August 12, 2010
As a function of tracking the consumer communications services market, Stratecast pays close attention to market externalities. In particular, over the last year we have looked at the impact that government regulation is having on the deployment of broadband networks and services in the consumer space. Starting with a study in July 2009 on net neutrality and broadband stimulus, we began examining the impact of governmental stimulus programs on the broadband market. We continued that theme in a more recent study on net neutrality.
Initially, our modeling indicated that the broadband stimulus efforts contained a great deal of uncertainty. In fact, the outcome was sufficiently cloudy that we noted that broadband stimulus funding was largely irrelevant to broadband penetration when combined with net neutrality regulations. We noted then, that within confidence margins, it was possible to conclude that broadband stimulus funding was merely offsetting the cost of net neutrality. Our projections of broadband penetration without such externalities showed an equivalent outcome over time.
Our more recent work concentrated on the various market constituents—operators, service providers, the economy generally and consumers—to determine the impact of net neutrality rules on each. Once again, we noted that the results, although uncertain, generally pointed in the direction of negative impacts. Once again, those negative impacts were sufficient to offset any virtue accruing from broadband stimulus.
In the meantime, the FCC was reconsidering its position with respect to broadband. When the U.S. District Court for Washington D.C. concluded that the agency had acted inappropriately in its actions to censure Comcast over net neutrality violations, it effectively placed in doubt any government regulation of the broadband service space. Rather than debate the ruling, the FCC instead proceeded to propose conventional common carriage regulation of broadband. Although designed for the monopoly telephone environment of 1934, the FCC indicated it was willing to adopt that regulatory framework for data networking, with the option to forebear on any regulations that didn’t match the new networking environment. As expected, this approach pleased no one. The issue is still proceeding within the FCC, with a possible rule making as early as autumn 2010.
Of course, regardless of the outcome, the operators and public policy groups will likely continue to pursue this issue through the courts. In the meantime, the actual scope and impact of any new regulation remains largely unknown. As we noted in our most recent study, it is this uncertainty that is anathema to new broadband investment.
However, as all of this has been debated and litigated, the stimulus program has been proceeding as well. At this point in time, 68 applications for stimulus funding have been approved. The question is, has broadband penetration increased as a result?
Unfortunately, the answer seems to be no. Although recent activities by network operators suggest that some additional build out is taking place, Frost & Sullivan tracking data does not indicate a substantial increase in access. In fact, the current rate of broadband growth is slowing.
The implication is clear: stimulus, in the absence of market certainty of governmental influence, is not having a significant impact on broadband penetration. Public policy should note this and move to reduce the uncertainty faced by the market as soon as possible.