FCC should whack privacy rules that favor Google and Facebook

Federal Communications Commission Chairman Ajit Pai remarked in a December 2016 speech that his agency should “fire up the weed whacker” and get rid of numerous regulations that the previous administration put in place on a partisan basis. As the first target, I would suggest the broadband consumer privacy regulations that were hastily adopted just a few days before November’s election.

In a significant departure from a more than 20-year-old bipartisan, technology-neutral online privacy framework, Obama’s FCC Chairman Tom Wheeler chose to impose a new set of restrictions  on broadband providers as it applied to personal information considered sensitive. Perversely, consumer privacy today is no more protected than it was before the new rules were adopted. That’s because the very companies whose entire business model is centered around monetizing consumers’ private information were not affected by the FCC’s actions. As a result, consumers who care about their privacy are arguably even worse off than before.

{mosads}It appears that the Wheeler FCC was unaware of the reality of today’s digital advertising market. After all, an FCC chairman who repeatedly reminded the market that his mantra was “competition, competition, competition” wouldn’t put regulations in place that insulated dominant competitors from new competition.

Fixed and mobile internet advertising has merged into one market: digital advertising. All Internet advertising is digital and dominated by Google and Facebook, which control more than 60 percent of combined market share. Along come the ISPs, led by Verizon and more recently AT&T, seeking to take some of this market share away by getting into the digital advertising business. Before either of these intrepid new market entrants took hold, the FCC pounced and imposed a set of restrictions exclusively on them, making it much harder for ISPs to directly compete against Google and Facebook.

The Googles and Facebooks of this world can freely collect data on their users and use that information to create profiles that allow the companies to target advertising at their users with significantly more accuracy than the ISPs. Better targetable advertising means it takes fewer impressions to hit the right target audience and that eliminates inefficiencies, increases revenues for the advertising platform and reduces spam.

With $17.6 billion in Q3 2016 revenue alone, and an annual run rate of over $70 billion, this is no small market. And all of the growth in digital advertising revenues from Q2 to Q3 2016 — $2.9 billion — was divided between Google and Facebook. Google dominates search with 76 percent of market share, online advertising with more than 50 percent of market share, mobile analytics with 95 percent of market share, and online video with more than 75 percent market share.  This explains why Google and Facebook are fighting ferociously to defend their turf.

But is this something the FCC should be helping them with? The Wheeler privacy rules essentially cement the dominance of Google and Facebook, the very thing that a regulator should avoid, especially when it is reinforcing the two dominant providers in a market they do not regulate. We need more competition in the digital advertising space, not less.

Consumers deserve consistent privacy protection regardless of what device, what service, what app or what network they are using. Consumers also deserve a digital marketplace replete with competitors going at it head to head for every consumer eyeball. A regulatory regime that distorts either of these should be avoided at all costs. Let us hope that Chairman Pai follows through on his promise to bring a weed whacker to ill-informed, anti-consumer, anti-competitive regulations like the FCC’s privacy rules.  

Roger Entner is the founder and lead analyst at Recon Analytics, a company focused on providing syndicated research, custom consulting, and policy-related data analysis.

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