All the Investment We Cannot See

I am reading the New York Times bestseller and Pulitzer Prize winning novel All the Light We Cannot See, which I heartily recommend. But you’ll have to read it yourself to discover what it is about. I only bring it up now because the title calls to mind . . . telecom policy.

Well, only in this sense. I’m afraid that over the next several months and years we are going to be talking about All the Investment We Cannot See.

As I pointed out in my recent blog, “We Told You So: Title II Regulation Harms Investment,” Free State Foundation scholars warned the FCC dozens (and dozens more!) times in recent years that adoption of stringent “net neutrality” regulation almost certainly would dampen investment in new broadband facilities by Internet providers. In “We Told You So,” I referred to PPI scholar Hal Singer’s work, published in a Forbes article, showing that, already, there appears to be a significant drop – a decrease of 8% and $2.5 billion for the top wireline and wireless ISPs – in year-over-year investment as a result of the FCC’s net neutrality action.

We might refer to this drop-off as All the Investment We Cannot See.

But I want to address another Investment We Cannot See phenomenon because I’m confident this other unseen, more difficult to calculate, investment loss will come to play a role in considering the impact of the FCC’s new regulations. Here’s what I have in mind: Regardless of any adverse impact of the FCC’s net neutrality action, Internet infrastructure providers will continue to invest in new network facilities and modernize existing facilities. The nature of the competitive broadband marketplace and ever-increasing consumer demand for more “bandwidth” will dictate continuing capital expenditures.

So, in discussing the Commission’s net neutrality regulations at last week’s CTIA show, it is not surprising that FCC Chairman Tom Wheeler declared “investment has continued.” While unsurprising, his statement does not prove much concerning the merits of the FCC’s action. 

As I said, I am fairly sure investment by Internet providers will continue. And Mr. Singer does not suggest that, in an absolute sense, investment has not continued or will not continue. Just that it already has been diminished and will be diminished in the future. In other words, infrastructure investment will be less going forward than it otherwise would be absent the FCC’s new Internet regulations.

It will be difficult, going forward into the out years, to measure with precision the exact size of the diminished investment – in other words, the amount of investment that did not occur as a result of the disincentives created by the net neutrality mandates, especially the Title II regulatory overhang.

This investment that simply does not take place in out years, like the significant year-to-year drop-off already calculated by Mr. Singer, falls into a black hole we might call All the Investment We Cannot See.

Chairman Wheeler and his Commission colleagues who voted to adopt the new Internet provider regulatory mandates, along with the advocates of Title II regulation, likely will argue that All the Investment We Cannot See in the black hole doesn’t really count. That it doesn’t matter.

But this is wrong. It’s a costly black hole indeed, and consumers and the nation's economy will be the losers.