On October 27,
2016, the FCC adopted a Report
and Order purporting to “protect the privacy of customers of broadband and
other telecommunications services.” The rules require consumers to affirmatively
opt-in before Internet service providers (ISPs) can collect “customer
proprietary information,” which applies to information that the ISP “acquires
in connection with its provision of telecommunications service.”
For example, if a
consumer who subscribes to Comcast chooses not to opt-in, it appears Comcast cannot
collect information regarding that consumer’s Amazon purchases because the data
would be acquired through the Comcast-provided Internet connection. However, Comcast
will be able to purchase that consumer’s Amazon information either directly
from Amazon or perhaps from the consumer’s operating system and/or web browser.
In other words, ISPs are allowed to purchase consumer information from edge
providers, which are not subject to the FCC regulations, even though the edge
providers have greater access to consumer information than ISPs.
FCC Commissioner
Michael O’Rielly discussed this important issue during his
dissent:
[A]ll that the FCC has really done is raise the
transaction costs. The FCC, in its typical nanny state fashion, seems to assume
that consumers prefer an opt-in regime. But when consumers find out the end
result is that they may have to pay more for heightened privacy rules that they
never asked for, I doubt they will be grateful that the FCC intervened on their
behalf. Indeed, this is a grandiose attempt to enact legacy talking points into
rules so that Commission leadership can pat itself on the back while consumers
receive no actual, practical protections.
Because the FCC’s regulations
with the opt-in default are not imposed on edge providers, such as Google,
these platforms will continue to collect massive amounts of consumer
information. As FSF scholars stated in their comments,
due to encryption technologies, edge providers have a greater access to
consumer information than ISPs. In order to provide targeted benefits, such as
zero-rated services, to consumers who choose not to opt-in, ISPs will have to
purchase information from edge providers or other Internet companies. (See my Perspectives from FSF Scholars entitled
“FCC
Privacy Rules Would Harm Consumers by Creating Barriers for ISP Advertising.”)
As Commissioner O’Rielly
discussed, because ISPs need consumer information in order to offer targeted
benefits, these regulations simply raise the costs for ISPs to engage in online
advertising, zero-rated programming, or other targeted consumer offerings. Consumers
who choose not to opt-in will be confused because edge providers will continue
to collect their information and sell it to ISPs. And it’s likely ISPs will increase
the price of broadband service in order to cover the costs of purchasing
consumer data from edge providers.
The FCC order also
envisions case-by-case investigations of “pay-for-privacy” practices. ISPs will
be less likely to charge different prices to consumers with different privacy
preferences. For example, consumers who choose not to opt-in but who still want
to receive targeted offerings should end up paying more than those who choose
to opt-in because ISPs need to purchase consumer information on their behalf. However,
the FCC’s investigation likely will chill any efforts by ISPs to offer differentiated
pricing based on consumer privacy preferences. Therefore, if ISPs want to offset
the increase in regulatory costs, the FCC’s investigation is more likely than
not to force providers to raise broadband prices for all consumers, not a subset.
With its new
regulations, the FCC claims to “protect consumer choice” and “toughen
pay-for-privacy safeguards.” But by expanding the definition of “customer
proprietary information” to include non-sensitive information, the effect of
the FCC order will be to impose higher prices for all broadband consumers
without actually creating more choices. (See my October
2016 blog.) Instead of a fraction of
consumers paying for privacy, all consumers are harmed by the likely result
that the FCC's new regulations will lead to higher broadband prices.
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