September 21, 2016 - 12:30 pm
By Michael O'Rielly | Commissioner

The Commission seems intent to push forward, in the coming weeks or months, with a specious plan imposing new broadband privacy mandates and burdens.  Reacting to this impending action, a number of broadband providers have sought to retain the ability to offer consumers incentives in exchange for consumers’ willingness to share a greater level of private information.  Seemingly in disagreement, FCC leadership is quoted as saying that they “hope privacy doesn’t become a luxury item.”  If data sharing enticements are prohibited, however, it would harm the overall operations of the Internet, increase companies’ costs for offering features and functions, and decrease consumer options.  Such an approach tramples on the notion of consumer choice. 

At the outset, it is critical to define what is meant by “luxury.”  Use of the term can falsely conjure up images of wealth and privilege.  Instead, it is better defined as something that is optional or non-essential, as opposed to a necessity.  In this formulation, privacy would be a luxury item because it is not critical to everyday life.  Consider the case of international celebrities, such as Kim Kardashian.  Almost every move and activity they undertake is seen and subject to scrutiny, but they continue to live their lives quite sufficiently with little to no personal privacy.  In fact, they often seek to bargain away even more of their privacy for increased public attention.  This same tradeoff can be seen repeatedly in reality shows where average Americans allow millions of viewers into their homes, businesses, hospital rooms, and their most personal relationships.  Alternatively, consider discount cards from grocery stores and pharmacies, which allow participating consumers to trade ongoing data about their personal shopping preferences and experiences for substantial pricing relief.  Clearly, people can and do thrive in instances where personal privacy preferences are traded away freely, thereby undercutting any argument that privacy amounts to a necessity.  

Indeed, arguing that, in the broadband context, privacy is a necessity, and not a luxury, would suggest that it is something that individuals could not bargain for or away in their dealings with commercial providers – notwithstanding the fact that they clearly can and do bargain it away in a variety of other instances.  In such a case, broadband companies alone would be required to include a fixed level of consumer privacy protections.  Commercial providers would be prohibited from seeking to differentiate their offerings through price discounts, service upgrades, etc., while consumers would be prohibited from seeking any type of product differential for their own benefit.  In this universe, the government would be dictating private contract terms that couldn’t be deviated from even if both parties found benefit in doing so. 

A fundamental problem with such a viewpoint is that it runs completely counter to the concept of consumer choice – the ability of consumers to take action for their own perceived benefit.  Eliminating the flexibility of consumers to exercise their freedom with regards to their own data would be the definition of anti-choice.  It’s an affirmation of the nanny-state government: consumers are not capable of making these decisions for themselves.  And, it runs counter to decades of experience with consumers making such choices and tradeoffs in other sectors of the economy.

Additionally, it would contradict the approach outlined in the Commission's Fact Sheet for the NPRM that “[c]onsumers should have effective control over how their personal information is used and shared by their broadband service providers.”  How can the Commission both prohibit data from being transferred by consumers in exchange for some benefit, and yet still allow effective control over how the data is used?  In other words, what is the value of “Increased Choice, Transparency and Security Online” if the choice is made by the Commission and against some consumers’ wishes?  The simple answer is it can’t.

Moreover, the current Internet embodies a symbiotic relationship between the features and functions offered to consumers and the corresponding privacy of personal information offered in exchange.  A great portion of consumer-facing Internet sites and apps (i.e., edge providers) require the collection of certain private information that is effectively being traded by consumers for the benefit of using the product or service.  This collection of consumer data is a key financial component that helps fund many Internet companies, as it can be used to generate advertisements or shared with third parties.  Operationally, consumers always have the option not to accept such arrangements, but they risk not being able to use the product or service at all.  

Establishing a discriminatory prohibition on broadband companies for doing the same thing – even where competition for providers exists – will divert capital, resources and innovation to other investments.  Specifically, withholding the ability of broadband companies to make incentive offers – even on a voluntary basis with the full knowledge and acknowledgement of consumers – would disrupt how some broadband companies generate profits, which every private sector company must obtain, therefore directly impacting consumers.  If the option to make these offers is foreclosed, broadband companies will be forced to find revenues elsewhere, including raising consumer prices.  At the same time, this action may result in the reduction of consumer-friendly features and functions or stall the development of new ones.  Additionally, companies may have to curtail buildout of services to new areas or delay upgrades to counteract this limitation.       

Perhaps expressing “hope” that privacy does not become a “luxury” is intended to capture personal preferences on how the marketplace should develop.  This would center on the belief that consumers would realize the importance of their own privacy protections and generally agree not to take advantage of any exchange offered.  As such, data exchange offers by broadband providers would mostly fall on deaf ears, and those few that are willing to make such an exchange would not be sufficient to justify continuing the programs.  This is how the market generally disciplines unwelcome behavior.  This approach is the least caustic to the marketplace and is akin to trying to steer the policy discussion with sage advice rather than rash dictates.

In the coming weeks, the FCC will debate internally over whether and what consumer privacy protections to enact.  Arguably, the Commission should rethink its insistence to enact new broadband privacy rules, but assuming it moves forward, it should not prohibit private data exchanges that benefit consumers in the form of lower prices, greater service or more features and functions.