There are many
grounds upon which to criticize the FCC’s newly-adopted privacy regulations. Among these: (1) it is doubtful the
Commission possesses the legal authority to adopt the far-reaching regulations it
has adopted; (2) given that the Internet service providers subject to the new
regulations do not uniquely possess subscriber information, the imposition of
more stringent regulations on them vis-à-vis edge providers is arbitrary and
capricious; and (3) the new regulations almost certainly will confuse
subscribers and, in the process, result in less information available to them
than they otherwise might demand.
Putting those grounds
aside, I want to focus briefly here on an aspect of the decision – the so-called
“pay for privacy” provisions – highlighted by Commissioner Michael O’Rielly in
his dissent. Here is what Commissioner O’Rielly said:
In addition, I was appalled to see a case-by-case approach imported to
review mislabeled “pay for privacy” offers.
These are consumer incentives offered every day in the real world and
now ISPs will need to obtain a blessing from an agency that has no privacy
experience. The result is that broadband providers will be reluctant to extend,
and may even forgo, valuable offers and discounts that consumers would want for
fear that they will fall into another zero-rating style abyss. From that experience, we know that the game
is perpetually on hold awaiting heavenly intervention, and some players have
just stopped playing. Trying that again
here in the privacy context does not make any sense, unless the real intention
is to effectively ban pay for privacy offers without actually saying so in an
attempt to avoid a legal challenge.
Commissioner
O’Rielly is responding to the part of the FCC’s order that says the agency
reserves the right to respond on “a case-by-case basis” to “financial incentive practices that are unjust,
unreasonable, unreasonably discriminatory, or contrary to Section 222.” [Para. 303].
There is
certainly a role for case-by-case adjudication in administering the
Communications Act and enforcing the Commission’s regulations. Indeed, I have
advocated the use of such case-by-case adjudication in the past if carried out properly
and in proper circumstances. But Commissioner O’Rielly’s concern about the
agency’s approach in this case deserves close attention. It is difficult to
discount his fear that any such “case-by-case” reviews “will fall into another
zero-rating style abyss.”
The FCC
initiated some form of informal inquiry into the zero-rating (free data) practices
of AT&T, T-Mobile, and Comcast in December 2015. Over the past year, there
have been non-public responses to inquiry letters from the Commission and
meetings between company representatives and agency officials. But, almost year
later, as far as the public knows, there has been no resolution of the
inquiries.
In other
words, the fate of the Internet service providers’ zero-rating plans remains in
regulatory La-La-Land, or what Commissioner O’Rielly refers to as the “abyss.”
Call it what you will, the price for this particular form of “case-by-case”
approach is regulatory uncertainty that unduly chills further innovation and
investment.
I’m not
suggesting that “regulatory uncertainty” can be eliminated entirely in a
regulatory regime. Of course not. But a proper regulatory regime should be
constructed and administered in a way that does not unnecessarily exacerbate
such uncertainty. This is especially so in dynamic markets characterized by the
emergence of new business models responsive to changing consumer demands.
In the
case of the FCC’s concerns about so-called “pay for privacy” offers, the agency
first should more clearly delineate the factors that it will consider in assessing
the lawfulness of offers and plans that contain financial incentives. Then, the
agency should require the filing of a formal complaint which addresses, with
particularity, the factors delineated by the Commission and which addresses the
claimed market failure and consumer harm allegedly caused by the practice at
issue. The complainant should bear the burden of proof in an on-the-record
evidentiary proceeding.
There is
a role for case-by-case adjudication in a proper administrative regime. But the
Commission’s apparent approach to assessing the lawfulness of zero-rating plans
is not such a regime. If that informal approach is what the Commission has in
mind with regard to assessing the lawfulness of financial incentive offers in
the privacy area, the price paid by consumers in lost innovation and the
unavailability of desired information will be far too high.
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