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Why be afraid of big data?

Posted August 11th, 2015 in big data, Broadband, Federal Trade Commission and tagged , , by Alton Drew

Between April 1982 and November 1984 I worked at a Burger King in Tallahassee, Florida.  I was a student back then at the Florida State University.  The restaurant was located across the street from campus so from time to time I would see some of my friends come into the restaurant to eat.  One would think that putting together a Whopper was no big deal but to some people it is, from getting the condiments right to simply trusting the employee who made the sandwich.

I had two schoolmates that were pretty particular about who made their grub.  One schoolmate, Charlotte Jones, was very particular about me making her food.  One day I was getting off my shift and heading back to Smith Hall. Charlotte was heading to BKs to eat.  She saw me heading to the dorm and asked where I was going.  I said back to my room. At that point she did an about face and headed back to Smith Hall and made sure that she knew my schedule from that day going forward.

Another schoolmate, Candace Pope, liked her fish sandwich done a particular way.  It got to the point that if I saw her coming into the restaurant, I would have her sandwich prepared before she got to the cash register.  All I had to do was say, “It’s up.”  She would then direct the cashier to the sandwich already made.  I was prepared to take care of my friends based on having accumulated data on their buying habits at Burger King. I was able to anticipate their needs.

Fast forward thirty one years and technology is able to do on a massive scale what I was able to do on a micro scale.  Today technology allows business to capture information on their consumers, send that information to data brokers and other information gatherers who categorize and prepare that information for use by advertisers.  It’s an information trade where broadband networks providing the platform upon which information is traded at light-speed.  And part of that information trade takes place in a $120 billion advertising market.

What does this information trade mean for broadband deployment and investment?  The information trade creates the value that signals capital to enter the market.  Capital, seeing high returns from the trade, will move toward entrepreneurs that build digital mousetraps and to broadband facility providers willing to build the infrastructure upon which the digital data trade winds flow.

Data, information, knowledge have been flowing between people, groups and societies from the time man has been on the planet.  My little Burger King example shows how we use business data about consumers every day.  What scares people and in particular regulators, is the abundance of it.  According to Maria Ogneva, 2.5 quintillion bytes of data is created every day.

A forum hosted by the Federal Trade Commission in September 2014 addressed some of these fears, centering on regulator concerns about consumer privacy and the commercial use of data without consumer permission. Panelists were concerned about how data analytic techniques may be either skewing unflattering ads to minority populations, or populating data bases with incorrect or biased information about consumers based on their buying habits or location where they make their purchases.  While only one panelist explicitly mused about regulating data, it was apparent to me that at least some of the panelists were thinking about regulating how data is accumulated, analyzed, and distributed.

The FTC has been recommending that Congress get a bit more aggressive with data brokers, the entities that collect, analyze, and sell consumer data to advertisers.  For example, from a summary of a report the FTC conducted on data brokers in 2014:

“As the Report states, ‘In light of these findings, the Commission unanimously renews its call for Congress to consider enacting legislation that would enable consumers to learn of the existence and activities of these data brokers and provide consumers with reasonable access to information held about them by these entities.’  With respect to brokers that sell marketing products, a majority of the Commission had four specific suggestions for Congress:

  1. Consider giving consumers a way to easily identify which brokers have data about them and where they can go to access it or opt out.  One way to do that:  A central online portal.
  2. Consider whether data brokers should have to clearly disclose that they not only collect raw data, but also combine it with other information to draw inferences about people.  That’s especially important when it comes to sensitive topics like health conditions.
  3. Consider requiring data brokers to reveal more about their sources.  That would make it easier for consumers to track down and correct the source of inaccurate information (for example, a mistake in a public record).
  4. Consider whether consumer-facing businesses should have to clearly disclose that they share information with data brokers and to give consumers choices, including opting out.  For sensitive data – health information is one example – the FTC is asking Congress to consider legislation to require consumer-facing sources to get people’s affirmative express consent before they collect it in the first place.”

Democrats in the U.S. Senate have taken up the FTC’s call for legislative action. Last March S. 668, the Data Broker Accountability and Transparency Act of 2015, was introduced in the Senate, but given the control Republicans have of the Senate and the House, this bill poses little if any political risk to the data broker industry.  The value being brought to the information markets via data brokers continues unhindered by new legislation or regulation.  This is good for broadband deployment as well since, as I stated before, the information trade drives deployment of broadband.

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What regulators say about the internet of things

For the past two or three days the chairmen of the Federal Communications Commission and the Federal Trade Commission have been clarifying their regulatory agendas for and approaches to the Internet.  FCC chairman Tom Wheeler plans to issue net neutrality rules around 5 February with the full FCC voting on those rules on 26 February.  Media reports have Mr. Wheeler outlining what he believes the benefits consumers would enjoy from reclassifying broadband as an old school, run-of-the-mill telephone company.  For example at the Consumer Electronics Show in Las Vegas Mr. Wheeler reportedly said the following:

“So, there is a way to do Title II right, that says there are many parts of Title II that are inappropriate, and would thwart investment, but that a model has been set in the wireless business.”

CTIA-The Wireless Association has taken the position that given the level of competition for mobile broadband that net neutrality rules should be “mobile broadband specific” and that mobile broadband has never been regulated under Title II.

Mr. Wheeler, in an attempt to keep net neutrality advocates happy, appears to be willing to use Title II regulation to strike down deals between content providers and broadband operators where content providers pay to have their traffic given higher priority over other providers.  Mr. Wheeler wants the role of determining which transactions and agreements are commercially reasonable and how that traffic should be moved from content provider to broadband provider to ultimate end user.

FTC chairman Edith Ramirez’s approach appears to focus more on transparency of participants in information markets.  Her concern, as shared with CES participants, is about privacy and the Internet of Things. As more devices connect to each other via the internet, more devices become subject to hacking and a wealth of data, thought by consumers to be private, becomes subject to misuse, theft, or fraud.

Ms. Ramirez’s focus on the consumer is not surprising given the nature of her agency’s work, but it also seems the slightly, and I mean slightly, better approach to overseeing market behavior versus individual business behavior.  The internet is a platform for information exchange between information generators and information seekers.  The more information that a provider has on how her information is going to be used in the markets helps her make better decisions not only on whether she should make it available but also on its value and how best to monetize her data. Information gatherers will simply have to provide better incentives to information providers to get them to give up their data.

What kind of growth does the market see for the Internet of Things?  According to Cisco’s Internet Business Solutions Group, some 25 billion devices will be connected to the internet by the end of 2015.  That number will climb to 50 billion connected devices by the end of 2020.  That’s a lot of broadband infrastructure for the FCC to oversee and more hacking access points for the FTC to worry about in five short years.

Investors will see the biggest gains in the infrastructure space of the Internet of Things.  Leading growth in this space will be manufacturers of processor chips, wifi networks, sensors, and software.  Investors should also be concerned with factors that impact demand for devices that talk to each other and I believe the factor that has the heaviest weight is the consumer privacy factor.  Devices aren’t just talking to each other but are gathering information on consumer likes and habits and storing this data for the information gatherer’s future use.  Privacy is an immediate and long term issue because it concerns one half of the parties involved in the information market transaction: the consumer.

As for the FCC’s open access approach it is too short-sighted.  Mr. Wheeler’s focus on competition for broadband service and equal treatment of traffic may have a nice sounding populist ring, but in the internet eco-system what matters is the consumer’s choice of product obtained through broadband.  That product is content and the price the consumer pays in exchange for that content is, ironically, content in the form of personal data.  Consumers already have wireless and wireline choices for broadband access.  The value play for consumers lies in the quality of content available online and consumers are more than capable of deciding that for themselves.

What the government can do is what it does best (albeit it is not the best at it, but work with me); government should adjudicate privacy and other consumer disputes and make available to consumers information that they may not be able to gleen readily from the private sector.  The FTC’s focus on privacy and consumer protection does a better job at this than the FCC.

I’ll go out on a limb and say that the private sector is taking care of the FCC’s mandate of ensuring a nationwide communications network.  The FCC’s focus given the growth in the mobile market and the increasing need for devices to wirelessly connect should remain on allocating spectrum and assuring the reliability and safety of wired and wireless communications infrastructure.  Any other endeavor is waste.

 

 

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Matsui and Eshoo shouldn’t buy into ratchet arguments for net neutrality

I just read an op-ed by U.S. Representative Doris Matsui, Democrat of California, where she argues for “strong net neutrality rules to protect innovation.  According to Ms. Matsui:

“Net neutrality is about preserving a free and open Internet ecosystem, where consumers can access new products and ideas, and have an open market for new innovations. There should be no “gatekeepers,” or toll roads. More important, it’s about the idea that anyone can use the Internet to make his or her voice heard.”

I’m not concerned about the next Google or Netflix connecting their server farms to a node on the Internet and offering their digital services in exchange for fees or consumer information that they can leverage or monetize on another platform. I am concerned that progressives such as Ms. Matsui and Ms. Eshoo have allowed net neutrality advocates to hijack the concept of interconnecting via an open network architecture and turn it into a consumer choice violation issue. By introducing pro net neutrality legislation, all Congress will do is discourage carriers from investing in higher speed networks and their own applications and content services. That is not how you enhance the value of the network.

There has been too much emphasis placed on consumers in the net neutrality argument.  Consumers are naturally concerned about their privacy rights on the Internet including identity theft and other forms of fraud.  Rules designed to enforce consumer protections are adequately enforced by the Federal Trade Commission, state attorneys general, and the courts.

What Ms. Matsui should be concerned about is to what extent should sec. 706 of the Telecommunications Act of 1996 be extended to touch the very edge providers Ms. Matsui touched on.  Federal Communications Commission member Michael O’Rielly raises this point in an op-ed also for The Hill.  Mr. O’Rielly argues the following:

“A very real threat is that edge providers could fall within the reach of the FCC’s newly invented authority to regulate the Internet under Section 706 of the Telecommunications Act of 1996.  Congress never intended to give the FCC that authority. I know because I was in the room, as a congressional staffer, when that deal was made. For years, the FCC held the same conclusion. But in 2010, when the FCC’s attempt to use other statutory provisions to regulate broadband providers failed, it re-interpreted Section 706 as a new legal basis to impose net neutrality restrictions. Although, the D.C. Circuit vacated most of those restrictions in January, the decision explicitly sanctioned Section 706 as an independent grant of regulatory authority. 

As a result, we now live in a world where the FCC can arguably adopt almost any rule that conceivably promotes broadband deployment. As Judge Laurence Silberman summarized in his dissent: ‘Presto, we have a new statute granting the FCC virtually unlimited power to regulate the Internet.’ “ 

By promoting legislation that gives net neutrality rules a statutory platform, Congress would in essence build out the on-ramp from whence the FCC could embark down the slippery slope Mr. O’Rielly discusses in his op-ed.  As Mr. O’Rielly concluded:

“What happens under a net neutrality regime if Netflix, YouTube, or Hulu flex their muscles in the marketplace?  Should the FCC similarly scrutinize their business decisions? The only intellectually honest conclusion for net neutrality supporters is to extend the burden to everyone: broadband providers and edge providers. “

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FCC v FTC: Each regulator should focus on what they do best

Last Friday, Federal Trade Commission chairman Edith Ramirez appeared on C-SPAN to discuss telecommunications policy.  It was good seeing Lynn Stanton, one of my colleagues from my Telecommunications Reports days, conducting the interview along with C-SPAN’s Peter Slen.

Most of the conversation with Chairman Ramirez centered on Internet privacy issues.  Chairman Ramirez reminded viewers about the tremendous amounts of information being collected from devices such as laptops, tablets, and smartphones.  Not only is there the potential for information to be used in ways the consumer does not anticipate, said Chairman Ramirez, but there is equal concern about how that information is being protected by the entities that collect it.

The FTC would like to see increased emphasis on transparency.  Specifically, the FTC would like to encourage entities to think about the implications of their data collection practices.  Companies need to do a better job communicating to consumers about how their information is used, while consumers need to be made aware about the extent to which information is collected.

What stood out to me in particular was Chairman Ramirez’s discussion on the treatment of telecommunications common carriers.  While the FTC exercises jurisdiction over a number of industries in cases of consumer fraud or deception, the Federal Communications Commission has jurisdiction over common carriers in cases of fraud or deception.

The FTC has been in the consumer protection game since September 1914.  They take a case-by-case, adjudicatory approach to consumer protection.  They have racked up a lot of experience on issues of privacy and seem pretty determined to extend their jurisdiction into the entire Internet eco-system.

Meeting them in the eco-system will be the FCC which seems prepared to expand its sec.706 authority to regulate broadband access to edge providers, app providers, and content providers.  Who should win out?  I think that the regulatory scheme that provides the most efficiency and certainty should be the framework of choice and that framework appears to be the FTC’s.

Sec. 706 calls for the FCC to promote the deployment of advanced services.  The FCC should pursue policy that gets more spectrum into the hands of wireless carriers and producers of devices.  The FCC should concentrate on encouraging pole attachment and other uniform rights-of-way practices.  The FCC should continue focusing on power emission and spectrum interference issues.  The FCC should also focus on interconnection issues such as those that have arisen from Netflix’s agreement with Comcast to ensure the capacity needs of end-users of Netflix’s video services.

Net neutrality or open Internet as defined by advocacy groups is about consumer protection and if the consumer perceives or argues that his business relationship in terms of website access is being violated by his Internet access provider, then those claims should be quickly disposed of by the FTC or in court.

It’s time for the FCC to focus on what it does best.

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Maureen Ohlhausen makes the case for FTC regulation of broadband

Maureen Ohlhausen may have reignited the Battle of the Alphabet soup earlier this afternoon as she made the case at a Free State Foundation conference for greater if not sole Federal Trade Commission jurisdiction over the internet.  Mrs. Ohlhausen argued that the Federal Communication’s ex-ante approach to regulating broadband, where the law creates silos or boxes within which future activity is analyzed to determine lawfulness, may have a negative impact on innovation.  Given the speed at which technology changes, trying to fit a service into a regulation implemented before the innovation was given birth risk modifications to the service just to make the service fit in a box that may no longer be applicable.

The Federal Trade Commission’s approach, argues Mrs. Ohlhausen, is ex post and consumer focused; based on the past performance of a service with analysis of the harm the service may have caused a consumer versus trying to guess what harm a service could cause a consumer in the future.  Determining the impact on consumer welfare, the change in the value consumers receive from market transactions, should be the approach to regulating the internet, Mrs. Ohlhausen opined.  An ex post approach would be central to an overarching regulatory paradigm which would allow broadband providers flexibility in developing and providing innovative services while analyzing potential violations on a case-by-case basis.

Where might that leave the FCC?  Would it be satisfied abandoning net neutrality regulation or its role in anti-trust determinations to focus on handing out spectrum licenses?

I don’t see this realignment of regulatory responsibility happening within the 113th Congress.  We would need to see a Republican victory in the Senate with Boehner and company maintaining control of the House to have nary a chance of moving toward the appropriate rewrite in 114th Congress.