Verizon Wants to Build an Advertising Juggernaut. It Needs Your Data First

A new Verizon Communications Inc. rewards program, Verizon Up, provides credits that wireless subscribers can use for concert tickets, movie premieres and phone upgrades.

But it comes with a catch: Customers must give the carrier access to their web-browsing history, app usage and location data, which Verizon says it uses to personalize the rewards and deliver targeted advertising as its customers browse the web.

The trade-off is part of Verizon's effort to build a digital advertising business to compete with web giants Facebook Inc. and Alphabet Inc.'s Google, which often already possess much of the same customer information.

Even though Congress earlier this year dismantled tough privacy regulations on telecommunications providers, Verizon still wants customers to opt-in to its most comprehensive advertising program, called Verizon Selects. Data collected under the program is shared with Oath, the digital-media unit Verizon created when it bought AOL and Yahoo.

Since access to data from customers could make it easier to tailor ads to their liking, Verizon hopes the information will help it gain advertising revenue to offset sluggish growth in its cellular business. While it added more than 600,000 wireless subscribers last quarter, the gains came during a period of intense competition that forced it to revive unlimited-data offerings and sacrifice the revenue it generated from pricier plans and overage fees.

Verizon's core wireless business generated $89 billion in revenue in 2016 -- a 2.7% drop from 2015. Meantime, its digital advertising unit brings in roughly $7 billion a year. Verizon has about 4% of the U.S. digital advertising market this year, compared with 41% for Google and 20% for Facebook, according to eMarketer.

Wireless competitor AT&T Inc. faces similar challenges as it also tries building an ad-targeting program around its new video services.

Verizon, the U.S.'s largest carrier with more than 114 million subscribers, has been experimenting with targeted-advertising programs for at least five years. Verizon Up, launched in August, is the latest incarnation of its rewards program. Verizon doesn't say how many people have enrolled in Up or Selects.

For every $300 customers spend on their Verizon bills, they receive one Up credit, which can be used for rewards such as Uber rides, four free months of Apple Music or chances to win tickets to see performers such as Lady Gaga.

Verizon makes it clear during the sign-up process what data consumers are giving up: Information about their demographics and interests, what websites they visit, what apps and features they use, and their location.

The disclaimer quickly drew criticism in the tech world. Adam Levin, a consumer advocate and founder of data-security firm CyberScout, warned in a column on HuffPost that the "hidden cost of Verizon's 'free' rewards program is your data."

In an interview, he asked: "When you think about it, do you really want somebody to know that much about your life?"

Deli Meeks, a 26-year-old forklift operator in Atlanta, said he doesn't mind Verizon accessing his data. A lot of companies track information, and it helps make advertising more useful, he said. Mr. Meeks used his first reward to secure two tickets to a preseason NFL game between the Baltimore Ravens and the Buffalo Bills.

"As long as they keep it up, I think I'll stay" a Verizon customer, he said, "regardless of the price."

Google, Facebook and other internet firms possess similar data about their users and disclose it in their privacy policies. But Verizon must walk a more delicate line.

Telecoms are required by federal law to take precautions when it comes to customer data. Verizon doesn't want to risk a consumer and regulatory backlash, as it has in the past, for its data-collection methods.

"Some of our competitors, they have exactly the same thing, it's just buried in the terms and conditions of the service," Diego Scotti, Verizon's chief marketing officer, said of the information tech giants collect. "We are not hiding anything."

Google and Facebook declined to comment.

Verizon's program allows customers to opt out of data-sharing after they have signed up for Verizon Up, but it can keep the data for three years.

Mr. Scotti said he hopes customers will appreciate the up-front disclosures and that the rewards program will make Verizon customers more loyal.

But the extra precaution might stifle Verizon's ability to grow the program, said Craig Moffett, an analyst at MoffettNathanson LLC.

"This just highlights how thorny privacy issues can be for telecom operators," he said. "If they are going to be held to a higher standard than Google and Facebook, either by statute or simply by convention, then it will be very hard for them to effectively compete."

Write to Ryan Knutson at ryan.knutson@wsj.com

(END) Dow Jones Newswires

September 05, 2017 05:44 ET (09:44 GMT)