As we previewed last week, the Federal Communications Commission (FCC) has adopted new privacy rules that govern Internet service providers’ (ISPs) handling of broadband customer information. Though the Wireline Competition Bureau stated that it expects it will be at least several days before the final Order is released to the public, the FCC released a fact sheet describing the rules as adopted.

These rules are the culmination of a process that began in 2015 with the reclassification of Broadband Internet Access Service (BIAS) as a common carrier telecommunications service regulated under Title II of the Communications Act.  As a consequence of reclassification, the obligations established under the privacy framework adopted by the Federal Trade Commission (FTC) no longer applied to ISPs due to the common carrier exception in Section 5 of the FTC Act.  Accordingly, the FCC determined that the privacy protections governing telephone customer proprietary network information (CPNI) set forth in Section 222 of the Communications Act would now apply to ISPs’ provision of BIAS.

On April 1, 2016, the Commission released a Notice of Proposed Rulemaking setting forth proposed privacy and data security rules that would govern ISPs’ provision of BIAS.  The rules originally proposed by the FCC would have subjected ISPs to significantly greater constraints on their ability to use customer data for advertising, marketing, and offering customized services and features than the FTC’s privacy framework, which continues to apply to websites, apps, and all other entities in the Internet ecosystem other than ISPs.  For example, while the FTC framework applies differing choice mechanisms (i.e., opt-in, opt-out, or implied consent) depending on the sensitivity of the data being collected and the context of its use, the FCC initially proposed to apply a default opt-in regime to virtually all data – rejecting any distinctions based on data sensitivity.

In response to comments from the FTC and others in the proceeding, the final rules adopted by the FCC align more closely with the FTC framework, though some important differences remain.  Continue reading for key elements of the proposed rules.

SCOPE

• The new FCC rules govern only ISPs’ provision of broadband Internet access service and other telecommunications services, but do not apply to edge providers or edge-like services that may be provided by ISPs.  Nor do they apply to the provision of cable television service, which is subject to its own set of statutory privacy safeguards.

• The rules cover customer proprietary information (CPI) which consists of three types of customer data:  (1) individually identifiable CPNI, (2) personally identifiable information (PII), and (3) content of customer communications.

CHOICE

• Reversing its initial position, the FCC embraced the sensitivity-based model employed by the FTC, varying the type of choice mechanism applicable to use or sharing of CPI depending on the sensitivity of the customer data at issue.  Opt-in consent will be required only for data deemed sensitive.  Opt-out consent is sufficient to allow BIAS providers to use or share non-sensitive data.

• The FCC, however, expanded the types of data deemed sensitive and subject to opt-in consent beyond the categories identified in the FTC framework – children’s, financial, health, precise geo-location, and social security number data.  Under the FCC’s rules, the content of communications, web browsing history, and app usage data will also be treated as “sensitive data” subject to opt-in consent.

• All other types of individually identifiable CPI that do not fall within a category of sensitive information (such as name, address, level of service) are considered non-sensitive subject to opt-out consent.

• The FTC privacy framework affords companies flexibility to use data without specifically soliciting customer approval to engage in first-party marketing and advertising of other products and services they offer.  The FCC rules establish a narrower first-party marketing exception that permits use and sharing of non-sensitive data based on implied consent only to market services and equipment commonly bundled with the broadband service subscribed to by the customer.

• The rules recognize a limited number of other implied consent exceptions, such as  for provision of service, billing and collection, network protection, and fraud prevention.

NOTICE

• The rules require that IPSs provide customers notice about the types of information collected, how the ISP uses and shares this information, and the types of entities with which the information is shared.

• Notice must be provided upon a customer signing up for service, when there is a significant change to an ISP’s privacy policies, and notice must always be available via the ISP’s website or mobile app.  But the final rules do not contain language from the initial proposal that could have required more frequent, “just-in-time” notices to customers.

DE-IDENTIFICATION

• The FCC rules adopt the FTC framework’s three-part test for de-identification of data. ISPs must (1) alter CPI so that it cannot be reasonably linked to a specific individual or device, (2) commit to maintain the data only in an unidentifiable form, and (3) contractually prohibit third parties from re-identifying the data. CPI that meets the test falls outside the scope of the privacy rules.

• While the FCC’s initial proposal suggested that only “aggregate data” could be considered de-identified, the final rules dropped this language.

DATA SECURITY

• While the FCC’s initial proposal delineated specific data security mandates, the final FCC rules require only that ISPs take “reasonable measures” to protect their customers’ data.

• This is the same standard that applies under the FTC framework.  In lieu of a checklist of required practices, the FCC states that reasonable measures are those ISP practices “calibrated to the nature and scope of its activities, the sensitivity of the underlying data, the size of the provider, and technical feasibility.”

DATA BREACH NOTIFICATION

• Modifying its initial data breach notification requirements,  the FCC’s final rules give ISPs 30 days after reasonable determination of a breach to inform customers of an unauthorized disclosure of their information.  The FCC, the FBI and the Secret Service must be notified within 7 days of a reasonable determination of a breach.

• No notification is required if the ISP determines that no harm is reasonably likely to occur as a result of the data breach.

OTHER PROVISIONS

• The FCC refrained from imposing a prophylactic ban on ISPs offering discounts or other financial inducements in exchange for use of customer clickstream data for marketing and advertising, though such arrangements will be subject to heightened notice and case-by-case review.  The rules will prohibit “take-it-or-leave-it” offers, meaning that an ISP cannot refuse to serve customers who do not consent to the use and sharing of their information for commercial purposes.

• Notwithstanding a last-minute push, the Commission declined to ban mandatory arbitration clauses for resolution of disputes related to compliance with the Commission’s privacy rules.  Instead the FCC will commence in February 2017 an NPRM on mandatory arbitration clauses in communications contracts.

IMPLEMENTATION TIMETABLE

The FCC has not yet released the text of the Order adopting the rules, though that is expected in the next week or so. The data security rules will go into effect 90 days after publication of the Order in the Federal Register, the data breach notification requirements will go into effect approximately six months after publications, and the notice and choice requirements will go into effect approximately 12 months after publication. We will follow further developments in this new privacy/security regulation regime and report here.