Changing How the Internet Is Regulated Probably Won't Kill It

One of the main arguments against reclassifying broadband as a telecommunications service is that companies facing stronger regulations will stop making capital investments in broadband. After President Obama said he supported Title II reclassification as the basis for net neutrality rules on Monday, the telecommunications industry issued a round of dire warnings to that effect.

But when asked to provide evidence backing up those claims, Comcast said that it couldn’t because cable networks have never been regulated under Title II. Verizon declined to discuss the matter, saying that there is no data. Scott Belcher, the chief executive officer of the Telecommunications Industry Association, issued a statement saying that “we saw a significant negative impact on investment the last time restrictive Title II regulation was in place, and no one will benefit from returning to that failed policy.” When a representative for the organization was asked to provide the numbers behind this claim, she sent a 2010 report forecasting lower infrastructure development if the Federal Communications Commission were to reclassify broadband under Title II at that time. (The commission decided against using Title II in its 2010 rules.)

So while it’s clear that Title II legal reclassification will trigger all kinds of political and legal challenges, it’s less clear that it will cause big changes to the economics of the Internet. Opponents of the change say it would give the FCC too much power to do such things as regulate prices and content companies like Netflix, but the FCC has not shown any appetite for doing so. Instead, the new rules could pretty much maintain the status quo—which has worked out well for companies such as Verizon ($54 billion in profit from 2010 to 2013), AT&T ($50 billion over that period), and Comcast ($24 billion.)

“The natural monopoly economics are there,” says Derek Turner, research director of Free Press, a nonpartisan group in Washington that supports net neutrality. “These companies have a guaranteed captured market and a natural rate of return.” In a filing to the FCC, Turner points to data showing that the telecommunications industry has invested in infrastructure in the past during periods where it was subject to Title II regulation. From 1998 to 2006, Title II applied to DSL, the version of Internet that travels over telephone networks. Those years saw a spike in investment, as the chart below shows.

There is probably a lot of correlation mixed in with the causation here. The telecoms invested heavily when the economy was good and not as much once it soured. But regulation provides benefits to infrastructure companies, as well as restrictions. Title II telecommunications services, for instance, have access to public rights of way. Such powers can come in handy: In May, New Networks, a research firm critical of the telecommunications industry, published a report showing regulatory filings in which Verizon had argued to New York regulators that the infrastructure for its broadband network should be treated as a telecommunications service. (The Verge issued a thorough write-up of the report.)

“When we’re talking about New York, Verizon is talking out of both sides of its mouth,” says Bruce Kushnick of New Networks. Verizon has drawn the distinction between services that run on the network and the network itself. But advocates of Title II say it reinforces the point that such regulation hasn’t led to disasters in the past.

Those who want to reclassify broadband under Title II argue that it is the only legal way to put regulations in place and that the 2010 rules were thrown out because they used the wrong part of the law. The capital investment argument is a red herring, and the cable and telecom industry don’t point to data because they can’t back up their long-running claims, says Turner. “It’s just ignorant to assume that the word ‘regulation’ always has an impact one way or another on capital investment,” he says.

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