Calling BS On ISPs’ Claims That Reclassifying Broadband Will Hurt Investment

Image courtesy of (Great Beyond)

Yesterday, President Obama came out in favor of reclassifying broadband as a telecommunications infrastructure, meaning that the FCC could regulate it in the same ways it regulates landline telephone service. Immediately, cable companies began shouting that such regulation would cripple investment in broadband. Alas, this is just pure nonsense intended to instill fear and raise the hackles of those who bristle at any form of government regulation.

At the heart of this discussion is whether, as part of the pending net neutrality overhaul, to classify broadband as Title II, which would allow the FCC to ban cable companies and other Internet Service Providers from offering so-called “fast lanes,” that would allow deep-pocketed companies to pay for better access to consumers (while also putting up a huge, expensive tollbooth to smaller competitors).

But the ISPs all claim that reclassification will lead to things like price controls and regulations on content. It’s impossible to rebut those statements because the industry provides no evidence to back them up.

In fact, when Bloomberg News asked the Telecommunications Industry Association to back up its claims that it saw a “significant negative impact on investment the last time restrictive Title II regulation was in place,” the industry group only provided it with a report from 2010 predicting a lack of investment.

But here are a few facts that the industry can’t overlook:

1. Revenues from broadband subscribers will only increase

Consumers may be ditching pay-TV, but they aren’t abandoning home entertainment. And it’s not just Netflix and HBO Go. People are increasingly streaming music and playing online video games. In a household with multiple occupants, many of these things are going on at once.

So consumers are paying for broadband, and in many places they only have one option when it comes to buying that service — whatever cable company has the local monopoly.

“The natural monopoly economics are there,” explains Derek Turner, research director of Free Press to Bloomberg. “These companies have a guaranteed captured market and a natural rate of return.”

2. ISPs must continue to invest

Even though many ISPs have little to no competition, they will still need to maintain and improve service in order to keep people paying.

If they want people to pay more, ISPs will have to offer faster and more reliable services with less downtime.

Wireless and satellite broadband can already deliver the same speeds as cable Internet, but not at the same price. At some point, one or both of these types of broadband will become a real competitor for cable companies.

If Comcast, et al, don’t continue investing in their service, they could be plotting their own obsolescence.

3. Regulation didn’t stop investment in the past

Check out the below graph from Free Press. See that huge spike in DSL investment? That all occurred during years in which broadband was regulated as a Title II service:
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It was also during this time that companies like Verizon enjoyed the benefits of Title II classification, using it to pay for the rollout of FiOS.

Of course, Verizon is not only leading the charge against reclassification, it’s also effectively stopped expanding its FiOS network and reneging on previous obligations to do so.