NEW YORK ( TheStreet) -- On the face of it, Verizon's (VZ) proposed $4.4 billion acquisition of (AOL) is all about grabbing a larger share of the $600 billion global advertising market. Verizon is betting that AOL's automated advertising tools can help the country's largest wireless network increase sales from mobile video and streaming TV.
But privacy advocates see a different scenario.
"This looks more like Verizon buying AOL's advertising, tracking and marketing capability," Wood said. "It's not transparent to people how much data is being collected on them."
AOL has amassed a range of ad technologies that allow advertisers and publishers to serve targeted demographic groups across varying screens while using display and video advertisement. Last month, the company launched "One by AOL," to incorporate various ad technologies.
Even before its bid for AOL, Verizon triggered a privacy controversy a year ago when it began inserting a unique code into a customer's mobile traffic in order to deliver personalized ads based on Web browsing habits. Under fire from lawmakers and privacy advocates, Verizon said it would allow users to opt out of the so-called "supercookies," which can't be deleted.
At the request of lawmakers, including Sens. Ed Markey (D-Mass.) and Richard Blumenthal (D-Conn.), the Federal Communications Commission is examining whether Verizon's use of supercookies violated its privacy rules.
The AOL deal itself will need to be cleared by either the Federal Trade Commission or the U.S. Justice Department under the Hart-Scott-Rodino Act. It's not clear which agency will conduct the antitrust review. The Justice Department has historically vetted deals involving major telecom mergers. The FCC said it won't investigate the Verizon-AOL deal announced Tuesday because it doesn't involve a transfer of any FCC licenses.
Even so, consumer advocacy group Public Knowledge is asking the FCC to establish new privacy rules for Internet providers such as Verizon. In February, the FCC voted to regulate broadband Internet service as a public utility, thereby taking oversight of mobile data service for smartphones and tablets.
The FCC's net neutrality order extends to protect consumer privacy, but Harold Feld, senior vice president at Public Knowledge, said the the agency needs to spell out how privacy safeguards under Title II of the Telecommunications Act will apply to broadband providers.
"A high-profile merge like this, which raises these concerns very publicly, is the kind of thing that can push the FCC to a rulemaking because they can see which way the industry is moving," said Feld. He added Internet providers like Verizon should be required to obtain opt-in consent in connection with the use of customer data to provide personalized advertising.
The new FCC order reclassifying broadband as a telecommunications service faces a legal challenge brought by the United States Telecom Association, which includes Verizon, and Alamo Broadband.
Verizon didn't immediately respond to a media inquiry about privacy concerns around the AOL raised by advocacy groups.
Feld suggested that telecom heavyweights like Verizon and AT&T (AT) are increasingly likely to run into privacy issues as they ramp up efforts in digital media and advertising. That, in turn, will translate into a greater focus on using their troves of user data to deliver personalized ads.
It's not hard to see the attraction for Verizon. Digital ad spending worldwide is expected to rise to $170.5 billion this year, with mobile accounting for more than $64 billion of that total, up nearly 60% from 2014. In announcing the AOL deal, Verizon CEO Lowell McAdam highlighted the company's plans to power digital content and advertising across multiple screens.
"AOL's advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams," he stated. In that vein, Verizon is expected to launch a new mobile video service in the coming months.