Moody's: FCC's new privacy rules will hurt AT&T and Verizon's chances to compete with Facebook, Google

The FCC's proposed privacy restrictions on mobile and fixed-line broadband providers will make it harder for them to compete with digital advertisers such as Facebook and Google, companies that won't be subject to those new rules, according to Moody's.

FCC officials said last week that the commission would vote on a proposal later this month to consider regulations that would require ISPs to provide more transparency regarding what kind of data they glean from consumers, whom they share it with and how it is used. The rules would also require ISPs to get consumers to opt in to some data programs and would strengthen policies regarding data breaches.

The mobile industry pushed back over the proposed rules, warning of market "uncertainty" and questioning the FCC's jurisdiction to implement such regulations.

In a research note this week, Moody's noted that digital advertisers such as Google and Facebook are regulated under the Federal Trade Commission rather than the FCC and are excluded from the proposed rules. If the FCC adopts the rules, mobile carriers and other ISPs would find it much more difficult to compete for online ad revenues, the investors' service said.

"Ad sales models like (Google's and Facebook's) are putting traditional ad models under significant competitive pressure as they grow by double digit levels as compared to low single digit growth to low single digit declines in core traditional advertising," Moody's wrote. "Targeted programmatic advertising, which uses consumer data, is used by these companies to efficiently place advertisements in front of the customers much more prone to consume a particular product being advertised and affected by the ad, resulting in a higher return on the advertising investment. Absent an alignment of rules between the FTC and FCC regarding these privacy laws, a distinct competitive advantage will be given to online digital advertisers as more advertising dollars will continue to move in secular fashion from traditional television providers towards digital platform providers."

Moody's went on to say the proposed rules could shackle mobile carriers' video ad businesses before they even have a chance to get legs. Verizon is aggressively pursuing ad revenues through Go90, its OTT video offering, and advertising is expected to play a major role in the DirecTV-branded video service AT&T plans to launch later this year.

"The FCC's proposal also has the potential to derail efforts by wireless carriers to cultivate mobile video advertising revenues," Moody's continues. "Wireless carriers have the potential to generate significant advertising revenues due to their ability to precisely target ads to wireless subscribers. But, if the FCC restricts the carriers' ability to collect data, the advertising revenue opportunity will be reduced. Without a robust mobile video advertising market, the product could lose relevance due to its higher cost to consumers and a potential for fewer content choices."

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