Regarding the Proposed Repeal of the
Commissioner Sheila F. Anthony
July 17, 2002
Mr. Chairman and members of the Subcommittee, I am pleased to be here. I would like to take a moment to address our legislative recommendation to repeal the FTC Act's exemption for communications common carriers. I want to thank you, Chairman Dorgan, for tackling this important issue. Although there has been a general recognition within the Commission for some time that the exemption for telecommunications firms should be eliminated, this hearing today is the first time Congress has asked for comment about this impediment to the Commission's ability to protect consumers, and I appreciate your leadership.
Section 5 of the FTC Act grants the Commission broad authority to protect consumers. We deal with classic consumer protection issues, such as fraud and deceptive advertising, as well as antitrust issues, such as mergers and anticompetitive conduct.
One of the few activities expressly exempted from the Commission's authority is common carriage subject to the Communications Act. At the time it was adopted early in the Twentieth Century, the exemption made sense. Telecommunications services were being provided in the U.S. substantially by single service, monopoly firms, highly regulated by the Interstate Commerce Commission first, and then by the FCC. With pervasive regulation by a specialized agency and a non-competitive marketplace, there was little need for the FTC's additional oversight.
We are now at the dawn the Twenty-First century and the state of affairs in the telecommunications industry is vastly different. Ma Bell's tightly regulated monopoly has given way to competition and a largely deregulated market. In addition, the business activities of telecommunications firms have now expanded far beyond common carriage and into fields including internet services and cable television. AT&T is a good example.
Opening the door to competition in telecommunications also opens the door to the usual raft of consumer protection issues that are the FTC's bread-and-butter. Unfortunately, the exemption stands in the way of the FTC protecting consumers in this new telecommunications marketplace. The bottom line is that the exemption has outlived its purpose and consumers are being harmed. Let me give you some concrete examples of what I am talking about.
In the consumer protection arena, we've seen telecommunications firms increasingly engage in aggressive business practices, including fraud and deception, to gain or retain customers and market share, both in their common carrier businesses and their other businesses. We have seen "cramming" - unauthorized charges for goods and services on consumers' telephone bills - and a torrent of misleading long distance ads. The FTC has extensive expertise with these types of deceptive advertising, marketing, billing, and collection issues.
Furthermore, even when telecom firms engage in fraudulent or deceptive business practices that do not fall within the exemption, the exemption can still pose an obstacle. Defendants often argue that the exemption protects every action of a company that enjoys common carrier status. The commission firmly believes that only the common carrier activities of such companies are exempted. But, litigating the issue, as the commission has repeatedly been forced to do, raises the cost of pursuing enforcement actions, forces the Commission to make pragmatic decisions about what entities to pursue, and can result in unnecessary delays in obtaining consumer redress and other remedies.
In the competition arena, the exemption creates serious antitrust enforcement obstacles. The exemption potentially precludes the FTC from reaching a variety of conduct that may warrant antitrust scrutiny. For example, a regulated common carrier might seek to deter competition from providers of internet telephony by degrading connections or through connection fees. A telco might also refuse to deal with DSL-based broadband ISPs except on conditions that disfavor internet telephony. The scenarios are virtually limitless. The point is that the exemption effectively removes a large part of the government's antitrust enforcement resources from being available to address competition problems in markets that are highly important to consumers and the economy.
Removal of the exemption is in the public interest. The FTC is well equipped to address competition issues in markets undergoing deregulation and technological change, as it has already in natural gas, electricity, and cable. It was specifically created as an expert administrative body with economic expertise to address complex competition issues.
In sum, American consumers will benefit if the Congress repeals the communications common carrier exemption from the FTC Act, and I urge this Committee to consider taking the lead in doing so. Thank you.