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EU telcos have been waiting for the reform of the European E-Privacy Directive for a long time. The directive, which sets out telcos’ duties to guarantee secrecy of communications for their users, dates to a time when people had little clue as to how technology would evolve and transform communications. As a result, it has applied only to telcos, leaving OTT communications unregulated, and it seriously limits what telcos can do with users’ data, thereby hampering the opportunity to turn such data into new revenue streams.

There are two reasons why telcos are particularly eager to see the reform of the e-privacy rules:

  • Telcos want a level playing field between themselves and OTTs. OTT communications have significantly eroded the revenues of traditional players, with particular regard to messaging, while being safe from onerous regulatory burdens. This has been more evident in mature markets, where competition has also exercised significant constraint on prices.

  • Telcos’ data assets have been dramatically underexploited because of regulation. Despite sitting on a wealth of data, operators have been hugely limited by the E-Privacy Directive in their ability to turn it into something they could monetize. In a data-driven market, this asset is crucial for telcos’ ability to carry out future investment and innovation.

Following the release of the European Commission’s proposal in January, discussions have become serious in recent weeks. The Parliament’s Civil Liberties Committee audited stakeholders on April 11, and the EU Data Protection Supervisor issued its opinion on April 24. While the final result will depend on the agreements ultimately reached between Parliament, the Commission, and the Council of Europe, there are clear indications of what to expect:

  • E-privacy will be the first area in which the EC will create a level playing field between OTTs and telcos. While it is reasonable to expect OTTs to advocate for light-touch regulation, this is a space in which most stakeholders are in agreement. Consumers’ habits suggest an increasingly high degree of substitution between traditional and OTT communication services; regulators are eager to make sure the latter guarantee an adequate level of protection to end users; and telcos do not see any reason why these services, which have competed with them and eroded their revenues for some time, should benefit from more relaxed privacy requirements. As a result, there is not likely to be a significant U-turn on the initial proposal in this respect; OTT communications providers should prepare to meet more stringent requirements for guaranteeing the secrecy of end users’ communications.

  • ISPs should finally realize new revenue streams from the monetization of their personal data assets. Under the current rules, telcos can process traffic and location data for Wi-Fi hotspots only in areas of need or value-added services, such as proposing communications packages better suited to customers’ consumption patterns. They can also process this data for billing purposes so that customers can verify their actual consumption. Telecoms operators should now have more opportunities to process metadata to provide additional services – if users have given their consent and if the company complies with privacy safeguards – which will in turn help them find new revenue streams. It is encouraging that the EC has recognized this as an area in which telcos need more freedom; however, telcos must ensure that the outcome of the reform process is a positive one and is not jeopardized by significant amendments.

  • Telcos’ data assets will finally become palatable to marketers. Ovum sees huge potential for telcos’ data to be exploited for marketing purposes. In recent research, Ovum found that brands believed that social networks were the best original source of mobile data insights, but telcos were in second place and ahead of digital media companies, chat app platforms, and device manufacturers. In particular, real-time location data, network intelligence, and data from billing are considered to be attractive. As long as telcos obtain the necessary consent from end users, the new rules should enable them to package such data and provide insights to marketers on the basis of such information. This should unlock significant untapped potential for the industry.

  • The US and the EU continue to radically differ in regulatory approaches. While the E-Privacy Directive reform is likely to be good news for European service providers, it highlights how regulatory approaches in the EU and the US greatly differ from one another, with the divide likely to grow in the years to come. EU regulators are focusing their efforts on guaranteeing privacy for end users, passing increasingly prescriptive rules to achieve that goal. In the US, telcos have welcomed the recent decision of the new head of the FCC to repeal the privacy requirements that would have come into force later this year and would have required ISPs to seek consent to collect end users’ data for targeted advertising. Regulators and industry players will have to find a solution between the two extremes, ensuring that they make use of valuable data and that customers feel in control of what they share.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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