In a letter to Members of Congress and the FCC, 60 companies — including IBM, Cisco, Intel, and others — have warned that reclassifying broadband under Title II will reduce investment and threaten the very health of the thriving Internet ecosystem. An excerpt:
Reversing course now by shifting to Title II means that instead of billions of broadband investment driving other sectors of the economy forward, any reduction in this spending will stifle growth across the entire economy.
This is not idle speculation or fear mongering. And as some have already warned, Title II is going to lead to a slowdown, if not a hold, in broadband build out, because if you don’t know that you can recover on your investment, you won’t make it. One study estimates that capital investment by certain broadband providers could be between $28.1 and $45.4 billion lower than expected over the next five years if wireline broadband reclassification occurs. If even half of the ISPs decide to pull back investment to this degree, the impact on the tech equipment sector will be immediate and severe, and the impact would be even greater if wireless broadband is reclassified.
The investment shortfall would then flow downstream, landing first and squarely on technology companies like ours, and then working its way through the economy overall. Just a few years removed from the worst recession in memory, that’s a risk no policymaker should accept, let alone promote.
You can read the letter, submitted by the Telecommunications Industry Association, here.
As with most heated debates, the current net neutrality kerfuffle has been heavy on rhetoric and light on facts.
Sure, those of us who believe the Internet has thrived — and will continue to thrive — without the heavy mitts of regulation point to study after study after article (most recently from the Progressive Policy Institute, of all places) warning that Title II reclassification would do much more harm than good for the open Internet, but facts and research aren’t nearly as effective as facetious cries about a “two-tiered Internet!” and “They are coming for your Netflix!”
That being said, since I’m a glutton for punishment I’m going to highlight yet another article, this one penned by economist (and IIA friend) Bret Swanson for the Wall Street Journal.
Swanson’s piece has a blunt title — “The U.S. Leads the World in Broadband” — and rather than shouting about the Internet sky falling, he crunches some numbers to show that… well, just what the title says.
From his piece (which is behind a paywall):
Mr. Obama recently called on the FCC to impose “the strongest possible rules” on Internet service providers to make sure they don’t “limit your access to a website” or “decide which online stores you should shop at or which streaming services you can use.”
Neither of these rationales for regulatory intervention is true, however, and there’s a simple way to show it. An international comparison of Internet traffic can tell us about the quality of broadband networks and the vibrancy and openness of content markets. Traffic represents all the bits flowing over our networks—email, websites, texts, chats, photos, digital books and movies, video clips, social feeds, searches, transactions, cloud interactions, phone and video calls, interactive maps and apps, software downloads, and much more.
And just what did the numbers tell Swanson?
What I found was that at 18.6 exabytes (18.6 billion gigabytes) a month, the U.S. generates far more traffic per capita and per Internet user than any other major nation save South Korea, which is a vertical metropolis and thus easy to wire with fiber optics. U.S. traffic per capita is 2.1 times that of Japan and 2.7 times that of Western Europe. Several years ago, U.S. and Canadian traffic measures were similar, but today the U.S. has raced ahead by 25%.
The U.S. lead is similar in traffic per Internet user, which tends to reflect how intensely people use broadband and mobile connections. The U.S. outdoes its closest European rival, the U.K., by 57%. The U.S. outdoes all of Western Europe—the best comparison in terms of geography, population and economic development—by a factor of 2.5.
All due respect to my friends and colleagues on the other side of the Title II debate, but does that look like the U.S. broadband market is hurting? Is the Internet really in need of saving by the unelected officials at the FCC?
Perhaps the most exacerbating thing about the Title II argument is the fact that both sides want essentially the same thing — for the Internet to stay open and thriving. What we disagree on is which tool, if any, the FCC should use.
Given the very real threats of reduced private investment in, and increased prices for, broadband that Title II could usher in, the choice should be simple. As Swanson writes:
The U.S., with 4% of the world’s population, has 10% of its Internet users, 25% of its broadband investment and 32% of its consumer Internet traffic. The U.S. policy of Internet freedom has worked. Why does Washington want to intervene in a thriving market?
As the FCC continues to mull its path toward ensuring net neutrality, none other than the Progressive Policy Institute has published new research highlighting just how much damage Title II reclassification could mean for consumers. An excerpt:
Self-styled consumer advocates are pressuring federal regulators to “reclassify” access to the Internet as a public utility. If they get their way, U.S. consumers will have to dig deeper into their pockets to pay for both residential fixed and wireless broadband services.
How deep? We have calculated that the average annual increase in state and local fees levied on U.S. wireline and wireless broadband subscribers will be $67 and $72, respectively. And the annual increase in federal fees per household will be roughly $17. When you add it all up, reclassification could add a whopping $17 billion in new user fees on top of the planned $1.5 billion extra to fund the E-Rate program. The higher fees would come on top of the adverse impact on consumers of less investment and slower innovation that would result from reclassification.
We can all agree that the Internet must continue to be open, but as the Title II debate shows, not everyone seems to understand just what reclassifying Internet service would mean. Hopefully, research from the likes of the Progressive Policy Institute will help bring everyone up to speed. You can check out their full report here.
Bret Swanson of Entropy Economics (and one of our Broadband Ambassadors) has put together a new study for the American Enterprise Institute showing that despite claims from those who wish for the government to heavily regulate broadband providers, the U.S. broadband market is actually quite healthy. The full study is definitely worth digging into, but below are some of Swanson’s key points:
• Internet traffic volume is an important indicator of broadband health, as it encapsulates and distills the most important broadband factors, such as access, coverage, speed, price, and content availability.
• US Internet traffic is two to three times higher than that of most advanced nations, and the United States generates more Internet traffic per capita and per Internet user than any major nation except for South Korea.
• The US model of broadband investment and innovation—which operates in an environment that is largely free from government interference—has been a dramatic success.
• Overturning this successful policy by imposing heavy regulation on the Internet puts one of America’s most vital industries at risk.
You can read Swanson’s full report, titled “Internet traffic as a basic measure of broadband health,” over at the American Enterprise Institute.
“The Impact of Title II Regulation of Internet Providers On Their Capital Investments” is a 22-page study penned by economists Kevin A. Hassett and Robert J. Shapiro. It was submitted to the FCC as part of an ex part by the US Telecom Association. If you care about the future of the Internet, you need to add it to your reading list.
For the study, Hassett and Shapiro approached the question of Title II reclassification armed with numbers. Specifically, an alarming drop in projected private investment should the FCC choose to reclassify. As the economists write:
If the status quo continues, with data services unencumbered by Title II regulation, the several ISPs in our sample are expected to spend approximately $218.8 billion in new capital investments over the next five years in their wirelines and wireless networks. In contrast, under Title II regulation of all wireline data services, these ISPs’ wirelines and wireless capital investments over the next five years would drop an estimated range of $173.4 billion to $190.7 billion. Title II regulation of ISPs thus reduces these companies’ total investments by $28.1 billion to $45.4 billion (between 12.8 percent and 20.8 percent) over the next five years. Wireline investment by these firms would be 17.8 percent to 31.7 percent lower than expected.
That’s a lot of numbers with the word billion attached, but the main focus should really be on the percentages. You don’t have to be an economist to realize that a reduction of total investment dollars of 12.8 percent to 20.8 percent (and wireline investment dollars of 17.8 percent to 31.7 percent) would have a profound effect on America’s communications infrastructure. And by profound, I mean decidedly negative — not just for network expansion and upgrades, but for innovation across the Internet board.
The blow to innovation, Hassett and Shapiro argue, would be particularly hard on wireless networks. Again, from the study:
[T]he network managements practices which Title II regulation would potentially bar enable wireless investment and innovation, because wireless networks face serious capacity constraints. Thus, regulations that discourage or bar those practices raise the risk of introducing new products and applications: Without those practices, carriers would be less able to manage unpredictable changes in network demand associated with their introduction, and so maintain the quality of network services for all of its users.
In other words, the next big app or service could cripple wireless networks, and under Title II, providers would be hamstrung by regulations to solve the problem in a timely manner. Want to launch an innovative new streaming video app? Good luck gaining users when your app meets a road block of network congestion.
Too often the debate surrounding net neutrality is one of extremes, and I freely admit the above scenario falls within that category. But also too often, the economic realities of building, upgrading, and maintaining networks are either ignored or downplayed. Net neutrality doesn’t have to be an emotional issue; we all benefit from the Internet continuing to be open. The question is, how best do we ensure that happens while at the same time encouraging the investment necessary to keep networks growing. As Hassett and Shapiro’s study makes clear, the numbers show Title II would do more damage than good.
Speaking of op-eds, our Co-Chairman Larry Irving — who served on the Clinton Administration’s technology teams — also had a piece published today. In it, he argues heavy-handed regulations could stifle the next big thing in broadband — gigabit networks:
This week, President Obama asked the FCC to reclassify consumer-based Internet service as a Title II service under the 1934 Communications Act, essentially equating to heavy regulation of broadband. As the Federal Communications Commission weighs options during its Open Internet proceeding, the question remains whether today’s policy makers will be successful in maintaining a regulatory and investment climate that will promote continued investment in and innovation of new broadband networks.
My hope is that the public officials in charge of this stage of Internet growth approach their roles with as much regulatory humility as we did, aiming to steer, not row, and remembering what Secretary Brown understood: Innovation is not inevitable. The regulatory choices they make will propel or forestall innovation.
Read Irving’s full op-ed over at MarketWatch.
Our Honorary Chairman Rick Boucher has an op-ed in The Hill on how outdated regulations are limiting competition when it comes to broadband. An excerpt:
Consumers are fleeing the old network in droves. Only 5 percent use it exclusively, and another 28 percent use it in combination with a wireless service. Two-thirds of communications users have left the old network entirely. Every dollar telcos are required to spend on a network consumers are abandoning is a dollar not spent on deploying the modern networks that consumers prefer. Viewed in this light, the USTA plea for relief is entirely understandable — and it’s entirely justified.
FCC Chairman Tom Wheeler has said he wants more “meaningful competition” in high-speed broadband, particularly between telecom companies and cable providers. As Wheeler put it, these new broadband entrants are “well-positioned to give cable a run for its money, offering consumers greater choice.” This is exactly how it should work.
Check out Boucher’s full op-ed over at The Hill.
Over at Bloomberg Law, our Co-Chairman Larry Irving and Honorary Chairman Rick Boucher have penned an op-ed on why the FCC should focus on Section 706 rather than Title II when it comes to net neutrality. An excerpt:
Everyone agrees that broadband providers should not become content gatekeepers. That’s been clear since 2010 when the FCC initiated its inquiry into how best to maintain an open Internet. Moreover, the facts make clear that the underlying success of the Internet in the two decades since its commercialization has been based on light-touch federal regulation and private sector, commercially-negotiated arrangements among service providers that have led to very few real complaints about supposed “gatekeepers.”
Under section 706, the FCC could prohibit so-called “paid prioritization” anytime such a practice has the effect of slowing down content or degrading the quality of service that any broadband customer receives, and which represent the alleged potential harms that lie at the core of the concerns expressed by activists urging Title II reclassification.
This fall’s intense debate is not about whether to preserve an open Internet. It’s about which of two available approaches the FCC could use is best.
Check out the full op-ed over at Bloomberg Law.
In an op-ed for the San Jose Mercury News, our Co-Chairman Larry Irving argues that when protecting net neutrality, the first job of the FCC is to ensure they do no harm. An excerpt:
The Title II path presents several potential harms. First, and most dangerous, is the harm to innovation. A light-touch regulatory environment has advanced ideas birthed in the valley. Introducing outmoded regulations on entrepreneurial business models in the tech sector could hurt the pace at which we’re seeing new start-ups, technologies, and products emerge.
A system of having to ask “Mother, may I?” of government would naturally introduce a chilling effect, as companies of all sizes would start wondering whether they or their product would be regulated. Would their products have to change to comply with regulation? Or would it be better to not introduce products to avoid regulation?
Check out Irving’s full op-ed over the San Jose Mercury News.
The President got this one wrong. Since the dawn of commercial Internet access during the Clinton Administration, light-touch regulation has guided its development and explosive growth. It has helped encourage continuous innovation, spur massive investment, and provide consumers with new services and applications in a competitive digital marketplace. The choice is clear: we can stay the course and promote 21st century technologies or turn back the clock and return to a 20th century, Title II-regulated utility model at the expense of the American consumer.