Promoting freedom, innovation, and growth

Connect with IPI

Receive news, research, and updates

September 3, 2015

FCC Fails to Suspend the Laws of Economics

 

When FCC Chairman Tom Wheeler wheeled about and, under pressure from the White House, scrapped plans for a net neutrality compromise in favor of a much more radical and pervasive regulation of the Internet, many parties warned that one result would be less investment in broadband infrastructure.

Which only makes sense. In one fell swoop the broadband industry went from very lightly to very heavily regulated, including the threat of price regulation. Industries subject to heavy regulation, uncertainty, and especially the threat of price regulation simply aren’t going to invest as much. When the potential for profit is marginally reduced, the attraction for investment is also marginally reduced.

Outside economists made similar warnings. An analysis from the Georgetown University Center for Business and Public Policy [PDF] projected that ISP investment could be reduced by between 5.5 and 21 percent.

Well, investment data for the first half of 2015 is in, and the evidence is clear: Broadband companies dramatically reduced investment as a result of the FCC’s Title II regulation of broadband.

According to multiple sources, AT&T’s capital expenditure (capex) was down a whopping 29 percent in the first half of 2015, as was Charter’s. CenturyLink’s was down nine percent; Cablevision’s was down 10 percent, and Verizon’s 4 percent. According to economist Hal Singer, the average across all wireline ISPs was down 12 percent.

This is an astonishing decline in investment. In an otherwise growing economy, there was no reason for major companies to dramatically reduce their capex other than the FCC’s Title II order.

Why is this important? Well, it turns out that broadband companies are some of the largest investors in the U.S. economy. In fact, in 2014, AT&T and Verizon were far and away the two largest investors in the U.S. economy, Comcast was in the top 10, and Time Warner Cable was in the top 20. 

This is what happens when government regulators attempt to suspend the laws of economics. The FCC’s regulatory order has resulted in a massive hit to investment in the U.S. economy, and there is every reason to expect it to continue.

Investment is what grows the economy, creates profit, creates jobs and results in higher tax revenues for governments at all levels. The one thing you don’t want to do as a policymaker is implement policies that reduce investment.

It’s yet another self-inflicted wound on our economy through poor policy decisions. Our economy is struggling under the death of a thousand policy cuts. A major priority of reformers should be to see to it that no unelected regulatory agency has the extensive power necessary to deal such a severe blow to the U.S. economy.


 

  • TaxBytes-New

Copyright Institute for Policy Innovation 2017. All Rights Reserved Privacy Policy Contact IPI.

e-resources e-resources