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ICLE Files Reply Comments for FCC's Privacy NPRM PDF Print E-mail

Yesterday, the International Center for Law & Economics filed reply comments in the docket of the FCC’s Broadband Privacy NPRM. ICLE was joined in its comments by the following scholars of law & economics:

  • Babette E. Boliek, Associate Professor of Law,
    Pepperdine School of Law
  • Adam Candeub, Professor of Law,
    Michigan State University College of Law
  • Justin (Gus) Hurwitz, Assistant Professor of Law,
    Nebraska College of Law
  • Daniel Lyons, Associate Professor,
    Boston College Law School
  • Geoffrey A. Manne, Executive Director,
    International Center for Law & Economics
  • Paul H. Rubin, Samuel Candler Dobbs Professor of Economics,
    Emory University Department of Economics

As in its initial comments, ICLE drew on the economic scholarship of multi-sided platforms to argue that the FCC failed to consider the ways in which asymmetric regulation will ultimately have negative competitive effects and harm consumers. The FCC and some critics claimed that ISPs are gatekeepers deserving of special regulation — a case that both the FCC and the critics failed to make.

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.

ICLE also responded to particular claims made by New America’s Open Technology Institute about the expectations of consumers about data collection online, the level of competitiveness in the ISP marketplace, and the technical realities that differentiate ISPs from edge providers.

OTI attempts to substitute its own judgment of what consumers (should) believe about their data for that of consumers themselves. And in the process it posits a “context” that can and will never shift as new technology and new opportunities emerge. Such a view of consumer expectations is flatly anti-innovation and decidedly anti-consumer, consigning broadband users to yesterday’s technology and business models. The rule OTI supports could effectively forbid broadband providers from offering consumers the option to trade data for lower prices.

ICLE went on to point out that much of the basis upon which the NPRM relies — and alleged lack of adequate competition among ISPs — was actually a “manufactured scarcity” based upon the Commission’s failure to properly analyze the relevant markets.

The Commission’s claim that ISPs, uniquely among companies in the modern data economy, face insufficient competition in the broadband market is… insufficiently supported. The flawed manner in which the Commission has defined the purported relevant market for broadband distorts the analysis upon which the proposed rules are based, and manufactures a false scarcity in order to justify unduly burdensome privacy regulations for ISPs. Even the Commission’s own data suggest that consumer choice is alive and well in broadband... The reality is that there is in fact enough competition in the broadband market to offer privacy-sensitive consumers options if they are ever faced with what they view as overly invasive broadband business practices. According to the Commission, as of December 2014, 74% of American homes had a choice of two or more wired ISPs delivering download speeds of at least 10 Mbps, and 88% had a choice of at least two providers of 3 Mbps service. Meanwhile, 93% of consumers have access to at least three mobile broadband providers. Looking forward, consumer choice at all download speeds is increasing at rapid rates due to extensive network upgrades and new entry in a highly dynamic market.

ICLE directly rebutted the contention that predictive analytics was a magical tool that would enable ISPs to dominate information gathering and would, consequently, lead to consumer harms — even where ISPs only had access to seemingly trivial data about users.

Some comments in support of the proposed rules attempt to cast ISPs as all powerful by virtue of their access to apparently trivial data — IP addresses, access timing, computer ports, etc. — because of the power of predictive analytics. These commenters assert that the possibility of predictive analytics coupled with a large data set undermines research that demonstrates that ISPs, thanks to increasing encryption, do not have access to any better quality data, and probably less quality data, than edge providers themselves have. But this is a curious bit of reasoning. It essentially amounts to the idea that, not only should consumers be permitted to control with whom their data is shared, but that all other parties online should be proscribed from making their own independent observations about consumers. Such a rule would be akin to telling supermarkets that they are not entitled to observe traffic patterns in their stores in order to place particular products in relatively more advantageous places, for example. But the reality is that most data is noise; simply having more of it is not necessarily a boon, and predictive analytics is far from a panacea. In fact, the insights gained from extensive data collection are frequently useless when examining very large data sets, and are better employed by single firms answering particular questions about their users and products.

ICLE’s full comments are available here.

 
The FCC’s proposed broadband privacy rules: The harmful effects of regulating without evidence or analysis PDF Print E-mail

Last week the International Center for Law & Economics filed comments on the FCC’s Broadband Privacy NPRM. ICLE was joined in its comments by the following scholars of law & economics:

  • Babette E. Boliek, Associate Professor of Law, Pepperdine School of Law
  • Adam Candeub, Professor of Law, Michigan State University College of Law
  • Justin (Gus) Hurwitz, Assistant Professor of Law, Nebraska College of Law
  • Daniel Lyons, Associate Professor, Boston College Law School
  • Geoffrey A. Manne, Executive Director, International Center for Law & Economics
  • Paul H. Rubin, Samuel Candler Dobbs Professor of Economics, Emory University Department of Economics

As we note in our comments:

The Commission’s NPRM would shoehorn the business models of a subset of new economy firms into a regime modeled 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.

In particular, we focus on the FCC’s failure to justify treating ISPs differently than other competitors, and its failure to justify more stringent treatment for ISPs in general:

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.

With respect to the proposed opt-in regime, the NPRM ignores the weight of economic evidence on opt-in rules and fails to justify the specific rules it prescribes. Of most significance is the imposition of this opt-in requirement for the sharing of non-sensitive data.

On net opt-in regimes may tend to favor the status quo, and to maintain or grow the position of a few dominant firms. Opt-in imposes additional costs on consumers and hurts competition — and it may not offer any additional protections over opt-out. In the absence of any meaningful evidence or rigorous economic analysis to the contrary, the Commission should eschew imposing such a potentially harmful regime on broadband and data markets.

Finally, we explain that, although the NPRM purports to embrace a regulatory regime consistent with the current “federal privacy regime,” and particularly the FTC’s approach to privacy regulation, it actually does no such thing — a sentiment echoed by a host of current and former FTC staff and commissioners, including the Bureau of Consumer Protection staff, Commissioner Maureen Ohlhausen, former Chairman Jon Leibowitz, former Commissioner Josh Wright, and former BCP Director Howard Beales.

Our full comments are available here.

 
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