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Why The FCC's Proposed Privacy Rules Would Hurt Consumers

Harold Furchtgott-Roth & Arielle Roth

Federal statutes remain unchanged even as communications and Internet technologies constantly evolve. Even without new laws, the Federal Communications Commission expands its regulatory reach almost as quickly as technology itself. Consider last week’s proposal by Chairman Wheeler to subject broadband providers to burdensome privacy regulations. By obscuring the significant costs that it would impose, the FCC serves its own interests in bureaucratic aggrandizement and turns its back on consumer choice.

To be sure, Chairman Wheeler’s rulemaking announcement was not a surprise. Last year’s so-called Open Internet Order—the network neutrality order–classified broadband providers as heavily-regulated utilities. The FCC gave itself sweeping and unprecedented authority to micromanage practically every aspect of broadband business, including how broadband companies manage their subscribers’ data.

This year, the FCC seeks to expand its reach under the guise of Internet privacy. The privacy cause has been all the rage lately, particularly in the wake of Apple’s dispute with the FBI, and the vigilantism of Edward Snowden.

Privacy is neither a new concept nor one that it unique to the communications industry. Nor is privacy an obvious problem in search of regulation. There have been markets for privacy throughout history. To attend a sporting event, one can either buy a ticket to sit in the public areas, or purchase a pricier private luxury suite. Airline passengers can wait in the public departure area, or pay for entrance to a private lounge. Hospital patients can opt for a shared room, or pay more for a private space.

Private accommodations have always been available at a premium—and the same is true for the Internet. Those with a penchant for privacy can pay for secure connections like virtual private networks, exploit encryption technologies, or opt out of broadband data-tracking.

Customer preferences vary, and not everyone prioritizes privacy to the same extent. Just as not all sporting event spectators have qualms about sitting in the bleachers, not all Internet consumers mind being tracked. Certainly, many Americans would gladly trade some privacy for other benefits—such as a lower Internet bill, or faster download speeds.

But under the proposed FCC privacy rules, which require broadband providers to obtain express consent in advance of practically every use of a customer data, those consumers lose out. To the extent that companies are prevented from collecting and using customer information, consumers will in turn face higher rates, lower speeds, or both.

This is not merely hypothetical: in European countries, where privacy rules for broadband are extremely stringent, and users have a supposed “right to be forgotten,” investment in broadband deployment is much weaker, and user costs are much higher.

For those who place a premium on privacy, those tradeoffs may be worthwhile. And by all means, those consumers should be free to sacrifice costs and speed for privacy. But there are already extensive options for paying for privacy, and heightened consumer demand is constantly generating further options. Those consumers who are not troubled by data-tracking, and would instead maximize their preferences through lower rates or faster download speeds, should not be forced into paying for the preferences of others. Requiring everyone to adhere to the same privacy standard is unfair and paternalistic.

Allowing the privacy market to flourish was the view of the Federal Trade Commission. It was in charge of policing broadband companies’ privacy practices until the FCC usurped much of its jurisdiction with the network neutrality order. Under the FTC’s standard, companies may monetize user data, but must do so in a manner that is not “unfair or deceptive.” In other words, regulation should not impede innovation, but it is up to companies to be transparent about their practices.

Rather than forcing everyone to comply with an inflexible standard, the FCC should stand up for consumers and retain the FTC’s balanced approach. That approach to privacy has worked well for consumers by allowing them a wide range of privacy options. Rigid privacy regulations will only impede innovation and make the Internet more costly.

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