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FTC Appeals Court Ruling on AT&T's Data Throttling Case


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According to a recent report by Bloomberg, the Federal Trade Commission (FTC) recently filed an appeal in the U.S. Court of Appeals for the Ninth Circuit in San Francisco, to review the previous ruling regarding a data throttling charge issued by the FTC against the U.S. telecom behemoth AT&T Inc. (T - Analyst Report) .

Data throttling basically means data traffic blocking and slowing any data traffic once customers hit certain usage thresholds in a month. In Oct 2014, the FTC disputed that using the data throttling technique the telecom carrier had deceived its unlimited plan customers. In its latest filing, the regulatory agency stated that the Appeal Court’s previous ruling would permit any technology company that also offer phone or broadband services (either launching their own service or merging with an existing carrier) to sidestep enforcement of consumer-protection laws.

On Aug 29, the Ninth Circuit Court of Appeals in California reversed a lower court's denial of AT&T's motion to dismiss the throttling lawsuit. The appeals court identified AT&T as a common carrier. Due to this, the service provider could not be held liable for the violations of rules that the FTC brought in its case.

Notably, the Federal Communications Commission (FCC) slapped a fine of $100 million on AT&T for a similar reason in Jun 2015. The company has filed a response, which is still under review by the FCC. It is worth mentioning here that the FCC had adopted the Net Neutrality rules in Feb 2015. The new laws has classified high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act. 

Net neutrality implies an open-Internet atmosphere which will prohibit ISPs (Internet service Providers), especially the telecom and cable TV operators, from discriminating against applications. The enforcement of the new law has banned common ISP practices such as data traffic blocking, slowing any data traffic and paid prioritization. The FCC will closely monitor and put a check on all such deals in the future.

For the FTC case, AT&T hasn’t denied that it had throttled some users. However, the company defended itself citing that an exception is in place for common carriers. In Oct 2014, AT&T was a common carrier for landline phone and mobile voice service, but not for mobile Internet access. The FCC reclassified mobile Internet as a common carrier service only after adopting the Net Neutrality Rules. These arguments by AT&T most  likely compelled the federal court to dismiss the FTC case.

The U.S. telecom industry is becoming immensely competitive with cut-throat pricing. Recently, T-Mobile US Inc. (TMUS - Analyst Report) and Sprint Corp. (S - Analyst Report) escalated the pricing war with new unlimited data plans. Verizon Communications Inc. (VZ - Analyst Report) announced that it completed a major upgrade of its 4G LTE networks to LTE-Advanced technology covering 461 cities in the U.S. The LTE-Advanced network will raise the data packet transmission speed by more than 50%.

At this juncture, a favorable court ruling related to the FTC case will be a major relief for AT&T. AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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