AT&T’s attempt to avoid oversight and enforcement of consumer protection laws by the Federal Trade Commission (FTC) failed in a federal appeals court Monday, overturning a 2016 decision that agreed with AT&T the FTC could not oversee or punish AT&T for its business practices.

In a unanimous 11-0 decision by the Ninth Circuit Court of Appeals, the court found AT&T’s interpretation of a law it said gave the Federal Communications Commission exclusive authority to regulate and oversee “common carrier” telecom companies was overly broad and based on a misinterpretation of the law. The decision means the FTC will continue to pursue AT&T in court to secure relief for AT&T’s wireless customers that the FTC claims were misled by AT&T’s unlimited data plan that was not truly unlimited.

“The phrase ‘common carriers subject to the acts to regulate commerce’ thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services,” the court ruled Monday. In laymen’s terms, the judges found that the FCC does have the regulatory authority to oversee common carrier services like basic telephone service, but the law does not prevent other government agencies like the FTC to oversee AT&T’s conduct in non common-carrier services.

The FTC and the FCC both argued that allowing AT&T and the 2016 lower court opinion to stand would create a regulatory loophole through which virtually any corporation with even the slightest ownership stake in a common carrier telecommunications company could escape all oversight and enforcement of consumer protection laws.

The dispute began in 2014, when the FTC sued AT&T in court for intentionally throttling wireless internet speeds of millions of AT&T customers hanging on to their legacy unlimited data plans.

The FTC’s complaint alleged that the company failed to adequately disclose to its customers on unlimited data plans that, if they reached a certain amount of data use in a given billing cycle, AT&T reduced – or “throttled” – their data speeds to the point that many common mobile phone applications – like web browsing, GPS navigation and watching streaming video –  become difficult or nearly impossible to use.

“AT&T promised its customers ‘unlimited’ data, and in many instances, it has failed to deliver on that promise,” said former FTC Chairwoman Edith Ramirez in 2014. “The issue here is simple: ‘unlimited’ means unlimited.”

According to the FTC’s complaint, AT&T’s marketing materials emphasized the “unlimited” amount of data that would be available to consumers who signed up for its unlimited plans. The complaint alleged that, even as unlimited plan consumers renewed their contracts, the company still failed to inform them of the throttling program. When customers canceled their contracts after being throttled, AT&T charged those customers early termination fees, which typically amount to hundreds of dollars.

The complaint accused AT&T of violating the FTC Act by changing the terms of customers’ unlimited data plans while those customers were still under contract, and by failing to adequately disclose the nature of the throttling program to consumers who renewed their unlimited data plans.

AT&T responded in court asking the case be dismissed, arguing that the FTC could not bring a case against AT&T because, as a common carrier, only the FCC has jurisdiction over the company.

The case was largely decided on whether Congress intended to exempt common carrier companies from FTC oversight based on their “status” or their “activities.” AT&T argued the law clearly gave companies deemed to be common carriers a blanket exemption from FTC oversight. The FTC argued Congress only intended to exempt the specific common carrier “activities” or services sold by a company from FTC oversight, not the entire company. The three-judge panel of the Court of Appeals agreed with AT&T’s view, affirming AT&T’s claim it was untouchable by the FTC and dismissed the FTC’s lawsuit.

Judge Kozinski, questioning AT&T: “I’m regulated by the FTC and I don’t like it. I go out and I buy a small, money-losing common carrier. Do I say, ‘bye bye FTC,’ under your reading of the statute?”

The decision was a stunner in D.C. regulatory circles and opened a chasm-sized loophole for almost any company to completely escape the FTC’s oversight and enforcement of consumer protection laws just by providing a single common carrier service (or acquiring a small phone company that does) to secure blanket immunity. The FTC appealed the decision before the Ninth Circuit Court of Appeals.

Both the FTC and at least one judge hearing the federal agency’s appeal saw the potential impact of the earlier 2016 decision immediately.

“I’m regulated by the FTC and I don’t like it,” Judge Alex Kozinski said to AT&T’s attorney. “I go out and I buy a small, money-losing common carrier. Do I say, ‘bye bye FTC,’ under your reading of the statute?”

The FTC warned if AT&T’s view was upheld, any company could buy a common carrier and violate federal consumer protection laws with no recourse for consumers and no available FTC enforcement action.

This week’s decision, called “common sense” by the judge who wrote the summary of the court’s finding, restores the FTC’s authority over non-common carrier services at companies large and small, including AT&T. It is also a relief to FCC Chairman Ajit Pai, who earlier argued the FTC had jurisdiction over abusive ISPs and would effectively oversee broadband providers without any need to continue the net neutrality policies of his predecessor. Had the court ruled in favor of AT&T, Pai’s policy would have transferred oversight of internet services to an agency legally prohibited from overseeing most broadband providers.

The FTC was pleased with the decision.

“It ensures that the FTC can and will continue to play its vital role in safeguarding consumer interests including privacy protection, as well as stopping anti-competitive market behavior,” Maureen Ohlhausen, acting Chairwoman, said in an emailed statement.

AT&T was not, and claimed the court ignored the merits of the case.

“We are reviewing the opinion and continue to believe we ultimately will prevail,” the representative said in an emailed statement, which did not definitively state whether AT&T intended to appeal the decision.

The Trump Administration is seeking billions in new “user fees” charged to broadcasters, cable and satellite providers that would likely be passed along to consumers as a new surcharge on their cable, wireless, and broadband bills.

The White House, at the request of the Federal Communications Commission, backs increasing user fees to help fund the $4.8 trillion 2019 federal budget. The new fees would be in addition to FCC-imposed “regulatory fees” that are already passed on to customers by most providers.

The fee, vaguely called a “spectrum management tool,” in the FCC’s 2019 budget request, includes few details. Broadcasters have seen similar proposals before, and have attacked them as a way to get TV stations to give up valuable channel holdings. Various administrations have proposed user fees designed to encourage license-holders to abandon less valuable spectrum so it can be repurposed for other uses. But the powerful broadcaster lobby — the National Association of Broadcasters, has successfully appealed to strike similar proposals in the past.

Other mandatory fees, including franchise and regulatory fees, special tax levies, and mandatory surcharges have traditionally been passed along to individual subscribers, often at a markup by the provider. It seems unlikely this fee would not be passed along as well.

Allegedly independent Cunningham Broadcasting’s headquarters are located at 2000 West 41st Street in Baltimore, coincidentally the same address as Sinclair-owned WBFF-TV, the city’s FOX affiliate.

An analyst warns Sinclair Broadcasting’s willingness to part with WPIX-TV in New York and WGN-TV in Chicago may amount to transferring control of the stations on paper from one hand to the other.

Broadcasting & Cable reports an unnamed source told the trade publication Sinclair is considering “selling” the stations to Cunningham Broadcasting, which is effectively Sinclair in all but name.

Cunningham and Sinclair are more than a little close. The majority of Cunningham-owned stations are run by Sinclair under local marketing agreements, and Sinclair’s founding family controls more than 90% of Cunningham’s stock. That has led to repeated accusations Cunningham is nothing more than a shell corporation used by Sinclair to circumvent the FCC’s TV station ownership caps, something both companies strenuously deny. But observers note some remarkable coincidences, starting with the Cunningham name itself. Cunningham Farms, on a 200-acre estate, Cunningham Manor, are both owned by Sinclair executive chairman David Smith.

Cunningham Broadcasting’s corporate headquarters are inside the studios of WBFF-TV, Sinclair’s FOX affiliate in Baltimore. Cunningham owns WNUV, Baltimore’s CW affiliate, which is also run from the same building as WBFF.

WNUV was originally planned to be a direct Sinclair acquisition, but FCC rules prohibited that. So Sinclair guaranteed loans allowing Glencairn Ltd., (later to be renamed Cunningham Broadcasting), to acquire WNUV instead. At the time, Carolyn Cunningham Smith, the mother of Sinclair’s current executive chairman David Smith, had voting control of Cunningham. That control has since passed to a trust run for the benefit of Smith’s children after Carolyn died in 2012.

After Glencairn/Cunningham won control of the station, it immediately signed a local marketing agreement with Sinclair. That agreement merged WNUV’s operations under the control of Sinclair-owned WBFF. Most employees at WNUV report to Sinclair management. Many of the Cunningham-owned stations also offer options to Sinclair to acquire the stations outright should deregulation of ownership limits permit.

A shell corporation is essentially an entity in name only, usually quietly controlled by someone else seeking to keep their true identity secret.

Should WPIX-TV and WGN-TV end up in the hands of Cunningham, it would be unprecedented for a company its own president admitted in 2013 was dependent on Sinclair to help program their stations, noting Sinclair is “a smart company, and they certainly have a lot more experience.” WPIX is in the nation’s number one television market, WGN is in the third largest market. The majority of Cunningham’s 20 stations are FOX, CW, or MyNetworkTV affiliates in small and medium-sized markets. A few are so small, they don’t even have websites.

Craig Aaron, president and CEO of Free Press, suspects Sinclair could once again be thumbing its nose at the FCC’s ownership caps, and the planned divestiture may be in name only.

“It’s not clear to me who the new owner is going to be from the documents filed, but it sure looks like business as usual for Sinclair, which has long specialized in propping up shell companies to evade FCC rules,” Aaron told The Baltimore Sun. “The idea that Armstrong Williams [owner of another side entity that also owns stations that Sinclair runs] or Cunningham or whoever they are setting up as the ‘owner’ of these stations is independent from Sinclair, at least if the past is any guide, is a complete fiction. Sinclair should not be allowed to set up shady front companies to evade the congressionally mandated ownership caps. But Ajit Pai’s FCC is aiding and abetting this ruse in every way.”

The FCC’s inspector general is reportedly now investigating whether Pai improperly pushed through ownership cap rule changes to directly benefit Sinclair’s efforts to grow even larger.

Should Sinclair successfully acquire Tribune Media’s television stations, Sinclair will control 233 television stations that reach 72 percent of U.S. households. The FCC’s media ownership cap now limits an single owner’s reach to 39% of the nation’s audience.

While the FCC has shown little interest in slowing down Sinclair, the Justice Department has previously blocked some of Sinclair’s moves. When Sinclair was forced to divest WSYT-TV, the FOX affiliate in Syracuse, N.Y., it first hoped to sell the station to Howard Stirk Holdings, owned by conservative commentator Armstrong Williams.

Williams coincidentally has served as a longtime commentator for Sinclair, which forces its owned and operated stations to carry conservative messages in local newscasts. Sinclair believed so much in Armstrong, it guaranteed his company’s acquisition loans in similar deals. Sinclair may also benefit from the fact that Armstrong, a minority, gets extra consideration and relaxed rules from the FCC to promote minority station ownership. In other deals, after taking ownership, Armstrong promptly signed contracts with Sinclair to run the stations for him.

The Justice Department was not convinced by explanations of the close relationship between Armstrong and Sinclair. It objected to the sale, writing “it wouldn’t work” because “it would still be like a duopoly.” Sinclair also couldn’t persuade the Justice Department to believe Sinclair and Cunningham were completely independent companies either, eventually forcing Sinclair to abandon efforts to sell WSYT to Cunningham. Today WSYT is owned by Northwest Broadcasting, which owns a handful of stations in the rural Rocky Mountain west and has no ties to Sinclair.

Anderson admitted what was behind the maneuvering to sell WSYT in a 2013 Wall Street Journal story.

“They [The Justice Department] were not comfortable yet,” Anderson said, “and in the interest of time, Sinclair went to Plan B [selling the station to Northwest Broadcasting].”

“It’s a scandal,” Aaron told CNN in 2017. “Trump-favoring mega-chain [Sinclair] gets rules changed — and expects others to be erased — so it can put its cookie-cutter newscasts in nearly 70 percent of local markets across the country. I feel terrible for the local journalists who will be forced to set aside their news judgment to air Trump administration talking points and reactionary commentaries from headquarters. This deal would have been DOA in any other administration, but the Trump FCC isn’t just approving it; they’re practically arranging it.”

Sinclair Broadcast Group has told the Federal Communications Commission it is willing to sell two well-recognized TV stations in Chicago and New York owned by Tribune Media if it will help win approval of its $3.9 billion acquisition of Tribune-owned stations by the Justice Department and FCC.

The move is a sign Sinclair may be concerned its blockbuster acquisition might not get approved if the deal remains mired in the regulatory review process.

The filing is effectively a new application because it fundamentally changes the structure of the deal and its impact on several TV markets where Sinclair could own multiple stations in a single city.

Few expected Sinclair would offer to divest WGN-TV Chicago and WPIX-TV in New York, which are major market stations with major advertising revenue. Sinclair also offered to sell off KSWB-TV, San Diego’s FOX affiliate, to keep Sinclair under the FCC’s theoretical 39% nationwide audience cap, which was watered down in 2017 by FCC Chairman Ajit Pai’s plan to count UHF stations at only 50% of their actual viewing audiences — a direct benefit to Sinclair, which already owns and controls an enormous station group that had been constrained from getting much larger.

As part of the revised proposal, Sinclair will sell one or more stations in the following markets, with FOX often mentioned as a potential buyer:

1. Seattle, Washington;
2. St. Louis, Missouri;
3. Salt Lake City, Utah;
4. Oklahoma City, Oklahoma;
5. Greensboro-High Point-Winston Salem, North Carolina;
6. Grand Rapids, Michigan;
7. Richmond, Virginia;
8. Des Moines-Ames, Iowa.

But Sinclair is seeking a waiver to continue to own two of the top four stations in Greensboro-High Point-Winston Salem, N.C., Harrisburg-Lancaster-Lebanon-York, Pa., and Indianapolis, Ind.

Selling WPIX and WGN will likely make a significant dent in Sinclair’s acquisition expenses, if the deal is approved.

WPIX and WGNhave been owned by Tribune since both stations first signed on in 1948.

Charter Communications will have to face a courtroom to answer accusations the cable company intentionally sold internet service at speeds it knew it could not provide to its customers in New York.

New York State Supreme Court Justice O. Peter Sherwood rejected a motion by the cable company to dismiss New York Attorney General Eric Schneiderman’s 2017 lawsuit accusing Time Warner Cable (now owned by Charter) of systematically shortchanging as many as 640,000 New York internet customers by falsely advertising internet speeds it knew it could not deliver, often with at least 900,000 outdated company-provided cable modems incapable of supporting the higher speeds the company promoted.

“Today’s decision by the New York Supreme Court marks a major victory for New York consumers — rejecting every single argument made by Charter-Spectrum in its attempts to block our lawsuit,” said Schneiderman. “This decision ensures that our office can continue to hold Charter-Spectrum to account for its failure to deliver the reliable internet speeds it promised consumers, ripping you off by promising internet speeds it simply could not deliver.”

Charter’s Defense: Spectrum’s Ad Claims for Fast Internet Service are: “Prototypical instances of non-actionable puffery.”

Charter’s lawyers attempted a variety of legal strategies to get Schneiderman’s lawsuit tossed, including undermining the cable company’s own marketing efforts. Lawyers argued the court should ignore Charter’s claims it sold a “blazing fast, super-reliable connection” that could “stream Netflix and Hulu movies and shows effortlessly” as nothing more than “prototypical instances of non-actionable puffery.”

Scheniderman’s office claimed it was much more than that.

N.Y. Attorney General Eric Schneiderman

“Spectrum-TWC failed to maintain enough network capacity in the form of interconnection ports to deliver this promised content to its subscribers without slowdowns, interruptions, and data loss,” stated Schneiderman. “It effectively ‘throttled’ access to Netflix and other content providers by allowing the ports through which its network interconnects with data coming from those providers to degrade, causing slowdowns. Spectrum-TWC then extracted payments from those content providers as a condition for upgrading the ports As a result, Spectrum-TWC’s subscribers could not reliably access the content they were promised, and instead were subjected to the buffering, slowdowns and other interruptions in service that they had been assured they would not encounter.”

Charter also claimed it was not legally responsible for meeting its own advertised speeds because the company only sold speeds “up to” a level, without guaranteeing customers would get the speeds it advertised.

Even if a judge found Charter lacking in its legal defense, lawyers for the company more broadly argued that under FCC Chairman Ajit Pai’s net neutrality order, state courts and regulators had no power to regulate or oversee broadband providers because “regulation of broadband internet access service should be governed principally by a uniform set of federal regulations, rather than by a patchwork of separate state and local requirements,” according to Charter’s attorney Christopher Clark.

Justice Sherwood uniformly rejected all of Charter’s arguments to dismiss the case:

• Improper state venue for the lawsuit: “Spectrum-TWC fails to identify any provision [of law] that preempts state anti-fraud or consumer-protection claims, or reflects any intention by Congress to make federal law the exclusive source of law protecting consumers from broadband providers’ deceptive conduct.”
• False advertising: “This court finds that, contrary to defendants’ contentions, the FCC’s goal of promoting competition through [the Internet Transparency Rule], the FCC stated that the rule was intended to ensure consumers had the “right to accurate information, so [they] can choose, monitor, and receive the broadband internet services they have been promised. New York’s Executive Law and Consumer Protection Act […] require that [providers] refrain from fraud, deception, and false advertising when communicating with New York consumers.
• Netflix/YouTube slowdowns: The issue of interconnection agreements between content providers and Spectrum-TWC are matters for the court to consider because it is not an attempt to regulate those agreements. “Rather, the complaint simply alleges that Spectrum-TWC misled subscribers by claiming that specific online content would be swiftly accessible through its network, while it was simultaneously deliberately allowing that service to degrade […] and failing to upgrade its network’s capacity to meet demand for this content.”
• “Up to” speeds: Spectrum-TWC claimed that advertising speeds “up to” a certain level was not misleading because consumers understood this to mean the maximum speed, not average speed. In Spectrum’s argument, it claimed “reasonable consumers understand this is not a promise of ‘minimum’ performance, but rather ‘maximum’ performance.” But the judge disagreed. “Defendant’s theory is contrary to New York law regarding ‘up to’ claims” when those speeds are “functionally unattainable as a result of the defendants’ knowing conduct.”

Schneiderman’s office is seeking civil fines and restitution from Spectrum-TWC for customers in New York.