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ISPs Choose Bankers As Role Models

panel seated in front of the FCC seal, viewed from the audience perspective
An open FCC meeting about broadband regulation, 2010. Photo by Greg Elin.

The leading Internet service providers think they run their businesses pretty well. Well enough, in fact, that most of them bitterly oppose the Federal Communication Commission’s proposal to regulate them as utilities.

Bankers used to think they ran their businesses pretty well, too, back before a large swath of the public decided that being a banker was almost prima-facie evidence of being a bad person, or even a criminal. This shift in perception was not fair, but it was predictable - the result of sneaky tactics, such as paying the largest check first to maximize the number of bounced checks on which a bank could charge steep fees, or allowing debit card overdrafts without warning that such overdrafts would similarly trigger charges, leading to the infamous $40 cup of coffee. Even when bankers have done nothing wrong, their industry’s history of playing dirty with customers means that mud flung their way is likely to stick.

ISPs now seem to be modeling their customer treatment on the bankers’ old standard. They seem to have missed the fact that this old standard has been largely regulated out of existence in the banking industry. Instead of taking heed of this cautionary tale, ISPs are forging ahead.

Verizon and AT&T installed “super-cookies” on customer devices to let them track customers’ mobile browsing histories and whereabouts at all times. They then proceeded to sell this data to advertisers. AT&T, at least, reportedly stopped this practice a few months ago. But now AT&T is requiring customers to pay extra to opt out of having their browser traffic and search history monitored and similarly monetized if they want to use the company’s speedy new fiber optic service.

This is the same AT&T that vows to go to court if the FCC, as expected, adopts new regulations that would classify ISPs as utilities rather than information services, reversing a decision that the commission made over a dozen years ago. The FCC is scheduled to vote on Friday. Smaller companies are expected to join AT&T in crying foul, but taking steps like forcing customers to pay fees not to be constantly monitored is an excellent way to poison your own well as far as public opinion is concerned.

The ISPs do have friends in Congress, especially on the GOP side, who want to pre-empt the FCC and prevent the utility classification from taking effect. The proposed legislation would allow ISPs to charge extra for websites, like Netflix, that need ultra-fast transmission of their large traffic volumes. This is one reason Netflix favors the FCC approach. Yet if consumers turn against ISPs because they feel abused in a general sense, the companies’ congressional friends will vanish faster than the ISPs can say “broadband.”

Imagine if the company that provided your phone service (where Verizon and AT&T got their start) tracked all your calls to, say, a plumber or a dentist. After each such call, you could expect to receive calls from telemarketers offering you a discount to try them instead of the establishment you called. Or suppose the operators of your E-ZPass or other highway toll tag sold your travel information in real time to roadside chain restaurants and gas stations, allowing them to send billboard-style ads directly to your smartphone as you cruise down the interstate. Operators might offer to let you opt out of such tracking if you pay an extra fee (or so you hope; you’ll probably be tracked, but your data might not be sold). You would essentially be paying to maintain the privacy of information that you believe is rightfully yours in the first place.

In order to avoid this sort of abuse, you will probably be entirely in favor of regulating ISPs as utilities, as in the FCC proposal, or subjecting them to rules prescribed by Congress, which I suspect the ISPs will eventually come to believe are even worse. Whatever shades of gray you might have originally perceived in the debate would necessarily take a back seat to resolving your immediate, legitimate grievance.

I think utility regulation of ISPs is a solution in search of a problem. We should be able to get by with minimal regulation. For instance, we should prevent providers from blocking competitive services, the way some small phone companies blocked Internet-based phone calls from Vonage about 10 years ago. But just as the bankers helped bring down the anvil of Dodd-Frank on their own heads by poisoning the political atmosphere in which bank regulation was discussed, AT&T, Verizon and other ISPs risk providing the perfect environment in which regulators and lawmakers can impose excessive and counterproductive regulation on their businesses while the public cheers them on.

What are the ISPs thinking? Or maybe the better question to ask is: Are they thinking about this at all?

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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