FCC Chairman Ajit Pai blamed net neutrality rules for a drop in broadband investment from telecom carriers. What really happened?
A big reason current net neutrality rules need to get the boot, says the head of the Federal Communications Commission, is that they’re curbing broadband investment in low-income neighborhoods — cutting off important information and services 21st-century citizens access via high-speed Internet.
But were these 2015 rules, which aimed to prevent companies that bring Internet into homes from favoring their own content over others, really the culprit?
A review of broadband investment over the past two years paints a more complicated picture. One study of the largest carriers, the basis for the FCC’s claim, does show investment fell over the two-year period the rules were in effect.
But that was largely due to AT&T. It’s blamed the Open Internet rules for decreased broadband investment. Analysts point out, however, that like other large carriers it was engaged in a competitive shift that likely played a role — two mammoth acquisitions including the $85.4 billion deal for Time Warner. At the same time, Comcast — another big spender of broadband investment — increased its outlays by double digits.
“You are going to hear a lot of posturing when it comes to the attempts to stifle some of those regulations, ” said Tuna Amobi, an equity analyst at CFRA Research who tracks companies such as Comcast and Charter Communications (which want the rules repealed) and Netflix (which supports them) .
“What we saw ultimately was that, frankly, it was more or less a lot of noise, ” Amobi said. The market is simply too competitive not to invest, he says. “No one wants to be left behind.”
Disagreement over what actually happened since the rules were passed means both sides have ample debate points as they enter into a fight over the rules’ repeal, which could happen by year end.
FCC Chairman Ajit Pai argues that the rules, which rely on utility-style authority based on Title II of The Communications Act of 1934, overburden Internet service providers (ISPs) and kept them from investing in low-income rural and urban areas. Democrats say that didn’t happen. And they consider the current regulations as critical to protecting consumers from net providers blocking or slowing some content, while possibly favoring their own.
Public comment for the rules has already begun. The last time the public was invited to voice their views on net neutrality, the FCC received nearly 4 million comments. And these extenuating factors also mean that if the rules are repealed, it’s questionable whether increased broadband investment will necessarily follow.
“The idea that there’s a nuclear winter in broadband, or even just in rural broadband, because of the Title II classification just doesn’ t make sense, ” said Kevin Werbach, an associate professor of legal studies and business ethics at The Wharton School at the University of Pennsylvania.
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The FCC began its rule-making process in 2014 and rules were approved in 2015 under the helm of Chairman Tom Wheeler, a Democrat. According to the study that’s the basis for the FCC chairman’s claim, U. S. broadband capital investment by the major providers dropped 5.6% by 2016 from 2014.
Net neutrality regulations may not have necessarily caused lower spending, but the timing suggests some correlation, says George Washington Institute of Public Policy senior fellow Hal Singer, who compiled and analyzed the data, factoring out other investments, using the companies’ securities filings.
A similar survey by USTelecom, a trade association that and counts among its members AT&T, Verizon, CenturyLink and Frontier, found that broadband capital expenditures declined nearly $1 billion in 2015 to $76 billion, the first decline since 2009.
“Something happened in 2015, I would call it an inflection point, where (spending) had been growing in the field and stopped, ” Singer said told USA TODAY.
Another possible factor: newer broadband networks may not require as much capital expenditure, he says.
And while some ISPs slashed spending, others spent hard.
Third-biggest spender Comcast’s broadband capital investment increased by 19%, and Charter Communication’s rose 40%, though to a much lower level.
These were offset by a decline at AT&T, which spent 16% less on broadband investment during the period but was still the biggest spender. No. 2 spender Verizon had a slight decline (0.8%) in broadband investment over the 2014-2016 period. And No 4. spender Sprint’s investments dove an estimated 63%.
“At the end of the day, it’s hard to say if Title II had an impact on these bellwether names of if the decline mentioned was more of a reaction to the strategy that each of these companies had, ” says Angelo Zino, equity analyst with CFRA Research who tracks companies such as AT&T and Verizon
Among the big changes going on at the time: AT&T completed its $48.5 billion acquisition of DirecTV in July 2015 and, in October 2016, bid for Time Warner, a deal that is currently being reviewed by regulators. During that time, AT&T’s broadband spending declined $3.4 billion to $17.8 billion in 2016.
Also, Verizon sold a portion of its FiOS network for $10.5 billion to Frontier Communications. Thus, Verizon had a smaller broadband network to invest in. Its overall capital investments for those three years were relatively consistent, at just over $17 billion.
Craig Moffett, partner and senior analyst at research firm MoffettNathanson, says that “it’s impossible to tell” whether the Open Internet rules have affected investment. “There’s no way to provide a serious answer that rises above simply trying to reverse engineer the answer you want to find, ” he said.
The ISPs say it’s crystal clear, however — the regulations went up, and spending went down.
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When Title II, the really stringent rules on Net neutrality were imposed by the prior FCC, you saw investment decrease and the numbers are indisputable, ” AT&T CEO Randall Stephenson on CNBC Thursday.
Other ISPs including Comcast have mentioned in financial filings that the net neutrality rules were among regulations could have an effect on their businesses.
Several smaller ISPs have told the FCC they have put off expanding services and a group of 22 providers said they have found it hard to get financing because of the regulations, Pai said last week. The current rules, he said, are “widening the digital divide in our country and accentuating the practice of digital redlining—of fencing off lower-income neighborhoods on the map and saying, ‘It’s not worth the time and money to deploy there’.”
But FCC Commissioner Mignon Clyburn, a Democrat who voted to pass the 2015 rules, noted there are 700 small, rural broadband providers operating among the net economy of startups and innovators “that have banked on an open, permission-less platform that has netted countless benefits for us all.
