FCC Re-Designation of Broadband Will Bring Unwanted Market Uncertainty

Legal and agency experts are poring over the technical aspects of reclassifying broadband, but what has not been carefully examined is the economic impact this re-designation will have on investment decisions.
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There has been a significant amount of news coverage regarding the recent announcement by the Federal Communications Commission (FCC) that, for the first time, it may classify many broadband services under Title II of the Communications Act of 1934. Title II was designed to give the then newly-formed FCC authority to regulate telephone and telegraph services; a long stretch from modern broadband access to the Internet.

Legal and agency experts are poring over the technical aspects of moving broadband from Title I to Title II, but what has not been carefully examined -- and which should be -- is the economic impact this re-designation will have on investment decisions that broadband network providers will make in deciding how, where, and if to build, upgrade and maintain the next generation of broadband networks.

The growth of the Internet ecosystem relies on continued private investment. For the past decade, a stable market atmosphere has prospered under the "light regulatory touch" of the original classification of broadband under Title I of the Communications Act. This has allowed companies -- both the operating companies and investment firms -- to make reasoned judgments on how and where to invest and innovate. We are talking about sophisticated investors helping provide funding to build wired and wireless networks which now reach 95 percent of the American public. It was this confidence in the FCC to work in partnership with consumers and with providers which investors in the private sector saw as a reason to invest in broadband companies, judging their prospects to earn a reasonable rate of return were justified. All that is about to change. From my experience in Congress and judging by the opinions from market analysts from around the country, this move by the FCC to classify broadband as a Title II "telecommunications service" will create massive uncertainty for investors.

Tuna Amobi, Standard & Poor stated in a May 6th MarketWatch piece:

"[The FCC's 'third-way' framework] creates potential long-term negative investment (and competitive) implications for major cable broadband providers.'"

John Hodulik, with UBS stated in a May 5th Wall Street Journal article:

"Cable companies and carriers are likely to fight this in court for years and could accelerate their plans to wind down investment in their broadband networks...You could have regulators involved in every facet of providing Internet over time. How wholesale and [retail] prices are set, how networks are interconnected and requirements that they lease out portions of their network."

Craig Moffett, with Bernstein Research stated in a May 6th Wall Street Journal article following the announcement by the FCC:

"Markets abhor uncertainty. Today we got uncertainty in spades...this development is an unequivocal negative ... most significantly for the cable operators and Verizon."

The above concerns should not go ignored. Statements like "long-term negative investment," "regulated price setting" and "this development is an unequivocal negative," show that a better plan is coveted by the marketplace. In light of fiscal and economic uncertainty in Europe, combined with lackluster domestic job creation, the FCC should be careful not to inject more uncertainty into a marketplace searching for stability and increased investment.

Broadband for America's mission is to increase the deployment and adoption of broadband throughout America, a goal the FCC has stated is its top priority. By proposing new regulatory policies that will immediately create long-term uncertainty in the marketplace, the FCC will complicate our goal of universal access and adoption.

The FCC needs to look no further than the example of the policies promoted under President Bill Clinton and President George W. Bush, which increased private investment in the pursuit of broadband deployment and adoption. That example merits following again.

Harold Ford, Jr. is an honorary co-Chairman of Broadband for America

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