WASHINGTON D.C. - Recent actions to further restrict use of customer proprietary network information (CPNI) by the Federal Communications Commission and Congress could result in substantial costs to businesses and consumers with no or minimal offsetting benefits, conclude Thomas Lenard and Paul Rubin in "Privacy and the Commercial Use of Personal Information: The Case of Consumer Proprietary Network Information," released today by The Progress & Freedom Foundation. Such restrictions interfere with legitimate information uses, such as targeted marketing, and cause inefficiency in the communications market.

Recent efforts to regulate the use of CPNI attempt to address consumer concerns regarding privacy and possible fraudulent use of information. However, Lenard, Senior Fellow and Acting President of PFF, and Rubin, PFF Adjunct Fellow and Samuel Candler Dobbs Professor of Law and Economics and Emory University, conclude that the FCC rulemaking issued earlier this year would do little to curtail illegal uses of CPNI. Referring to the FCC rulemaking on CPNI, the authors explain, "that the FCC itself acknowledges that there is no evidence of unauthorized disclosures by the very entities it is regulating." Also, the authors question if proposed security measure provisions "improve on methods the telecom companies themselves already are using to prevent costumer data from being illegitimately obtained."

In the paper, Lenard and Rubin explain that regulation to restrict the sharing of CPNI with outside contractors or partners would impose substantial compliance costs. Businesses could be forced to "in-source" some functions, such as marketing, which could be more cheaply and effectively performed by a specialized firm. Some businesses may also choose to restructure or reorganize their companies in order to comply with the restrictions. The significant costs of restructuring would vary from company to company and could be unfairly influenced by existing discrepancies in regulation. This extra cost would ultimately be passed onto the consumer.

Significant costs would also be incurred if businesses chose to make due with less information. Businesses would find it difficult to accurately tailor product marketing to consumers. Also, less information would be available for the successful development of new products to fit the needs of consumers. Consumers would lose out on these potential new services and would not be as informed about products already available. The authors conclude that the inefficiency created in the market by lack of free-flowing information would therefore harm businesses and consumers alike.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.