Tuesday, November 25
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.
Wednesday, November 19
“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.
Tuesday, November 18
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.
Thursday, November 13
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.
Wednesday, November 12
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.
Monday, November 10
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.
Today, the President encouraged the FCC to reclassify and treat broadband Internet access as a “Title II”-regulated public utility, a model designed for rotary telephones. We agree on the need to preserve an Open Internet, but IIA believes the President’s approach creates unnecessary legal and market uncertainty that would jeopardize our world leading Internet-driven investment and innovation, and ultimately inhibit further high-speed broadband deployment to America’s consumers. We can and must preserve the open Internet, but Title II is the wrong approach that would put at risk the nation’s Internet economy that today remains the envy of the world.
Thursday, November 06
Our new white paper, “Bringing the FCC’s Lifeline Program into the 21st Century,” calls for fundamental reform of the Federal Communications Commission’s existing Lifeline Program to provide access and enhanced consumer choice to 21st Century broadband services for the nation’s low-income consumers.
“The FCC’s Lifeline Program is a 20th Century government program aimed at spreading a 19th Century technology, voice service. It’s time to start a new conversation in Washington on how best to provide America’s low-income communities with greater access to 21st Century broadband communications services.”
— former Congressman, and Honorary Chairman of IIA, Rick Boucher
In our report, we highlight how this antiquated, cumbersome and complex program currently perpetuates a market imbalance that obligates only wireline telephone providers to participate and maintain the administrative systems and processes required to operate the program.
We recommend streamlining the program to provide the flexibility necessary to broaden participation among various communications providers to help bring the benefits of competition to low-income consumers — more innovation, better service, lower prices—while also lowering administrative costs. One step toward attaining this goal is to transition the current program toward a voucher model, by providing eligible consumers with a “Lifeline Benefit Card” that empowers them to purchase a range of communications services, including broadband, wireline or wireless voice services.
Today, service providers determine the eligibility of consumers for the Lifeline subsidy. The white paper recommends that, given the economic incentives that service providers have to increase enrollment, eligibility determinations for Lifeline benefits and core program administration oversight should be performed by a governmental agency rather than by communications service providers.
Our report offers the following recommendations on how best to modernize and transition the Lifeline program so that it can help ensure next-generation broadband access for low-income consumers:
1. Bring the Lifeline Program into the 21st Century by making broadband a key part of the program’s rubric;
2. Empower consumers by providing the subsidy directly to eligible people instead of companies;
3. Level the playing field between service providers to broaden consumer choice and stimulate competition for their purchasing power;
4. Safeguard and simplify the program by taking administration away from companies that are not accountable to the American public, instead vesting that governmental responsibility with an appropriate government agency.
“Only five percent of U.S. consumers still rely solely on the antiquated, circuit-switched telephone network for their communications needs. This trend is reflected in the FCC’s Lifeline Program, with 80 percent of its dollars currently going to wireless carriers.
As consumers abandon their wireline telephones for modern broadband services, the Lifeline Program — adopted during the 1980s — should be modernized and upgraded to reflect the realities of the current IP-based world. Expanding the program to focus on broadband, and simplifying its administration to welcome participation by more service providers, will help millions more Americans access modern communications services.”
— former Congressman, and Honorary Chairman of IIA, Rick Boucher
Download “Bringing the FCC’s Lifeline Program into the 21st Century” (PDF)
Tuesday, November 04
Many proponents of “net neutrality” routinely declare the Internet sky is falling. That if the government — specifically, the Federal Communications Commission — doesn’t take far greater control of the Internet, then the very platform itself will all but collapse.
Such scare tactics may rile up Americans, but ironically, it’s the very solution proponents are now pushing that could deal the most devastating blow to the free and open Internet.
Title II reclassification may seem simple — just make the Internet a public utility! — but as a new paper from Anna-Maria Kovacs shows, reclassification would have far greater consequences for the Internet than its supporters let on.
Kovacs’ paper, “Regulations in Financial Translation: Investment Implications of the FCC’s Open Internet Proceeding,” is a dense 27-page read, but don’t let the length — or the dry academic title — deter you from digging in. In the paper, Kovacs takes the temperature of communication investors as the FCC continues to mull over reclassification. And while the majority of investors don’t expect the Commission to use the “nuclear option” of Title II, as it’s commonly known, that doesn’t mean they’re breathing easy. As Kovacs writes (all emphasis mine):
From the perspective of investors, Title II reclassification makes no sense. It does not solve the problem of paid prioritization that the vast majority of net neutrality advocates are demanding the FCC solve, but it carries the risk of enormous collateral damage to both infrastructure and edge providers. It would bring stultifying regulation that would choke the Internet ecosystem that has become on of the primary engines of economic growth for the U.S. and the world. It would encourage other governments to follow suit, endangering the success of American digital service — and application-providers abroad.
This stultifying regulation, Kovacs rightly argues, would be especially brutal to mobile broadband investment, where America leads the rest of the world by leaps and bounds. Kovacs again:
U.S. mobile Internet traffic is expected to grow at a compound annual rate of 50% per year between 2013 and 2018. Keeping up with that traffic will require ongoing capital investments as well as additional spectrum. During 2014-2015, mobile broadband Internet access providers (mobile BIAs) are expected to raise about $57 billion for spectrum purchases, as indicated by the FCC’s reserve price for the 2014 AWS-3 auction and the Greenhill report’s valuation of the broadcast spectrum the FCC hopes to sell in early 2016. That $57 billion is, of course, in addition to the $68 billion in capital investments that mobile BIAs will spend over those two years. Thus, for the FCC’s spectrum auctions to be successful, mobile BIAs will need to raise 84% more funding during 2014-2015 that they do in normal years. With increased price competition and a shrinking revenue base — something the wireline industry has endured for years but that is new to wireless — these companies are facing an increasingly skeptical investment community that will have little tolerance for regulatory shock, on either the fixed or mobile side.
That’s a whole lot of numbers (and acronyms) to digest, but boiled down it means a) Providers need more spectrum; b) Billions will need to be raised to purchase that spectrum; c) Investment dollars could easily dry up in the face of regulatory actions like reclassifying under Title II.
Kovacs goes on in the paper to make the case that the FCC has sufficient authority to ensure the Internet remains open under section 706, which makes it possible for the Commission to create rules specifically for this purpose. While those rules would still face judicial review, they would also keep the FCC (which, remember, is made up of appointed officials) from overreach. In contrast, Kovacs points out, Title II…
...automatically invokes price regulation, resale and interconnection obligations, customer privacy rules, and numerous other obligations, which have been implemented via many thousands of regulations at the FCC and various state commissions.
Thousands of government regulations. Does that sound like a free and open Internet?
But what about forbearance, the provision with mythical powers that Title II proponents point to as a counterpoint to the excessive regulations argument? Well, Kovacs makes plain why the idea of the FCC using forbearance powers doesn’t sit well with investors:
While the FCC is allowed to forbear from some of those obligations if it can justify the forbearance to the courts, investors who have watched the attempts of ILECs to obtain forbearance are all too aware of the difficulties of that process. For example, investors have watched ILECs lose most of their market share yet still be treated by the FCC and state commissioners as if they were dominant carriers for PSTN voice service. As a result, they have little faith that the FCC would apply Title II to BIAs but then forbear from all the regulations that come with that.
Look, when it comes down to it, we all want the Internet to remain open. It’s in the best interest of consumers and providers to keep it that way. But we also need to keep investment dollars flowing into our communications infrastructure. As Kovacs’ paper shows, Title II won’t really do either. Instead, it could have the complete opposite effect. Want the Internet sky to fall? Saddle it with regulations created when Franklin D. Roosevelt was in office.