How AT&T’s plan to become the new Facebook could be a privacy nightmare

For years, AT&T and its primary competitor Verizon have looked green-eyed at the ballooning advertising revenues of Silicon Valley. Combined, Facebook and Google control more than half of the $88 billion digital advertising market in the US, and both account for around 90 percent of its growth. Digital advertising now surpasses TV advertising as the largest sector of the market.

Telecoms don’t just see those companies’ domination of digital media, social networking, and search as an existential threat. Facebook and Google have dabbled in becoming internet service providers, and they both control global, distributed communications networks. Entities like AT&T also see digital advertising as a lucrative and untapped market it can uniquely compete in, thanks to the troves of user data it’s collected over the years.

Now, with its Time Warner deal closed and the acquisition last month of advertising technology company AppNexus, AT&T is better poised than other telecommunications giants in the US to rival Silicon Valley for the ad crown. The question that follows is whether a company like AT&T can reasonably compete with some of the world’s most powerful tech platforms by buying the necessary tech and talent. Another more pressing question is just what kind of privacy implications that may have for users who often don’t have the ability to easily switch from one internet or cellular provider to another.

“[Telecoms] have had Silicon Valley envy now for 15 years,” says Gigi Sohn, a lawyer who worked with former Federal Communications Commission chairman Tom Wheeler on net neutrality and consumer privacy regulations. (Sohn has also contributed to The Verge.) “The ways they’ve manifested that envy is to try to get them regulated and to try and beat back regulations like net neutrality that might be helpful to Silicon Valley. Now, they’re hoping they can acquire the expertise necessary to compete.”

For instance, AT&T now owns an internet service provider, a cellular service provider, and a satellite cable TV provider after its acquisition of DirecTV. Putting aside the Justice Department’s appeal that was announced last week, the company also owns Time Warner media properties including CNN and HBO. With AppNexus, AT&T controls a programmatic advertising network it can use to plaster ads on the web, within mobile apps, and on television.

Similarly, Verizon owns the remnants of Yahoo and AOL under the Oath brand in addition to its own phone business, ISP, and cable platform. Every one of those businesses and media properties provides AT&T and Verizon with a built-in dataset and the means to help companies target ads to customers in a way that may rival Silicon Valley’s ad duopoly.

When asked about the acquisition of Time Warner at Recode’s Code Conference earlier this year, AT&T CEO Randall Stephenson put it plainly: “AT&T has an amazing amount of data,” but he added that his company didn’t have a “very targeted advertising approach.” Tapping into customer insight from media properties in combination with its telecom business could be the key. “I believe if you don’t create a pure vertically integrated capability from distribution all the way through content creation and advertising models you’re going to have a hard time competing with these guys,” Stephens said, referring to Silicon Valley.

 Photo by Chris Welch / The Verge

Tim Armstrong, the architect behind AOL’s acquisition of HuffPost who joined Verizon in 2015 when it purchased AOL for $4.4 billion, has echoed similar sentiments over the years. He also helped his new employer with its acquisition of Yahoo, which earned Verizon a number of high-profile ad tech companies like Flurry and Brightroll and Yahoo’s formidable online media assets, which are now under Oath umbrella. In April, Oath updated its privacy policy to allow it to scan Yahoo and AOL email messages for targeting advertising.

“It’s tens of billions of dollars on the table, at a minimum. So of course they want to be in this market,” says Jonathan Mayer, an assistant professor at Princeton University who studies the intersection of technology and law. “It’s plausible because they have untapped data,” he adds. “They have info about what their customers do when they use home internet connections. They also have the data you get when you sign up, and then they can go and buy more information about you.” According to Mayer, telecoms are arguably the only businesses outside of the traditional tech industry that can monitor and analyze large amounts of online activity while simultaneously knowing those users’ real identities.

AT&T declined to comment for this story, citing a quiet period prior to its next quarterly earnings report. Verizon did not respond to a request for comment.

AT&T, in particular, may be well-suited to build profiles of its customers that it can use to sell targeted advertising. If you’re an AT&T cellular customer, the company already has access to real-time location data, mobile browsing activity, and other lucrative personal information. It can cross-reference that data with the information you provide the company when you sign up for its service, along with information it may be able to glean from your viewing habits if you subscribe to DirecTV and information it can purchase from third-party data brokers.

Owning Time Warner properties will only further increase the knowledge AT&T has about what types of entertainment its customers like to watch, when they like to watch it, and on which devices. From there, it can serve advertising on the right screens at the right times. It may also be able to one day discern the effectiveness of those advertisements. For instance, AT&T could detect whether you search for a product on Google through your desktop browser or on your phone after you’ve seen an ad and whether you then went out to buy that product from a brick-and-mortar retail store by monitoring your location.

That’s the grand vision, of course, but it’s far from the current reality. Yet that hasn’t stopped privacy advocates from trying to put up roadblocks to keep telecoms from creating these pervasive ad networks that rely on personal data that, unlike social media data, customers have little to no control over.

When the FCC adopted net neutrality rules in 2015 that reclassified broadband providers as utility companies, it gave itself the ability to impose privacy regulations. Those Obama-era ISP privacy rules were passed in 2016, and they were designed to forestall the type of data collection and packaging — specifically, the selling of internet browsing history to third parties — AT&T and Verizon want to perform to better compete with Silicon Valley by requiring telecoms get user consent first. AT&T virulently opposed this move, and under new FCC chairman Ajit Pai, those proposed privacy rules were rolled back in March of last year, clearing the way for broadband providers to sell your internet history.

For AT&T and Verizon, however, the decision had larger implications. The rollback of those privacy rules meant telecoms now have no check on how they decide to handle sensitive user data. And unlike Silicon Valley, which at least pretends to respond to consumer advocacy groups, negative press, and the threat of regulatory pressure, AT&T and Verizon largely act with impunity.

The government has decided that, outside mergers and acquisitions, they are not to be regulated in any meaningful fashion. “[Telecoms] face very little competition in the wired or mobile space. They can raise prices at will. They can double their fees. They don’t really answer to anybody,” Sohn explains. “They respond to regulatory pressures, but they respond in a different way [than Silicon Valley]. They respond by upping their lobbying and putting more pressure on the policymakers. Not so much apologizing to their customers.”

While it’s easy to imagine how a company like AT&T may run rampant with regard to consumer privacy if it does build a world-class ad-targeting machine, it’s a lot harder to picture the company actually building that machine or anything even closely resembling the digital ad empires of Facebook and Google.

“How successful it’s going to be is a big open question. The telecoms historically have been spectacularly bad at entering and competing in the online advertising marketplace,” says Mayer. “Years and years of efforts, tons of and tons of money, and they’re pretty much at square one with the exception of the companies they’ve bought.”

Mayer also notes that, with respect to Verizon, the companies telecoms typically acquire — like AOL or Yahoo — are not exactly thriving. Verizon reportedly pumped more than $1.2 billion into its failed mobile video app Go90 only to shut it down after three years. “Again and again, they’re very unsuccessful because they don’t have the internal expertise or talent to be successful,” Mayer says. “Who’s the top computer science graduate who’s entertaining all these offers from household names and startups in Silicon Valley and says, ‘You know what, I’m going to work for Comcast’?”

Sohn says that a lot of what drives telecoms to try and compete with Silicon Valley — besides the obvious hunger for more revenue — is the notion that it’s far from hip to be in the business of owning dumb pipes. “It’s not cool to have invented the black rotary phone,” she says. “Again, for the last 20 years, there’s been this notion that, ‘These wealthy Silicon Valley companies are using our pipes for free, and it’s not fair, and we shouldn’t be regulated differently than they are.’”

The pipe provided by those companies is certainly a lucrative one, Sohn adds, but AT&T and Verizon aren’t the “ones building search engines that can find any piece of information in the world or building social networks that connect the world or building e-commerce markets that can get you anything delivered in a day or two,” she says. “It’s just not what they do.”

That disparity was on display in a recent June meeting between AT&T’s top media executive, John Stankey, and HBO employees. Stankey pushed the network to better compete with Netflix by producing more content and upping the number of hours consumers tune into its programs on a daily basis. Stankey didn’t even bother dressing up why HBO’s new parent company intends to become more involved in its day-to-day operations. He reportedly said that more shows meant “you get more data and information about a customer that then allows you to do things like monetize through alternate models of advertising,” again reiterating AT&T’s grand plan of using its media properties and other businesses to offer superior ad targeting.

It’s too early to say with confidence that AT&T and other telecoms will fail in these efforts or turn into giant ad-targeting privacy nightmares. But the message that’s been sent to both Silicon Valley and Madison Avenue is clear. “They want advertisers to know there’s a new sheriff in town, and they have significant content assets, significant mobile assets,” says Sogn, “and that they’re here to play for real.”