Net Neutrality Rules

Net neutrality rules: Separating fact from fiction

Did 4 million people really support the new rules? And will the regulations deter investment?

net neutrality

Net Neutrality Rules

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The net neutrality debate in the U.S. over the past year has been filled with hyperbole, speculation and questionable claims, coming from both sides of the debate.

Let's look at some of the hype and compare it to what we know from the U.S. Federal Communication Commission's net neutrality order, released last week, and from other information.

Four million people in favor of the rules

There seems to be a misconception, driven as much by media coverage as actual statements by net neutrality advocates, that nearly all of the 4 million comments filed with the FCC in the proceeding were in favor of strong net neutrality rules. There's some debate over analysis done on the final numbers, but we do know that a substantial number of comments came from people opposed to new rules.

FCC Chairman Tom Wheeler told lawmakers this week that there were about three comments in favor of the FCC passing rules for every comment opposed. Based on other information available, that seems about right.

Conservative group American Commitment collected more than 800,000 signatures on a petition opposing the FCC's reclassification of broadband as a regulated telecom service, and it submitted those signatures to the agency.

It's also important to note that many of the comments calling for strong net neutrality rules didn't specifically advocate for the FCC to reclassify broadband as a regulated telecom service, as it ultimately did.

Few net neutrality advocates have claimed that nearly everyone who commented supported new rules. But one net neutrality advocate who seemed to imply this was Rep. Anna Eshoo. The California Democrat suggested on Thursday that the FCC "actually considered the advice of over 4 million Americans."

It may be true that the FCC considered that advice, but it actually took the advice of only about 3 million people.

New regulations will deter broadband investment

One of the most compelling arguments against strong net neutrality regulations is that they will deter investment and expansion of broadband networks. Large broadband providers like AT&T and Verizon have made this argument -- although Verizon's CFO recently had to backtrack when he departed from the approved script -- but other providers, including Sprint, T-Mobile and Google have said the commission's action will have no effect on their deployment plans.

Several groups have sponsored studies trying to predict broadband investment, but many of the studies looked at a piece of the puzzle and failed to consider a number of other factors. For example, one recent study compared broadband investment rates in Europe, where there has been heavier regulation in recent years, to investment in the U.S. The study concludes that investment has been significantly higher in the U.S. in recent years, but it appears to discount any potential causes other than regulation, including the overall health of the European economy.

Readers should be careful not to give too much weight to studies trying to predict the future impact of U.S. policy, given that no economist can anticipate every possible factor that will affect an industry.

Other groups tried to look at the broadband stock market as a indicator of future broadband investment, but stock prices have been all over the map in response to FCC actions on net neutrality in recent years. As of Thursday afternoon, stock prices at Comcast and AT&T were down slightly since the FCC voted for net neutrality rules on Feb. 26, while stocks for Verizon and Time Warner cable were up by small amounts.

For large broadband providers, stock prices may not be a direct indicator of the ability to spend money, although it's possible that a falling stock price may discourage some company initiatives.

AT&T, for example, has plenty of money in the bank. The company reported that it held cash and cash equivalents totalling $8.6 billion at the end of 2014, with another $14.5 billion in accounts receivable. The company averaged about $5 billion in capital expenditures per quarter in 2014.

It's also worth noting that the major drivers of growth for AT&T and Verizon in many recent quarters have been mobile data and wired broadband service. It's hard to imagine those two companies significantly pulling back investments in the two areas of their businesses that are driving profits.

Net neutrality supporters also note that the FCC's AWS spectrum auction, ending in January with the threat of new net neutrality rules on the horizon, generated a record $44.9 billion in bids from mobile carriers.

Still, it's possible that the new rules will make it more difficult for smaller broadband providers to raise investments. That's probably the section of the industry to keep an eye on, if the net neutrality rules survive a court challenge. Some small broadband providers told the FCC that the new rules shouldn't have a major impact, others said the rules would.

While there's debate about the impact on broadband investment, supporters of net neutrality argue that the new rules actually encourage investment in Web-based companies because the rules protect their access to customers. Internet-specific firms received nearly a quarter of the $48.3 billion venture capital dollars invested in 2014, according to the National Venture Capital Association.

So will the new rules deter investment? In most cases, that seems unlikely. If large broadband providers reduce their investments, it may be more by choice, or as a protest, than a direct result of the new regulations.

The new rules will lead to new broadband taxes

We've covered this issue before, but opponents of the new rules keep bringing up scenarios that could lead to new taxes or fees. Those scenarios are speculative, but there are limited examples where it's possible, if not exactly likely, for the new rules to lead to new taxes or fees.

One study that keeps surfacing is from the Progressive Policy Institute, which suggested that reclassification will expose broadband to $15 billion in new taxes a year. That number appears to be significantly inflated.

The think tank based its numbers on two major factors: the FCC's Universal Service Fund and new state telecom-style taxes.

The FCC's new rules do not require broadband providers to contribute to USF, a 16 percent fee on traditional telephone service that helps subsidize telecom service in rural areas and at schools and libraries. The FCC is looking, in a separate proceeding, at whether broadband providers should contribute to USF, so subscribers may end up paying some new fees eventually, but that decision is not directly related to the reclassification of broadband.

The reclassification of broadband may prompt some states to look into imposing broadband taxes, but a U.S. law, called the Internet Tax Freedom Act, prohibits state taxes on broadband access. Still, some states levy other taxes, like higher property taxes, for telecom carriers, and they may attempt to apply those taxes to broadband under the new rules.

In a handful of states, it's possible that broadband customers will see a new tax on their bills.

Copyright © 2015 IDG Communications, Inc.

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