FCC’s Restrictive Privacy Proposal Fails to Hold Up to Scrutiny

FCC’s Restrictive Privacy Proposal Fails to Hold Up to Scrutiny

Lenard, Wallsten file Comments on FCC Privacy NPRM

Amy Smorodin
(202) 828-4405

May 25, 2016 – The Federal Communications Commission has not demonstrated why internet service providers should operate under a stricter privacy regime than other firms that use consumer data for commercial purposes, explain Technology Policy Institute’s Thomas Lenard and Scott Wallsten in comments filed today with the FCC. In addition, the Commission’s proposed rules would reduce competition in both digital advertising and broadband markets, and increase broadband costs for consumers.

“The NPRM provides no evidence of harms or potential harms to ISP users that the current combination of market incentives and regulatory enforcement by the [Federal Trade Commission] has not satisfactorily addressed,” Lenard, TPI President and Senior Fellow, and Wallsten, TPI Vice President for Research and Senior Fellow explain. It also fails to provide any evidence or analysis to show how the FCC proposal would produce benefits, let alone net benefits, relative to the approach taken by the FTC.

The authors find:

  • 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 privacy concerns consumers 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. Moreover, even if this claim were true it would also apply also to edge companies, negating the argument that ISPs should be singled out for stricter privacy regulations.
  • 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. 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.

“Privacy concerns are real and data breaches happen. Privacy protection and data security rules are justified. But those factors do not mean that stricter rules necessarily yield higher net benefits,” Lenard and Wallsten conclude. “In short, the FCC should consider the many costs of its proposed rules and more explicitly consider whether consumers would be better off under the proposed rules or under rules more in sync with the rest of the internet.”

The comments are available on the TPI website.


The Technology Policy Institute

The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/.

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