Wireless carriers are clashing with the Federal Communications Commission over proposed regulations that could thwart their ambitions of expanding in the mobile advertising business.
The FCC is considering privacy rules that wireless companies say could hurt their ability to compete with the likes of Facebook and Google. The regulatory push comes at a time when Verizon and AT&T are working aggressively to sell ads that accompany their growing array of video products.
“I think the rules as proposed are explicitly structured to lock down providers into providing broadband service and not providing digital advertising,” said Doug Brake, a telecom analyst with the Information Technology and Innovation Foundation, a think tank that is opposed to the FCC regulating broadband privacy.
The credit rating agency Moody’s has warned investors about the potential impact of the FCC’s plan, saying it would be “credit negative” for internet providers.
“The FCC’s proposal also has the potential to derail efforts by wireless carriers to cultivate mobile video advertising revenues,” Moody’s wrote.
“Wireless carriers have the potential to generate significant advertising revenues due to their ability to precisely target ads to wireless subscribers. But, if the FCC restricts the carriers’ ability to collect this data, the advertising revenue opportunity will be reduced.”
In filings last month to the FCC, Verizon and AT&T — the two largest wireless carriers in the United States — warned that that the agency is threatening their ability to compete against established tech companies that would not be subject to the same rules.
The privacy proposal, Verizon wrote, “would single out for heightened regulation the most likely new entrants into the digital advertising marketplace — broadband providers such as Verizon — and burden them with regulations that will not apply to the market leaders.”
“And the proposed regime would not only tilt the competitive playing field for the delivery of targeted advertising, but do so in favor of entrenched incumbents (edge providers, such as Google) and against new entrants (ISPs),” AT&T wrote in its own filing.
CTIA, the wireless industry trade association, echoed those fears in comments to the commission.
Congressional Republicans oppose the rules, and a House subcommittee will hold a hearing Tuesday on what it calls “FCC overreach.”
The rules, if enacted, would place new restrictions on how service providers can use the data they collect on internet usage. In almost all cases, the companies would have to get users’ consent before targeting them with advertisements.
Industry groups and internet service providers are crying foul. They say that the FCC is setting up a situation where dominant advertising players Facebook and Google are governed under one set of rules, administered by the Federal Trade Commission, while they are restrained by stricter regulations from the FCC.
Commission Chairman Tom Wheeler has pushed back on that argument, saying internet service providers have access to a broader array of data than any single service could obtain.
The proposal does not prohibit broadband providers from using their subscribers’ data for advertising purposes — it simply proposes that ISPs need to let consumers know what data they are collecting and how it is being used,” said Kim Hart, an FCC spokeswoman, in an email. “The proposal ensures that consumers have a say over how their personal information is used and shared by their ISPs.
“The proposal seeks comment on how companies are addressing privacy today, which techniques work well, which Commission proposals companies find ineffective or burdensome, and which other models we should consider in final rules.”
The FCC also notes in defending the plan that consumers can choose from a variety of different web services but might find it harder to change internet providers.
The stakes of the fight are high for wireless carriers. They are positioned to profit from bolstering their mobile ad products, according to Moody’s senior vice president Neil Begley, because smartphones already collect crucial data including user location.
“There’s a reason why companies like Verizon are trying to expand their advertising stake, because this data is valuable,” said Dallas Harris, a policy fellow at Public Knowledge. The group supports the privacy rules because, it says, consumers should have more control over how their data is used.
The value of personal data is something wireless providers are hoping to capitalize on.
Both Verizon and AT&T are offering more video products. AT&T purchased DirecTV, giving it access to a premier video brand. Verizon debuted a streaming service called Go90 last year and entered into a joint venture in March with publisher Hearst to produce video content. Verizon and Hearst also purchased media company Complex.
Streaming more video content, however, is only worth as much as the wireless carriers can earn from the advertising. That has led both to upgrade the technology that delivers targeted advertisements to viewers.
“Verizon or AT&T, which are finding that many of their core businesses are reaching a level of maturity and they’re having trouble growing ... they’re reaching towards areas where they can actually grow through advertising,” Begley said.
Verizon bought AOL in 2015 in a transaction that was aimed at improving the company’s advertising infrastructure. Tim Armstrong, who made his name as an ad executive at Google before becoming chief executive of AOL, has been mentioned as a possible future CEO for Verizon.
Verizon and AT&T are also reported to be among the suitors trying to purchase Yahoo and its advertising assets, but Begley said the company could be of less value to them if they are worried about the FCC rules.
“They may not be willing to pay as much to make an acquisition if there’s risk in their models,” said Begley. “They still may be far from being signed off on or being the law of the land, but there’s higher risk in it, which means you’re not going to be willing to spend as much.”
Wireless providers aren’t the only ones who say their entry into the online ad market would be hindered by the rules.
“Application of the sweeping opt-in consent requirement would mean that ISPs are able to make use of far less data that is essential to participate in the online advertising market than all non-ISPs with which it would be competing,” said cable giant Comcast in its comments.
The proposal remains in flux as industry advocates try to weaken it before Wheeler brings it up for a final vote.
Begley offered one clue that staffers for Wheeler might be weighing the implications for the advertising market: After publishing its note in March, a representative for the chairman contacted Moody’s with questions. Begley and another Moody’s staffer spoke with the aide for about an hour.