Privacy Regulation That Distorts Competition Not Good for Consumers

The Federal Communications Commission realizes that different rules for different competing firms “could have [anti]competitive ripple effects,” yet the agency’s proposals frequently include different rules for different competitors anyway. In the case of privacy protection for the customers of broadband service providers, the FCC is proposing to impose onerous restrictions on broadband providers’ use of Web browsing and app usage history for targeted advertising purposes compared to the rules that apply to everyone else who has access to the same information.

Among others, I pointed out to the FCC in comments I filed earlier this year that Moody’s Investors Service warned that broadband providers’ ability to compete with digital advertisers like Google and Facebook will be “severely handicapped.” My comments were also among those that pointed out the prevalence of encryption which keeps Web browsing and app usage history hidden from third parties — Sandvine predicted that 70 percent of all global Internet will be encrypted this year — with many networks exceeding 80 percent.

The Federal Trade Commission has found that Web browsing and app usage history do not warrant the same regulatory treatment as information about children, financial and health information, Social Security numbers, and precise, individualized geolocation data (see the FTC’s 2012 Report on Protecting Consumer Privacy, pp. 58–59). Yet in a classic example of doublespeak this is what Chairman Tom Wheeler of the FCC proposed earlier this month as part of his recommendations for keeping the FCC’s privacy rules in “harmony” with those of the FTC.

The FCC frequently claims that it wants to promote competition, but the best way to do that is ensure that all market participants are subject to the same regulatory obligations.

The FCC is scheduled to vote on a final privacy rule tomorrow, the text of which has so far not been made public.