Hearing of the Senate Commerce, Science and Transportation Committee - Opening Statement of Sen. Thune, Hearing on "How Will the FCC's Proposed Privacy Regulations Affect Consumers and Competition?"

Hearing

The protection of privacy on the Internet is vital. Protection from identity theft, protection of deeply private information -- this is important to us as citizens and as consumers. And it is fundamental for allowing the Internet and the information economy to thrive.

And thrive they have. Internet usage has increased nine hundred thousand percent since the Telecom Act of 1996, and to meet that demand, the broadband industry has invested $1.4 trillion dollars.

This growth occurred under the Federal Communication Commission's (FCC) light regulatory treatment of the Internet as an information service, and under the careful eye of the Federal Trade Commission (FTC), which, with limited exceptions, was responsible for protecting consumer privacy on the Internet.

The FTC has brought over 500 cases protecting the privacy and security of consumer information, including cases where companies were alleged to have deceptively tracked consumers online, or to have shared private consumer data with unauthorized third parties. The FTC has been the leader in protecting consumer privacy.

But with the FCC's 2015 Open Internet Order, all of that changed. Broadband Internet Access Service, or BIAS, was reclassified as a telecommunications service, which in turn meant the FTC lost its jurisdiction over the privacy policies of BIAS providers.

So now, after having forced the FTC off the field for broadband providers, the FCC has proposed a novel regulatory scheme for the newly reclassified providers.

But the FCC's rules would apply only to certain parts of the Internet, and that is a source of significant concern. Both the Obama Administration and the FTC have endorsed a consistent privacy regime across the digital landscape. Indeed, the FTC staff filed comments with the Commission stating:

"[T]he FCC's proposed rules, if implemented, would impose a number of specific requirements on the provision of BIAS services that would not generally apply to other services that collect and use significant amounts of consumer data. This outcome is not optimal."

For those of you not familiar with bureaucrat-speak, let me tell you, "this outcome is not optimal" is pretty strong stuff for one agency to say about another.

I share the FTC's concern, and by an overwhelming majority, so do the American People. Progressive Policy Institute polling shows that 94 percent of Internet users believe that "All companies collecting data online should follow the same consumer privacy rules so that consumers can be assured that their personal data is protected regardless of the company that collects or uses it." I am concerned that, at any particular time, consumers will not have reasonable certainty of what the rules are, and how their privacy decisions apply. At home on wi-fi? At home on a smart phone? Using your smart phone on a friend's wi-fi? Using the Internet at a library?--each of these could have very different privacy implications for a consumer because of the FCC's proposed piecemeal approach to privacy.

There are other problems for consumers as well.

Will the Commission's proposed rules make it more or less likely that BIAS providers will be able to provide better and more innovative services that could benefit consumers? And of particular importance to our rural communities, how are small BIAS providers going to be able to comply with the Commission's proposed regulations? Most of the rural carriers in South Dakota have between 2,000 and 5,000 broadband subscribers. How are they supposed to pay for the additional staff, software licenses, training, and other expenses that would be required to comply with the Commission's proposed rules?

The FCC's push for a separate regulatory scheme for BIAS providers is based in significant part on their claim that "ISPs are the most important and extensive conduits of consumer information and thus have access to very sensitive and very personal information." I am not so sure about that. It appears that many companies that are not broadband providers have access to information about consumers that is more personal and more sensitive than much of what ISPs can access, yet those entities are not covered by the Commission's proposal.

Is the FCC, which is a novice when it comes to regulating Internet privacy, the right agency to protect us from identity theft and to protect our private information? Do we want to have inconsistent privacy protections for consumers, with distinctions based upon how the Commission choses to classify services under the Communications Act, an Act that never envisioned the FCC dealing with online privacy or cybersecurity? Would consumers and competition be better off with the FCC's proposal?

The witnesses we have before us represent a broad variety of backgrounds and are true experts on these issues. I look forward to your answers to these and the other questions that you are asked here today.

Before we begin, I want to submit a few items to the record of today's hearing. I received two letters that I believe contribute greatly to this topic. The first letter is signed by constitutional scholar Laurence Tribe and 13 other law professors, economists, and experts. They support strong protections for consumers in the online space, but they have significant concerns with the FCC's proposal. Instead, they suggest the Commission "adopt rules modeled after the FTC's longstanding and highly successful approach."

The second letter, signed by the heads of eight trade associations representing both the technology sector and the telecom industry, also argues for the FCC to harmonize its effort with the existing FTC framework, in order to minimize consumer confusion and provide flexibility for the marketplace to innovate.

There is also a new paper published by Gerald Faulhaber [FALL-hay-burr], former chief economist at the FCC, and Hal Singer, a Senior Fellow at the George Washington School of Public Policy. Their paper is titled "The Curious Absence of Economic Analysis at the Federal Communications Commission: An Agency in Search of a Mission." While it focuses primarily on the Commission's failure to ground its recent regulations in economic reasoning, Faulhaber and Singer offer some valuable insight about the FCC's privacy proposal, in particular noting the complete lack of any cost-benefit analysis by the Commission in this proceeding.

I will submit this paper for the record as well.

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