Light Touch Internet Regulations Worked

When will policymakers learn from the mistakes of the past? When broadband services began to explode since the mid-1990s, it did so with little regulation. In 2015, when the FCC imposed onerous net neutrality regulations, it was no surprise that industry investment fell. With the reversal of these regulations last year, however, broadband spending jumped, and the rural broadband gap closed by more than a quarter. Not bad, considering some predicted the end of the Internet.

For many years investment growth in broadband services was treated by regulators as the gauge of a healthy telecom industry. Indeed, almost universal adoption of broadband has equipped most homes and businesses with access to the digital economy and convenient social interactions. Consumers take advantage of broadband access through cable or fiber, but more consumers experience internet services through their smartphone or mobile wireless handset.

Wireline broadband is no longer the primary avenue to internet access, and 5G wireless services will soon treat consumers to a major jump in internet access speed. Service providers in most advanced economies are building out the 5G wireless infrastructure that will carry internet traffic downstream to local communities. They are also adding backhaul capacity to carry consumers’ upstream traffic from a mesh of small cell sites.

Along with investments in 5G infrastructure, service providers continue investing in traditional broadband, expanding the broadband geographic coverage and improving the speed offered to consumers.

One dominant driver for broadband demand is the information and communications technology marketplace. Worldwide spending on ICT will reach $4.6 trillion by 2022. The U.S. ICT market is forecast to run at 4.5 percent annual growth over the 2017 to 2022 period.

Within the Washington regulatory bubble, it might seem that domestic economic activity is driven by the actions of regulated companies. On the contrary, the investments made by 5G and broadband service providers are largely determined by the prospect of sales to ICT providers and ICT consumers.

However, regulatory missteps can dampen the will to invest, and that will have negative consequences for consumers.

When public utility-style common carrier regulations were imposed in 2015, Internet Service Provider (ISP) investment, as measured by capital expenditures, dropped by 5.6 percent. There was no failure of demand – rather regulatory cost that discouraged ISPs to buildout to meet demand.

Then, the FCC reversed course in 2017, and investment growth by nearly 4%, growing from $64 billion in 2017 to $66.3 billion in 2018.

And, now the industry continues to grow. 5G infrastructure investment expected to grow from $528 million in 2018 to $26 billion in 2022. In another quadrant of the ICT market, the large scale cloud service providers are pursuing capex growth of nearly 40% per year, down from 50% last year. In preparation for the 5G deluge, carriers such as CenturyLink, Verizon and AT&T are forging more relationships with cloud providers to extend their enterprise services into the cloud.

Carriers and internet service providers of all kinds will chase opportunities to serve businesses and consumers – with speeds the customer requests, with high levels of security and with collaborative services whenever permitted.

To summarize – the huge acceleration in broadband growth stopped and declined under hefty Title II regulations, but that growth resumed when these regulations were lifted. Now, Congress is considering taking us back to a time when ISPs were reluctant to risk capital in the face of onerous regulation. These regulations will impede investment, and that will cost jobs and reduce consumer welfare. Imposing common carrier regulations on Internet services is one lesson that Congress should have already learned.

The empirical evidence is clear: light touch internet regulations have worked. Now it’s time for Congress to codify this once and for all.

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