Study disputes claim net neutrality hurts investment

A paper by Free Press suggests that broadband spending will continue if the FCC makes new rules

A new study, by net neutrality supporter Free Press, disputes the often-repeated criticism that new rules will hurt broadband investment by pointing to investments made by AT&T when the telecom giant was subject to similar regulations.

AT&T, as part of conditions it agreed to in its late-2006 merger with BellSouth, agreed to net neutrality rules for two years, and the telecom's investments increased significantly during that time period, the Free Press study said. AT&T's gross capital investment increased by nearly US$1.9 billion from 2006 to 2008, the largest increase among U.S. telecoms, Free Press said in the study, released Wednesday.

The percentage of capital investments to revenue at large telecom carriers has actually fallen since the FCC relaxed network-sharing regulations in 2005, Free Press said.

"The rhetoric about network neutrality discouraging investment is just a general reflection of the common but misguided belief that any and all regulation discourages investment," the study said. "According to this theory, regulation will perpetuate uncertainty and will reduce potential return on investment, thereby reducing the incentive to invest. But all regulation is not created equal."

Some regulation is heavy-handed, but other rules can be lighter, "providing basic rules of the road that ensure healthier competition in an otherwise concentrated market," the study said.

The study was released a day before the U.S. Federal Communications Commission is scheduled to decide whether to take a first step toward creating new net neutrality rules prohibiting broadband providers from selectively blocking or slowing some Web content and applications.

One of the main arguments against new net neutrality rules is the fear that new regulations would discourage investment in broadband networks. In the past week, about 90 U.S. lawmakers and several minority groups have questioned the need for net neutrality rules based on concerns about continued investment.

Some minority groups and African-American lawmakers, in particular, raised concerns that net neutrality rules would mean that broadband providers like AT&T would back away from new deployments in urban and other underserved areas.

In a letter to AT&T employees this week, Jim Cicconi, AT&T's senior executive vice president of external and legislative affairs, suggested that new net neutrality rules would "halt private investment in broadband infrastructure."

Verizon Communications Chairman and CEO Ivan Seidenberg, in a Thursday speech at the Supercomm trade show in Chicago, repeated those concerns.

"More broadly, if we can’t earn a return on the investments we make in broadband capacity, our progress toward a connected world will be delayed, if not halted altogether," he said, according to a text of the speech. "If this burdensome regime of net regulation is imposed on all parts of the Internet industry, it will inject an extraordinary amount of bureaucratic oversight into the economy’s main growth engine for the future."

The FCC doesn't need to create new rules, because a set of informal net neutrality principles it adopted in 2005 are working, an AT&T spokeswoman said.

The study "does validate what we've been saying all along -- the open Internet framework in place today at the FCC is working and supports an environment where investment can still occur and jobs can still be created," she added. "Special interest groups, like Free Press, are providing cover to companies like Google by urging the commission to change the functioning status quo and implement broader, overly prescriptive rules that will threaten the existing balance that has incented investments and created jobs. Such notions fly in the face of all modern experience of economics and investment."

The idea that more regulation could bring more investment, as the Free Press study suggests, is "absurd and provably false," the AT&T spokeswoman said.

But the Free Press study says there's no evidence to suggest investment will dry up. Investment in telecom networks is largely driven by other factors, including demand for bandwidth, equipment and other costs, and competition, said Derek Turner, Free Press' research director.

Investment decisions are a "complex process," he said.

Net neutrality opponents concerned about network investment "have never offered one single shred of evidence to support this claim," Turner added. "It's simply wrong to suggest that net neutrality, or any other regulation, will automatically deter investment."

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Grant Gross

IDG News Service
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