The Changing FCC


Some of most interesting changes in the Trump administration, and some of the most directly impactful to our industry, and some of the least reported. As we referenced in the past, in the Lift Letters about the Turn Acquisition (Turn Acquisition), the VZ / Y! merger (VZ / AOL + Y! Merger), and Conservative Administrations (Conservative Administrations and TripleLift), conservative administrations tend to have different regulatory perspectives than liberal ones. While Trump has a displayed an unusual blend of conservatism and populism, his regulatory positions have erred firmly towards the conservative side. 

Donald Trump nominated Ajit Pai as the chairman of the FCC. Pai was nominated as a member of the FCC by Barack Obama (but at the behest of Mitch McConnell, the Republican Senate majority leader), but elevated to its chairman by Trump. He is a very strong advocate of fewer regulations on the internet, and on providers of access. This, in turn, will have a significant impact on digital advertising. We discuss some relevant considerations below:

Net Neutrality - the core of net neutrality is that internet bandwidth and content distribution should be handled in a similar fashion as electricity, telecom (excluding internet) or other utilities. This would mean no discrimination - either positive or negative - based on the user (e.g. Netflix can't pay for better distribution and similarly can't be throttled). This idea was successfully promoted under the Obama administration, and in 2015 broadband was classified as telecom and regulated like broadband (making them "common carriers"), meaning that net neutrality would apply. This is now being rolled back by Pai. There are arguments both ways here - that all content should be equally available to all and by all, and that there is a risk of ISPs censoring content (pro net neutrality). Or that  ISPs should be allowed to innovate on the service they offer by creating tiers of service with possible premium offerings that are not yet known or considered, and that ISPs have a freedom of speech in that they can run their companies as they see fit (anti net neutrality). It also means that, in theory, ISPs could vary pricing by the nature of the content - so ad content might cost more to distribute than others. This was a theory espoused by Shine, the network-level ad blocker turned ad network (see Network-level Ad Blocking)

Zero Rating - this is similar to net neutrality in that a content provider exempts data from counting against usage caps or fees. In a 100% pure net neutrality world, zero rating is difficult to sustain. The FCC under Obama did not ban zero rating, but did concede that it probably violated net neutrality. There were several ongoing investigations into the zero rating services offered by Verizon, AT&T and T-Mobile. Ajit Pai quickly terminated the FCC's investigations and, in so doing, provided them cover to continue these practices. As discussed in the AT&T / TW Merger lift letter (AT&T - Time Warner Merger), "there are currently rules about not being able to favor one's own content as a provider, but this is constantly under assault through lobbyists and targeted legislation. So one theory is that eventually net neutrality may be significantly weakened, allowing these players to increase the value of their own services by offering exclusive content only on channels they own." And about AT&T, or other large telecom providers, we wrote "As platforms like Apple and Google get more powerful (Apple was reportedly eying TW as well), it may very well be the case that traditional FCC rules separating distribution and content are decreasingly relevant, because the distribution platform - which is unregulated - may become just as, if not more important than the infrastructure. This would mean that a change in net neutrality and a strengthening of the importance of their distribution channel with high quality, unique content is the only way to remain relevant in the future." It is reasonable to expect that the telecoms will use their position and leverage with zero rating to develop exclusive or interesting content packages that may challenge the existing content distribution models.

Data Tracking - the FCC under Obama introduced a measure that would have required ISPs to obtain consent from users before selling data about their behavior. This rule was set to take effect this month (March 2017), but was suspended by Pai's FCC beforehand. Pai has noted that he believes websites and ISPs should be bound by the same set of rules, rather than having a different set of regulations. So in theory, broadband providers can now track user activity, develop profiles, and sell advertising. While the FCC does already require notice that this tracking is happening, it could be buried. Because browsing is largely conducted over HTTPS, broadband providers may not see the exact content you consume, but they will be able to see the sites you visit through the DNS requests made by your browser (Internet Basics: DNS). This means that, over time, Verizon, Comcast, etc may all develop formidable data sets about their users (which could theoretically be combined with subscribed data) and become genuine competitors to Google and Facebook in the digital advertising space.   

It is interesting that, on the one hand, broadband providers are getting significantly stronger under the new administration. On the other hand, one could argue that it's at the expense of Google and Facebook - who are doing very similar and unregulated surreptitious data tracking. Content and advertising were being increasingly aggregated and owned by these two, but the new regulations brings more viable competition to the space and may actually benefit publishers.