Last week, in a speech to the American Enterprise Institute, Federal Communications (FCC) Commissioner Ajit Pai said that the agency’s decision to impose utility-style regulation on broadband has slowed infrastructure investment and deployment, referencing recent capex research that showed a 12% decline in capital expenditures by major wireless companies during the first half of 2015.
According to USTelecom analysis for wireline, wireless and cable broadband providers, U.S. broadband providers invested $78 billion in network infrastructure in 2014, which was $14 billion, or 22%, greater than the $64 billion invested just five years ago in 2009. However, these surging investment levels have taken place during a period of light regulation. Now, with the FCC order to require broadband providers to follow Title II rules, numerous economic analyses forecast negative long-term consequences on investment, innovation and other long-term economic benefits.
On Sept 18, 2015, Tara Shields wrote in a TechZone360 blog post:
“The FCC can only be called “embattled” when it comes to the legal storm brewing around Net neutrality. It’s facing lawsuits from several broadband providers, and one of that group’s top industry associations argues that regulation of the world of the Internet will have a chilling effect on investment.”
“This policy shift is particularly unfortunate given that the nation and economy have reaped substantial benefits from broadband investment over the last couple of decades,” said Patrick Brogan, vice president of industry analysis at USTelecom, the industry association, in a blog. He added, “The recent FCC decision to reverse course and regulate broadband as a Title II utility risks dampening broadband investment, thereby slowing the pace of innovation over the long term. As USTelecom has written, the rules dampen expectations of long-term revenue growth, increase compliance costs, and increase the risk-adjusted cost of capital.”
Brogan added, “The U.S. approach to date has emphasized light regulation and investment in competing facilities rather than resale, leading to more facilities-based competition than most of the rest of the world.”
Continued wireline industry investment will be essential to network modernization and international competitiveness of course, to support demand for cloud computing and data centers, telework, video and audio streaming, video calling and conferencing, data analytics and other services based on the growing Internet of Things. Meanwhile, nearly all mobile broadband traffic depends on fixed network backhaul or offload onto Wi-Fi-enabled fixed networks. Thus, wireline providers are among the critical contributors to our nation’s innovative capacity.
FCC regulation threatens that, according to USTelecom and its members.
“While it is hard to isolate the impact of regulation among all relevant factors, and it takes time for a major regulatory shift to reveal the full extent of its market impact, at least one independent financial analysis predicts a 4.5 percent decline in wireline and wireless telecommunications services capital investment in 2015, excluding cable,” Brogan warned.