OpenWrt
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They also have the opportunity to inspect all of your VPN negotiation packets ..
Okay, and that tells them what, exactly? They could figure out which VPN I'm using, but they already knew that -- all they'd need to do is look up the owner of the VPN server's IP address.
I'd surely like to hope that my VPN isn't so ass at security that username/password information would be passed unencrypted during connection negotiation. So the ISP isn't getting that.
Maybe they could use that to determine what OS my computer is running and a few other technical details, if those details are part of the negotiation? That's the closest I think they could come to any private information to harvest.
And, of course, they can tell how often I connect, how long I'm connected, and how much raw data gets uploaded or downloaded. But that's absolutely unavoidable.
... But the biggest thing here is -- having a compromised router doesn't make any of this worse. They can try to spy on my data all they want once it's sent to their servers. I don't see how trying to spy on me through my router improves anything. The router already only sees things that are headed to their servers anyway. So what do I care if the ISP's spyware is on the router or on their servers (or, more likely, both)?
I suppose the only slight difference is that running their spyware locally might very slightly increase the power draw of my router. So it would be slightly preferable to make them run the spyware on their own server in their own server farm, where they're paying the power bill.
Yeah, they would never bother sniffing packets client side. But given most people tend to use their home router as their main network device rather than having it manage a DMZ and provide a gateway for a firewall protected network, compromising your router would be a good way to gain access to your devices. An ISP is probably unlikely to have any interest in doing that, 3rd parties on the other hand might be more interested (law enforcement, criminal groups, law enforcement connected hate groups ..). Given law enforcement might want compromised routers then they might be interested in forcing ISPs to comply.