Investment Concerns Lead Charge in Restoring Internet Freedom

Investment Concerns Lead Charge in Restoring Internet Freedom

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On the heels of the Federal Communications Commission’s May Open Meeting in which the Commissioners will vote to open a proceeding on Restoring Internet Freedom, the question of investment in broadband infrastructure looms large.

In announcing the forthcoming Notice of Proposed Rule Making during an April 26th speech on The Future of Internet Freedom, FCC Chairman Ajit Pai recalled that in 2015 – prior to the Commission’s reclassification of broadband as a telecommunications, rather than an information, service – he warned that “Title II regulation would reduce investment in broadband infrastructure…Reduced investment means fewer Americans will have high-speed Internet access,” he cautioned, resulting in fewer jobs and less competition.

After the Commission adopted Title II, “Sure enough, infrastructure investment declined,” he declared, noting that “among our nation’s 12 largest Internet service providers, domestic broadband capital expenditures decreased by 5.6% percent, or $3.6 billion, between 2014 and 2016, the first two years of the Title II era.”

Chairman Pai isn’t the only one who sees investment trending downward.

Reporting for Multichannel News, John Eggerton highlighted a new study from the Phoenix Center estimating that since 2010, when then-FCC Chairman Julius Genachowski first proposed Title II to uphold net neutrality, “investment has been $150 billion to $200 billion less than it would have been without that regulatory overhand and eventual 2015 reclassification.”

According to the report, Net Neutrality, Reclassification and Investment: A Further Analysis, conducted by Phoenix Center Chief Economist Dr. George S. Ford, “without reclassification, investment in total fixed assets would have been about $30 billion more annually, while investment in equipment and property would have been $20 billion more.” This latest release updates a separate report the Phoenix Center issued last month.

Year CTIA Reported Incremental Capital Investment (in 000s) Year CTIA Reported Incremental Capital Investment (in 000s)
2005 $25,231,820 2011 $25,317,115
2006 $24,423,867 2012 $30,094,359
2007 $21,142,013 2013 $33,141,345
2008 $20,169,312 2014 $32,074,703
2009 $20,361,072 2015 $31,962,633
2010 $24,893,262 2016 $26,391,528

Source: CTIA’s Wireless Industry Indices Report, Year End 2016 Results (May 2017).

Similarly, a newly released survey of data collected from companies serving 97.9% of all wireless subscribers, shows that wireless capital expenditures (CapEx) decreased significantly in 2016. From 2012 through 2015, wireless CapEX exceeded $30 billion annually.  By contrast, in 2016, CapEx fell to $26.4 billion, a decrease of 17.4 percent. The difference in investment between 2015 ($31.9 billion) and 2016 ($26.4 billion) represents the largest single-year drop in incremental industry capital investment since 2005. While investment had been increasingly steadily between 2009 and 2014, the years since imposition of the Title II Order have shown trends headed – sharply of late – in the opposite direction.

In exploring the challenge of Title II and investment, Hal Singer aptly noted:

“When it comes to net neutrality, the problem with Title II is that it brings too much baggage with little to no upside for consumers or the sector. In addition to non-discrimination (a good thing in this context), common carriage exposes ISPs to rate controls, unbundling obligations, and tariffing (very bad things), which are all antithetical to innovation and improving broadband consumer welfare. Even Tom Wheeler chose to forbear from imposing the most onerous provisions of Title II, an admission that common carriage was not the best fit for regulating the Internet. The obvious solution is for Congress to give the FCC a new source of authority to enforce a non-discrimination standard via case-by-case adjudication. And nothing more.”

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