On Tuesday, March 28, 2017, the House voted along party lines to approve a measure that rolls back an FCC internet regulation requiring Internet service providers (ISP) to ask permission before selling its customers’ personal data. Just a few days later it was presented to the White House by the Senate and President Trump signed it into law on April 3, 2017.
This far reaching measure creates a number of implications about personal privacy, the nature of the internet as a commodity as opposed to a utility, and the impact of deregulation on business and internet customers. Here, we’ll focus our analysis of this measure on the impact it will have on business, especially considering past examples of deregulation of industry. We’ll also look at some of the pros and some of the cons of these internet privacy regulations.
What is the Internet?
Before we begin to examine the pros and cons of internet privacy deregulation it may be helpful to understand how the internet is viewed from a legal standpoint. In 2015, the then Democrat-controlled FCC set in place the Open Internet Order which treats the internet as a utility, not a commodity. This definitional qualification meant the internet was to be treated as a necessity, requiring equal access for all Americans.
The argument at the center of the Open Internet Order debates was whether the government should regulate internet access in the same way it regulates utilities or should it leave the internet mostly unregulated, allowing free markets to determine access, data collection, and bandwidth speeds.
In other words, should internet service providers be regulated by business interests or government? This fundamental question informs the debate over internet privacy regulations to this day.
Internet service providers want to be regulated under the same guidelines as websites. By this, they want their data targeting and collecting to be an opt-out option. Before this measure passed, internet service providers were to be regulated as opt-in, meaning they couldn’t collect and sell customer data unless that customer had agreed to it. This measure allows ISPs to collect data under an opt-out default, meaning customers need to alter their privacy settings or choose another ISP to avoid data collection.
Isn’t Our Data Already Collected?
When you visit sites like Google or Facebook, they collect information and metadata about your visit, including who you are, the demographics of your community, what sites you were on before your visit, and even what sites you visit after you leave their site. They also collect data on when and how you interact with their site, what you search for, and much more. They package and sell this data to marketers and other corporations.
This is how that pair of shoes you were looking at on Amazon a few days ago keeps popping up in sidebar ads on just about every website you visit. It’s part of the price we pay for “free” services from sites like Google, Facebook, and more. We all know they’re collecting this data and we accept it as a reasonable exchange for the “free” services they provide.
Your ISP is Different
Internet service providers are different from websites. The biggest difference is that ISPs charge a fee for use of their service while most websites do not. Additionally, you choose to visit websites while you have very little choice among ISPs as many areas of the country offer little to no competition in internet providers. According to US Rep. Mike Doyle, 82 percent of American households are serviced by only one provider.
You choose to visit specific websites and can make those choices based on the information that is collected when you visit. But you need an internet connection to make those visits. An internet connection is basically a necessity if you want to take part in modern life.
Additionally, your ISP tracks every search, click, video watched, email sent, and shopping session you conduct online. Websites are limited in the amount of data they can know and track about you. Your ISP knows just about everything you do online.
Mobile ISPs like Sprint, Verizon, and AT&T can also track your mobile internet use. This means they can collect and sell information about the way you use your mobile device to access the internet. This can include tracking locations you visit, routes you drive, and anything else you do over the internet on your mobile device.
Location tracking allows ISPs to better understand the effectiveness of advertisements. For example, if you are shown an advertisement for a concert at your local music venue, your ISP could more easily identify if you went to the concert after seeing the ads about concert tickets.
Much of this data is collected to provide better service to you. However, the deregulation selling and handling of this data has consumer and privacy advocates nervous. After all, ISPs have a lot of personal and possibly sensitive data about you, including when and how you use the internet at home and on the go.
Data = Dollars
This online activity is incredibly valuable to marketers, corporations, and other business entities. The loosening of internet privacy regulations gives these organizations and groups unfettered and unfiltered access to your most basic desires, questions, and habits. And that means a lot of dollars.
All of this data allows for behavioral targeting. Companies like Facebook and Google already utilize user data to create surgically precise advertisements. ISPs have access to even more data, allowing them to work with advertisers and marketers to create even more personalized advertisements. In a sense, all that data means a lot of dollars for ISPs.
The Implications for Business
This vote has been viewed as a victory for telecommunications companies. It will allow ISPs to package and sell customer data in the same way many websites collect and sell data. Just what will this decision mean for business? Let’s examine some of the pros of this measure.
- Removes overbearing rules for internet providers that ISPs claim put them at unfair disadvantage relative to companies that primarily run websites like Google or Netflix. These companies aren’t regulated by the FCC but can be viewed as competitors to telecommunications companies because they all offer streaming services.
- Levels the playing field between ISPs and large internet companies that also offer internet services.
- Allows free markets, not the government, to dictate which services customers want and don’t want.
- Creates shared interest between individuals and corporations to protect consumer privacy to ensure continued use.
- Removes burdensome government regulations, allowing ISPs to offer customers more personalized options and content.
- Creates super-personalized marketing from collected data to pair consumers with businesses.
- Increase revenue will lead to reinvestment in faster networks and better service.
- Allows ISPs to collect and sell personal data including websites visited, emails sent or read, videos streamed, financial transactions, and all other online activities, including when and where the internet is accessed.
- Doesn’t require ISPs to take “reasonable measures” to protect consumer data and information when they collect it, putting sensitive data at risk of breach or theft.
- Consumer activists fear this measure indicates more deregulation of the web, impacting throttling, bandwidth speed and availability, net neutrality, and the loss of other privacy protections.
How Will ISPs Approach Privacy
It’s important to remember that the measure signed into law by President Trump didn’t overturn an existing law. It simply stopped a law that had yet to take effect from being put into place. However, without the specter of Obama era regulation on consumer privacy, many ISPs are reexamining their privacy policies. Let’s examine how two of the largest ISPs have responded to this new law.
While this language sounds like it supports strong internet privacy regulations, they do leave some wiggle room, claiming to share anonymous information that can’t be reasonably used to identify their customers directly.
Their focus in on the “sensitivity” of the data and does not necessarily focus on the “service or entity” that the data is sold to.
However, they too use obfuscating language to blur the boundaries of what data they make available to advertisers. Using phrasing like “de-identified information” and “aggregate insights” they blur the line between what information they keep private and protected and what information they share and sell to advertisers.
A Victory for Telecommunications
Could Deregulation Actually Stimulate the Economy?
In certain economic circles, deregulation is almost always good for the economy. Deregulation allows companies to focus on business, invest in new avenues, and create more value. So, could the deregulation of the internet stimulate the economy?
Whether good or bad, this decision will definitely have an impact on the economy. After all, the internet accounts for 6 percent of the US economy. That represents nearly $1 trillion dollars per year. As you can imagine, changes in internet privacy regulations can have drastic impact on such a large portion of our economy.
According to President Trump, “one of the keys to unlocking growth is scaling-back years of disastrous regulations.”
Eliminating burdensome restrictions can lead to economic growth. Allowing ISPs to fairly compete with other large internet companies levels the playing field, offering consumers greater choice, driving down prices, and creating more profit.
As ISPs generate greater revenue by selling consumer data we could see more hiring, better salaries, and a larger workforce involved in the internet. Marketing firms and other advertisers should also see an increase in work loads due to the enormous amounts of data provided by ISPs.
Could Internet Deregulation Hurt the Economy?
Eliminating FCC internet regulations regarding privacy could actually hurt the economy. Removing some of the protections around consumer data could lead to massive breaches of security. In 2014 identity theft victims lost $15.4 billion dollars. With reduced security and privacy measures, that number may rise at unprecedented rates.
The concern is that deregulation will lead to greater security costs thus eliminating any increases in profit or value that ISPs may add to the economy. Shifting the regulatory burden from government to corporations might negatively impact the economy.
Could Deregulation Lead to More Corporate Ethics Violations?
Perhaps the largest criticism and biggest concern about the recent internet privacy ruling is the possibility of corporate ethics violations. There are no better examples of this than the Enron scandal in the early 2000s and the subprime mortgage crisis that led to the Great Recession.
The Enron scandal was largely caused by the deregulation of energy markets. When California’s energy markets were deregulated Enron took advantage of this situation to extract maximum profit by manipulating energy sales. What had once been regulated as a utility became regulated as a commodity, and it created a crisis in California.
Enron utilized ethically grey business practices to buy California energy, move it out of the state, and resell it to California from outside the state. This practice allowed Enron to make incredible profit all while causing massive energy grid collapses throughout the nation’s most populous state.
Over 18 months, California experienced 38 Stage 3 rolling blackouts. These blackouts were caused by a manipulated market system that was controlled by traders and marketers, not professional energy system managers.
The deregulation of the energy market led to an environment where the practice of removing California power from the grid to increase profit was technically legal. It allowed Enron to make profits up to 20 times the normal value of the traditional energy market.
Many believe that the deregulation of the energy marketplace directly led to this tumultuous situation. It damaged the state’s ability to affordably deliver power to its residents and negatively impacted the economy.
Subprime Mortgage Crisis
According to a New York Times report in 2011, a federal commission claimed that the “2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk taking.”
These are the same fears consumer advocacy groups are voicing about the current internet privacy regulations environment. While deregulation alone did not lead to the financial crisis of 2008, it played a large part in it.
The combination of large amounts of lobbying money, deregulation of massive parts of the economy, and corporate risk taking led to an economic disaster. While the deregulation of parts of the internet will most likely not lead to a global economic crisis, the warnings are the same.
How Will This Ruling Impact Business?
Recent FCC internet regulations have sparked massive debates about consumer privacy, government regulations, and corporate profit. The debate is filled with hyperbole, fallacy, and conjecture.
What we know is this—ISPs will soon be collecting and selling consumer data to advertisers, marketers, and other corporate interests. What we don’t know is if this is a good or bad thing. The answer is most likely somewhere in the middle.
This ruling will allow ISPs to better serve the needs and desires of their customers. By working with advertisers, ISPs will be able to deliver more focused content and marketing that is specifically created for each user. This is not only a benefit for ISP profit margins but it also can have many benefits for consumers—we already see the benefits of this focused advertising on websites like Amazon, Netflix, and even dating sites.
However there are legitimate concerns that the lack of rigid internet privacy regulations could lead to increased data theft and the possibility of unethical corporate situations. On top of that, it just feels strange that these large corporations know so much about our private lives.
Time Will Tell
The truth is, only time will tell what the impacts of this ruling are. There are sure to be positives and negatives that come from this deregulation, and there are sure to be more rulings on internet privacy and security in the future. After all, this isn’t the first, nor will it be the last, debate between free markets and government regulations.