Once these rules take effect, the FCC closes a significant gap in its prior rules – calls which originate outside the United States – at the same time that it acts preemptively to prohibit deceptive spoofing in a growing area – text messaging. In the process, the FCC will enhance one of its most commonly used tools in its effort to combat unlawful robocalls – fines for unlawful spoofing. Generally, the FCC has attacked parties that originate unlawful robocalls by fining them for the subsidiary violation of spoofing the unlawful calls. In telecommunications enforcement, spoofing violations are the tax evasion charges to Al Capone’s criminal enterprise.

Expansion of the Spoofing Prohibition

The first change adopted in the August 1 Report and Order was to expand the rules to cover communications originating outside the United States directed at recipients within the United States. The existing rules only applied to persons and entities within the U.S. The new rule states:

“No person in the United States, nor any person outside the United States if the recipient is in the United States, shall, with the intent to defraud, cause harm, or wrongfully obtain anything of value, knowingly cause, directly, or indirectly, any caller identification service to transmit or display misleading or inaccurate caller identification information in connection with any voice service or text messaging service.”

The second change, also incorporated in the rule above, applies the rule’s prohibition beyond voice communications to include text messages. The definition of text messages includes text, images, sounds, or other information transmitted to or from a device, specifically covering short message service ("SMS") and multimedia message service ("MMS") messages. Also covered by the rules are messages sent to or from Common Short Codes (Short Codes), which are the 5- or 6-digit codes commonly used by enterprises to communicate with consumers at high volume.

Not included in the definition is real-time, two-way voice or video communications and messages over IP-enabled messaging services so long as the communication is to another user of the same messaging service. Thus, the rules do not reach messages sent via common OTT applications such as iMessage, Google Hangouts, Whatsapp, and direct message features in Snapchat and Twitter. Rich Communications Services ("RCS") messages, which allow advanced messaging features, are also excluded. The Commission determined that Congress intended for RCS messages to fit under the statutory exclusion for “IP-enabled communications.”

The Commission also clarified its definition of “voice service” to ensure the rules cover the broader “telecommunications service,” as well as interconnected VoIP.

Implementing the RAY BAUM’S Act

The rule changes were required by amendments to the Communications Act, made by the RAY BAUM’S Act of 2018, which strengthened the FCC’s authority over spoofed calls established in the Truth in Caller ID Act of 2009. The 2009 legislation prohibited the use of misleading and inaccurate caller ID information for harmful purposes, but in a 2011 report, the FCC recommended that Congress update the rules to give the Commission authority to prohibit calls outside of the U.S. and make explicit that the Act covers text messages. The order also cited a May 2019 filing by 42 state attorneys general urging the Commission to adopt the rules.

While all voting commissioners supported the order, Commissioner Mike O’Rielly expressed some reservations prior to the vote. In particular, he said he thought the extraterritorial jurisdiction would be difficult to execute and would have preferred narrower statutory language, but did not believe it was his role to “challenge the wisdom” of the legislature. He also said the definitions of text and voice services were broader than he wanted, which he thought might cause future unintended consequences.

The new rules will go into effect on February 6, 2020, or 30 days after Federal Register publication, whichever is later.

The Ruling serves to address two outstanding petitions for declaratory ruling on the matter of classification for messaging services that were filed with the FCC years ago. First, in 2008, Public Knowledge, along with other non-profit organizations, sought to classify text messaging as a common carrier service and seven years later in a related petition, Twilio asked the FCC to declare that text messaging services were telecommunications services subject to stricter regulatory requirements under Title II of the Communications Act. The Ruling denies both parties’ declaratory ruling petitions and instead, affirms that these wireless messaging services satisfy the definitional criteria for an information service.

The FCC employs its traditional analytical approach toward the definitions of “telecommunications services” and “information services” and concludes that SMS and MMS wireless messaging are information services because they are asynchronous communications tools with the capability for storage and retrieval of content at the user’s request. Additionally, the FCC’s discussion of its decision primarily relies on the “trusted medium” idea for text messaging. The Ruling emphasizes the fact that text messaging is currently a trusted communications medium with a high approval rate among consumers which the FCC attributes to low receipt of spam. The Ruling states that the volume of attempts to send spam and fraudulent messages has increased significantly but the actual transmission to consumers continues to be low because of the ability of carriers to block or deny messages. The FCC determined that without classification as an information service, providers would be hindered in their ability to continue to eliminate text-spam.

In the draft declaratory ruling, the Commission stated that there was not enough information in the record to address RCS at this time. However, Commissioner O’Rielly strongly expressed his view that SMS and succeeding messaging technologies are applications that should also be classified as information services. As a result, in the final item the FCC included language stating its expectation that RCS and successor technologies with characteristics similar to SMS and MMS would be considered information services.

Commissioner Rosenworcel, the sole oppositional vote to this item, highlighted concerns expressed by some public interest groups about the Ruling possibly giving wireless carriers and other messaging providers more authority to block or restrict unpopular or controversial speech.

Text Messaging Classification: The draft Declaratory Ruling would classify the two most popular forms of text messaging – Short Message Service (“SMS”) and Multimedia Messaging Service (“MMS”) – as information services subject to light-touch regulation, and not commercial mobile services required to comply with legacy common carrier rules. In doing so, the FCC would note that text messaging services possess the capacity to store and retrieve information normally found in information services, such as email. FCC rules significantly curtail the ability of common carriers to block the transmission of communications. The FCC is concerned that applying the common carrier classification to text messaging would prevent service providers from utilizing anti-spoofing, anti-spam, and anti-robotext technologies. By officially declaring text messaging an information service, the FCC is hoping to spur further adoption of these blocking technologies and keep text-massaging relatively spam-free.

Reassigned Numbers Database: The draft Report and Order would establish procedures to create a single database that will enable robocallers and others to verify whether a particular number has been permanently disconnected, meaning the number may have been reassigned to a new consumer. With limited exceptions, federal law prohibits robocalls to wireline and wireless phones without the called party’s prior consent. As a result, a business could be subject to liability for making a call to what it thought was a consenting customer when the number actually was reassigned to a new consumer that never provided consent to receive such traffic. The FCC expects the database to reduce these incidents after its implementation, which could occur as early as next year. But just as important as what the draft item would do is what it would not do. The FCC would not establish a safe harbor for callers that rely on the database but still reach a number assigned to a non-consenting consumer. In fact, the FCC explicitly would decline to address outstanding issues regarding the definition of an automatic telephone dialing system and potential liability for calls to reassigned numbers stemming from the D.C. Circuit’s ACA International v. FCC decision earlier this year, stating that it will take up these issues in a separate proceeding.

Spectrum Frontiers Auctions: The draft Report and Order would adopt rule changes to facilitate a consolidated auction of high-frequency spectrum in the Upper 37 GHz Band (37.6-38.6 GHz), 39 GHz Band (38.6-40.0 GHz), and 47 GHz Band (47.2-48.2 GHz). The draft item would modify the band plans for these frequencies to move from 200 megahertz channels to 100 megahertz channels to facilitate incumbent repacking, ensure consistency with international allocations, encourage equipment standardization across spectrum bands, and promote secondary market transactions. The new licenses would be auctioned on a Partial Economic Area (“PEA”) basis. The draft item also would lay the groundwork for the FCC’s second incentive auction. The 39 GHz Band is home to incumbents holding licenses in non-contiguous spectrum blocks that overlap multiple PEAs. In order to resolve these encumbrances, incumbents would be afforded the options of either modifying their licenses or relinquishing their licenses in exchange for “vouchers” of “equivalent value” to use in bidding for new licenses at the auction or cash incentive payments. The FCC expects to complete the auction by the end of 2019.

Rural Broadband Funding: The draft Report and Order, Notice of Proposed Rulemaking, and Order on Reconsideration would offer additional funding to certain carriers, predominately located in rural areas, that currently receive so-called “model” (versus legacy rate-of-return) support under the Connect America Fund. In exchange for additional funding of up to $200 per location, the carrier would need to expand the availability of broadband service meeting the FCC’s current high-speed benchmark of 25 Mbps download/3 Mbps upload in current service locations and provide broadband service of at least 10 Mbps download/1 Mbps upload speeds in new service locations. The item would provide opportunities for legacy rate-of-return carriers to receive additional funding and transition to model-based support if they can meet the high-speed benchmark. The item also would seek comment on whether the FCC should award support in areas “overlapped” by unsubsidized competition through an auction. The FCC would ask how it should determine whether an area is sufficiently overlapped, the appropriate size of the areas to be auctioned, and the auction bid weighting methodology. Finally, the draft item would deny reconsideration of the FCC’s decision earlier this year to increase model-based support.

Communications Marketplace Report: The draft Report would provide an overview of competition in mobile wireless, fixed broadband, audio, video, and satellite communications markets. The Report would assess the state of communications deployment and barriers to market entry. It also would compile a list of geographic areas not served by any provider of advance telecommunications. The FCC is required to issue the Report this month under the RAY BAUM’S Act passed earlier this year. The Report consolidates and replaces a number of separate reports covering different areas of the communications industry, such as the annual mobile wireless competition report required by Section 332 of the Communications Act and the report on cable industry prices required by Section 623 of the Communications Act. However, the broadband deployment report required by Section 706 of the Communications Act would remain separate, along with other FCC reports not covered by the RAY BAUM’S ACT. The next Report is due by the end of 2020.

As expected, the FTC asked the Ninth Circuit to rehear the case en banc. The request, if granted by the court, would result in the full contingent of judges hearing the case, likely early next year. The FTC advances three primary arguments in support of rehearing, but the most interesting by far is its claim of a gap in consumer protection jurisdiction as a result of the ruling.

The FTC’s lead argument is that the decision allegedly “creates an enforcement gap” because “no other federal agency has the FTC’s breadth of authority to protect consumers from many unfair or deceptive practices across the economy and to obtain redress for consumer harm.” In support, the FTC argues that the FCC’s jurisdiction “is limited to matters ‘for and in connection with’ common-carrier service” and, unlike the FTC, the FCC cannot collect consumer redress and is subject to a one year statute of limitations. The FTC further argues that the Ninth Circuit panel’s status-based approach to determining FTC jurisdiction has wide-reaching implications for any company who can claim to be a “common carrier” in some aspect of its business to avoid enforcement actions for non-common-carriage activities. (We noted this open question in our previous post as well.) Such entities – which the FTC identified to include large cable companies, satellite service providers, internet companies and energy utilities – may manipulate their common carrier status to avoid FTC jurisdiction. Finally, the FTC claims that the ruling “threatens the FTC’s ability to enforce other important consumer protection statutes including the Children’s Online Privacy Protection Act, the Telemarketing and Consumer Fraud and Abuse Act, and the Restore Online Shoppers’ Confidence Act, and several others.”

Notably, the FTC’s position was previewed by FTC Chairwoman Edith Ramirez in her written testimony for an FTC oversight hearing before the Senate Committee on Commerce, Science and Transportation on September 27, 2016. As we predicted, Chairwoman Ramirez argued that the case supported the FTC’s long-time effort to repeal the common carrier exception, stating in part that following the Ninth Circuit’s ruling, coupled with the FCC’s 2015 decision to reclassify broadband Internet access as a common carriage service, “[a]ny company that has or acquires the status of a common carrier will be able to argue that it is immune from FTC enforcement against any of its lines of business by virtue of its common carrier status.”

Whether the FCC agrees with the FTC’s characterization of its jurisdiction is yet to be determined. Nevertheless, the fault line is clearly identified in the FTC’s filing. We will continue to monitor this case and will post any new developments here.

The Ninth Circuit’s decision is the latest in a series of actions attempting to identify the jurisdiction over Internet access services and Internet-based services. As providers and regulators have struggled to identify the proper regulations applicable to such services, the Ninth Circuit’s decision could force significant shifts by both the FTC and FCC for at least a large segment of the industry.

Background

At issue before the Ninth Circuit was the scope of the FTC Act’s exemption of “common carriers” from the FTC’s authority. The FTC argued, and the trial court held, that the common carrier exemption only applied to the extent that the service in question is a common carrier service (i.e., an “activity-based” test that precluded FTC jurisdiction only where a common carrier is engaging in common carrier activities). Because the service that the FTC challenged (wireless broadband Internet access service (“BIAS”)) was not a common carrier service at the time that the FTC brought its action against AT&T, the trial court held AT&T was not engaging in common carrier activity and therefore the FTC had authority to bring its lawsuit.

AT&T appealed the decision, arguing that the FTC Act’s exemption of common carriers should be based on their status, and thus telecommunications service providers like itself are exempt from the FTC’s authority regardless of whether the activity at issue is a common carrier service.

The Ninth Circuit noted two things related to the dispute. First, the court noted that “it is undisputed that AT&T is and was a ‘common carrier[] subject to the Acts to regulate commerce’ for a substantial part of its activity.” Further, the court noted that, during the time period in question, AT&T’s mobile data service “was not identified and regulated by the FCC as a common carrier service” although, since the FCC’s 2015 Open Internet Order, the FCC has classified the service as a common carrier service.

The Ninth Circuit sided with AT&T, and remanded the case for an entry of an order for dismissal. The court held that under the plain language of the statute, the exemption is based on a company’s status and applies regardless of the activity at issue. The “literal reading of the words Congress selected,” the court wrote, “simply does not comport with an activity-based approach [to the common carrier exemption].” The court compared the common carrier exemption to the other exemptions in the statute (for banks, savings and loan institutions, federal credit unions, air carriers and foreign air carriers) that are admitted by the FTC to be status-based, and to the exemption for meatpackers “insofar as they are subject to the Packers and Stockyards Act,” which the court found to be activity-based. The court held that amendments enacted in 1958 to Section 5 – which added the “insofar as” language – indicated an activity-based exemption for that provision but affirmed status-based exemptions for the remainder “then and now.”

Notably, the Ninth Circuit chose to address the status question, rather than addressing a more narrow issue of whether the FCC’s 2015 reclassification of BIAS as a telecommunications service applied to AT&T’s service retroactively.

Implications

The FTC issued a statement that it is “disappointed” and “considering [its] options,” but it is unclear whether it will appeal the ruling to the Supreme Court. It is worth noting that, although the Ninth Circuit did not discuss the decisions, this is the third time that a court of appeals has faced status-based arguments relating to the common carrier exemption. The Seventh Circuit’s 1977 decision in U.S. v. Miller, and the Second Circuit’s 2006 decision in FTC v. Verity Int’l, Ltd., both involved entities claiming common carrier status, although neither decision brought finality to the question. If the FTC pursues the issue further, industry and practitioners could receive welcome guidance on the issue.

More broadly, the FTC has openly called for the end of the common carrier exemption in the past few years. This decision may add fuel to the agency’s efforts in that regard.

As is, the decision makes it more difficult for the FTC to bring an action against a company that can claim to be a common carrier. The Ninth Circuit’s decision noted that AT&T unquestionably was a common carrier “for a substantial part of its activity” and at one point distinguished a case, noting that AT&T’s status “is not based on its acquisition of some minor division unrelated to the company’s core activities.” Nevertheless, the court’s analysis leaves open the possibility that even providing only a small amount of common carrier service may be enough to qualify all of a company’s activities for the common carrier exemption.

On the FCC side, there are equally broad questions raised by the decision. The FCC recently has broadly construed its own authority under Section 201(b), to a fair degree of controversy, to address practices of common carriers “for or in connection with” their services, such as advertising and billing. Presumably, these efforts will continue after the Ninth Circuit’s ruling. The Ninth Circuit’s ruling, however, may encourage the FCC to fill any potential gap in coverage by taking a broader view of its own authority to regulate non-common carrier services that common carriers offer to consumers. This could have significant implications for a number of ongoing FCC proceedings, including a proceeding to overhaul the FCC’s privacy rules after the Open Internet Order and requests to classify SMS messaging and interconnected voice-over-Internet-Protocol (VoIP) service as telecommunications services subject to common carrier regulation. This also might color the FCC’s approach to regulation of over-the-top services provided by non-carrier entities using telecommunications or Internet services.

Time will tell how this plays out, but for now, the Ninth Circuit appears to have significantly reset the boundaries between the agencies’ jurisdictions. AT&T is not off the hook yet, however, as it faces a parallel action from the FCC, which has issued a Notice of Apparent Liability to AT&T, alleging that its disclosures in connection with its unlimited data plans violated the FCC’s “transparency” rules. The FCC proposed $100 million in forfeitures for the violation, which sparked vigorous dissent by the two Republican commissioners and was opposed by AT&T in a strongly-worded response. The FCC forfeiture proceeding remains pending.

Alysa Hutnik and Spencer Elg, of Kelley Drye’s Advertising Group, co-authored this post.

In its Petition, Twilio argues that "messaging services"—i.e., Short Message Service (SMS) messages, Multimedia Messaging Service (MMS) messages, and short-code based services, that are interconnected with the public switched telephone network (PSTN) and/or utilize North American Number Plan (NANP) numbers—should be classified as telecommunications services for three reasons. First, Twilio asserts that under the D.C. Circuit’s Verizon decision vacating, in part, the Commission’s 2010 Open Internet Order, “the Commission cannot subject messaging services to Title II in certain respects [e.g., its Telephone Consumer Protection Act rules] without classifying messaging services as telecommunications services.” Second, Twilio argues that “messaging services are telecommunications services subject to Title II under the Communications Act and the Commission’s Open Internet framework” because “the only offering the wireless carriers make to the public with respect to messaging services is the ability of consumers to send and receive messages of the consumers' design and choosing.” Third, Twilio contends that messaging services are independently subject to Title II as “commercial mobile services because they are interconnected with the public switched telephone network.”

This proceeding is important for several reasons. As an initial matter, if the FCC were to grant the petition, it would represent a further expansion of FCC authority into previously lightly regulated communications services, following closely on the heels of the 2015 Open Internet Order, which reclassified broadband Internet access services (BIAS) as telecommunications services under Title II. Indeed, while the Commission has asserted jurisdiction over text messages in limited contexts, it has declined, for years, to formally classify messaging services under the Communications Act. Moreover, if the Commission were to classify messaging services as Title II telecommunications services, it would need to address the panoply of Title II regulations that attach to common carriers, including privacy and other obligations. Further, this proceeding could open the door for the Commission to consider the regulatory status of non-interconnected over-the-top (OTT) messaging and video communications platforms. Notably, the Commission already has begun to think more broadly about its role in the OTT messaging ecosystem in the context of its accessibility rules and text-to-911.

Comments are due on November 20, 2015, and replies are due December 21, 2015. Should you have any questions about this proceeding and what it means for your business, feel free to contact a member of Kelley Drye’s Communications practice.