CDT

Mega-Merger: Vertical Integration in a Deregulated Environment

It’s been a big week for the future of the internet. Monday marked the end of the FCC’s Open Internet Order (OIO) and its rules protecting net neutrality. Tuesday brought a decision from D.C. District Court Judge Richard Leon to allow telecom giant AT&T to purchase media giant Time Warner. Thursday, Comcast made a bid to buy all of Fox, and AT&T finalized its acquisition of Time Warner. The combination of massive vertical integration and deregulation could set off a tectonic shift in the landscape of the internet.

For years now, internet service providers (ISPs) like AT&T have wanted to get some of the action enjoyed by providers of content and services at the “edge” of their networks. Many of the concerns addressed by net neutrality regulations stem from ISPs’ incentives to extract payment from edge providers. Essentially, ISPs wanted to extract revenue from the popular services (especially video streaming services) that their subscribers access via their networks, thereby monetizing both “sides” of the gateway position they hold. For instance, Comcast deliberately degraded the interconnection points between its network and Netflix to gain leverage in its negotiations with the streaming provider regarding their interconnection arrangements. Other ways ISPs can use their position to cash in on the edge market include practices like paid prioritization and zero-rating.

Deregulation + Integration = Greater Threat to Open Internet

Before Monday, the OIO’s strong net neutrality protections prevented ISPs from engaging in practices that resulted in unreasonable discrimination or disadvantage to edge providers. Now, ISPs need only disclose any such practices to comply with the FCC’s only remaining regulation, the transparency rule. This leaves ISPs essentially unrestricted in their ability to leverage their position between users and edge providers, whether to extract rent from edge providers or to favor their affiliates. This deregulation favors all of the largest ISPs, but especially those who also own significant portions of the content served by edge providers.

Through paid prioritization, ISPs can charge edge providers in exchange for favorable treatment of the network traffic their services generate. The concern here is that well-funded companies will be able to buy better service than their competitors, and that users will turn away from providers with comparatively poorer performance. Edge providers’ ability to buy “fast lanes” for their data traffic makes it harder for smaller companies to compete and increases costs for those who can afford prioritized treatment. In the end, consumers will be stuck with the (double) bill if ISPs can charge for preferential treatment.

In the event of a merger and the absence of a rule against prioritization for commercial benefit, Time Warner’s offerings could potentially benefit from preferential treatment on AT&T’s networks without payment. Even under FTC oversight, any action to address this kind of discriminatory treatment would require not only detection of the problem but also protracted legal proceedings, all of which necessarily occur after the preferential treatment (and possibly the damage to competition among edge providers) takes place. In this way, vertical integration further enhances the advantages of prioritized treatment by producing them at no cost to the affiliated edge providers. It is unclear whether a competing service could even purchase a similar level of preferential treatment or whether paid “fast lanes” would always be second-best to AT&T’s treatment of Time Warner’s data.

For access providers like AT&T, whose subscription plans include data caps, zero-rated offerings can incentivize the use of certain edge services and applications. Depending on the structure of the plan, users might be more inclined to use the apps and services that do not count against their monthly data allowance than ones that do, giving the zero-rated services an advantage, both in terms of usage stats (and the related advertising revenue) and overall user base, as customers move away from non-zero-rated services. (AT&T announced Friday afternoon that it plans to offer its mobile subscribers with unlimited packages free access to television content from the Turner networks.)

Zero-rating in a vertically-integrated context gives both the ISP and its affiliated edge providers similar benefits at no cost. As with preferential treatment of network traffic, no-cost zero-rating further enhances the advantages for the ISP and its affiliates over those of other edge providers that would have to negotiate with the ISP for zero-rated carriage of their network traffic. While ISPs like AT&T may market access packages bundled with zero-rated content as a savings for consumers, it is only a savings from the costs arising from the artificial scarcity created by data caps.

Finally, AT&T’s ability to merge the data it collects about its subscribers and their internet usage with the data collected by each of the outlets under the Time Warner umbrella gives it a few advantages over non-vertically-integrated providers. First, the merger gives AT&T a major boost in terms of the amount and the kinds of data it can use for its own marketing purposes or sell to others. Second, the ability to merge these data sets gives AT&T a greater ability to track individuals (especially AT&T customers) across platforms by comparing user profiles from an affiliate’s web-based content service with AT&T’s own data set. Third, it gives AT&T and its newly acquired affiliates ready markets in which to deploy that data for advertising.

In the wake of Congress’s repeal of the FCC’s broadband privacy rules, there are few bounds on what kinds of data can be collected and how it can be used. Since the FCC’s repeal of its own net neutrality regulations, there is also little at the federal level to stop ISPs from leveraging their positions as access providers to discriminate for or against edge providers. (Net neutrality protections came into effect in Washington State with the repeal of the FCC’s rules.)

As vertical integration merges ISPs with edge providers, these protections are even more important. (In addition to the AT&T acquisition of Time Warner, Comcast is seeking to buy Fox.) Vertically-integrated ISPs will have an even greater incentive to favor their own content and edge providers, and will be better positioned to leverage their control of popular content to effect negotiations with competing services. In a world where a few ISPs control both access and content, protecting the rest of the internet against discriminatory treatment will be crucial to preserve the internet as an open and flat communications network.

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Categories: Privacy

Tech Talk: Habeas Data and the Future of Work

CDT’s Tech Talk is a podcast where we dish on tech and Internet policy, while also explaining what these policies mean to our daily lives. You can find Tech Talk on SoundCloud,  iTunes, and Google Play.

In this episode of Tech Talk, we talking to the very engaging Cyrus Farivar about his new book Habeas Data. Cyrus, a Senior Editor at Ars Technica, takes a close look at the legal cases and policies that are shaping American surveillance practices, and shows how, not surprisingly, they have not kept up with new technologies.

After that, we welcome Aaron Pinto, a Canadian delegate to the G7 youth summit or Y7 who shared his insights on the future of work, highlighting how young leaders from the G7 countries see technology impacting their future. 

Listen

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Categories: Privacy

EU Tech Policy Brief: May 2018 Recap

This is the May recap issue of CDT’s monthly EU Tech Policy Brief. It highlights some of the most pressing technology and internet policy issues under debate in Europe, the U.S., and internationally, and gives CDT’s perspective on them.

Member States Move to Introduce Pervasive Upload Filtering – Can Parliament Do Better?  

On 25 May 2018, the Council’s permanent representatives committee (Coreper) agreed on a common position on the European Commission’s draft Directive on Copyright in the Digital Single Market. Unfortunately, Member State governments did not deviate substantially from the Commission’s position: upload filters (Article 13), a press publishers’ right, and a limited Text and Data Mining exception were agreed upon. The Council missed the opportunity to propose a forward-looking innovative and harmonised copyright framework. It is now up to the European Parliament to step up and fix this mess ahead of the JURI vote on 20/21 June. We encourage people to use Mozilla’s ChangeCopyright tool to contact parliamentarians. Other platforms include Vox Scientia, which brings together the knowledge community and allows awareness-raising via its “Call to Action” page.

GDPR Has Arrived: What CDT Would Like to See Next

With the General Data Protection Regulation (GDPR) being adopted on 25 May 2018, its true impact on society and businesses is yet to be seen. Will it introduce a new era of individual empowerment or raise new barriers to innovation in technology? CDT’s President and CEO Nuala O’Connor acknowledges that ‘while the GDPR is not perfect, the values it advances are the right ones: individual autonomy and dignity’. The key will be proper and targeted enforcement, but it is already clear that it sets new standards that many companies will seek to apply globally. The United States Congress should move ahead with long-overdue federal privacy legislation that mirrors international standards. This would move us towards creating a global framework on privacy that provides transparency, control, and autonomy to individuals online.

EC Public Consultation on Tackling Illegal Content Online Requires a Human Rights Approach

When we submitted our views on the European Commission’s Inception Impact Assessment, we called on the Commission to conduct and publish a comprehensive collection of data about the nature and volume of content it targets. Without such analysis, we deem it premature to propose any legislative option. Now the Commission is collecting responses to a public consultation on ‘measures to further improve the effectiveness of the fight against illegal content online’, deadline 25 June 2018. We continue to warn that ‘progress’ in tackling various types of content should not only be measured in terms of faster takedown of more content. Also, the Commission has to avoid extending its policy results in de facto censorship of legal political speech. In this respect, we highly recommend that the States and companies abide by the latest report of the UN Special Rapporteur on free expression and regulation of user-generated content online. David Kaye, amongst other recommendations, urges States to reconsider speech-based restrictions.

E-Evidence: European Parliament Appoints Rapporteur

On 17 April, the European Commission (EC) published its draft legislation on E-Evidence to facilitate cross-border law enforcement demands for internet users’ communications content and metadata. The proposed Regulation and Directive set out a great risk to privacy worldwide, given that the proposals would give each EU Member State access for law enforcement purposes to the data of internet users worldwide: each provider in the scope of the Regulation can be compelled to disclose its users’ data no matter where the user is located and no matter the country of citizenship of the user. Discussions in the European Parliament will begin soon, with MEP Birgit Sippel (German/S&D) as rapporteur in the Civil Liberties (LIBE) committee. Going forward in this debate, our main line of advocacy will be that enhanced access to electronic data by law enforcement authorities cannot come at the expense of fundamental privacy and procedural rights protections. We previously set out ten human rights standards to measure the proposal against. As it currently stands, the legislation needs to incorporate additional safeguards and remedies in order to meet those standards.

E-Privacy: Member States Continue to Struggle to Reach Compromise

Ahead of the Council meeting scheduled on 8 June, the Bulgarian Presidency issued its latest progress report on ePrivacy. The report highlights “considerable progress” but at the same time asks for political guidance on several questions. The latest text seems to exclude some machine-to-machine communications and add exceptions to enable efficient security and antivirus services, something we have advocated for. Whether Member States will be able to agree on a text remains unclear. Meanwhile, the newly established European Data Protection Board (EDPB) published a statement on the draft ePrivacy Regulation. The EDPB among other things supports the notion of explicitly banning ‘cookie walls’ or tracking walls. The EDPB argues that use of and access to a communications service cannot require the user to consent to tracking or monitoring with the use of cookies or any other technology. The European Parliament made a similar proposal. This will be one of many controversial issues to be negotiated between Parliament and Council at a later stage. 

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Categories: Privacy