The Consumer Policy Institute hosted a panel event at the Hogan Lovells LLC office in Washington, DC on June 14 on the topic “Consumer Costs in the Digital World – Does Free Really Mean Free?” The discussion, moderated by the President of Consumer Policy Solutions Debra Berlyn, featured four distinguished guests, all with varying experiences in the digital world. The panelists were: John Mayo, Georgetown University Professor of Economics, Business, and Public Policy, Jonathan Spalter, the President and CEO of USTelecom, Stacey Gray, Policy Council for the Future of Policy Forum, and Kim Keenan, President and CEO of Multicultural Media, Telecom, and Internet Council (MMTC).
Each of the panelists stated how they believed the concept of “Free” has changed as technology has become more integrated into society and our lives have become more digitized.
John Mayo gave an intuitive, economics-driven explanation of how the concept of “Free” exists now, explaining that, when something is free it has no true out of pocket costs. He used the example of “free” shipping to illustrate that, even though one good has free shipping, other goods sold by the same retailer might not, and as a consumer one is not at liberty to use free shipping on other products since it is bundled with another specific product. In this way, free shipping isn’t free because you are still paying for the original product and often have to pay for shipping elsewhere. Mayo spoke a bit about “Freemium” services as well, such as tax services like H&R Block and TurboTax. While they may advertise as free, almost everyone has to end up paying to file state taxes or to file an additional form that isn’t included in their limited list of free services.
Finally, Professor Mayo explained that being online has an opportunity cost, in that one could be doing or learning new things rather than spending time on Facebook, Twitter, Instagram, or other sites. People will often give up other leisure activities or on doing work to be on social media. As for the real costs of so-called “free” applications and services, he pointed out that data is valuable, and that a person’s privacy is a good. As such, a loss of that privacy represents a gain in data for other companies, but a loss to a consumer.
President Spalter reiterated his group’s belief that consumers need to be able to protect their privacy, but said that targeted, digital advertising is one of the costs of “free” things. However, he shifted course to explaining his group’s position on the ongoing Title 2 debate. Spalter told the room that ISP’s are afraid of being regulated to death, citing the decline of annual ISP capital expenditures and of “digital opportunity.”
While it is important to note that USTelecom is an industry trade group, President Spalter stressed consumer privacy and consistent, non-discriminatory regulation across the board. Perhaps one of the most memorable quotes from his view was when he was explaining his stance on Title II and ISP classification, stating that, “No one has ever said that they want their internet service provider to look like their gas company.”
Stacey Gray took the previous assertions about targeted, digital advertising and explaining them more in depth. She stated that consumers do understand that information is traded for valuable things and programs, like loyalty cards, rewards programs, and the like. However, consumers do not understand the “vast ecosystem” of 3rd party advertisers that share, aggregate, and monetize data. The data can be based off anything from browser cookies to location data, and is traceable to offline purchases that you make.
To illustrate this, Gray offered an example of how the vast majority of “free” apps ask for access to a consumer’s location first installing on a device. The apps often work with nebulous, third-party advertising networks whose relationships and roles are not well-understood from a consumer angle. She said that, while consumers may have good 1st party relationships with Amazon, for instance, they do not have the same relationships with Amazon’s partnered advertisers.
Lastly, Kim Keenan of MMTC agreed with a push for comprehensive regulation that put all internet service providers on a level playing field. Keenan had a stance that tended away from trying to regulate Internet Service Providers as Title II providers, saying that the internet is not like the telecom companies that existed in the 1930’s during the passage of the Telecommunications Act.
What distinguishes the internet and ISP’s from being utilities, as she put it, is that utilities tend to stagnate, even when they can and should evolve. Keenan explained that the internet and technology surrounding it is continuing to grow at an alarming rate, citing the explosion of unlimited cell phone data plans that weren’t widespread just 3 or 4 years ago. Privacy, she concluded, ought to be protected but uniform standards have to be the way to ensure it because every app, every company, and every firm with proprietary digital technology has their own privacy agreements that no consumer can realistically remember.
While the discussion at times steered away from the original topic, the debate and perspectives shared were important to note primarily because obtaining feedback across both sides of an issue is key to creating a practical, workable solution.