Verizon's Yahoo Buy May Spark FCC Privacy Scrutiny

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By Tim McElgunn

July 25 — Regulatory hurdles to the Verizon Communications Inc. acquisition of Yahoo! Inc. won't be tall, but once the deal is completed, Verizon might face tougher regulatory scrutiny, particularly from the Federal Communications Commission.

Verizon's rationale for the deal revolves around leveraging advanced advertising technology from AOL and Yahoo with the vast amount of user data generated by all three entities.

“Verizon's recent buying-spree—first AOL and now Yahoo!—illustrates that ISPs are rushing to supplement their already robust data collection capabilities to better target marketing to their customers with highly personal and comprehensive data,” Eric Null, policy counsel for the New America Foundation's Open Technology Institute, said in a statement.

The companies are looking to expand on Yahoo's significant investments in enhancing its mobile content and advertising offerings and revenue. Yahoo's inability to generate a quick return on those investments is among the factors leading to the sale of its internet properties.

Yahoo search stats

If Verizon can convince a significant portion of its vast mobile subscriber base—approximately 220 million wireless subscribers—to use Yahoo as a primary portal, the company will have a strong opportunity to further monetize user data. User location information adds the ability to send targeted ads, based on both user's interests and where they are at any given time. But that information is seen by many as sensitive and that could end up putting Verizon at odds with the FCC, which has proposed a stringent set of new rules for how broadband internet service providers handle customer data.

“The Verizon/Yahoo transaction is a clear signal of mobile's growing significance as a dominant platform for businesses to reach their customers,” Direct Marketing Association CEO Thomas J. Benton told Bloomberg BNA in an e-mailed statement.

Those capabilities also increase concerns about protecting consumers' privacy. Similar concerns prompted the FCC to propose new privacy rules for internet service providers. That proposal has drawn strong opposition from ISPs, that claim they will be treated differently than Alphabet Inc.'s Google, Facebook Inc. and other online services. The agency is trying to finalize its rules by the end of the year. If it does, ISPs are likely to mount legal challenges to the rules (2016 TLN 6, 4/1/16).

Supporters of the FCC's plan say that ISPs' control over users' internet connections and ability to track almost everything they do while connected gives them an additional obligation to guarantee users' privacy. Among the most contentious aspects is a requirement that ISPs get affirmative permission, known as an opt-in consent, from users before using or selling information about their activities rather than requiring users to say no, or opt-out, every time their data might be captured.

Dan Jaffe, executive vice president of the Association of National Advertisers in Washington, said July 25 that the deal “clearly raises the stakes for Verizon” regarding the FCC's ISP privacy proposal.

As an online content provider, Yahoo's use of subscriber information would not have been affected by the FCC's proposed rulemaking since it is not an ISP. “But Verizon taking Yahoo under its wing” changes the company's ability to use that information, Jaffe said.

According to Jaffe, when the deal closes, a vast amount of information collected by Yahoo would become subject to the FCC's rules—if they are enacted and survive legal challenges. And, Jaffe said, that will also change users' experience using the web. “All consumers would be besieged by the opt-in notices,” he said.

Deal Approval Seen Likely

Verizon is likely to win regulatory approval to consummate the deal.

“We expect the DOJ will engage in its customary review process. The transaction will not involve any FCC licenses, so we do not anticipate FCC review,” Verizon spokesman Richard Young said in a e-mail.

Similarly, while AOL and Yahoo! are among the original internet behemoths, antitrust review of the proposed deal is unlikely to turn up major concerns, given the long decline of both companies' online search market position and influence on the web compared to newer competitors, including Google and Facebook.

“Yahoo does compete with AOL (owned by Verizon) but both companies face much larger competitors in the segments in which they compete so I doubt the overlaps between AOL and Yahoo would end up being a problem,” Bloomberg Intelligence antitrust analyst Jennifer Rie said.

Rie said that the projected closing date early next year indicates that Verizon does not expect an onerous antitrust review.

“That kind of timing gives time for an antitrust review,” Rie said. “But not enough time to enter a consent order with the regulators” that would require divesting assets or offering other regulatory sacrifices.

The FCC declined to comment on the Verizon-Yahoo deal itself. “We do not have a comment on the proposed merger, generally or privacy-specific,” agency spokeswoman Kim Hart said.

[With assistance from Lydia Beyoud and Alexis Kramer.]

To contact the reporter on this story: Tim McElgunn in Cherry Hill, NJ at tmcelgunn@bna.com

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

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