Privacy Order Would Hike Broadband Prices

On Oct. 27, 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 in his dissent:

“[A]ll that the FCC has really done is raise the transaction costs. … 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.”

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. 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. 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.

Michael J. Horney is a research associate at the Free State Foundation.