An Economic Analysis of the FCC’s Privacy Notice of Proposed Rulemaking

An Economic Analysis of the FCC’s Privacy Notice of Proposed Rulemaking

The key question the FCC should ask in its NPRM is whether the privacy rules it proposes for ISPs would yield net incremental benefits beyond those that previously covered ISPs under the FTC. The Commission does not address this fundamental question.
The NPRM does not acknowledge the benefits that flow from information use, including from the ability to combine and use datasets in novel ways—benefits that would decrease significantly under an opt-in regime or one that requires consent for each new use of data. At a minimum, the FCC should recognize the tradeoff between increased privacy protection and decreased benefits from data use. If it does not acknowledge the tradeoff, it cannot make an informed decision.
The Commission provides no support for its claim that ISPs necessarily have access to more, and more sensitive, data than do edge companies. An increasing share of traffic that is encrypted—across the board, but especially in the finance and health care sectors, areas in which consumers worry about privacy the most—use of VPNs, and other anonymizers are steadily decreasing whatever view ISPs do have of online behavior. Moreover, more than 80 percent of internet users report using the internet at multiple locations even as they continue to use the same search, social, and email accounts, meaning that any given ISP is unlikely to have a complete view of browsing behavior even without encryption.
Data show little, if any, link between privacy concerns and broadband adoption. In the July 2015 Current Population Survey Computer (CPS) and Internet Use Supplement survey less than one-half of one percent of internet non-adopters report privacy concerns as the primary reason for not subscribing. Moreover, even if this claim were true it would apply also to edge companies.
Treating ISPs differently from edge companies would put ISPs at a competitive disadvantage in the large and growing digital advertising market, which had revenues of approximately $60 billion in 2015. This disadvantage would pose an entry barrier to ISPs, denying them a source of revenues and therefore helping to ensure that they continue to cover all their costs from direct payment by end users. It could also prevent new ISPs from using advertising—the go-to funding source for many edge companies —to offset consumer prices. Some ISPs are, in fact, trying that model. Additionally, blocking entry into the digital advertising market may harm any firm that needs to advertise as part of its business, since they will have fewer options on where they can advertise.


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