Last week, the Federal Trade Commission (FTC) and the District Attorneys of Los Angeles County and Riverside County agreed to an order to settle claims against Frontier Communications Intermediate, LLC and its parent company, Frontier Communications Parent, Inc. (collectively, Frontier). The plaintiffs alleged that Frontier promised internet speeds that Frontier did not deliver. The order, approved by all Commissioners, contains far-reaching and, in some cases, novel relief, including an $8.5 million penalty, a requirement for customer-by-customer substantiation, an absolute prohibition on signing up of certain new customers, and a mandated $50-60 million investment in new technology.
The plaintiffs filed their initial complaint in California federal district court last year, alleging that Frontier violated Section 5 of the FTC Act in two ways.one First, the complaint alleged that Frontier engaged in deceptive practices by misrepresenting the internet speeds it could provide to consumers. For example, Frontier represented that consumers would pay a certain amount per month for a certain download speed (eg, $30 for 18 Megabits per second). In fact, according to the complaint, Frontier could not and did not provide consumers with internet service at speeds corresponding to the tiers of service they paid for. In some instances, Frontier did disclose that the maximum advertised speed might not be available to some consumers, and that speed was contingent on several factors, but the plaintiffs found this “tiny, inconspicuous print separated from the main message of the advertisement” to be insufficient.
Second, the complaint alleged that Frontier engaged in unfair practices by billing, charging, collecting, or attempting to collect charges from consumers for a higher cost level of internet service than Frontier provided or was capable of providing. The complaint includes a discussion about how Frontier allegedly knew or should have known that it could not provide internet service at the speeds advertised.
The California plaintiffs alleged that Frontier’s conduct violated the California Business and Professions Code, which prohibits false advertising.
In addition to general prohibitions on misrepresenting internet speeds, the proposed order includes several novel terms:
- Required disclosures in advertising: The order Frontier to clearly and conspicuously disclose in advertisements requires if the maximum advertised internet speed may not be available in a consumer’s area and that the actual speed a customer is likely to be able to obtain is subject to multiple factors.
- Customer-by-customer substantiation requirements: The order requires Frontier to conduct a customer-by-customer substantiation process at the time of service installation. It must perform a test to determine whether it can provide service within 10 percent of the maximum advertised speed or higher; if it cannot, it must get the customer’s consent to install the service. Similarly, for customers who complain about slow internet speeds, Frontier cannot bill, charge, collect, or attempt to collect for services unless a speed assessment 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 without incurring any additional fees.
- Absolute prohibition on signing up new customers: The order contains an absolute prohibition on signing up new customers for certain DSL internet services where the high number of users sharing the same networking equipment causes congestion resulting in slower internet service.
- Required, Commission-approved notices: Frontier must provide notices to new and existing customers who have been provided with slower than advertised speeds. These notices must include an option for consumers to change or cancel their plans without incurring any additional fees.
- California-specific relief: Frontier must pay $8.5 million to the Los Angeles County and Riverside County District Attorneys’ offices and $250,000 to consumers. The order also requires Frontier to deploy “FTTP,” which refers to equipment used in fiber access deployments where fibers extend all the way to the end-user premises and the equipment is optimized for use in residential applications. According to the order, this investment is estimated to cost $50-60 million.
The complaint and order against Frontier are noteworthy in several respects, and can provide important lessons for all companies that make advertising claims and interact with state and federal consumer protection regulators. Some key lessons:
- Substantiate your advertising claims: Frontier got into trouble for advertising internet speeds, alleged despitely knowing or having reason to believe it could not provide consumers with those speeds. Make sure you have a reasonable basis for making the claims you do.
- Don’t hide qualifiers in fine print: If there are any material qualifiers to services or products offered, they should not be limited to tiny, inconspicuous print separated from the main message of the advertisement.
- Regulatory actions are more costly than ever: The action against Frontier is illustrative of the increasingly aggressive approach of state and federal regulators in several respects:
- FTC Commissioners have stated publicly that the FTC will partner with state and local regulators to obtain monetary relief for consumers, to address the US Supreme Court’s decision that the FTC does not have the authority to do so on its own. This case is a good example of that approach. Companies cannot rely on the Supreme Court’s holding to determine the FTC from seeking monetary relief in conjunction with other regulators.
- The injunctive provisions in this case go far beyond what regulators have asked for in the past. The requirement for customer-by-customer substantiation, the absolute prohibition on signing up of new customers, and mandated $50-60 million investment are virtually unprecedented. Notably, Frontier filed for bankrupt protection in 2020. Any arguments that the injunctive provisions would put the company at a disproportionate competitive advantage presumably fell on deaf ears.
- The FTC’s press release takes a far more aggressive tone than in prior matters, with a headlining proclaiming that Frontier “lied” about internet speeds and “ripped off” consumers. This type of language had typically been reserved for outright fraudsters in prior FTC cases.
Given these developments, companies will want to factor in the significant costs of potential regulatory action in developing their compliance program. If a regulator does allege a violation, it is important to weigh the costs and benefits of any potential settlement. Companies that are willing to litigate may do better in court. Experienced outside counsel that deal frequently with the FTC and state regulatory authorities 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 Olson, Roger Li, or another member of the firm’s privacy and cyber security practice.
In addition to the FTC and the District Attorneys of Los Angeles and Riverside County, the plaintiffs included the Attorneys General of Arizona, Indiana, Michigan, North Carolina, and Wisconsin, but those plaintiffs’ claims were dismissed because of lack of personal jurisdiction for those claims in California federal court.