ISP Privacy NPRM Would Create 2 Tiers, Experts Tell INTX, Where Stankey Questions More Rules

If what the rulemaking proposes becomes final, it would create a two-tier system of privacy with different rules for ISPs than others in the Internet system such as edge providers, potentially harm consumers and/or confuse them, and create implementation headaches for cable ISPs, said the privacy lawyers. Three lawyers called the rulemaking paternalistic or said it's a version of government-knows-best. Most panelists said the FTC's approach to privacy through case-by-case enforcement and often allowing consumers to opt out of information sharing works best. They said that's opposed to requiring people to opt in to have companies share their information, as the FCC would in many instances require.

Speakers said the Google model of an advertising-supported Web wouldn't have blossomed under the privacy regulations the FCC seeks. "If you put restrictions on one group of collection of information, I think you are less likely to see competition," said moderator and ex-FTC Chairman Jon Leibowitz of Davis Polk. "The Google business model has provided spectacular benefits for consumers around the world." Leibowitz and others noted the proposals aren't final.

The FTC "has been a terrific leader on privacy," and is "one of many agencies that have responsibility for ensuring the privacy of consumers’ information is protected," the FCC spokeswoman emailed. "Congress has enacted separate laws governing privacy practices in the health care, education, financial and communications sectors." Within FCC jurisdiction, Chairman Tom Wheeler's privacy "proposal seeks comment on how best to give ISP customers the ability to control the use and sharing of the confidential information they share with their ISPs," said the spokeswoman. "Providing clear rules of the road for ISPs will give certainty to businesses and consumers alike.”

Though 21st Century Fox might not fall under proposed FCC rules, given it's not an ISP, its chief privacy officer had reservations. Fox's Ellen Agress, like other panelists, said her company closely follows privacy rules and laws and has many lawyers working on such efforts. "If you have to give the consumers clear information about what the trade-off is, once you've done that, the consumer should be able to make the choice" about privacy preferences, she said. The FTC approach allows for changing regulations when conditions shift, Agress noted. Geolocation data originally wasn't considered highly sensitive information until the FTC took a look and determined it was, she said. "That kind of regime seems to make a lot more sense to apply to everyone as opposed to rules that are baked in and that are never going to change," she said of possible FCC rules.

The FCC's approach could be overly general, contrasting with that of the FTC, said panelists including Sidley Austin's Jon Nuechterlein, a former official at both agencies. "The more general the rules become, the more likely it is that the rules will overlook key variables to the privacy analysis, and that is largely what the FCC is proposing," said Nuechterlein, speaking only for himself and not the law firm's clients like ISPs. "Opt-in is so rare in the Internet ecosystem, there are large transaction costs associated with it," he said. "You would slam the brakes on the economic model of the modern Internet," he said of why an opt-out privacy approach prevails among some Internet players. The FTC "conforms its rules to the governing model of the modern Internet," while the FCC would weigh privacy differently and "will apply different rules to a discrete segment of the ecosystem," Nuechterlein said. "If you apply it to Google, you wouldn't have a Google, you would have a subscription-based search engine which many couldn't afford to use," he said of opt-in. "An opt-in regime I think would be misaligned with consumers for that reason.”

Subscribers to Cox Communications and Time Warner Cable often like the personalization they get through sharing information, the chief privacy officers of those companies said, citing programming recommendations, saying such features are popular. "For anyone to say you can't do data, you can't do anonymized data, you are losing a lot of benefit if that is where you are going," TWC's Craig Goldberg said. Speakers noted that Charter Communications is poised to acquire TWC and Bright House Networks, as soon as this Wednesday. Big data brings benefits to cable users, Goldberg said. "Our customers tell us that they want us to know them," Cox's John Spalding said. Under what the NPRM proposes, "we would have to hire a lot of people," he said. "There would be back office work we would need to do, to track all the customer choices.”

Cable operator representatives find it ironic the NPRM targets them and other ISPs, since the industry has been subject for three decades to privacy rules and treads carefully. "It takes choice away from consumers," Spalding said. He cited a paper by Georgia Tech's Peter Swire partly paid for by ISP coalition Broadband for America (see 1602290047) saying encryption means ISPs have less access to customer data. Swire "points out that ISPs have neither unique nor comprehensive access to customer data and often edge providers may have more, so there is really no factual basis for treating ISPs differently," Spalding said. Cable operators are accountable to subscribers and deal directly with them, unlike edge providers that wouldn't fall under the FCC privacy rules, Goldberg said. "We have phones that our employees answer. When we do things that they don't like, they call us," he said of customers.

AT&T Entertainment Group CEO John Stankey was skeptical in a later session of the need for more rules. "It's kind of a mystery to me as to why somebody believes there needs to be more active involvement from the regulatory side when there’s this much innovation going on. But time will tell whether or not the market wins or the regulator wins on that," Stankey said, discussing the company's broadband and entertainment businesses. "I’d just ask why we’d need any additional regulation," whether over transport service pricing, unlocking the set-top box or other endeavors, he said when queried about specifics. "It's a vibrant industry. There is a lot of choice coming in, and that seems to be a winning combination.”