In recent years, companies like Verizon and AT&T have made no secret of their ambitions to build online advertising businesses that can take on the behemoths of Silicon Valley.
But those plans, and the billions of dollars that have been invested in them, are in peril after federal officials approved broad new privacy rules that will limit the extent to which companies can collect and use digital information about individuals.
The Federal Communications Commission’s ruling on Thursday that internet service providers must get permission to gather and share consumers’ private data, including web browsing, app use and location, threw a wrench in the plans of several telecommunications and cable companies that need at least some of that information to pitch premium products to advertisers. It’s an especially big deal for Verizon, which spent more than $4 billion on AOL last year and is prepared to spend billions more for its pending acquisition of Yahoo, and for AT&T, which just made a blockbuster $85.4 billion bid for Time Warner.
“The challenge for Verizon and AT&T is that both companies have made big acquisitions that hinge largely on their ability to monetize advertising inventory more effectively, and the way they plan to do that is by targeting it better,” said Craig Moffett, senior analyst at MoffettNathanson. “If their hands are tied by the new F.C.C. rules, then that’s a very, very big deal.”
Currently, broadband providers can track users unless individuals specifically ask them to stop. The F.C.C. decision, set to take effect in about a year for major providers, has been hotly contested, in part because the rules apply only to internet service providers, or I.S.P.’s. They do not extend to online ad juggernauts like Google and Facebook — web companies that the F.C.C. does not regulate — which has spurred complaints of a double standard.
Companies like Comcast, Verizon and AT&T are only a small portion of the targeted-ad industry, but are seen as having great potential because of their broad view of online habits. Tom Wheeler, the chairman of the F.C.C., has contended, however, that while consumers may choose not to go on Facebook or use Google, they need I.S.P.s to get access to the internet, a view in line with the agency’s classification of broadband providers as utilitylike services.
The rapid rise of new “smart” devices that use broadband services, like thermostats and refrigerators, encouraged the F.C.C. actions. “Who would have ever imagined that what you have in your refrigerator would be information available to AT&T, Comcast or whoever your network provider is?” Mr. Wheeler said in a statement this week.
Innovation in the advertising industry is currently centered on understanding consumer behavior across devices to better place, track and measure ads, said David Cohen, president of North America at Magna Global, a major ad-buying firm.
“Getting a single view of you or me as I go from PC to tablet to mobile to television — that’s a real hot area in the marketing space,” Mr. Cohen said. “The ones who have the best visibility into that today are the big walled gardens, and that’s primarily Google and Facebook.”
Verizon has been trying within the last six months to leverage some nonpersonally identifiable information for improved targeting across AOL’s properties, which include MapQuest, The Huffington Post and TechCrunch, according to Mr. Cohen.
“On paper, what they’re telling the ad community is they will be able to use Verizon data to inform our ability to buy across devices,” Mr. Cohen said. “This will impede that.”
Still, he added, “It’s certainly not a death knell for the advertising or marketing industry, as we have other ways around to get similar kinds of data.”
Verizon said it already sought permission from its broadband customers for certain data, like browsing and location history.
“We believe that the standards the F.C.C. announced on Thursday are consistent with Verizon’s longstanding privacy practices,” said Karen Zacharia, Verizon’s chief privacy officer.
Critics of the ruling include broadband provider advocates, advertising trade groups and some web firms. Christopher Yoo, a professor of law at the University of Pennsylvania who spoke to the F.C.C. about the technical implications of the rules, said in an interview that he told the agency “the most expansive interpretation would cause the internet to break.”
Some fear that the rules will become a model for other parts of the internet, even though the chance of new privacy rules for web companies is slim. Still, it’s enough of a concern that Google wrote a letter of support for broadband providers’ access to consumer data this month.
“Right now, it’s limited to the I.S.P.s, but what it will do is open up the issue of whether the rest of the digital universe and mobile universe should remain on the current model,” said Dick O’Brien, executive vice president of government relations at the American Association of Advertising Agencies, a trade group.
The move could be challenged in court. Companies can sue to overturn the privacy regulation, though AT&T, Comcast and Verizon said they were still reviewing the details of the rules and did not say whether they would pursue a legal challenge.
“At the end of the day, consumers desire services that shift costs away from them and towards advertisers,” AT&T said in a statement. “Although the F.C.C.’s decision inhibits the ability of I.S.P.s (and I.S.P.s alone) to bring those services to consumers, we anticipated the F.C.C.’s decision and continue to expect that targeted advertising will be a growth area for us.”
Comcast declined to comment.
The effect on consumers is not yet clear. Carriers could charge more for blocking data collection, though the F.C.C. said it would monitor “pay for privacy” offers. Mr. O’Brien warned that consumers could be bombarded with annoying “opt-in” requests from I.S.P.s. Mr. Yoo said the complexity created within companies, where Yahoo may not be able to share certain information with Verizon, will stifle innovation.
The decision has had the unusual effect of casting major telecommunications companies as victims in a world dominated by Silicon Valley firms. AT&T and Verizon, for example, each make more than $100 billion in revenue a year, while Comcast’s annual sales top $70 billion.
“It’s clear that online companies now have greater access to consumer data than ever before — and that the success of their business models depends on their ability to use it,” Ajit Pai, a Republican F.C.C. commissioner who opposed the ruling, wrote this year. “Ironically, selectively burdening I.S.P.s, their nascent competitors in online advertising, confers a windfall to those who are already winning.”