Blame the NSA, but Don't Blame Tech and Telecom Companies

When citizens find out -- or are reminded -- that their government is spying on them, the reaction is typically one of outrage. With the recent revelation that Verizon Communications (NYSE: VZ  ) was ordered by the National Security Agency to turn over call data on millions of its customers, investors might worry that outrage can spill over to the company -- and possibly its stock price.

But investors should be cautious to paint companies in a negative light when this happens, and remember that the government often requires tech companies to turn over data against their will.

Just a sneak peek
According to The Guardian, which broke the story, the NSA order granted by the Foreign Intelligence Surveillance Court "requires Verizon on an 'ongoing, daily basis' to give the NSA information on all telephone calls in its systems, both within the US and between the US and other countries."

Yikes.

The data grab started on April 25 and continues until July 19. NSA gets to know who called who, where the calls took place, how long they were, when they were placed, and unique call identifiers .

All right, so these things aren't fun to hear. But it's not the first -- or the last ­-- time the government has required a company to turn over data. It's important to remember that companies (usually) don't like to turn over data any more than we like them handing it over.

Selling services, not stealing rights
Verizon likely knew this could negatively impact them if this information leaked out, and that their reputation would be hurt because of it. Customers hate having their data stored and shared against their will and Verizon knows that it's simply bad business to do so. Tech companies are in the business of selling devices and services, not colluding with the government to attack privacy rights.

Just a few days ago, before all of this NSA business broke, a U.S. federal judge ordered Google (NASDAQ: GOOGL  ) to turn over customer data to the FBI, despite not having the appropriate warrants. Under the USA Patriot Act, the FBI can send secret letters to companies requesting data information without any approval from a judge. According to an NBC News article, Google argued that the FBI's request was unnecessary and unconstitutional and the company is currently trying to fight the court orders ­-- with little success.

In a Transparency Report released by Google in March, the company said that it has received anywhere from 0 to 999 National Security Letters each year since 2009. While some requests can be legitimately considered an important part of national security, Google said it scrutinizes requests "to ensure they satisfy the law and our policies." The Transparency Report is one way Google is attempting to cooperate with the government, while protecting and informing its customers at the same time.

But sometimes companies are criticized for working with law officials.

Last year, a New York Times article pointed out that some cell phone carriers charge law enforcement agencies to obtain certain tracking services, and that the services can be "big business" for the carriers. The article prompted Massachusetts Congressman Ed Markey to send a letter (link opens PDF) requesting information from AT&T (NYSE: T  ) on whether it was profiting from law enforcement requests for information. Letters were also sent to T-Mobile, Verizon, Sprint Nextel and others.

AT&T responded (link opens PDF) to Markey's letter saying that the company "does not market the provision of its customers' phone usage information to law enforcement. Rather AT&T responds to lawful requests from law for information and in some circumstances, we are compensated for the process of collecting and providing that data to law enforcement personnel."

AT&T also said in the letter that it employees about 100 people 24 hours a day and seven days a week to respond to law enforcement requests. From a business standpoint, it could be argued that the company was simply trying to recoup its costs -- about which the company said, "[W]e believe we fall short of our actual costs."

The letters to AT&T and other companies show the fine line that some tech and telecom companies walk when handling requests from law enforcement and government agencies. But at the end of the day, these companies aren't in the business of intruding on customer privacy.

Caught in the middle
The vast majority of the time, companies like AT&T, Google, and Verizon are caught in the middle of something they were never designed to do: extend the arm of the law. These companies exist to sell ads, data plans, cell service and other offerings to willing customers. The fact that local and federal agencies step in and muddy the waters is unfortunate for both customers and the businesses.

It's yet to be seen if the recent NSA request will hurt Verizon's stock or its overall business. But investors can be sure that, at least most of the time, companies don't want the government intervening because it hurts their business and their customers. In the end, hopefully the government will realize that hurting its citizens is a bad way to conduct business as well.

The bright side
The recent NSA news show just how complex our digital world is becoming. But despite the government intervention, many tech companies are creating a truly amazing digital revolution. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


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