Trump FCC can't repeal rules quickly, but can enforce how it wants
© Getty Images

The Federal Communications Commission (FCC) under President-elect Donald TrumpDonald TrumpFormer New York state Senate candidate charged in riot Trump called acting attorney general almost daily to push election voter fraud claim: report GOP senator clashes with radio caller who wants identity of cop who shot Babbitt MORE is likely to take a hard look at net neutrality and the reclassification of broadband as a Title II common carrier service.

Repealing a regulation so recently blessed by the Court of Appeals may, however, be a lengthy and difficult process. The Internet Service Provider (ISP) privacy regulations adopted last month pursuant to the Title II reclassification may be more readily overturned because no court has yet ruled on them.

But that would still take some time. In the interim, the new FCC should adopt a more rational enforcement policy.

One early candidate should be the treatment of "pay-for-privacy" or "financial incentive" plans. These are broadband service plans that offer discounts to subscribers who permit their ISP to collect and use their data.

The new FCC privacy regulations suggest an enforcement policy that will actively discourage these plans, notwithstanding FCC Chairman Tom Wheeler's claim that, "The bottom line is that it's your data. How it's used and shared should be your choice."

Left unsaid was that he prefers some choices to others.

The pay-for-privacy option takes on added importance with the current privacy regulations that require affirmative opt-in for most data collection. The evidence suggests that consumers tend to stay with the default choice presented to them. Thus, it will be difficult to get consumers to opt in absent a tangible benefit from doing so.

The problem with the FCC's approach is that it does not acknowledge the real benefits that can flow from sharing data, as indicated by the "heightened requirements" for incentive practices the regulations establish without any cost-benefit justification. For ISP customers, these benefits could include discounts, like those offered by supermarkets via loyalty and other similar programs, as well as tailored marketing and content.

Data use has broader indirect benefits, as well. Reports from the World Economic Forum and the McKinsey Global Initiative describe a range of benefits in healthcare, education, the provision of government services, agriculture, financial services, fraud protection, retailing and manufacturing.

As the President's Council of Advisors on Science and Technology (PCAST) noted in a report on big data, "[t]he beneficial uses of near-ubiquitous data collection are large, and they fuel an increasingly important set of economic activities." A 2014 White House report on big data observed that "properly implemented, big data will become an historic driver of progress."

In the world of big data, innovation often comes from new and unanticipated ways of using and combining data sets. Yet, the FCC's privacy regulations inhibit these new uses by requiring customers to be informed in advance concerning how the data will be used and with whom it will be shared. Such requirements are likely to reduce the value of the data and the discounts that ISPs would be willing to offer.

The problems with the FCC's rules go beyond what it explicitly prohibits and its strict opt-in policy. It also reserves the right "to take action, on a case-by-case basis," without clear criteria. This uncertainty is likely to discourage companies from experimenting with this new type of business model.

A major concern seems to be that pay-for-privacy plans may have a "disproportionate effect on low income individuals." The FCC notes that "Thirty-eight public interest organizations expressed concern that financial incentives can result in consumers paying up to $800 per year—$62 per month—for plans that protect their privacy."

This is backwards, because it assumes that absent the pay-for-privacy option, everyone will automatically receive the lower prices. But if it is a discount, then the financial incentives can result in consumers saving up to $800 on their broadband bills (if the $62 per month figure is correct, though it sounds high). That is a lot of money, particularly for lower-income individuals.

Financial incentive plans can permit consumers to use their data as partial payment for their broadband bills, just as they trade their data for free or low-price access to online applications. Wireless service plans offered by new entrants CellNuvo and Freedompop are examples of this.

The FCC is concerned that "consumers have difficulty placing a monetary value on privacy." If that's true, it's because they have not had the opportunity to express their preferences for privacy in a market setting. Pay-for-privacy plans would allow them to express their preferences with their wallets.

The new FCC might "repeal and replace" the privacy regulations entirely, in which case providers will not face this particular regulatory obstacle to such plans. As a down payment, the new FCC should establish a presumption in favor of financial incentive plans.

Thomas M. Lenard is senior fellow and president emeritus of the Technology Policy Institute.

The views expressed by contributors are their own and not the views of The Hill.