FCC Considers Stricter Privacy Regulations for ISPs

By Special Guest
Alexander I. Schneider and Linda G. McReynolds, Attorneys, Marashlian & Donahue, PLLC, The CommLaw Group
  |  November 02, 2016

All indications point to a Federal Communications Commission determined to finalize a landmark privacy rule proposal, the last piece of the Open Internet legacy that has been a priority for FCC (News - Alert) Chairman Tom Wheeler and the Obama White House. The new rules would regulate the data collection practices of broadband internet access service (BIAS) providers for the first time, in many cases requiring BIAS providers to receive customer opt-in approval prior to sharing data with third parties. 

These data use restrictions would only apply to BIAS providers, not to regular website operators, prompting many stakeholders to call the plan unfair. Even the Federal Trade Commission, home of the Division of Privacy and Identity Protection, filed comments calling the disparate treatment of BIAS providers vs. other operators in the internet ecosystem “not optimal.”

Meanwhile, FCC Chairman Tom Wheeler (News - Alert) has stood by his plan. He says BIAS service is distinguishable from other forms of data collection that occur on the internet: “We can choose not to visit a website or sign up for a social network, or choose to drop one and switch to another. Broadband service is different. Once you subscribe to an internet service provider – for your home or for your smartphone – you have little flexibility to change your mind or avoid that network.”

July’s Verizon (News - Alert) acquisition of Yahoo underscores the argument coming from opponents of the privacy rulemaking. On its own, Yahoo could run targeted advertising as an unregulated website. But once acquired and incorporated into a service offered by Verizon, a BIAS provider, the rules would change and restrict certain data sharing and use. “This deal demonstrates why our support for a uniform public policy approach that applies equally to all players in the online advertising space makes sense,” a Verizon spokesperson told Politico. Chairman Wheeler countered that Verizon’s $4.8 billion acquisition demonstrated that the upcoming privacy rule would not impact business decisions

It is looking more and more likely that the FCC’s views will win the day. That’s because the FCC is no longer operating in a legal gray area. Instead, the proposal is a product of past FCC successes.

From 2010 to 2015, the FCC grappled with how to accomplish net neutrality. The 2015 Open Internet Order solved the issue: the FCC would reclassify BIAS under Title II of the Communications Act. Overnight, BIAS became a common carrier service, with all the responsibilities that entails. And while the FCC chose to exercise forbearance and not regulate BIAS in the same exact manner as every other telecommunications service subject to every Title II regulation and associated fees, the FCC established that it could extend longstanding telecommunications regulatory principles – like privacy rules – to BIAS.

The FCC’s arguments have worked, with the United States Court of Appeals for the District of Columbia Circuit agreeing with them in June in United States Telecom Association v. FCC. Short of an appeal to the Supreme Court, that means the FCC has succeeded in establishing that BIAS can be regulated as a common carrier service and that the FCC has the requisite authority to do so.

In other words, today’s FCC benefits from an emerging sense of legal security that has allowed the agency to grow increasingly confident in its regulation of BIAS as a common carrier.

Traditional regulated entities classified as telecommunications services will recognize this legal security and the disparate treatment that comes with the status of common carrier. Common carriers have always faced greater, gradually increasing compliance responsibilities and more fees than their private carrier or unregulated service provider peers. Some traditionally regulated entities may even applaud the FCC for leveling the playing field by applying longstanding privacy rules to their competitors in the BIAS industry. As time passes, pressure will mount to apply even more common carrier regulations to BIAS providers, including contributions to Universal Service mechanisms. Disparate treatment is a fact of life for regulated companies under the purview of the FCC.

That said, many stakeholders argue that privacy is different. They explain that companies using and sharing data are clearly at an advantage in the internet advertising ecosystem over other companies. They argue that if Verizon and Comcast cannot use data in the same manner as Facebook (News - Alert) and Google, they will be at a competitive disadvantage.

That’s where analyzing Verizon’s $4.8 billion acquisition of Yahoo becomes relevant.

Verizon is a long-time competitor in the telecommunications field, and the company knows what is at stake in the privacy rulemaking. Verizon has pushed back against the FCC’s rulemaking in the most recent round on privacy regulation, and has challenged the FCC on its Open Internet rules almost every step of the way.

Yet, despite its opposition, Verizon knows that the opt-in consent rule will not ruin its business prospects. As The Wall Street Journal pointed out, Verizon has grown from a market cap of $23 billion in 1994 to $224 billion today, during the same time that Yahoo fell from a $60 billion market cap average in 2000 to a sale price of $4.8 billion today. Website operators like Google (News - Alert) and Facebook have built businesses around online advertising, but Verizon does not need online advertising as it has a steady stream of revenue from service subscriptions that instead power its business.

Targeted online advertising is an important part of the internet ecosystem, but it is by no means a necessary part of that ecosystem. Just this summer, Proctor & Gamble Co., the biggest advertising spender in the world, said that it would reduce its use of targeted ads on Facebook. It stands to reason, then, that Verizon was not gambling on the privacy rules at the FCC when it chose to buy Yahoo. Verizon knows it can comply with the FCC’s privacy rules just as it has always complied with FCC rules. Instead, Verizon is gambling that even with reductions in targeted advertising due to the privacy rules, the company will still remain competitive.

Verizon, of course, is not representative of the entire community of BIAS providers, many of which will be concerned about the impact of the privacy rules on their businesses. The FCC should do more to assuage smaller companies that the new privacy rules will not disrupt their plans to grow their businesses or put them at a competitive disadvantage.

The FCC’s new privacy proposal is practically a done deal, and BIAS providers will soon begin to feel the effects of classification as a common carrier. With common carriage comes greater regulatory and compliance responsibilities.  Verizon has made a $4.8 billion gamble that the new rules will not disrupt its overall competitive position in the marketplace. Now may be the time for BIAS providers to prepare for the new regulations and to follow Verizon’s lead.

Alexander Schneider and Linda McReynolds are attorneys in the Information Privacy, Data Security and Consumer Protection practice group at Marashlian & Donahue, PLLC, The CommLaw Group.  Ms. McReynolds is a Certified Information Privacy Professional/U.S. (CIPP/US). 

Edited by Alicia Young