In the loud echoing outcry for net neutrality regulation over the years, there has always remained some voice of reason even if it was a low murmur. That voice has remained constant and consistent in its concerns regarding the infrastructure market. As the drum beats have grown louder in the recent months for regulation, examples of concerns over stifled investment in broadband infrastructure have increased:
Dr. Coleman Bazelon, The Brattle Group:
“Revenue growth in the broadband sector could slow by about one-sixth over the next decade; Broadband sector jobs lost could be expected to total 14,217 in 2011, growing to 342,065 jobs by 2020; Economy-wide, 65,404 jobs could be put in jeopardy in 2011 due to reduced revenue growth in the broadband sector.
“The possibility that such losses would be offset by gains in other parts of the Internet economy is remote. Notably, any dollar-for-dollar transfer of revenues from the broadband sector to the Internet content sector would be a net job loser because it takes significantly more spending on Internet content to create a U.S. job than it does to create one in the broadband sector.”
Dr. Mike Jude, Frost & Sullivan:
“To the extent that consumers were unwilling or unable to incur such costs, net neutrality could, ironically, have the effect of actually reducing broadband penetration.
“Net neutrality acts like a tax on the Internet. It imposes overheads on network operators, which, in turn, decrease network investments, providing less opportunity, not only for the operators, but also for those that use the operators’ networks as well.”
Considering that the Information Technology and Innovation Foundation project reported that for every $5 billion invested in broadband that 250,000 jobs are created (“100,000 direct and indirect jobs from telecom and IT equipment spending plus another 150,000 in “network effects” spurring new online applications and services.”), one can assume that investment in this area of the market is extremely significant; especially in the current economy and with record unemployment in many states across the country. Doing anything to upset that balance could have snowball type effects. But not to worry, Free Press has assured us that investment will be safe. The thing about fantasies though, is that, well, they’ll usually just that.
The reaction of the market to the FCC’s announcement that the commission had decided to push forward with Title II classification of broadband was strangely different than what Free Press had predicted. At current, the announcement has caused a significant negative impact on share prices. At the time of writing this article, Comcast (CMCS) was down over 6 percent, Time Warner Cable’s (TWC) stocks fell more than 8 percent, and Mediacom (MCCC) had dropped over 10 percent. S&P analyst Tuna Amobi commented that, “[The regulation angle] creates potential long-term negative investment (and competitive) implications for major cable broadband providers.” Sanford C. Bernstein analyst Craig Moffett reported, “Markets abhor uncertainty. Today we got uncertainty in spades…this development is an unequivocal negative … most significantly for the cable operators and Verizon.” The Journal’s Jennifer Valentino-DeVries went on to say that, “A big worry for investors is whether pricing regulations will limit the carriers’ ability to recoup the costs of building their networks. Even uncertainty over the regulations could affect companies’ decisions to spend, as investments in broadband lines take years to pay back.”
That is the point that hits the nail on the head. The predictions on net neutrality’s negative impact on investment have been made for months. And the warnings are now coming home to roost as realities. The question now is will the FCC take notice to the reaction of the market and bare that concern in their planning moving forward? Or is this simply another iron fist move to be made without care or concern for the consequences that fall in its wake?
Nick R. Brown is a technology policy analyst, and has spent time with The Heritage Foundation, Competitive Enterprise Institute, and has been a Google Fellow. He currently works with Digital Society.