Verizon cheers FCC’s new privacy rules, but AT&T warns action will ‘confuse consumers’

The FCC voted today along 3-2 party lines to implement privacy rules on internet service providers, including wireless carriers like Verizon and AT&T. The rules essentially prohibit carriers from sharing customers’ personal data with third parties, and could cut into wireless carriers’ efforts to monetize information on customers’ behavior via advertising.

However, the FCC’s rules are not as strict as those the agency initially proposed earlier this year. The rules also don’t affect internet companies like Google and Facebook, which will continue to operate under the FTC’s rules for privacy.

Verizon, for its part, largely voiced support for the FCC’s ruling. “While we will need to closely review the text of the FCC order after it is released, the final order appears to adopt rules that are much more closely aligned with the Federal Trade Commission’s privacy framework that has long applied to our ISP business and that continues to apply to the rest of the internet ecosystem,” Verizon said in a statement.

AT&T also said it was “pleased” that the FCC’s rules largely adhere to the privacy guidelines implemented by the FTC. But AT&T added that that FCC’s action “departs from the FTC regime in significant and illogical ways, most importantly in the treatment of web browsing and app history data. In this regard, the FCC’s order falls short of recognizing that consumers want their information protected based on the sensitivity of the information collected, not the entity collecting it. The FCC’s divergent approach will ultimately serve only to confuse consumers, who will continue to see ads based on their web browsing history generated by edge providers even after they have been told by their service provider that their consent is required for use of such information.”

Not surprisingly, public interest groups voiced support for the FCC’s actions. “This marks a significant step forward in protecting consumer privacy. For the first time, Internet Service Providers will be required to get consumer consent prior to using the sensitive information they collect. While much remains to be done to protect consumers online writ large, the Commission’s rules establish a baseline level of protection for all,” said Dallas Harris, policy fellow at Public Knowledge, in a statement.

Reactions to the rules were largely broken down along these lines, with FCC Republicans and industry trade groups pushing against the rules, generally arguing they would give internet companies like Google and Facebook an unfair advantage, and questioning the FCC’s authority in the arena. The FCC, meanwhile, argued that its new rules are geared toward protecting customers’ personal information. “The bottom line is that it’s your data. How it’s used and shared should be your choice,” said FCC Chairman Tom Wheeler in support of the rules.

The FCC’s new privacy rules contain a number of major caveats. For example, the rules do not prohibit mandatory arbitration clauses, which are often used by ISPs in contracts with consumers to avoid litigation. The rules also don’t place restrictions on some types of data, like the use of customer's IP addresses or device identifiers.

Importantly, as the Washington Post pointed out, the rules also do no prohibit ISPs from using customer information internally. For example, the publication noted Verizon would be able to use customer data to better sell them more expensive data services. However, Verizon would need customers to opt in to an exchange of data between Verizon and one of its non-communications businesses, like AOL.

How ISPs use customers’ data is becoming significantly more important as companies like AT&T and Verizon acquire content and ad-tech companies in a bid to expand beyond their telecommunications roots. Already Verizon has acquired AOL and is in the process of acquiring Yahoo. And the company just yesterday moved to purchase online video provider Vessel. And AT&T, of course, earlier this week inked an agreement to purchase Time Warner for a whopping $85.4 billion.

Indeed, data from customer’ behavior was a major element in AT&T’s argument for its purchase of Time Warner. “All that will give us some robust viewership insights, and we'll use those insights from our TV, mobile and broadband subscribers to inform what content we create. We'll develop content that's better tailored to what specific audience segments want to watch, when, where, and on which device. And we'll use the insights to expand the market for addressable advertising. And addressable advertising is far more effective and more valuable both to the advertisers and to our customer,” explained AT&T CEO Randall Stephenson of AT&T’s purchase of Time Warner, according to a Seeking Alpha transcript of his remarks this week.

But some industry observers see the actions by AT&T and Verizon as ways of potentially expanding beyond the FCC’s reach. “It makes AT&T less dependent on the telco data - just like VZ buying Yahoo,” tweeted Recon Analytics analyst Roger Entner in reaction to the FCC’s new rules today. "All the moves the @FCC makes (privacy, Title II, etc) forces telcos into vertical integration to grow more quickly."

“FCC privacy regulations make ISP vertical integrations more attractive. Non-ISPs, like Time Warner online properties, have fewer rules,” added telecom analyst Brent Skorup today.