The Surveillance Scandals

06.06.13

Why Verizon Is Happy to Help Obama and the NSA Spy on Americans

One of America’s largest consumer brands appears to have aided a government spying operation. The question is whether it’s bad for business. Not in the slightest, writes Daniel Gross.

They can hear you now! Maybe that should be Verizon’s new marketing slogan.

Spencer Ackerman and Glenn Greenwald at The Guardian have the big scoop on the Obama administration asking for, and receiving, “the telephone records of millions of US customers of Verizon, one of America's largest telecom providers, under a top secret court order issued in April.”

Verizon won’t comment. But the court order speaks for itself. It’s pretty clear that one of America’s largest consumer brands aided a government trawling expedition. That would appear to be big news. But while the political press will have a field day with this, the business and economic implications of this seem to be very little. Investors don’t seem to care. Thursday morning, investors actually pushed shares of Verizon up by more than 1 percent! In fact, the story is likely to be much more damaging to the brand of the Obama administration than to Verizon.

Here’s why.

Telecommunication services are brands, of course. But they’re not like Coke and Pepsi, or Burger King and McDonald’s. It’s not easy, or cost-free, to switch from one to another. There are contracts in place, and it costs money to get out of them. What’s more, many “customers,” of Verizon aren’t really direct customers of the company. They’re getting their voice and data services through their employer (like I do), and hence have little choice about which company they patronize.

Thursday morning, investors actually pushed shares of Verizon up by more than 1 percent!

What’s more, there’s no guarantee for consumers that things would be different elsewhere. We don’t know why the government had a particular interest in the conversations Verizon customers are having. But it’s reasonable to assume the same national-security imperatives would make the NSA interested in conversations that AT&T and Sprint customers are having. Neither company has commented thus far.

Why didn’t Verizon make a stink about the request? After all, doing so would allow it to distinguish itself by telling customers it is willing to go to the mat to protect their privacy. But again, there are solid business reasons to comply. “Clearly they don’t feel there will be significant backlash from this,” says Benjamin Lennett, policy director of the Open Technology Institute at the New America Foundation in Washington, D.C. “The telecom providers have not been out there advocating for stronger privacy protections for their users.”

In the post-9/11 world, no company or brand wants to be on the wrong side of national-security policy. And Verizon, like others in big defense and technology, is in bed with the government, including the security apparatus. They are a big customer. Verizon, of course, is a major government contractor. Back in 2007, Verizon, along with AT&T and what was then Quest, “were awarded the government's largest telecommunications contract ever, a 10-year deal worth up to $48 billion to supply various telecom needs of dozens of federal agencies,” as USA Today reported. “The contract covers voice, video and data services and technologies for as many as 135 agencies operating in 190 countries. Several major departments, including Homeland Security and Treasury, have already signed up.”

This helpful site charts a bunch of more-recent Verizon federal contracts. And here’s the Verizon online store for people associated with the General Services Administration, the government’s main procurement arm. Finally, telecommunications is a heavily regulated industry. As Verizon notes in its 10-K, “Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.” All of these factors push companies like Verizon to cooperate with, rather than fight, national security requests.

As for abetting the government in the violation of customers’ privacy, I think it’s likely that Verizon’s executives concluded—correctly—that the overwhelming majority of its customers just don’t care. “I don't think there's going to be significant negative financial impact out of this for Verizon,” says Fatemeh Khatibloo, senior analyst at Forrester Research. “First, I don’t think users feel they have any better choices.” What’s more, she notes, “We haven’t seen any kind of positive correlation for companies like Twitter or Sonic—who are the poster children for user data rights protection.”

We now live in a world in which it is generally assumed that companies will do all sorts of things with your data. They’ll mine it to pitch products to you, sell it to others, share it with partners, and share it with the government when asked. Thanks to big data, cheap storage, and the steady march of digitization, consumer behavior is now monitored, measured, stored, sliced, diced, and sold like never before. Contextual advertising is all the rage on Web surfing. Click on Vanguard’s website and a few minutes later on another site you’ll find an ad for ... Vanguard. It is routine for store clerks to ask for a zip code and email address when you buy a pair of jeans at the mall. Brokerage firms sell customer order information to other traders. Google serves ads in your mail based on what you’ve been writing about in your email. Every time you go through a tollbooth, or swipe a card somewhere, you’re leaving footprints. And thanks to Instagram, Twitter, Facebook, and all sorts of social media apps, more and more people are living their lives out loud.

The price for free usage of these great utilities and storage is often paid in the loss of privacy. And people seem to be OK with that. But that may not last. “It’s hard for consumers to understand what is generally happening,” says Lennett. Verizon has turned over records of whom customers called, when they called them, and from which location. That may seem harmless. But the company’s wireless unit, Verizon Wireless, is collecting information on customers’ Internet searches and usage. And that data, which is generally used for marketing purposes, could easily be subpoenaed as well. “We create this cycle where the more information that is collected by these private technology companies, the more data is available to the government.”