FTC Takes Aggressive Action Against ISP for Misrepresenting Internet Speeds

Last week, the Federal Trade Commission (FTC) and Los Angeles County and Riverside County District Attorneys agreed to order to settle claims against Frontier Communications Intermediate, LLC and its parent company, Frontier Communications Parent, Inc. (jointly Frontier). The plaintiffs alleged that Frontier promised internet speeds that Frontier could not deliver. The injunction, which has been approved by all commissioners, contains far-reaching and in some cases new relief, including an $8.5 million fine, a customer-by-customer substantiation requirement, an outright ban on signing up certain new customers. and a mandatory $50-60 million investment in new technology.

The complaint

The plaintiffs have submitted their initials complaint last year in California federal court, alleging that Frontier violated Section 5 of the FTC law in two ways.1 First, the complaint alleged that Frontier engaged in deceptive practices by misrepresenting the internet speeds it could offer consumers. For example, Frontier stated that consumers would pay a certain amount per month for a certain download speed (for example, $30 for 18 Megabits per second). According to the complaint, Frontier could not and would not even offer consumers internet services at speeds that matched the service levels they paid for. In some cases, Frontier disclosed that the maximum advertised speed may not be available to some consumers, and that that speed was dependent on several factors, but the plaintiffs found this “small, unobtrusive print separated from the main message of the ad” to be inadequate.

Second, the complaint alleged that Frontier engaged in unfair practices by billing, charging, collecting or attempting to collect consumers’ fees for a higher level of cost of Internet services than Frontier offered or could provide. The complaint includes a discussion of how Frontier allegedly knew or should have known it was unable to provide internet service at the advertised speeds.

California prosecutors claimed Frontier’s conduct violated the California Business and Professions Code, which prohibits false advertising.

The order

In addition to the general prohibitions against misrepresenting internet speeds, the proposed order includes several new terms:

  • Required Disclosures in Ads: The order requires Frontier to clearly and prominently state in advertising whether the maximum advertised internet speed may not be available in a consumer’s area and the actual speed a customer is likely to be able to achieve will depend on multiple factors.
  • Substantiation requirements per customer: The order requires Frontier to perform a customer-by-customer substantiation process at the time the service is installed. It must run a test to determine if it can deliver service within 10 percent of the maximum advertised speed or greater; if not, the customer must be allowed to install the service. Likewise, for customers complaining of slow internet speeds, Frontier will not be able to bill, charge, collect or attempt to collect for services unless a speed rating test shows it can provide service within 10 percent of the maximum advertised speed. If not, Frontier must provide the customer with a Commission-approved notice, with an option for them to change or cancel their plans at no additional cost.
  • Absolute ban on registering new customers: The injunction contains an absolute ban on signing up new customers for certain DSL Internet services where the large number of users sharing the same network equipment leads to congestion, resulting in slower Internet service.
  • Required communications approved by the Commission: Frontier must provide notices to new and existing customers who have been getting slower than advertised speeds. These notices must include an option for consumers to change or cancel their subscription at no additional cost.
  • California-specific relief: Frontier to pay $8.5 million to the offices of Los Angeles County and Riverside County District Attorneys and $250,000 to consumers. The order also requires Frontier to deploy “FTTP”, which refers to equipment used in fiber access deployments where fiber extends all the way to the end user’s premises and the equipment is optimized for use in residential applications. According to the warrant, this investment is estimated to cost $50-60 million.

Key learning points

The complaint and injunction against Frontier is notable in several respects and could provide important lessons for all companies making advertising claims and interacting with state and federal consumer protection regulators. Some important lessons:

  • Substantiate your advertising claims: Frontier ran into trouble for advertising internet speeds, despite knowing or having reason to believe it couldn’t offer consumers those speeds. Make sure you have a reasonable basis for making the claims you make.
  • Don’t hide qualifications in fine print: If there are material qualifications for the services or products offered, they should not be limited to small, inconspicuous prints, separated from the main message of the advertisement.
  • Regulatory actions are more expensive than ever: The action against Frontier is illustrative of the increasingly aggressive approach by state and federal regulators in several respects:
    • FTC Commissioners Have declared publicly that the FTC will work with state and local regulators to get financial relief for consumers, to appeal to the US Supreme Court decision that the FTC does not have the authority to do this alone. This case is a good example. Companies cannot rely on the Supreme Court to prevent the FTC from seeking financial support in conjunction with other regulators.
    • The injunctive relief in this case goes far beyond what regulators have asked for in the past. The requirement for customer-by-customer substantiation, the absolute prohibition on new customer sign-ups, and mandatory $50-60 million investment are virtually unprecedented. Notably, Frontier has applied for: bankruptcy protection in 2020. Any arguments that the bans would give the company a disproportionate competitive advantage presumably fell on deaf ears.
    • The FTC’s press release sounds much more aggressive than in previous cases, with a cup proclaim that Frontier “lie” about internet speeds and “scam” consumers. This kind of language has usually been reserved for outright fraudsters in previous FTC cases.

Given these developments, companies will want to consider the significant costs of potential regulatory action when developing their compliance program. If a regulator nevertheless alleges a violation, it is important to weigh the costs and benefits of a possible settlement. Companies that want to litigate may do better in court. Experienced outside counsel who often deal with the FTC and state regulators can provide important advice on these issues.

Wilson Sonsini Goodrich & Rosati routinely helps companies navigate complex privacy and data security issues and respond to FTC and other regulatory investigations. For more information, please contact Maneesha Mithal Chris Olsen Roger Licor another member of the firm privacy and cybersecurity practice.

[1]In addition to the FTC and the Los Angeles and Riverside County District Attorneys, the plaintiffs included the attorneys general of Arizona, Indiana, Michigan, North Carolina, and Wisconsin, but those plaintiffs’ claims were dismissed for lack of personal jurisdiction over them. . claims in California federal court.

Leave a Reply

Your email address will not be published.