Summary

The NPRM and many of the comments supporting it reflect an ill-considered approach to privacy regulation for ISPs. Getting regulation right is always difficult, but it is all the more so when confronting evolving technology, inconsistent and heterogeneous consumer demand, and intertwined economic effects that operate along multiple dimensions.

[S]ecuring a solution that increases social welfare[] isn’t straightforward as a practical matter. From the consumer’s side, the solution needs to account for the benefits that consumers receive from content and services and the benefits of targeting ads, as well as the costs they incur from giving up data they would prefer to keep private. Then from the ad platform’s side, the solution needs to account for the investments the platform is making in providing content and the risk that consumers will attempt to free ride on those investments without providing any compensation—in the form of attention or data—in return. Finally, the solution must account for the costs incurred by both consumers and the ad platform including the costs of acquiring information necessary for making efficient decisions.

The NPRM fails adequately to address these issues, to make out an adequate case for the proposed regulation, or to justify treating ISPs differently than other companies that collect and use data.

Perhaps most important, the NPRM also fails to acknowledge or adequately assess the actual market in which the use of consumer data arises: the advertising market. Whether  intentionally or not, this NPRM is not primarily about regulating consumer privacy; it is about keeping ISPs out of the advertising business. But in this market, ISPs are upstarts
challenging the dominant position of firms like Google and Facebook.

Placing onerous restrictions upon ISPs alone results in either under-regulation of edge providers or over-regulation of ISPs within the advertising market, without any clear justification as to why consumer privacy takes on different qualities for each type of advertising platform. But the proper method of regulating privacy is, in fact, the course that both the FTC and the FCC have historically taken, and which has yielded a stable, evenly administered regime: case-by-case examination of actual privacy harms and a minimalist approach to ex ante, proscriptive regulations.

We are now on the last step in transitioning oversight for Internet address and domain name functions from the US Government to global stakeholders, a transition that was anticipated 18 years ago when the US established ICANN. It’s said that “if you love something you have to let it go”, but some in Washington aren’t ready to let go of the unique role for US government in the domain name system.

Kristian Stout joined a panel at IGF-USA to discuss the impending the transition plan and new accountability mechanisms for ICANN, offering views on what Congress and the Administration should do next. Video of the panel is embedded below.

Summary

The Commission’s NPRM would shoehorn the business models of a subset of new economy firms into a regime modelled on thirty-year-old CPNI rules designed to address fundamentally different concerns about a fundamentally different market. The Commission’s hurried and poorly supported NPRM demonstrates little understanding of the data markets it proposes to regulate and the position of ISPs within that market. And, what’s more, the resulting proposed rules diverge from analogous rules the Commission purports to emulate. Without mounting a convincing case for treating ISPs differently than the other data firms with which they do or could compete, the rules contemplate disparate regulatory treatment that would likely harm competition and innovation without evident corresponding benefit to consumers.

Concerns relating to online privacy have been extensively studied by regulators and others over the past two decades. By and large, regulators responded to these concerns with a combination of a general case-by-case approach alongside tailored rules derived from the relevant information involved in particular areas of privacy concern. Few, if any, regulators have adopted an “opt-in” privacy regime for non-sensitive data such as the FCC proposes. The FCC’s proposed regime may have been cutting-edge in the 1980s and 1990s — but it makes no sense in today’s information economy in which firms from different segments of the economy fluidly enter each other’s markets and effectively compete in a separate, cross- sector, informatics and advertising market. The proposed rules instead dig in the heels of the Commission against the irresistible tide of progress, attempting to maintain arbitrary industry firewalls between firms.

The “problem” the Commission attempts to fix with this proposed rulemaking is not one of preventing ISPs from using personal information to prevent new entrants from effectively competing with their incumbent businesses — which was, in fact, the genesis of the CPNI rules.1 Rather, these rules are designed to keep ISPs from competing with edge providers like Google, Facebook, and Netflix. But, in truth, both edge providers and ISPs actually need general rules of broad applicability. This is what the FTC and other regulators have largely done to date. Such broadly applicable rules are designed to be competitively neutral, and to offer the flexibility needed to address the various concerns that may come up in these markets while balancing legitimate economic and privacy interests and providing an adequate level of notice to those subject to regulation about their expected norms of conduct.

In short, the Commission has not made a convincing case that discrimination between ISPs and edge providers makes sense for the industry or for consumer welfare. The overwhelming body of evidence upon which other regulators have relied in addressing privacy concerns urges against a hard opt-in approach. That same evidence and analysis supports a consistent regulatory approach for all competitors, and nowhere advocates for a differential approach for ISPs when they are participating in the broader informatics and advertising markets. Absent the collection and analysis of substantial evidence — which at this point has not been articulated by the Commission or those advocating the Commission’s proposed approach, and which is far beyond the scope of the present NPRM — the proposed approach is not supportable.

And all of the foregoing is particularly perplexing in light of the fact that the Commission will inadvertently create more consumer harm than benefit. At the same time, the Commission has not shown that regulatory efficacy, administrative efficiency or anything else demands such rules. Particularly given TerraCom and the demonstrated ability of the Commission to handle harms as they arise even absent prescriptive rules, the need for these aggressive new rules simply cannot be justified.

Summary

“The Commission undertakes this rulemaking with the commendable goal of enhancing competition. But even the noblest of goals cannot be pursued by plainly illegal means. Unfortunately, that’s exactly what these proposed rules would do.

In our Comments we took issue with the disconnect between the stated goal of competition and the mechanism used to implement it, the unintended results, the vast underestimation of the existing vibrant video marketplace, and the fatal inconsistencies in the logic used to justify the Chairman’s NPRM. In this Reply Comment we highlight another overlooked, but crucial, problem with the proposed rules: they directly violate United States treaty obligations.

As we discussed in our Comments, the proposed rules would violate a number of exclusive rights guaranteed to copyright holders — including the right to license their content to MVPDs on narrow, specific grounds —and will create a high likelihood of exposing MVPDs to secondary liability. But the rules also threaten to violate a host of free trade agreements, to substantially interfere with rights holders’ exclusive right of public performance, and to upend the system of retransmission consent agreements authorized by the Cable Act…”

On Friday the the International Center for Law & Economics filed comments with the FCC in response to Chairman Wheeler’s NPRM (proposed rules) to “unlock” the MVPD (i.e., cable and satellite subscription video, essentially) set-top box market. Plenty has been written on the proposed rulemaking—for a few quick hits (among many others) see, e.g., Richard Bennett, Glenn Manishin, Larry Downes, Stuart Brotman, Scott Wallsten, and me—so I’ll dispense with the background and focus on the key points we make in our comments.

Our comments explain that the proposal’s assertion that the MVPD set-top box market isn’t competitive is a product of its failure to appreciate the dynamics of the market (and its disregard for economics). Similarly, the proposal fails to acknowledge the complexity of the markets it intends to regulate, and, in particular, it ignores the harmful effects on content production and distribution the rules would likely bring about.

Read the full piece here.

Summary

“In this proceeding the Commission proposes to “open” the market for multichannel video programming distributor (“MVPD”) set-top box video interfaces. We believe that the Commission’s proposed rules fail to take account of the fundamental economic realities that govern the creation of content and its distribution, fail to properly respect copyright and contractual rights, and constitute an inappropriate, to say nothing of unwise, exercise of the Commission’s authority under Section 629.

With this NPRM the Commission undertakes an intervention into a market that is robust, competitive, and scarcely in need of regulatory assistance. And Chairman Wheeler is well aware of this reality:

“American consumers enjoy unprecedented choice in how they view entertainment, news and sports programming. You can pretty much watch what you want, where you want, when you want.”

Not only is the market robust, but it is rooted in a complicated set of business negotiations (most notably between programmers and distributors) that contain an enormous number of moving parts.

“Content providers negotiate with MVPDs along many dimensions, including the presentation of content in terms of adjacencies; how a content producer’s brand will be treated; how and when content can be commercialized with advertised; limitations on the use of content as part of a content producer’s larger set of business model innovations; and the legal and regulatory obligations of the content producers themselves, including “self-regulatory initiatives such as the Better Business Bureau’s Children’s Advertising Review Unit (“CARU”) and Children’s Food and Beverage Advertising Initiative (“CFBAI”), and contractual agreements with writers’, directors’, and/or actors’ guilds.”

And not only are the contracts themselves extremely complex, but the various players in content and distribution markets are interrelated in complex and subtle ways. The no- tion that the FCC could focus in isolation even on something as seemingly incidental as set-top boxes without unanticipated and far-reaching ramifications throughout the eco- system is misguided.

On the one hand, the Commission’s proposed rules seem to dramatically underappreciate and insufficiently assess this underlying complexity, thereby misconstruing the likely effects of the regulation and threatening the investment and innovation that have produced this “Golden Age” of television and home video.6 On the other hand, if it does proceed with such rules anyway, the Commission should, and perhaps must under the APA and relevant judicial decisions like Michigan v. EPA,7 take much greater care to identify and evaluate the broad consequences—that is to say the costs and benefits—of its rules than it appears to have so far done in this NPRM…”

Netflix’s latest net neutrality hypocrisy (yes, there have been others. See here and here, for example) involves its long-term, undisclosed throttling of its video traffic on AT&T’s and Verizon’s wireless networks, while it lobbied heavily for net neutrality rules from the FCC that would prevent just such throttling by ISPs.

It was Netflix that coined the term “strong net neutrality,” in an effort to import interconnection (the connections between ISPs and edge provider networks) into the net neutrality fold. That alone was a bastardization of what net neutrality purportedly stood for, as I previously noted…

Read the full piece here.

The FCC doesn’t have authority over the edge and doesn’t want authority over the edge. Well, that is until it finds itself with no choice but to regulate the edge as a result of its own policies. As the FCC begins to explore its new authority to regulate privacy under the Open Internet Order (“OIO”), for instance, it will run up against policy conflicts and inconsistencies that will make it increasingly hard to justify forbearance from regulating edge providers.

Read the full piece here.

Internet content and service providers are poised to offer an economically and socially transformative service to millions of people in developing countries: low-cost access to the Web. That is, if regulators and self-proclaimed consumer advocates don’t stop them.

The latest skirmish in the never-ending net-neutrality wars concerns Facebook ’s Free Basics, a “zero-rated” service that allows users to access Facebook—and other useful websites—without incurring data charges.

Read the full piece here.