FCC Privacy Rules Could Hamper AT&T-Time Warner Data Mining

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By Lydia Beyoud and Kyle Daly

Oct. 24 — AT&T Inc.’s plans to leverage data it would acquire by buying Time Warner Inc. are likely to run up against new Federal Communications Commission privacy regulations the agency is expected to approve Oct. 27.

It wasn't clear late Oct. 24 whether the FCC will have a formal role in reviewing the $85.4 billion acquisition. Regardless, if the deal wins regulatory approval, the commission's planned new privacy rules could set limits around data collected from across a combined company's content and distribution platforms.

Executives for the companies tout the benefits of bringing Time Warner content, including HBO, Turner and Warner Bros. to AT&T's various pay-TV, mobile and internet subscribers.

They have also underscored the deal's impact on effective advertising. “We think it’s good for giving consumers both more choice and probably, in fact for sure, they will end up with lower cost burdens because more of it can be borne by advertising,” Time Warner Chairman and CEO Jeff Bewkes said on an Oct. 22 press call announcing the deal.

But the FCC's prospective rules are expected to throw roadblocks in the way of streamlined data monetization. According to an Oct. 6 FCC fact sheet, internet service providers would need customer consent under the agency's proposed rules before they use or share sensitive information with affiliated companies or third parties. Those consent requirements would apply to web browsing and app usage history, possibly including things such as the HBO Go mobile content app or the HBO Now streaming service.

That would create a higher — but not insurmountable — hurdle for the company to clear in order to capitalize on targeted advertising based on that information. Consumer advocacy groups argue the FCC's prospective rules are the minimum necessary to protect consumer privacy.

Internet service providers such as AT&T have said the rules would put them at a significant competitive disadvantage against companies such as Alphabet Inc.'s Google and Facebook Inc., whose business models are largely based on mining and monetizing user data.

If the deal is approved, there's no question both companies will have significantly more information available to them. The question will be what they will be able to do with it depending on how the businesses are regulated.

An AT&T spokesman told Bloomberg BNA via e-mail that the company would review new privacy rules once the FCC adopts them. A Time Warner spokesman didn't immediately respond to a request for comment.

Advertising Services

Both AT&T and Turner Broadcasting System, Inc., a Time Warner subsidiary, already have targeted advertising businesses in their portfolios. As both a wireline and wireless ISP, as well as a pay-TV provider, AT&T is already able to combine significant amounts of customer data from across its platforms. The company leverages that data in part through AT&T Adworks, which offers targeted advertising on TV and digital platforms.

In a Sept. 21 release, AdWorks said advertisers would soon be able to deliver targeted ads “across nearly 14 million TV households, 30 million mobile devices and millions of monthly DIRECTV app streams.”

Turner partnered in 2015 with data management platforms to develop a data cloud service, which it said was meant to enable advertisers to address custom audiences “across all Turner properties.”

It's unknown whether the combined companies would merge or continue both marketing models, but those revenue streams stand to be heavily impacted by the FCC's rules, several telecommunications attorneys told Bloomberg BNA.

“The entire FCC proposal is based on the assumption that certain companies provide network services and other companies provide ‘edge' services,” Christopher Yoo, a law professor at the University of Pennsylvania, told Bloomberg BNA. Edge services include websites and applications.

The merger demonstrates the kind of innovative services engendered through acquisitions by traditional telecom companies of both content and advertising companies, such as Verizon Communications Inc.'s recent purchases of AOL Inc. and Yahoo Inc., and the 2008 Comcast-NBCUniversal merger, Yoo said.

“We're likely to see similar innovations in the future,” said Yoo, but added that the FCC's privacy rules stand to make development of those services “much harder.” Yoo is among the parties opposing the FCC's privacy regulations.

Critics Warn of Repercussions

It remains unclear just how far the combined AT&T-Time Warner company would be able to go in sharing and use customer data across units under the FCC’s proposed rules. That's partly because the company's plans aren't known, and partly because the agency hasn't formally finalized and published those rules.

To be sure, the FCC's prospective privacy rules, if approved, are likely to face legal challenges from ISPs. Such legal challenges could end up paralleling a regulatory review of the merger.

In theory, the Federal Trade Commission would be responsible for protecting consumer privacy on the content—i.e., Time Warner—side of the business, while the FCC would handle privacy when it comes to AT&T’s collection of data from its broadband customers. But it's not clear whether the FTC is able to regulate any subsidiary of a telecom company, under a recent federal appeals court decision that the FTC is appealing ( FTC v. AT&T Mobility LLC, 9th Cir. , No. 15-16585, petition for en banc rehearing 10/13/16 ).

Even if the FTC regains clearer privacy authority, critics of the FCC proposal say the different jurisdictions could create confusion and limits on business models for conglomerates such as AT&T.

“It’s going to be very messy within companies,” Tim Sparapani, senior policy fellow at tech industry coalition CALinnovates, told Bloomberg BNA. “It's not going to be clear whether you'll be able to hand off the data from one side of the company to another.”

Companies having to collect, store and use customer data in different ways depending on what side of the business collected that data could create engineering headaches and regulatory compliance woes for companies, Sparapani said.

Merger Conditions

The U.S. Department of Justice is expected to conduct the government's antitrust review of the deal.

The department is likely to address privacy concerns, including the use of ISP subscriber data, as part of its merger conditions, telecommunications attorneys told Bloomberg BNA. “This would be a natural result of the high profile nature of the ISP broadband privacy proceeding at the FCC,” Paul Feldman, a telecommunications and privacy attorney at Fletcher, Heald & Hildreth, PLC in Arlington, Va., said.

Public interest groups are already lining up to push the Justice Department for strong limits on the combined companies' ability to share customer data as a condition of department approval of the deal.

The acquisition “is all about tracking and targeting us regardless of whether we use a mobile device, PC or TV,” Jeff Chester, executive director of the Center for Digital Democracy, a consumer privacy think tank, said in an Oct. 22 statement. “While some programmers and large advertisers will benefit, the deal raises a host of consumer concerns, including about privacy,” Chester said.

To contact the reporters on this story: Lydia Beyoud in Washington at lbeyoud@bna.com ; Kyle Daly in Washington at kdaly@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

Text of the FCC's fact sheet is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2016/db1006/DOC-341633A1.pdf.

Text of the AT&T AdWorks statement is at http://about.att.com/story/att_adworks_expands_ad_offering.html?linkId=29037445.

Text of the Turner Broadcasting Systems cloud services statement is at http://www.turner.com/pressroom/upfront-2015-turner-data-cloud.

Text of the Center for Digital Democracy statement is at https://www.democraticmedia.org/blog/cdd-statement-atttime-warner-deal.

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