Ever used a smartphone app and wondered how an advertiser knew you were interested in buying a nose hair trimmer or some probiotics for your halitosis? It might have had something to do with software trackers installed in those apps by the likes of Facebook, allowing it to snoop on users, combine data and attract advertisers. Software changes by Apple have made the practice harder than it used to be, but four of Europe's biggest telcos are stepping into the void.

Plans by Deutsche Telekom, Orange, Telefónica and Vodafone to set up a joint venture (JV) offering user data to advertisers have been interpreted as a rebellion against Apple and its dominance. Despite a telco promise that no data will be shared without customer consent, the scheme seems bound to unnerve privacy advocates. But it may be an improvement on the old Facebook ways and preferable to the status quo.

The notion of Mark Zuckerberg enriching himself as a stalker hidden in the software dark would probably not have held widespread appeal. When Apple took a zero-tolerance approach to the behavior in April 2021, there was no public outcry. But the changes to iOS 14, under the banner of App Tracking Transparency, dealt a massive blow to Facebook (or Meta, as it now prefers to be called).

Figure 1: Big Tech is watching you, and now Big Telco wants a peek too.
(Source: Marten Newhall on Unsplash)

The damage was seen later. When Zuckerberg's company filed results with the Securities and Exchange Commission (SEC) for its recent third quarter, it was grumbling about its situation. Apple's changes, it said, "will continue to negatively impact the size of the budgets marketers are willing to commit to us and other advertising platforms."

Meta's advertising revenues fell 4% year-on-year that quarter, to about $27.2 billion – a troubling development after the 33% surge for the same period of 2021. But while it has been identified as App Tracking Transparency's biggest loser, it is not the only casualty. Snap, the company behind the messaging app, is another to have complained about Apple's change in SEC filings. "This has resulted in, and in the future is likely to continue to result in, reduced demand and pricing for our advertising products and could seriously harm our business," it said in its most recent quarterly filing.

Apple to blame for recession?

Critics say App Tracking Transparency has clobbered the entire market, hurting numerous smaller companies that have been largely ignored amid all the invective about Meta. In a Twitter thread last July, Alex Gurevich, the managing director of Javelin Venture Partners, expressed surprise at the lack of "discourse" about the impact on these businesses of the tweaks Apple made, purportedly in defense of privacy. "They might bear as much blame for a recession as inflation," he wrote.

Unsurprisingly, one company that has not suffered is Apple. After the fallout from App Tracking Transparency, the world's biggest technology firm by market cap may be even more dominant than it already was in the app ecosystem. As ad sales have dwindled at Meta and other companies, Apple recorded a 14% jump in revenues at its services unit last year, to more than $78 billion. The increase was due mainly "to higher net sales from advertising, cloud services and the App Store," said Apple.

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It would have been far less reliant than Facebook still is on advertising revenues generated from third-party apps. And what Apple's changes did not do was stop a company from tracking users on its own apps. This sort of data has been lucrative for big organizations serving millions of signed-up customers, Apple included. One of the iPhone maker's most outspoken critics is Florian Mueller, an expert on smartphone software and patents who maintains a blog called Foss Patents. App Tracking Transparency is a blatant "money and power grab," as far as Mueller is concerned. Elsewhere he describes Apple as the "Evil Empire" in an update published this week.

For that reason, he welcomes the telco JV, saying it will have "procompetitive effects" of benefit to Europe's economy and consumers. Communicated in a filing with the European Commission, the telco plan is to generate "pseudonymized" tokens linked to consenting customers and offer these to advertisers, which could then tailor their adverts to suit individual preferences. Thanks to a "user-friendly privacy portal," customers could withdraw consent at the touch of a button for any given brand.

Like Balaclava again

Telcos sit on reams of customer data and certainly don't need Apple's permission to do this. But if the JV really is an assault on Apple's position, it risks ending up like a telco Charge of the Light Brigade. Apple could respond by disabling iPhones or blocking apps and communications on the offending networks, according to Mueller. He downplays the danger, however – not least because such activities would generate antitrust concerns.

A bigger worry, perhaps, is that European authorities oppose the JV. For all the reassurances about privacy, and use of EU-friendly jargon like pseudonymized, Europe's regulators may panic at the merest whiff of plans to sell customer data. They might also regard the JV as a cartel, a word used by Mueller in his own write-up.

But there could be more pain in store for Meta, Snap and others, with Google prepping similar changes to those already introduced by Apple. If those have the same impact as App Tracking Transparency, they could make Apple and Google – which already look duopolistic in the global market for smartphone operating systems – even more powerful in future without some kind of alternative.

Much is unclear about the telco JV, including precisely how it would generate and share revenues and whether it is open to the involvement of other telcos. It comes several months after T-Mobile unveiled similar advertising plans in the US, requiring customers to opt out if they do not want their data shared. Yet diversification beyond connectivity has not been a great success story for operators, and their joint initiatives have rarely fared well. Expectations for this latest will be low.

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— Iain Morris, International Editor, Light Reading