Special Reports

This study addresses some unexplored investment and job impact implications of new Net Neutrality regulations recently proposed by the Federal Communications Commission. The rationale for doing so has consistently been cast in terms of maintaining open networks, preserving end-to-end principles, ensuring neutrality, and other equally vague and essentially irrebuttable objectives. In context of a weak economy and bleak jobs outlook, the widely recognized, but limited, ability of monetary and fiscal policies to create jobs, and the increasing economic and political costs of citizens without jobs, this study suggests a third path – regulatory forbearance toward broadband networks – as a means of stimulating investment and job creation. The study concludes:

– By eliminating business options successfully practiced by proponents of more regulation, the Commission’s proposals would dramatically increase market risk, lower expected growth, suppress network investment, and dampen opportunities for network providers to maintain and create jobs.

– The proposed change from Ex Post to Ex Ante regulation would create lengthy regulatory delays and increase regulatory risk for investors, while dampening prospects for new job creation in the Internet sector and in others it supports.

– These and other threats to investment incentives and job creation opportunities are out of line with both the emerging national broadband policy and the growing imperative to create more good, permanent jobs.

– Historical data suggest that for every $1 billion in revenue, “core” network companies provided 2,329 jobs, while non-network “edge” companies provided 1,199 (about half as many). This indicates that Net Neutrality rules that reduce revenues and growth for network companies, and transfer benefits (revenue or growth prospects) to non-network companies, are a barrier to job creation.

– In short, these regulations will shift risk, returns, growth and opportunity away from “core” network providers and in favor of “edge” applications and content providers. SEC data show that, historically, “core” companies earn at lower rates, invest more and create more jobs per dollar of value received in the market than do “edge” companies. Regulation that shifts value away from network providers to non-network providers will reduce investment in network infrastructure and citizen access to broadband while dampening creation and preservation of jobs. This conflicts with consensus requirements of a National Broadband Policy and with our macroeconomic policy goals.
In support of these conclusions, the study sets out financial and economic principles linking Net Neutrality style regulations, investment and jobs; it presents data (filed by firms with the Securities and Exchange Commission) depicting the record of broadband network providers and selected applications providers; and it projects those relationships into the future as guides to the potential responses of firms in the Internet Ecosystem to Net Neutrality type regulatory interventions.