Privacy Rule Imperils Data Riches as AT&T Pursues Time Warner

  • FCC is taking up rules to limit sharing of web user data
  • Scrutiny comes as AT&T proposes buying data-rich Time Warner

AT&T Inc. says one reason it wants to buy Time Warner Inc. is to enrich the consumer data it sells to advertisers, offering insights gleaned from viewers of a trove of newly acquired programming such as HBO and CNN.

But as it gains on one front, the communications giant could lose ground on another. On Thursday the Federal Communications Commission is to consider limiting freedom of Internet-service providers such as AT&T and Comcast Corp. from using what they know about subscribers’ web browsing and app usage.

Under the FCC proposal, the broadband providers would need customers’ okay before using and sharing web-browsing and app use history. Right now, cable and phone companies can track internet customers from website to website until customers tell them to stop, a step known as "opting out."

Telecommunications providers say the FCC proposal isn’t fair because the rule wouldn’t cover Google, Facebook Inc. and other web companies that don’t fall under the FCC’s jurisdiction. That creates an imbalance that will confuse consumers and advantage the online behemoths in the race for digital ad dollars, they say.

“What we don’t want are different approaches,” Henry Waxman, a former Democratic lawmaker hired by the industry group 21st Century Privacy Coalition, told reporters last week. “The FCC shouldn’t be reinventing the wheel.”

Softer Scheme

The rules could impede internet-service providers from expanding in the $60 billion digital ad market, Matthew Schettenhelm, a Bloomberg Intelligence analyst, said in an Oct. 12 note. Many users won’t give permission to use their data; online companies use the opt-out approach, and 80 percent of users never do, Schettenhelm said.

The broadband providers say the FCC should adopt a softer regulatory scheme that resembles procedures followed at the Federal Trade Commission, a consumer-protection agency with broad reach across the economy.

FCC Chairman Tom Wheeler has insisted the FCC should move ahead, in part because consumers using the web can’t easily avoid surveillance by their internet service provider. The proposal needs three votes to succeed at the agency, where Wheeler leads a Democratic majority.

“A website sees what I do on that website. But the network sees all the websites I go to,” Wheeler told Consumer Reports during a visit to the consumer group’s headquarters last week. “If I don’t like the privacy practices of a website, I can say I don’t want to go to that website. But I don’t really have too much choice in my broadband provider.”

Set-Top Boxes

Wheeler also backs another step that could undermine data access for internet service providers, as he tries to open the way for a competitive market for set-top boxes that’s now dominated by cable, satellite TV and Verizon’s FiOS and AT&T’s U-verse lineups of pay channels. The proposal couldn’t win backing from a majority of FCC commissioners last month and awaits a vote.

AT&T’s $85.4 billion deal for Time Warner, announced Oct. 22, heightens the stakes because of the combined company’s scale, said Chris Lewis, vice president at the Washington-based policy group Public Knowledge that support Wheeler’s proposal. AT&T has 25 million TV customers and 77 million mobile subscribers.

“It highlights the importance of the privacy rules,” Lewis said in an interview. Providers of video content are collecting and sharing data, and “we know it’s an important growth area.”

Gathering customer information is one motive behind the proposed Time Warner purchase, John Stephens, AT&T’s chief financial officer, told investors on Monday. “The vast amount of data available from the combined company” will allow “a greater value proposition to offer advertisers,” Stephens said.

Viewership Data

Last month AT&T Chief Executive Officer Randall Stephenson told investors that “we have millions and millions of homes with set-top boxes that are connected to the internet and we’re able to give some anonymized viewership data that is very instructive to how you think about new advertising models.”

Asked for comment on the proposed FCC action, Washington-based AT&T spokesman Michael Balmoris said in an e-mail, “we look forward to reviewing” rules once adopted. The company has lobbied at the FCC for the rules to be looser, allowing use of most web-browsing unless subscribers say otherwise.

Companies can track web browsing, app use, location and data purchased from third-party data brokers to form “this really extraordinary profile of the person and their daily habits,” said Pam Dixon, executive director of the World Privacy Forum, a nonprofit group that works to help protect privacy.

“They can really take that and say, here is what that customer looks like and here’s the kind of advertising we’re going to show them,” Dixon said in an interview. “It’s really outside regulation.”

There’s big money at stake, said John Soma, executive director of the University of Denver Privacy Foundation.

"That data is extremely valuable,” Soma said. “It’s so valuable it’s the economic engine that drives Google.”

According to Soma, broadband companies are saying, “we’re not really regulated telephone people now, we want to be regulated like the free-for-all, and we want to be like Amazon."

— With assistance by Scott Moritz

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