers. That's because toll-free texting isn't a genuine consumer protection problem – but robocalls are a serious and growing problem.

Instead of devoting any further agency resources to considering proposals to impose unhelpful new regulation on toll-free texting, the FCC should promptly close its toll-free texting proceeding and direct its attention to actions which will curb unwanted robocalls. To its credit, the Commission is now trying to determine what further actions it can take to address the robocall problem. 

Although texting is ubiquitous for mobile wireless services, many enterprises sign up with texting service providers to receive texts to their landline numbers, including toll-free numbers. So it was rather unexpected when in 2018 the FCC proposed rules to control authorizations for text enabling of toll-free numbers. Free State Foundation President Randolph May and I filed public comments with the FCC regarding its proposal. As we explained, there is no good reason for regulating authorization of texting services for toll-free numbers. Rather, there are several reasons why regulating toll-free texting would be unwise and harmful. 

First, there is no market failure problem regarding texting and online messaging services.

According to a CTIA estimate, in 2017 American consumers sent a combined 1.77 billion text messages (counting 160-character texts as well as photos and video clips). Competing mobile wireless providers offer consumers service plans that bundle unlimited texting with voice and data. Also, instant messaging, social media, and email are widely available alternatives for consumers. Furthermore, the record evidence compiled in the FCC's proceeding shows no clear-cut instances of consumer harm caused by unauthorized text-enabling of toll-free numbers. 

Second, new regulation would undermine the non-regulated, pro-innovation environment in which texting emerged – and which FCC policy supports.

Text messaging services are a technological and marketplace innovation success story. They developed outside the strictures of legacy telephone regulation. Moreover, in December 2018, the FCC issued an order declaring that text-messaging services fit within the statutory definition of non- or lightly-regulated “information services” under Title I of the Communications Act. The Commission's order acknowledged that SMS spam texting rates of around 2.8% are drastically lower than email spam rates of over 50%. And the order stated that "continuing to empower wireless providers to protect consumers from spam and other unwanted messages is imperative." Just as the order found that legacy telephone regulation under Title II would be harmful to innovation necessary to combat unwanted texts, expanding legacy regulation to text-enabling of toll-free numbers would be equally harmful. 

Third, the FCC's 2018 Declaratory Ruling addressed any potential problems.

In itsDeclaratory Ruling from June 2018, the Commission "clarif[ied] that only a toll-free subscriber may authorize the text-enabling of a toll-free number and that such authorization must occur beforea toll free number is text-enabled." The Commission's ruling sufficiently set forth the rights of toll-free number owners, facilitating recourse at the Commission or in the courts in cases of alleged violations. Additionally, text messaging service providers have confirmation processes in place for toll-free number owners. Those providers do not stand to gain from text-enabling numbers without authorization, and existing market incentives are adequate to protect consumers. If text-messaging providers abuse the confirmation process, they will damage their reputation and lose valuable business to rival providers and messaging platforms – of which there are many.

Fourth, new regulation would create obstacles to addressing any actual instances of unauthorized text-enablement of toll-free numbers.

The Commission's proposal would require "Responding Organizations" (RespOrgs) to verify that toll-free number owners consented to text-enablement. This would mean inserting RespOrgs – which assign toll-free numbers for voice calling – into an entirely new role of administering already assigned toll-free numbers for texting. But owners of toll-free numbers would not benefit by this because RespOrgs don't possess reliable information regarding the identity of toll-free number owners. Rather, RespOrgs would accrue, wrongfully, a benefit from Commission regulation handing them a new line of business. 

In sum, it's time for the FCC to close its toll-free text-enabling proceeding and to focus the freed-up resources on combatting the increasing number of unwanted robocalls to consumers. 

FCC Proposal Keeps Text Messaging Free From Unnecessary Regulation and Spam

At its December 12 meeting, the FCC will vote on a sensible proposal to keep popular wireless messaging services free from public utility regulation. By declaring texting and other wireless messaging services are Title I "information services," the FCC will ensure messaging service providers have flexibility to protect consumers from spam and other unwanted messages. 

For several years, Free State Foundation President Randolph May and I have urged the Commission, in comments filed with the agency and in publications, to declare text messaging services to be lightly-regulated Title I information services. We applaud the Commission's proposal, finally, to provide deregulatory certainty for messaging services.

In today's competitive communications marketplace, wireless service providers routinely offer consumers messaging services bundled with voice and mobile broadband services. Text messaging or short messaging services (SMS) typically involve person-to-person transmission of texts up to 160 characters long. Multi-media messaging services (MMS) are person-to- person transmission of photos or video clips. The popularity of wireless messaging services is reflected in CTIA's estimate that, in 2017, American consumers sent a combined 1.77 billion SMS and MMS messages. 

As the Commission's draft proposal states: "The Communications Act, as amended, divides communications services into two mutually exclusive types: highly regulated 'telecommunications services' and lightly regulated 'information services.'" The Commission proposes to declare that SMS and MMS wireless messages meet the statutory definition of Title I information services because they involve the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications. 

For starters, when SMS and MMS messages are sent by users, they are routed through servers on mobile networks, stored on those networks, and forwarded to the recipients when their devices are able to receive them. Thus, the proposal finds: "This storage and retrieval capability is analogous to email service, which has been recognized under Commission precedent as an information service and similarly involves storage and retrieval functionality." 

Additionally, the Commission rightly recognizes adoption of its proposed Title I classification determination "will empower wireless providers to continue their efforts to protect consumers from unwanted text messages." Pointing to an estimated 2.8% spam rate for SMS compared to an over 50% spam rate for email, the Commission draft concludes:

[C]ontinuing to empower wireless providers to protect consumers from spam and other unwanted messages is imperative in light of the fact that the growth and popularity of SMS and MMS wireless messaging services have made them an attractive target for bad actors and spammers.

A Title II declaration would make it more difficult to combat unwanted messages. As the proposal says: "[I]n the context of voice service, under Title II, the Commission has generally found call blocking by providers to be unlawful, and typically permits it only in specific, well-defined circumstances." Under a Title II regime, messaging service providers would be restricted in their ability to stop spam from reaching consumers, thereby flooding consumers with messages they don't want.   

Finally, no good reason exists for increased regulation. SMS and MMS services emerged from and thrive in a competitive, essentially unregulated environment. Consumers have choices among competing wireless providers offering messaging service. Data cited in the draft Communications Market Competition Reportindicates that at the end of 2017, 92% of the population had access to at least four 4G LTE providers. Also, over-the-top applications and email are other popular means of communication, providing further competitive market checks on service provider behavior. Meanwhile, messaging service providers are subject to the Federal Trade Commission's authority to take action against unfair and deceptive trade practices. Antitrust is another available resource for safeguarding competition in the market. 

The Commission should adopt its proposed declaratory ruling on text messaging in order to preserve a light-touch regulatory environment and to allow service providers to continue to prevent consumers from getting spammed. 

"Bill Shock" Regulation Raises First Amendment Concerns

Over the last several months the FCC has been wading into what it calls wireless "bill shock." However, there is a real question whether bill shock constitutes a real problem – let alone a problem substantial enough to warrant a new slate of regulatory mandates. This question is particularly important considering that the proposed bill shock regulation presents constitutional problems under the First Amendment.

For starters, most consumers don't incur overage charges. The Nielsen Company analyzed 78,633 post-paid wireless bill accounts spanning from the third quarter of 2009 to the second quarter of 2010 (see here and here). According to Roger Entner's analysis of the Nielsen Study, "86.5% of accounts never have a voice overage and 82% never have a data overage." Of those that do incur such charges, they're usually much smaller than the extreme anecdotes that have been highlighted before the Commission, such as a report by an AT&T customer that he was charged over $9,000 when his teenage son watched YouTube for 45 minutes on his smartphone from Guatemala. The Nielsen Study numbers suggest the median charge for consumers going into voice overage once per year is $17.89 and twice per year is $29.90. And the median charges for going into data overage once per year is $2.00 and twice per year is $3.85.

Small overage charges imposed on consumers who exceed their usage plans are hardly shocking. Requiring consumers whose usage exceeds their plan allotment to pay for such extra use makes sense. What makes little sense is to automatically equate mere overage charges to bill shock. The FCC's bill shock survey – which contends that one in six wireless consumers or 30 million experience bill shock each year – appears to equate the two.

Consider also that in some instances, paying an extra charge for extra use of a service — beyond what is provided in a consumer's chosen service plan — is more efficient for a consumer than purchasing the next most expensive service plan. And in many instances, carriers will allow consumers who incur overage charges to retroactively upgrade to a higher-tiered service plan.

Last fall the FCC issued a proposed rulemaking to lay the groundwork for new "bill shock" regulation. The Commission proposes to require wireless carriers to clearly disclose any tools they offer consumers to set usage limits or review usage balances. Although many carriers already do this, the Commission would cement the practice into disclosure rules. Furthermore, the Commission proposes to require wireless carriers to provide some kind of warnings to consumers – perhaps voice alerts or text alerts – when consumers exceed their respective plan's monthly mobile use limits and begin to incur overage charges for voice, data, and text. (Carriers already provide consumers with a variety of alert options, too.)

The Commission also proposes to mandate warnings when customers "are approaching an allotted limit" on their monthly mobile use limits. Prepaid wireless services are swept up in the Commission's proposal, too, even though prepaid users don't pay recurring monthly bills and therefore are not even in the category of consumers who would face potential overage charges, let alone charges constituting bill shock. And the Commission proposes requiring warnings from wireless carriers when consumers are about to incur domestic roaming charges or international roaming charges that are not covered by their monthly plans.

Commenters in the bill shock rulemaking proceeding go further. Some even urge the FCC to require wireless carriers to provide multiple, individualized usage and overage alerts with specific information customized to particular consumers. Commenters insist that the Commission require carriers to offer a variety of choices regarding overage and usage alert delivery. Additional mandatory alerts are urged by commenters for informing consumers that they are no longer voice or data roaming and not subject to roaming fees. Commenters also argue the Commission should mandate wireless device screen notice and alert icons as part of the required slate of warnings.

Previously, I've raised concerns about the effect of imposing a slew of new regulatory controls on a thriving, competitive wireless market that is only in the beginning stages of delivering broadband services and upgrading network capabilities to 3G and 4G specs. (See the FSF Perspectives piece "Don't Let 'Bill Shock' Regulation End Light-Touch Treatment of Wireless.") But now I want to highlight a different concern. Because the regulation being considered isn't meant to address actual fraud or deception and because the scope of proposed regulatory controls appears so broad, many aspects of proposed bill shock regulation may infringe on First Amendment free speech rights.

The U.S. Supreme Court has repeatedly recognized that freedom of speech means not only a right to speak but also a right not to speak — or a right against being compelled by the government to speak. Although the Supreme Court's First Amendment jurisprudence typically accords a lesser degree of protection to what it categorizes as "commercial speech" and is generally more favorable to compelled disclosures of speech than to outright restrictions on speech, even government regulation requiring disclosures of factual information is subject to constitutional scrutiny. Commercial advertising that is inherently or implicitly misleading is not deserving of First Amendment protection. But where no fraud or deception is involved, commercial speech regulation is subject to set out by the Supreme Court in Central Hudson Gas & Electric Company v. Public Utilities Commission of California (1985).

Under Central Hudson, government regulation of non-misleading commercial speech is permissible where: (1) the regulation advances a substantial government interest; (2) the speech directly advances that interest; and (3) the regulation is not more extensive than necessary to achieve that interest. The government bears the burden in justifying its regulation as alleviating a real problem in a material way, as opposed to regulation having a vicarious connection to a merely conjectured problem. This also means the government must establish that less burdensome alternatives will not suffice to directly advance the substantial interest at stake.

When it comes to bill shock regulation, remember again that misleading information is not at issue. Instead, the Commission is proposing regulation for the purpose of "assist[ing] consumers in avoiding unexpected charges on their bills." Let's assume a court would find that the government proves there is an actual bill shock "problem" and that the Commission's stated purpose is "substantial" enough to warrant regulation. The government would still have to establish that the myriad regulations proposed by the Commission – and commenters, to the extent the Commission were to adopt their proposals – would materially address that problem beyond the extent is already addressed by available usage monitoring tools and alerts.

A question about diminishing returns immediately occurs when considering mandated usage monitoring tools and alerts when those tools and alerts are already widely available. But even if a court found that some or all of the requirements the Commission might ultimately adopt directly and materially advanced the government's purposes, questions would still remain about whether those same purposes could be achieved by more narrowly tailored approaches.

The Commission's proposal to require wireless carriers to clearly disclose their respective usage-monitoring tools to consumers certainly constitutes as a less burdensome alternative to achieving that purpose. If the problem, as stated by the Commission, is that consumers are often unaware of or unable to use them or gain access to the relevant information, then compelling disclosure could more likely satisfy First Amendment scrutiny. As the Supreme Court recently declared in Milavetz v. U.S. (2010): "Unjustified or unduly burdensome disclosure requirements offend the First Amendment by chilling protected speech, but 'an advertiser's rights are adequately protected as long as disclosure requirements are reasonably related to the State's interest in preventing deception of consumers.'" And a court would likely conclude that promoting consumer awareness through educational efforts provides an even less burdensome alternative that is even more directly focused on the perceived problem. The Commission has already undertaken such educational initiatives, including a bill shock "tip sheet" that it released to the public last year.

But recognition of the proposed disclosure requirement and educational efforts as less burdensome alternatives throws the broader array of Commission and commenter proposals for bill shock regulation into much greater uncertainty under the Supreme Court's First Amendment jurisprudence. The more bill shock requirements the Commission ultimately adopts and the broader their scope, the more likely it is that such requirements would be considered by a court to be unnecessary to achieving the Commission's purpose – and consequently contrary to the First Amendment.

At this point, the ultimate scope and particulars of any bill shock regulation that the Commission might adopt remains uncertain. Wireless has thrived in recent years thanks in part to light-touch regulatory treatment. But the broader regulatory approach to bill shock that the Commission and pro-regulatory voices have recently endorsed embodies a more heavy-handed approach – and one even at odds with the First Amendment in some respects.

Given questions about whether bill shock is a real, substantial problem, and a problem that multiple regulatory mandates are needed to fix, I hope the Commission will think again before imposing regulation so broad as to also raise First Amendment questions.

No Need for "EU-Style" Wireless Mandates

Last week the FCC issued a public notice seeking comment on EU-inspired regulation of wireless customer service and billing. The public notice requests comment on the feasibility of imposing regulation similar to recently-adopted EU "bill shock" regulations that "are designed to ensure that a consumer is fully aware of the roaming charges he or she is incurring so that the consumer does not receive a higher than expected bill for these services." Now, transparency and disclosure of clear information are vital to informed consumer transactions. But since we already have those kinds of rules in place, is the addition of an extra layer of rules based on EU regulatory assumptions necessary? There are good reasons to think it's not.
　
Basic truth-in-billing rules prohibit fraud or deceptive practices that harm consumers. Since 2005, the FCC’s truth-in-billing rules requiring brief, clear, non-misleading and plain language descriptions of services rendered have applied to both wireline and wireless carriers. FCC regulation already prohibits slamming (carriers switching consumers' service to another carrier without consent) and cramming (carriers overcharging consumers). And general consumer protection statutes provide a venue in state courts to counter unfair and deceptive trade practices related to wireless services.

Unlike truth-in-billing rules or consumer protection statutes, however, the case for imposing EU-inspired "bill shock" rules is not nearly so strong. For starters, "bill shock" regulations can't be justified on anti-fraud or anti-deception grounds. After all, such regulations and laws are not directed to prohibiting fraudulent or deceptive practices. Rather, "bill shock" regulations are intended to provide consumers with extra notice about services they've already agreed to receive. Seen in this light, these regulations are less a matter of protecting consumers from wrongful e-commerce practices than protecting consumers from themselves. This suggests a paternalistic element to "bill shock" regulations premised on regulators' own judgments about what kind of wireless services carriers should provide and consumers should want.

Imposing EU-type "bill shock" regulations also makes little sense in light of the dynamic and competitive nature of the wireless marketplace. Why adopt regulations that risk freezing into place wireless services that are new and in a state of rapid change? Text messaging, smartphone apps, and other wireless data services are recent offerings in a rapidly-changing market that is likely to undergo further unpredictable innovation in the years ahead. And why single out wireless carrier bills for special regulation when consumers are increasingly using wireless devices for a variety of e-commercial purposes? Consumers now purchase all kinds of wireless-delivered goods and services—including video and music files—through entities other than wireless carriers. This includes a variety of paid subscription services with recurrent billing. But imposing "bill shock" regulations on iTunes, Zune, or online app stores would be unnecessarily sweeping and almost certainly exceed the FCC's jurisdiction. Given that truth-in-billing rules already exist, there is little justification for imposing "bill shock" regulations on one particular facet of today's wireless consumer experience.

Coinciding with rapid technological innovation in wireless services, billing practices have also undergone significant change and cut against the need for EU-style "bill shock" regulations. In terms of roaming fees or charges resulting from exceeding wireless plan use limits, the issue is fading due to the number of wireless carriers now offering free domestic roaming, unlimited calling, and unlimited texting plans. For instance, I solved my own "bill shock" experience 5 or 6 years ago by upgrading my plan to better fit my own text messaging patterns. Also witness the 13-year old girl in California who recently sent 14,582 text messages in one month under a flat-rate plan but incurred no extra charges. The economic downturn has likewise seen a sharp rise in pre-paid plan adoption by consumers. Pre-paid plans present none of the concerns with wireless carrier billing and consumer behavior apparently sought to be addressed by "bill shock" regulations. Indeed, the rapid rise of pre-paid services may be seen as an indication that consumers are wise enough to choose the type of services best-suited to their own needs.
　
Importantly, wireless carriers already provide consumers with the ability to check on the status of their wireless bills and obtain updates via e-mail or text messaging. And the wireless industry already has its own self-regulatory framework in place through CTIA's Consumer Code of ten principles. Industry self-regulation and wireless marketplace competition alone are not panaceas for all consumer protection issues. But self-regulation and competition are both disciplining forces that benefit consumers.

Unfortunately, if the FCC follows the EU's course then none of these developments in the U.S. wireless marketplace would matter. As the FCC's public notice points out: "[a] number of EU mobile services providers had already implemented procedures to combat the problem of 'bill shock' prior to the adoption of the 2009 regulations." Despite innovation in wireless services and choices in the U.S., the FCC is now considering whether to impose EU-inspired "bill shock" regulations, too.

All of this raises the most obvious question: why should the FCC look to EU policy to guide U.S. policy? The U.S. obviously has a regulatory framework and perspective that is quite different than the EU. Europe is much more prone to adopt a regulatory answer than enable pursuit of marketplace solutions to competition issues. The European wireless market is still working itself out from a telecom industry past characterized by national, government-owned operators. Unlike the U.S., Europe standardized GSM technology for its wireless market, primarily operates on a "caller pays" system rather than a both parties pay system, and it tends towards a "competitor welfare" emphasis for competition regulation and antitrust over a consumer welfare model. By contrast, since deregulation and preemption policies for wireless were put in place by Congress in 1993, U.S. wireless innovation and competition has exploded in an atmosphere of minimal federal and state regulation.

Now just because the EU adopts a policy doesn't mean that it's a bad policy or that it's never worth considering. But given fundamental differences between the U.S. and European view of marketplace micromanagement, the FCC is better off sticking with the justifiable rules it already has in place for wireless billing than with importing regulations premised on the EU's different set of regulatory assumptions. The FCC's recent release of a tip sheet for avoiding "bill shock" is certainly helpful. But beyond existing rules and educational efforts, the best thing the FCC can do for consumers is continue to let the wireless innovation and competition that got us to this point flourish, free from regulatory interventionism.

Clearing the Air on Wireless Text Messaging

The U.S. Department of Justice (DOJ) has finished its inquiry into wireless carriers' text-messaging rates and intends to take no further action. So reports the Wall Street Journal ("Justice Ends Probe of Texting Rates"). Apparently, DOJ could find no evidence sufficient to support claims raised by the U.S Senate Antitrust Subcommittee Chairman that wireless carriers were engaged in illegal collusive price-fixing conduct to keep text messaging prices up. As I pointed out in a blog post from last month ("Getting the Message on Text Messaging Prices"), a federal trial court recently dismissed a nationwide class-action lawsuit against the major wireless carriers based on similar, factual flimsy collusion claims. Skyrocketing numbers of text messages being sent and received by consumers—with 1 trillion sent last year alone—suggest strong consumer demand, not consumer harm. And many text messaging price complaints myopically focused on per-message prices rather than bundled package prices that offer consumers far more economical choices.

Fortunately, the Federal Communications Commission's (FCC) current net neutrality/net neutering rulemaking—i.e., the Preserving the Open Internet proceeding—will likely refrain from imposing any kind of direct regulation on text messaging. But this outcome was not always so likely. Back in late September, FCC Chairman Julius Genachowski's speech at Brookings announcing his plans to impose net neutrality/net neutering regulation asserted "[w]e have even seen at least one service provider deny users access to political content." This line was an apparent reference to Verizon Wireless' employees' initial rejection of a NARAL application for a common short code (CSC)—a text messaging service. (The matter was resolved within 48 hours, with the CSC application granted, all without FCC intervention.)

The Chairman's September speech thus raised the likelihood of FCC regulation of text messaging in the forthcoming proceeding. However, the FCC Notice issued in October says otherwise. Although the FCC proposes to extend net neutrality/net neutering regulation to wireless broadband networks, paragraph 156 of the FCC's Notice states that it will not subject text messaging to any such rules:

Because of the rapid growth and increasing use of mobile wireless as a platform for broadband Internet access, we will examine in greater detail in the following parts the application of the principles to mobile broadband Internet access. We note as a threshold matter that wireless providers may offer a range of services—including traditional voice, short message service (SMS), and media messaging service (MMS)—that are not broadband Internet access services and thus are not included in the scope of the draft rules discussed above.

Given nascent wireless broadband technological limitations, wireless broadband innovation and quality-of-service stands to take a hit from new regulation. (The Free State Foundation just submitted its comments to the FCC in the proceeding.) But at least text messaging will probably come away unscathed in the FCC's proceeding. When it comes to the messaging, the FCC's Notice appears intended to preserve the status quo.

Nonetheless, the status quo for text messaging leaves room for FCC deregulatory reform. As it now stands, text messaging in a kind of regulatory netherworld. It isn't subject to rigorous regulation, but neither is it protected by a deregulatory classification. The FCC's 2007 Wireless Broadband Order classified wireless broadband Internet access service as an information service (subject to less regulation) while it classified the transmission component of wireless broadband Internet access service as a "telecommunications service” (subject to common carrier obligations). The 2007 Order also concluded that the offering of the telecommunications transmission component as part of a functionally integrated Internet access service offering is not "telecommunications service." Although the 2007 Order's description of wireless broadband Internet access services and technologies referred to text messaging as a "mobile data application," the Order did not expressly declare it an information service.

The Commission now has opportunity to clarify that text messaging and related mobile data services are, in fact, "information services." Both the 2007 Wireless Broadband Order and the alleged CSC censorship incident mentioned in Chairman Genachowski's speech set the backdrop to a petition to the FCC by Public Knowledge, Free Press, and others seeking a declaratory ruling that text messaging—including CSCs—are subject to common carrier obligations. To date, the FCC has issued no ruling on the petition. But the FCC can provide deregulatory certainty by declaring text messaging an "information service," thereby rejecting the petitioners' arguments for imposing common carrier regulation.

Getting the Message on Text Messaging Prices

Text messaging is a booming wireless service. As the Federal Communications Commission's (FCC) reported earlier this year, "[t]he monthly volume of text messaging traffic grew to 48.1 billion messages during December 2008, up from 18.7 billion messages during December 2006, 9.8 billion messages during December 2005 and 4.7 billion messages during December 2006." CTIA's semi-annual survey from earlier this year indicates that text messaging traffic surged 1,200% from 2005-2008, with an astonishing 1 trillion text messages sent and received just in 2008. But just as text messaging has increasingly gained the interest of consumers, it has increasingly gained the attention of public officials and others eager to intervene in marketplace. In the last year, marketplace interventionists have set their sights on resetting text messaging prices.

In Re Text Messaging Antitrust Litigation should serve as a wake-up call for the text messaging marketplace interventionists. Just this month a federal trial judge tossed out this class-action lawsuit concerning text messaging prices, thankfully averting what otherwise could have become a momentous feat of regulation by litigation. The nationwide class-action suit was brought in federal court in Illinois on behalf of all consumers who purchased text messaging services on a fee-per-message basis from all four major U.S. wireless companies from the beginning of 2005 to the present. Plaintiffs' lawyers alleged that Sprint-Nextel, AT&T, Verizon Wireless & T-Mobile conspired to raise and fix text messaging prices for consumers who purchased text messaging services on a per-message basis. (Recent Congressional hearings have addressed the same kinds of claims.) The primary factual allegation of non-competitive behavior is their allegation of parallel pricing" by tacit agreement whereby one carrier would raise per-message prices followed by the other carriers also raising their respective prices several months later. Plaintiffs' lawyers even included in their complaint U.S. Senate Antitrust Subcommittee Chairman Herb Kohl's letter to the carriers in September of last year inquiring into their price increases for per-message purchases. (Sen. Kohl has also sent letters to the FCC and Antitrust Division of the Department of Justice, urging investigation of text messaging pricing.)

The case was dismissed for the failure of plaintiffs' lawyers to allege facts sufficient to state a claim under Section 1 of the Sherman Antitrust Act. Horizontal price-fixing is per se illegal under antitrust law, but here the judge found nothing but empty labels that never rose to the level of plausibility. What's more, the judge's ruling contains some commonsense wisdom that our public officials should keep in mind when it comes to prices for text messaging.

As Judge Matthew F. Kennelly's ruling recognized, consumers may purchase text messaging services either on a per-message basis or through a bundled plain. Bundled plans can include either set allotments of text messages or unlimited amounts. Moreover, since 2005, wireless carriers' "prices for other wireless services, such as voice calling and data transmission, decreased." (The FCC report mentioned earlier states that wireless revenue per minute "declined by one cent from $0.07 in 2006 to $0.06 in 2007, continuing the price trend since 1994.") But the plaintiffs’ lawyers' claims were directed solely at per-message prices for text messaging, not at bundled plan prices or at any of the other available wireless services. The judge's concluding words nicely sum up the situation:

In the wireless communications industry, price competition is fierce for voice calling, data services, and bundled plans. Most consumers purchase test messaging services on a bundled or unlimited basis. [Wireless carriers] charge consumers steep penalties for early termination of service contracts. Given these factors, parallel pricing in this single, relatively narrow part of the field in which they compete does not support a reasonable inference of an agreement not to compete.

In rejecting the price fixing claims, the judge pointed to the more likely explanation of events:

[A]s text messaging became more popular, [wireless carriers] sought to encourage consumers to purchase text messaging services as part of a bundled plan. ... By increasing the per-message price for text messages and encouraging subscribers to increase their usage of text messages through initiatives like the development of CSCs, providers could create an incentive for subscribers to purchase bundled plans to avoid the wildly varied (and sometimes wildly expensive) bills that could result from per-message pricing.

Businesses, non-profit organizations and advertisers use Common Short Codes (CSCs) as a tool for information campaigns and to keep their constituencies and customers up to date on any variety of subjects. But the number of messages sent to and received by wireless subscribers to CSCs becomes financially unfeasible when subscribers partake of per-message pricing. Since wireless carriers generate ad revenue from CSCs, they have every incentive to encourage customers to enroll in bundled text messaging plans.

Unfortunately, some critics of text messaging prices seem to ignore the fact that text messaging operates through advanced wireless networks that are expensive to build, maintain, upgrade, and expand. CTIA’s semi-annual survey, for instances, asserts that wireless capital expenditures totaled $217 billion from 1998-2008. Carriers reported an average combined investment of $22.8 billion per year from 2001-2008 to upgrade their networks. Just because the marginal cost of transmitting a text message through a wireless carriers' network may be a miniscule fraction of a $0.20 cent per-message price doesn't mean the wireless carriers aren't in need of recovering the cost of these extraordinary capital expenditures. Answering these same kinds of short-sighted complaints about text messaging prices, the judge wrote:

Even if the Court assumes, as plaintiffs allege, that [wireless carriers'] pricing for individual text messages resulted in revenues that were "several thousand times what it actually costs" to transmit a text message… plaintiffs have "done nothing more than assert that profits were extraordinary... not… that they were beyond those afforded by a competitive market."… Where, as here, the fixed costs associated with an industry are high… self-interested producers might attempt to charge higher than marginal cost prices for their products in order to recover some of their fixed costs.

Skyrocketing volumes of text messaging traffic strongly suggests that the free marketplace is matching supply with demand. The 1 trillion text messages sent last year alone speak to the apparent success of wireless carriers finding price points that consumers find agreeable. Calls for investigations and regulations of text messaging prices are particularly shortsighted when text messaging is taken in isolation. Wireless voice and data services have decreased in recent years and there are benefits to bundled offerings of text messaging with other such services. Marketplace interventionists who dislike current text messaging prices and demand change have a heavy burden to explain why their conjectural price preferences are better than consumers' actual price preferences.