The American Recovery and Reinvestment Act of 2009, H.R. 1, 111 Cong. (2009), Pub. L. 111-5 1 th

– Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions, Title VI – Broadband Technology

Opportunities Program § 6001(k)(1)-(2) (Feb. 17, 2009) [“Recovery Act”].

Federal Communications Commission, A National Broadband Plan for Our Future, Notice of 2

Inquiry [“FCC NOI”], 24 FCC Rcd 4342 (Apr. 8, 2009).

FTC STAFF, BROADBAND COMPETITION CONNECTIVITY POLICY (2007) [“FTC Broadband Report”], 3

available at http://www.ftc.gov/reports/broadband/v070000report.pdf; Broadband Connectivity Competition Policy

workshop, http://www.ftc.gov/opp/workshops/broadband/index.shtml.

See generally FTC Broadband Report, supra note 3, at 98-105 (discussing the current and future

4

state of broadband competition); FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF JUNE 30, 2008

11, 22, Tables 6 & 16 (2009) [“FCC High-Speed Services Report”], available at

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-292191A1.pdf; PEW INTERNET & AMERICAN LIFE PROJECT,

HOME BROADBAND ADOPTION 2009 (2009) [“Pew Study”], available at

http://www.pewinternet.org/~/media//Files/Reports/2009/Home-Broadband-Adoption-2009.pdf.

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of )

)

A National Broadband Plan for Our Future )

)

GN Docket No. 09-51

COMMENTS OF THE

FEDERAL TRADE COMMISSION

Introduction

The Federal Trade Commission (“FTC”), which shares jurisdiction over broadband Internet

access and related content and applications with the Federal Communications Commission (“FCC”),

appreciates this opportunity to contribute to the development of the Nation’s Broadband Plan. This 1

comment responds to the FCC’s Notice of Inquiry (the “Notice”) and is based on the FTC’s 2

extensive competition and consumer protection law enforcement experience involving the Internet as

well as the FTC’s 2007 Broadband Report.3

Policies that promote competition and consumer protection can foster new and innovative

offerings, lower prices, and greater consumer use of those services. This insight applies forcefully to

the broadband access and Internet content and applications markets at issue in the Notice.

Regarding the provision of broadband, significant questions exist about the extent to which

broadband access markets are competitive. To evaluate those competitive conditions and to tailor 4

appropriate regulatory policies that could encourage additional competition, the FCC may wish to

rely on the competition analysis framework used by the FTC that is contained in the FTC/DoJ

Horizontal Merger Guidelines. Consumer protection policy works hand-in-hand with competition
The FTC enforces laws prohibiting unfair methods of competition and unfair and deceptive acts or 5

practices in or affecting commerce. 15 U.S.C. § 45(a). The FTC has wide-ranging responsibilities concerning nearly

all segments of the economy and is the only federal agency with both competition and consumer protection

jurisdiction in broad sectors of the economy. The FTC is well-versed in consumer protection and competition issues

raised by the offering of Internet access services and related online content and applications. 

FTC competition actions in the area of broadband and other forms of Internet access include: In the Matter

of Cablevision Systems Corp., Dkt. No. C-3804 (1998) (consent order); In the Matter of AOL, Inc. and Time

Warner, Inc., FTC Dkt. No. C-3989 (2001) (consent order); and Time Warner/Comcast/Adelphia (Jan. 31, 2006)

(FTC File No. 051-0151) (closing statements).

FTC consumer protection actions in the area of broadband and other forms of Internet access include, for

example: FTC v. Cyberspace.com LLC, 453 F.3d 1196 (9 Cir. 2006); FTC v. Pricewert LLC (No. C-09-2407 th

RMW) (N.D. Cal. 2009); In the Matter of Am. Online, Inc. & CompuServe Interactive Servs., FTC Dkt. No C-4105

(Jan. 28, 2004). 

For FTC privacy initiatives see FTC, Privacy Initiatives, http://www.ftc.gov/privacy/index.html.

2

policy to promote broadband adoption. For example, consumers are likely to make more informed

choices when broadband providers make meaningful and timely disclosure of material terms of

service. Further, strong data security policies by the providers, which safeguard sensitive consumer

information, may ease consumers’ privacy concerns and also facilitate their adoption of broadband.

Broadband access and related Internet content and applications markets present both

competition and consumer privacy concerns as well. For example, in the provision of content and

applications over the Internet, concerns stem from recent technological advances that allow

broadband providers to identify the source and content of much of the data they handle, and to

manage that data in increasingly sophisticated ways. Using this technology, broadband providers

may be able to track a consumer’s online activities to deliver targeted advertisements. They also

might advantage or disadvantage certain content or applications. These practices have the potential

to benefit consumers, but also pose some risks. Accordingly, this comment outlines questions that

may lead to useful empirical information regarding whether these practices are occurring and their

impact on both consumers and competition. 

 As described below, the FTC has committed substantial research and law enforcement

resources to the Internet, broadband, and consumer privacy. The FTC pledges continued vigorous 5

law enforcement and consumer education to protect consumers and foster competition in these

markets. It welcomes the opportunity to directly assist the FCC as it develops the Broadband Plan.

I. Advancing Consumer Welfare by Promoting Competition and Consumer Protection

The Recovery Act directs the FCC to “analy[ze] the most effective and efficient mechanisms

for ensuring broadband access by all people of the United States” and to develop “a plan for the use

of broadband infrastructure and services in advancing consumer welfare” and other national
See Recovery Act, supra note 1. The National Broadband Plan shall also include: 

6

(a) an analysis of the most effective and efficient mechanisms for ensuring broadband access by all people of the

United States; 

(b) a detailed strategy for achieving affordability of such service and maximum utilization of broadband infrastructure

and service by the public; 

(c) an evaluation of the status of deployment of broadband service, including progress of projects supported by the

grants made pursuant to this section; and 

(d) a plan for use of broadband infrastructure and services in advancing consumer welfare, civic participation, public

safety and homeland security, community development, health care delivery, energy independence and efficiency,

education, worker training, private sector investment, entrepreneurial activity, job creation and economic growth, and

other national purposes. 

Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978) (emphasis added); accord,

7

FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 423 (1990).

An act or practice is deceptive if it involves a representation, omission, or practice that: (1) is likely 8

to mislead consumers acting reasonably under the circumstances, and (2) is material. Cliffdale Assocs., Inc., 103

F.T.C. 110, 164-65 (1984). An act or practice is unfair if it causes injury to consumers that: (1) is substantial; (2) is

not outweighed by countervailing benefits to consumers and competition; and (3) consumers themselves could not

reasonably have avoided. 15 U.S.C. § 45(n); see also Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1363-66

(11th Cir. 1988).

3

purposes. The FTC respectfully submits that measures to promote competition and consumer 6

protection should be the foundation on which the Broadband Plan is built. 

Consumers – including consumers of broadband-related products and services – benefit from

market competition. The U.S. Supreme Court has recognized that the benefits of competition go

beyond lower prices: “The assumption that competition is the best method of allocating resources in

a free market recognizes that all elements of a bargain - quality, service, safety, and durability -

and not just the immediate cost, are favorably affected by the free opportunity to select among

alternative offers.”7

Competition and consumer protection enforcement naturally complement each other, and

they mutually reinforce elements of the larger goal of benefitting consumers. Competition pressures

producers to offer consumers the most attractive array of choices with respect to price, quality, and

other options. Competitive firms are constantly searching for superior profit opportunities as they

seek to win the favor of customers, who effectively vote for preferred products and services with

their dollars. 

At the same time, consumer protections promote informed consumer decision-making and

require sellers to uphold representations made about their offerings in the course of trying to win the

favor of customers. In other words, strong consumer protection policies reinforce competition by

clarifying consumer choices and prohibiting firms from engaging in unfair or deceptive acts or

practices. 

8

These well-established policies form a critical part of the foundation on which to build a
FTC Broadband Report, supra note 3, at 120-37. 9

Pew Study, supra note 4, at 9. 10

FCC High-Speed Services Report, supra note 4, at 11, 22, Tables 6 & 16. 11

Pew Study, supra note 4, at 24 12

Id. at 23-4. 13

See FCC, Annual Report and Analysis of Competitive Market Conditions with Respect to 14

Commercial Mobile Radio Services, Thirteenth Report, 24 FCC Rcd 6185, ¶¶ 15-19 & Table A-4 (Wireless

Telecom. Bur., released Jan. 16, 2009) (Verizon Wireless, AT&T, Sprint, T-Mobile, and carriers affiliated or

acquired by these four companies served approximately 93% of mobile subscribers in the country as of the end of

2007). 

4

sound Broadband Plan to benefit consumers. The fundamental principles of antitrust and consumer

protection law and economics are as relevant to broadband as they are to other industries in our

economy. Thus, the Broadband Plan should facilitate the operation of the free market process to 9

the greatest extent possible consistent with the Recovery Act. It should maximize incentives for

businesses to enter, deploy risk capital, and compete for customers, keeping barriers to entry as low

as possible. At the same time, the FTC will continue vigorous enforcement of competition and

consumer protection laws in the context of broadband Internet access, so that consumers receive the

benefits of competition. 

II. Encouraging Additional Competition Among Broadband Infrastructure Providers

A. Broadband Internet Access Infrastructure - Competition Issues 

Consumer demand for broadband Internet has grown significantly. A recent survey finds

that between 2008 and 2009, home broadband adoption has increased to 63 percent of adult

Americans in April 2009, up from 55 percent in April 2008.10

Consumer choice among broadband providers, however, remains limited as more than 80

percent of consumers have a choice of only one or two providers. Moreover, urban and suburban 11

consumers typically have more choice than rural consumers. In those areas with greater choice, 12

prices for broadband service are lower. This same survey found that of the 15 percent of consumers

reporting that they have four or more broadband Internet access choices at home, they paid

approximately 18 percent less than the average monthly bill.13

Currently, relatively large market shares for fixed, wireline broadband services are typically

held by a single incumbent cable operator and a single incumbent telephone company in each

geographic area and relatively large market shares for mobile broadband services held by the four

largest wireless carriers. Nonetheless, a variety of other technologies are beginning to compete in 14
See FTC Broadband Report, supra note 3, at 98-105. 15

See generally id; FCC High-Speed Services Report, supra note 4. 16

Recovery Act, supra note 2, at Division B, Title VI § 6001(l). 17

The FCC has taken varying approaches to analyzing competition in the same general market 18

segments. In some cases, it conducted a rigorous competition analysis consistent with the Merger Guidelines. See,

e.g., Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 18 FCC Rcd

16978, ¶¶ 73-74 (2003) (“Triennial Review Order”), modified, 18 FCC Rcd 19022 (2003), aff’d in part and rev’d

and remanded in part on other grounds, United States Telecom Ass’n, 359 F.3d 554 (D.C. Cir. 1994), subsequent

history omitted. By contrast, in other non-merger policy decisions, the FCC did not conduct a rigorous economic

analysis consistent with the framework of the Merger Guidelines. See, e.g., Appropriate Framework for Broadband

Access to the Internet Over Wireline Facilities, 20 FCC Rcd 14853, ¶¶ 47-62 (2005) (“Wireline Broadband

5

that market. The “narrowband” dial-up Internet access services introduced in the mid-1990s have 15

largely been supplanted by much faster broadband connections, as consumers have demanded faster

access to increasingly sophisticated and data-rich content and applications. 

Consumers obtain last-mile broadband Internet access services through fixed wireline

technologies such as digital subscriber line (“DSL”) service, coaxial cable, and fiber lines. A

substantial number of consumers also now have high-speed Internet access via wireless technologies,

including: fixed wireless technologies such as Wireless Fidelity (“Wi-Fi”); mobile wireless

technologies such as third-generation (“3G”) mobile cellular service; and satellite. Increasingly,

new technologies such as Wi-MAX and other fourth-generation (“4G”) wireless technologies are

expected to be deployed as well. Broadband Internet access providers offer these services in a 16

variety of different formats.

These general market observations, however, do not reflect the degree of broadband

competition in every local market in the United States. Without a thorough review, it is difficult to

determine the extent to which consumers in markets throughout the United States have a choice of

broadband Internet providers. Accordingly, the FTC welcomes the learning to be gained from the

development of a nationwide broadband inventory map by the National Telecommunications and

Information Administration (“NTIA”), as directed by the Act. The development of such a 17

broadband inventory map is an essential step toward better understanding the extent and nature of

competition among broadband Internet access providers in different relevant markets in the United

States.

1. Competition Policy Guidance Can Assist the Development of

Regulatory Policies Governing Broadband Internet Access.

Although a nationwide broadband inventory map is a necessary first step, the mere counting

of providers does not answer how competitive broadband markets are or how well consumers are

served. The FTC suggests that the Broadband Plan follow a consistent and economically sound

analytical framework to evaluate those questions. Such a framework for competitive market

analysis could be used as the foundation for the development of ongoing regulatory policies

governing broadband Internet access. 

18
Order”), aff’d, Time Warner Telecom, Inc. v. FCC, 507 F.3d 205 (3d Cir. 2007); Petition of AT&T Inc. For

Forbearance from Title II and Computer Inquiry Rules with Respect to Its Broadband Services, 22 FCC Rcd 18705,

¶¶ 18-27 (2007) (“AT&T Broadband Forbearance Order”). 

See generally USTelecom, High-Capacity Services: Abundant, Affordable, and Evolving, (July

19

2009); National Regulatory Research Institute, Competitive Issues in Special Access Markets, (rev’d ed. Jan. 21,

2009). Both reports suggest additional data collection is necessary to engage in a competitive market analysis.

U. S. Dept. of Justice and Federal Trade Comm., HORIZONTAL MERGER GUIDELINES (Apr. 2, 20

1992, rev’d Apr. 8, 1997), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104 [hereinafter Merger

Guidelines].

See, e.g., In the Matter of AOL, Inc. and Time Warner, Inc., FTC Dkt. No. C-3989 (2001) (consent 21

order).

6

An analysis of price and market share information for broadband services in properly defined

product and geographic markets (as discussed below) can help illuminate existing entry barriers and

identify appropriate regulatory responses to protect against the exercise of market power that harms

consumers. In this type of competitive analysis, the key question is whether there are constraints 19

on a broadband provider’s ability potentially to exercise market power in a relevant market. Market

power is typically defined as the ability of a firm to profitably raise price above the competitive

level. 

The Merger Guidelines provide a competitive analysis approach that can help evaluate the

extent of broadband Internet access competition in any given relevant product and geographic

market. The Merger Guidelines provide extensive guidance on how to identify relevant product 20

and geographic markets and to determine which providers compete in or could enter those markets. 

The FTC has used the Merger Guidelines in merger reviews and other investigations in broadband

and Internet access markets.21

2. Identify Relevant Product and Geographic Markets

The first step in this analysis is to identify the relevant markets for broadband services. 

Under this analysis, a relevant market for a service would consist of services sold in competition

with any other such service, such that a provider could profitably increase price without customers

switching to another provider. If customers would switch to another service (thereby preventing the

provider(s) from increasing the price in the first place), then those services would be included in the

definition of the relevant product market as well. 

In the case of broadband Internet access, the analysis of last-mile competition frequently

centers around cable, DSL, and (more recently) fiber wireline technologies. Services need not

necessarily be perfect substitutes for each other to be included in the same relevant market. If a

wireless broadband service appeals to a sufficient number of marginal cable modem or DSL

broadband consumers to constrain the provider’s pricing activity, for example, then the wireless

broadband service may be considered a competitive alternative and counted as part of the relevant

product market. The critical question is to determine the services to which consumers would turn if
The FCC has taken varied approaches to product market definition in the context of last-mile 22

broadband facilities. For example, in some cases the FCC has defined product markets to separately identify

different capacity levels (e.g., voice grade, DS-1, DS-3, and OC-3 and higher level circuits). See, e.g., Unbundled

Access to Network Elements; Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange

Carriers, 20 FCC Rcd 2533, ¶ 166 (2005) (“Triennial Review Remand Order”), aff’d, Covad Communications

Corp. v. FCC, 453 F.3d 528 (D.C. Cir. 2006). By contrast, in other cases the FCC has conflated all of these

capacity levels for last-mile access and treated them as a single product market, with no Merger Guidelines-type

analysis of the extent to which buyers would shift between these different capacity circuits in the event of a price

increase. See, e.g., SBC Communications, Inc. and AT&T Corp. Applications for Approval of Transfer of Control,

20 FCC Rcd 18290, ¶ 27 n.90 (2005) (“SBC/AT&T Merger Order”). 

Past FCC decisions have assessed competition in broadband markets using different geographic 23

definitions without explaining the differences. See, e.g., SBC/AT&T Merger Order, ¶ 28 (defining each individual

customer premise as a separate geographic market); Triennial Review Remand Order, ¶¶ 80, 156 (defining

geographic markets based on individual routes between particular ILEC central office buildings for competitive

assessment of transport or middle-mile facilities, but based on all locations within each wire center service area for

purposes of competitive assessment of loop or last-mile facilities); Petition of Qwest Corp. For Forbearance in the

Omaha Metropolitan Statistical Area, 20 FCC Rcd 19415 (2005) (defining geographic markets based on

metropolitan area for purpose of assessing “dominant carrier” status of retail broadband services provided to mass

market consumers, but based on wire center service areas for purpose of assessing need for of unbundled network

element requirements); Wireline Broadband Order (applying policy change nationwide, without any attempt to

define geographic market); AT&T Broadband Forbearance Order, ¶ 20 (same).

7

their existing providers increase price or reduce quality.22

Competition analytics also can be applied to properly define the nature of competition in

middle-mile and long-distance market segments. These are the market segments that do not serve

end-user consumers but rather include backhaul, special access services, or interconnection of a

provider’s network to the larger Internet. These segments can be critical to enable new end user

providers to provide broadband service in a particular geographic area. Competition in these

segments ultimately can affect competition in the last mile, for example, by affecting the entry of

new providers of last-mile services. New last-mile technologies, such as fixed wireless, typically at

some point require a connection to longer-distance transport services in order to provide users with

access to the broader, global Internet. Thus, the nature of competition in middle-mile and backbone

connections may affect the ability of a provider of last-mile wireless service to enter and compete. 

Once the relevant product market is identified, the inquiry then turns to the relevant

geographic market. The relevant geographic market is the area within which a broadband Internet

access provider could profitably raise price, without consumers switching to other access providers. 

The relevant geographic markets for consumer broadband Internet access services could be local or

regional. In middle-mile markets, the relevant geographic area would be one in which the provider

offering the relevant product (e.g., DS-1 circuits) could profitably raise price without customers

switching to another provider inside that area. Again, the critical question is to whom would

customers turn if their current providers increased price or reduced quality.23

Once the relevant product and geographic markets are identified, the next step is to identify
E.g., FTC v. Cyberspace.com LLC, 453 F.3d 1196 (9th Cir. 2006) (affirming finding of more than

24

$17 million in liability for violation of FTC Act for mailing false or misleading purported rebate refund checks

without disclosing that cashing checks would prompt monthly charges for Internet access services on customers'

telephone bills); FTC v. Pricewert LLC (No. C-09-2407 RMW) (N.D. Cal. 2009) (securing preliminary injunction

for likely violation of FTC Act for recruiting, distributing, and hosting harmful electronic code or content, including:

child pornography, botnet command and control servers, spyware, viruses, trojans, and phishing-related Internet

sites); In the Matter of America Online, Inc. & Compuserve Interactive Servs., Inc., FTC Docket No. C-4105 (Jan.

28, 2004) (consent order); In the Matter of Juno Online Servs., Inc., FTC Docket No. C-4016 (Jun. 25, 2001)

(consent order); In the Matter of WebTV Networks, Inc., FTC Docket No. C-3988 (Dec. 8, 2000) (consent order); In

the Matter of America Online, Inc., FTC Docket No. C-3787 (Mar. 16, 1998) (consent order); In the Matter of

CompuServe, Inc., 125 F.T.C. 451 (1998) (consent order); In the Matter of Prodigy, Inc., 125 F.T.C. 430 (1998)

(consent order). 

8

the current suppliers into the relevant markets. Market share statistics can then be used to calculate

concentration levels in each relevant market. The analysis of market share information, however, is

often just the starting point for a more sophisticated analysis of the competitiveness of the relevant

market(s) and an examination of whether existing business practices in those markets facilitate or

retard competition. 

An important part of this competitive analysis is to examine the ease with which firms can

increase supply to the market. Such responses may occur in several ways, such as by entry of new

firms, the switching or extension of existing assets to production or sale in the relevant market, or by

the construction or acquisition of assets that enable production or sale in that market. Some firms

not currently serving consumers may constrain conduct by incumbent firms, through the threat of

potential entry. If entry is easy, it likely will deter or counteract any competitive concerns. But if

entry is difficult, competitive concerns will increase. Factors such as large sunk costs and long lead

times tend to make entry difficult. Generally, only those entry alternatives that can be achieved

within two years from initial planning to significant market impact will be considered as likely to

counteract competitive concerns. 

In sum, the Merger Guidelines can provide useful principles for assessing competition in

broadband Internet access services in any relevant market. A fact-based competition analysis,

including attention to entry barriers, can be used to fashion appropriate regulatory policies to

maintain or increase competition among broadband providers. 

B. Meaningful Consumer Disclosures and Strong Data Security Policies Promote

Broadband Adoption and Usage

To ensure consumers benefit from competition among broadband providers, the Broadband

Plan should address two consumer protection issues: (1) truthful, clear and conspicuous disclosure

of material terms of service; and (2) data security. Current federal consumer protection law can

address both sets of concerns. The FTC has used its full range of law enforcement authority

(including redress where appropriate), regulation, consumer and business education, and policy

initiatives to address both issues, and will continue to do so in the broadband Internet access 24
Because the provision of broadband Internet access is not a common carrier service, see, e.g., Nat’l 25

Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005), the FTC and FCC have

concurrent jurisdiction over the provision of broadband service. So that consumers can benefit from the FTC’s

competition and consumer protection expertise, national broadband policies should preserve the FTC’s jurisdiction

over broadband Internet access.

See, e.g., Letter from Lydia B. Parnes, Director, Federal Trade Commission, Bureau of Consumer

26

Protection, to Sprint/Nextel Corporation (Aug. 8, 2007) available at

http://www.ftc.gov/os/closings/staff/070808sprintnextelclosingltr.pdf.

Cliffdale Assocs., 103 F.T.C. 110, 175 (1984) (appending FTC Policy Statement on Deception). 27

9

arena.25

1. Clear and Conspicuous Disclosure of Material Terms of Service

Without truthful marketing and clear disclosure of material terms, consumers will lack the

information they need to make informed decisions regarding broadband Internet access services,

which will affect competition on the merits. As a result, consumer purchase decisions will be

distorted, and competition will be harmed. Accurate disclosure of material terms allows consumers

to compare similar services offered by one or more providers and to weigh the different terms being

offered in making decisions about what services to purchase.

Advertising is one way in which broadband access providers raise consumer awareness of

their products and services. Under the FTC Act, advertisements must be truthful and not mislead

consumers in ways that affect consumers’ behavior or decisions about the product or service. An

advertisement claim can be misleading if it contains a misrepresentation or omission that is likely to

mislead consumers acting reasonably under the circumstances to their detriment. For example, it

might be deceptive to represent to consumers that they will receive unlimited Internet access when,

in fact, there are specific usage limitations. In addition, advertising claims must be substantiated, 26

especially when they concern performance attributes of the product or service.27

Certain claims common to Internet service contracts are “material,” such as those relating to

price, contract duration, and service purchase (e.g., bundling of broadband Internet access with other

services like video and telephone). Depending on the context and usage, other terms may be

material, including: data transmission speeds, use limitations, broader network management

policies, and the existence of any preferential business arrangements with content or applications

providers.

These additional terms of service may become more important to consumers over time, as

increasingly powerful network management tools allow network operators to monitor, aggregate,

and analyze data from Internet traffic. Even if data are encrypted, such techniques may allow a

network operator to modify its service based on the consumer’s use patterns. These types of

practices may be material to reasonable consumers and, thus, may require meaningful consumer

disclosure.
 See James M. Lacko & Janis K. Pappalardo, Federal Trade Commission, Bureau of Economics

28

Staff Report, THE EFFECT OF MORTGAGE BROKER COMPENSATION DISCLOSURES ON CONSUMERS AND COMPETITION:

A CONTROLLED EXPERIMENT (Feb. 2004), available at http://www.ftc.gov/os/2004/01/030123mortgagefullrpt.pdf;

James M. Lacko & Janis K. Pappalardo, Federal Trade Commission, Bureau of Economics Staff Report, IMPROVING

CONSUMER MORTGAGE DISCLOSURES: AN EMPIRICAL ASSESSMENT OF CURRENT AND PROTOTYPE DISCLOSURE FORMS

(June 2007), available at http://www.ftc.gov/os/2007/06/P025505mortgagedisclosurereport.pdf.

For example, in the context of lifetime service contracts used by an exterminator, the Commission 29

challenged unilateral changes of material terms of the contract by the company as unfair trade practices. See Orkin

Exterminating, 849 F.2d at 1363-66; see also FTC v. Certified Merch. Servs., Inc., No. 4:02:cv44 (E.D. Tex. Dec.

30, 2002) (final judgment and order), available at http://www.ftc.gov/os/2003/01/cms.pdf.

10

The question becomes whether currently available disclosures by providers of broadband

service provide clear and meaningful information to consumers. And if not, how these types of

information can be disclosed clearly and conspicuously so that they are meaningful to consumer

purchase decisions. Given the complex, multi-dimensional nature of Internet service offers,

consumers frequently may find it difficult to understand key features and costs of broadband options. 

Those who do not understand Internet service offers may pay more than necessary, or select

contracts with inappropriate features for their circumstances. If consumer confusion in this market

is substantial, then uniform disclosure of key terms and features should be considered. Any such

analysis should include consideration of whether the benefits of uniform disclosure would outweigh

its costs.

In other contexts, for example, in evaluating mortgage disclosures, FTC research

demonstrates that well-designed disclosures can improve consumer understanding. At the same

time, the research also demonstrates that disclosures must be developed carefully, because even

well-intentioned disclosures can actually harm consumers. To be most effective, uniform

disclosures should be tested with real consumers, using controlled, quantitative, objective tests of

consumer understanding.28

Disclosure of the terms of service also is especially important where discount offers are made

or other promotional periods are set to end. Consumers who subscribe to such offerings are likely to

expect a consistent baseline level of service throughout the contract period. The FTC and the courts

have found that a unilateral change of contract terms can be an unfair practice. Thus, the potential 29

for last-mile broadband Internet access providers to change the nature of their services over time

may raise important questions relating to the nature of their disclosures and consumers’ ability to

understand them.

2. Strong Consumer Data Security Policies Promote Consumer

Confidence and Broadband Adoption.

Inadequate protection of personal information and data security in the broadband Internet

context could hamper consumer confidence and undermine the benefits of broadband Internet

service. To combat these harms, privacy has been one of the FTC’s highest consumer protection
See generally FTC, Privacy Initiatives, 

30 http://www.ftc.gov/privacy/index.html.

See generally FTC, Spyware, Enforcement Actions, 

31

http://www.ftc.gov/bcp/edu/microsites/spyware/law_enfor.htm and FTC, Spam, Press Room,

http://www.ftc.gov/bcp/edu/microsites/spam/press.htm (providing lists of enforcement actions in these areas).

See generally FTC, Fighting Back Against Identify Theft, 32

http://www.ftc.gov/bcp/edu/microsites/idtheft (the FTC’s identity theft site).

16 C.F.R. Part 310. 33

The Do Not Call Registry was established by amendments to the TSR. Id. For information on the 34

Do Not Call Registry, which is enforced jointly by the FTC and the FCC, see generally FTC, National Do Not Call

Registry, http://www.ftc.gov/donotcall.

For example, the FTC hosted a Town Hall on the privacy and security issues associated with 35

contactless payment mechanisms and a Town Hall and staff report on mobile marketing. See FTC Workshop

Information Page, “Pay on the Go: Consumers and Contactless Payment,” available at

http://www2.ftc.gov/bcp/workshops/payonthego/index.shtml; Workshop Information Page,

FTC, “Beyond Voice: Mapping the Mobile Marketplace,” available at

http://www2.ftc.gov/bcp/workshops/mobilemarket/index.shtm.

See, e.g., United States v. Rental Research Svcs., No. 09-CV-00524-PJS-JJK (D. Minn. Mar. 5, 36

2009); FTC v. Navone, No. 2:08-CV-001842 (D. Nev. Dec. 30, 2008); United States v. ValueClick, Inc., No. 2:08-

CV-01711 (C.D. Cal. Mar. 13, 2008); United States v. American United Mortgage, No. 1:07-CV-07064 (N.D. Ill.

Dec. 18, 2007); United States v. ChoicePoint, Inc., No. 1:06-CV-0198 (N.D. Ga. Feb. 15, 2006); In the Matter of

CVS Caremark Corp., FTC Docket No. C-4259 (June 18, 2009); In the Matter of James B. Nutter & Co., FTC

Docket No. C-4258 (June 12, 2009); In the Matter of Genica Corp., FTC Docket No. C-4252 (March 16, 2009); In

the Matter of Premier Capital Lending, Inc., FTC Docket No. C-4241 (Dec. 10, 2008); In the Matter of The TJX

Cos., FTC Docket No. C-4227 (July 29, 2008); In the Matter of Reed Elsevier Inc., FTC Docket No. C-4226 (July

29, 2008); In the Matter of Life is good, Inc., FTC Docket No. C-4218 (Apr. 16, 2008); In the Matter of Goal Fin.,

LLC, FTC Docket No. C-4216 (Apr. 9, 2008); In the Matter of Guidance Software, Inc., FTC Docket No. C-4187

(Mar. 30, 2007); In the Matter of CardSystems Solutions, Inc., FTC Docket No. C-4168 (Sept. 5, 2006); In the

11

priorities for more than a decade. The FTC has addressed privacy issues through law enforcement 30

actions, including numerous actions to reduce the incidence of spam and spyware; a multi-faceted 31

war on identity theft; promulgation and enforcement of the Telemarketing Sales Rule (“TSR”), 32 33

including the maintenance and enforcement of the Do Not Call Registry to respond to consumer 34

complaints about unsolicited and unwanted telemarketing; and numerous workshops and other

research to examine privacy issues raised by emerging technologies and business practices.35

A critical component of privacy is data security. If companies do not protect the sensitive

consumer information they collect and store, that information could fall into the wrong hands,

resulting in fraud or other harm. Important questions raised in this context are whether companies in

practice live up to the privacy and security policies that they announce to consumers and whether

their handling of sensitive consumer data is unfair. Since 2001, the FTC has brought over two

dozen law enforcement actions that challenged businesses that allegedly failed to adequately protect

consumers’ personal information. These cases emphasize the importance of protecting consumers

36
Matter of Nations Title Agency, Inc., FTC Docket No. C-4161 (June 19, 2006); In the Matter of DSW, Inc., FTC

Docket No. C-4157 (Mar. 7, 2006); In the Matter of Superior Mortgage Corp., FTC Docket No. C-4153 (Dec. 14,

2005); In the Matter of BJ’s Wholesale Club, Inc., FTC Docket No. C-4148 (Sept. 20, 2005); In the Matter of

Nationwide Mortgage Group, Inc., FTC Docket No. 9319 (Apr. 12, 2005); In the Matter of Petco Animal Supplies,

Inc., FTC Docket No. C-4133 (Mar. 4, 2005); In the Matter of Sunbelt Lending Servs., Inc., FTC Docket No. C4129 (Jan. 3, 2005); In the Matter of MTS Inc., d/b/a Tower Records/Books/Video, FTC Docket No. C-4110 (May

28, 2004); In the Matter of Guess?, Inc., FTC Docket No. C-4091 (July 30, 2003); In the Matter of Microsoft Corp.,

FTC Docket No. C-4069 (Dec. 20, 2002); In the Matter of Eli Lilly & Co., FTC Docket No. C-4047 (May 8, 2002).

 U.S. Department of Agriculture, Rural Utility Service and the U.S. Department of Commerce, National 37

Telecommunications and Information Administration, Notice of Funds Availability, 74 Fed. Reg. 33104, 33110-11

(Jul. 9, 2009).

 The FCC’s Policy Statement contains the following principles:

38

• To encourage broadband deployment and preserve and promote the open and interconnected

12

against common security threats and the need for businesses to evaluate their security procedures on

an ongoing basis. In addition, the FTC generally recommends that all companies operating in the

broadband area, including last-mile providers, closely review their privacy policies and actual

practices to make sure that they are consistent with each other.

The FTC recognizes that there is no one-size-fits-all data security plan. Rather, data security

plans must be adapted to the size and nature of the business, the sensitivity of the information, the

nature of the tools available, and the security risks the business is likely to face. Like other

companies that have access to large amounts of sensitive personal data, broadband providers have a

serious obligation to take reasonable steps to protect that data.

III. Consumer Access to Online Content and Applications: Competition and Consumer

Privacy Issues

The broadband infrastructure platform itself and the demand for the content and applications

that it enables are linked to each other. Since the Internet’s privatization and associated

commercialization in the mid-1990s, market competition has spurred the development of an everexpanding universe of content and applications. Today, the Internet allows millions of users to

communicate with each other almost instantaneously through e-mail, instant messaging, chat rooms,

commercial Web sites for purchasing goods and services, social networking sites, Web logs

(“blogs”), music and video downloads, political forums, voice over IP (“VoIP”) telephony services,

streaming video applications, and multi-player network video games, among other ways. 

Improvements in Internet access infrastructure, in turn, have enabled increasingly sophisticated and

data-rich content and applications. 

To further this development, the FTC suggests that the Broadband Plan take into account the

interconnection and non-discrimination requirements outlined in the Notice of Funds Availability

that apply to infrastructure funded by the Recovery Act. These requirements, which are subject to

37

law enforcement and reasonable network management practices, include:

1. Adhering to the principles in the FCC’s Broadband Policy Statement;38
nature of the public Internet, consumers are entitled to access the lawful Internet content of

their choice.

• To encourage broadband deployment and preserve and promote the open and interconnected

nature of the public Internet, consumers are entitled to run applications and use services of their

choice, subject to the needs of law enforcement.

• To encourage broadband deployment and preserve and promote the open and interconnected

nature of the public Internet, consumers are entitled to connect their choice of legal devices that

do not harm the network.

• To encourage broadband deployment and preserve and promote the open and interconnected

nature of the public Internet, consumers are entitled to competition among network providers,

application and service providers, and content providers. 

FCC, Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Policy Statement on

Broadband Internet Access, 20 FCC Rcd 14986 (2005).

Joseph Farrell, Open Access Arguments: Why Confidence is Mis-Placed, in NET NEUTRALITY OR

39

NET NEUTERING, SHOULD BROADBAND INTERNET SERVICES BE REGULATED? 195 (Thomas M. Lenard & Randolph J.

May eds., 2006) (discussing the uncertainty surrounding the economic incentives of broadband network platforms in

relation to the content and applications that they enable). See also Joseph Farrell & Philip J. Weiser, Modularity,

Vertical Integration, and Open Access Policies: Towards a Convergence of Antitrust and Regulation in the Internet

Age, 17 HARV. J. L. & TECH. 85 (2003) (discussing more generally the economic incentives that platform providers

have relative to the products and services that they enable).

13

2. Not favoring any lawful Internet applications or content over others;

3. Displaying network management policies in a prominent location on the service

providers’ web page and providing notice to customers of changes to these policies;

4. Connecting to the public Internet directly or indirectly; and

5. Offering interconnection, where technically feasible, at reasonable rates and on

reasonable terms to be negotiated with requesting parties.

A. Competition Issues: Vertical Integration, Discrimination, and Blockage

The network management policies used by broadband providers have become increasingly

important to ensuring consumer satisfaction with broadband services. At the same time, competition

concerns about these network management practices have arisen regarding the interaction of

networks with the content and applications that travel over them.

For example, recent advances in packet inspection technologies allow network operators to

identify the source and content of much of the data traffic they handle and to manage its

transmission in increasingly sophisticated ways. Economic theory suggests that a network platform

with significant market power and a vertical interest in related content or applications may have an

incentive to use network management as a way to degrade or block competing content or

applications delivered over its network. Such an incentive may be heightened when network

resources are scarce, as during a period of congestion.39

At the same time, last-mile broadband Internet service providers also have countervailing

incentives to maximize the value of their network platform to users. As such, network management
See id. 40

See FCC NOI supra note 1, at ¶ 65. 41

FTC Broadband Report, supra note 3, at 130. 42

FTC, FTC Staff Report: Self-Regulatory Principles for Online Behavioral Advertising [“FTC 43

Behavioral Advertising Staff Report”] (Feb. 2009) at 23-24.

For example, some industry organizations have developed new self-regulatory principles covering 44

businesses engaged in online behavioral advertising. Also, a number of companies have developed new policies and

procedures to inform consumers about online tracking and provide additional protections and controls over the

practices. Such developments include new tools to allow consumers to opt out of receiving targeted online

advertisements, as well as new versions of Internet browsers that allow users to not save browsing and search

14

practices that reduce consumer welfare also generally would be expected to reduce consumer

demand for their own network, to their financial detriment.40

Competition among several broadband Internet access providers likely would reduce

competitive concerns. More competition among broadband Internet access providers is likely to

check many of the potential network management practices that might reduce consumer welfare,

through the threat of losing customers to another network operator. Again, however, the mere

counting of providers or different technologies does not, by itself, answer the question of how well

consumers are being served. Rather, an analysis of the alternatives available to consumers, as

discussed above, could help illuminate the likely effects on consumers of various network

management practices in relation to content and applications. 

B. Online Consumer Privacy Issues

Strong privacy protections for consumers are critical to facilitating the development and

consumer use of the content and applications enabled by broadband infrastructure. We suggest 41

that the Broadband Plan acknowledge the importance of safeguarding consumer privacy so that the

promise of broadband access benefits consumers.

The FTC recognizes concerns about the collection of consumer data while online, especially

when consumers may not understand how the information could be used because such practices are

not clearly explained to them. Consumers justifiably expect clear and truthful information relating

to their use of the Internet, including their online activities. To the extent that truthful marketing

and clear disclosure relating to consumer privacy, personal information, or the protection of related

data is lacking, consumer confidence in Internet-related services may be hampered.42

A significant number of consumers appear to be particularly concerned about the tracking of

their online activities for the purposes of, for example, delivering targeted advertisements. It

43

appears consumers generally maintain these concerns even where the data collected is not personally

identifiable. Several companies, industry organizations, and privacy groups have taken steps to

address some of the concerns raised by online behavioral advertising. Nonetheless, the FTC

44
histories, cookies, form data, or passwords, and which will automatically clear the browser cache at the end of each

session. Other steps being taken include educational programs to inform consumers about online tracking and new

policies to reduce the length of time companies store personal data collected about online searches.

See FTC Behavioral Advertising Staff Report, supra note 43. 45

An example of how behavioral advertising might work is as follows: a consumer visits a travel web 46

site and searches for airline flights to New York City. The consumer does not purchase any tickets, but later visits

the website of a local newspaper to read about the Washington Nationals baseball team. While on the newspaper’s

site, the consumer receives an advertisement from an airline featuring flights to New York City.

FTC, Securing Personal Data in the Global Economy,

47

http://www2.ftc.gov/bcp/workshops/personaldataglobal/index.shtm.

15

remains vigilant in this area and is committed to vigorous law enforcement in connection with unfair

and deceptive practices involving consumers’ online activities.

For example, earlier this year the FTC staff released a report containing principles designed

to serve as the basis for industry self-regulatory efforts to address the privacy and data security

concerns raised by behavioral advertising. Behavioral advertising is the practice of tracking an 45

individual’s online activities in order to deliver targeted advertising tailored to that individual’s

interests.46

Although behavioral advertising may benefit consumers with advertising that is more

relevant to their interests and free online content, it also raises substantial privacy concerns. 

Consumers may be uncomfortable about being tracked. Further, without adequate safeguards,

consumer tracking data – which may include sensitive data about children, health, or a consumer’s

finances – could fall into the wrong hands or be used for unanticipated purposes.

To address these concerns, the FTC staff principles call for transparency, consumer control,

and reasonable security for consumer behavioral data. They also call for companies to obtain

affirmative express consent from consumers before they: (1) use data in a manner that is materially

different than promised at the time of collection; and (2) collect and use “sensitive” consumer data

for behavioral advertising.

Further, the FTC recognizes that, as more data flows across geographic borders, protecting

that data will require international cooperation. Earlier this year, the FTC staff held a two-day

international conference to address how companies can manage data security in a global

environment where data can be stored and accessed from multiple jurisdictions. The FTC will 47

continue to partner with its foreign counterparts and other international organizations to maintain

data security across borders without restricting information flows that benefit consumers.

In addition, the FTC is examining “cloud computing,” which is defined broadly as the

provision of Internet-based computer services. Cloud computing allows businesses and consumers

to use software and hardware located on remote computer networks operated by third parties. 
For example, the FTC is currently considering a petition submitted by the Electronic Privacy

48

Information Center that raises data security concerns about Google’s provision of cloud computing services to

consumers. EPIC Complaint Before the FTC, In the Matter of Google, Inc. and Cloud Computing Services (Mar.

19, 2009), available at http://epic.org/privacy/cloudcomputing/google/ftc031709.pdf.

See generally Howard A. Shelanski, Network Neutrality: Regulating With More Questions Than 49

Answers, 6 J. TELECOMM. & HIGH TECH. L. 23 (2007) (exploring several unanswered questions in this area and

discussing their implications for broadband Internet policy).

16

Because cloud computing reduces the need for businesses and consumers to purchase, operate, and

maintain software and hardware themselves, it may be a less costly way for them to manage, store,

and use data. Cloud computing is an emerging business model, and the FTC is analyzing the

privacy and data security implications for consumers.48

C. The Need for Additional Learning

The extent to which network management practices may affect competition and consumers is

likely to vary, depending on the particular factual circumstances. The FTC suggests that the 49

Broadband Plan affords an opportunity to develop a firmer understanding of the facts relevant to

network management practices and their effects on consumers. Empirical data to answer the

following questions, among others, may help illuminate the competitive and consumer impact of

these practices.

1. What network management practices are used when network capacity is not

constrained? What benefits or efficiencies are associated with these practices?

2. What network management practices are used when network capacity is constrained,

due to congestion or other factors? What benefits or efficiencies are associated with

these practices?

3. Are there alternatives, other than network management (e.g., increasing network

capacity), to remedy capacity constraints? To what extent are such alternatives

practical and economically feasible?

4. Do network operators have incentives to limit network capacity, for example, in

order to sell prioritized data transmission or other types of quality of service

assurances?

5. To what extent have network management practices been used to block or degrade

data transmission, either when capacity is constrained or under other circumstances?

6. How do providers of online content and applications currently compensate network

operators for Internet access and the transmission of their data?

7. What network management practices are required to ensure that network operators

can provide services to online content and applications providers? Are there services

that can be provided only by network operators in conjunction with network

management?
17

8. Are there ways that some content and applications providers may obtain preferred

transmission of their data, beyond best-efforts transmission, either when network

capacity is constrained or unconstrained? What are these techniques? To what

extent are they used?

9. How are content and applications providers that do not obtain preferential

transmission of their data affected by those that might obtain such treatment?

10. How do consumers become aware of whether the content and applications they use

are transmitted by a network on a basis other than best-efforts? To what extent are

consumers, in fact, aware of such treatment?

11. What are consumers’ expectations about the collection, use, and security of their

personal information when they browse the Internet, purchase products online, and

participate in social networking sites? What are the best ways to measure such

expectations? 

12. What are the most significant threats to the privacy and security of consumers’

personal information in the broadband Internet context? 

13. What privacy and data security protections are currently provided for data obtained

from behavioral advertising? Are additional protections needed?

14. What new data security, access, and control issues are presented by cloud computing

platforms that may house applications and personal data?

IV. Conclusion

The FTC encourages the FCC to incorporate sound competition and consumer protection

principles as the foundation for the Broadband Plan. The Broadband Plan provides an ideal

opportunity to perform a competitive market analysis that can be used as the foundation for the

development of ongoing regulatory policies governing broadband Internet access. It also can be

used to gather additional empirical information about the impact of network management practices

on consumers and competition.

The FTC has been involved in the Internet access area for over a decade and will continue to

do so. The FTC Act is sufficiently flexible to allow the FTC to enforce the antitrust and consumer

protection laws in this industry. The FTC will continue to devote substantial resources to

maintaining competition and protecting consumers from deceptive or unfair acts or practices in the

area of broadband Internet access, using a variety of tools.

By Direction of the Commission.

Donald S. Clark

Secretary