In August, the Federal
Communications Commission released its Section 706 Report measuring the availability of advanced
telecommunications services. The 706 Report's data shows that approximately 95% of all Americans
now have access to broadband services. And the 706 Report acknowledges the tens of billions of dollars in
broadband infrastructure investment being made each year by the private sector.
Regrettably, the pro-market
data points presented in the 706 Report were trumped by FCC's pro-regulatory gloss and its interventionist
approach to the broadband market. Taking what has been called a "glass is
5% empty" approach, the FCC included in its 706 Report a finding that broadband is not being deployed in a "reasonably timely"
manner to all Americans.
But if anything is not reasonably timely it's the FCC's negative broadband
deployment finding. Controversially, the FCC regards Section 706 as a source of special regulatory power, triggered
by its negative broadband deployment findings. By choosing to subject the
economically vibrant broadband market to added burdens, such as net neutrality
regulations, the FCC runs the risk of diminishing incentives for private
investment, slowing deployment, and inhibiting job growth.
According to the 706 Report's numbers, some 19 million people – or 6% of the
population – live in areas lacking broadband access. So 94% of the population
has access to broadband by the 706 Report's measurement. That figure is impressive in its own right, considering
that the FCC's prior 706 Report
estimated that as many as 26 million Americans lacked access to broadband.
Moreover, data cited by the FCC's Omnibus Broadband Initiative (OBI) indicates that broadband was deployed to only 15%-20% of Americans in 2003.*
But even the 94% estimate
fails to take account of 3G wireless broadband. "[I]t is clear," the
FCC recognizes, "that higher-speed mobile
broadband services have been significantly deployed since our last
report." Taking 3G wireless broadband into account shrinks the
number of unserved down to 5.5 million people – just 1.7% of the population.
The 706 Report concedes that "[p]rivate
industry is continuing to build out broadband and has invested significantly
into broadband networks to date." According to figures cited in the 706
Report, between the years 1996
and 2010 wireline broadband providers invested $41 billion annually in
expanding their networks. That's north of half-a-trillion dollars in broadband
investment over a fifteen-year period. CTIA estimates for the years 1996-2010
show that cumulative capital investments for wireless providers totaled more
than $277 billion, with wireless providers investing another $25 billion in
Given such positive
deployment and investment data, the FCC's determination that broadband isn't
being deployed in a reasonable and timely fashion is certainly hard to explain,
let alone justify. But the FCC's finding can be more easily explained in light
of the agency's pro-regulatory philosophy, including its interventionist
approach to the broadband market.
The FCC continues to push
the controversial view that a negative finding regarding broadband deployment
under Section 706(b) gives the agency additional regulatory powers. And the FCC
shows itself all too eager to use those assumed powers. The FCC's latest 706
Report finding simply renews the
agency's additional regulatory power claims.
The 706 Report highlights the FCC's network neutrality regulations
among its marketplace interventions, suggesting these regulations were undertaken
ostensibly to accelerate broadband deployment and remove barriers to
infrastructure investment. According to the 706 Report, net neutrality regulations were adopted "to
ensure the continuation of the Internet’s virtuous cycle of innovation and
investment, and the Commission must continue to prioritize those efforts
consistent with the mandate of section 706."
Now if the FCC's net
neutrality regulations really removed barriers to infrastructure investment,
one would naturally expect to find corroborating data. But the 706 Report contains no data indicating actual increases in annual
broadband investment following the adoption of those regulations.
President Randolph May and I pointed out in last September's Perspectives
from FSF Scholars essay "New FCC Regulations Reduce Investment and Hinder Job
Creation," that there is
evidence suggesting that net neutrality regulations, in particular, actually
raise barriers to broadband infrastructure investment. Our essay directed
attention to Gerald R. Faulhaber’s and David J. Farber's 2010 paper "The Open Internet: A Customer-Centric Framework." Faulhaber and Farber compared higher winning
bid prices for the 700 MHz band's unencumbered A and B blocks with lower bid
prices for the C block, which was subject to "open access" or net neutrality-like use
restrictions. According to Faulhaber and Farber, "[n]etwork neutrality
regulation thus decreased the value of the spectrum asset by 60%...reduc[ing]
the affected telecommunication asset and thus reduc[ing] the incentive to
invest in such assets."
In sum, the FCC's negative
finding regarding broadband deployment flies in the face of two critical
indicators: first, the rapid deployment of broadband over the last several
years; and second, the heavy financial investment in infrastructure made by
marketplace providers over that same timeframe. Taken together, those
indicators suggest that the broadband market is a potent source of economic
growth and job creation. In today's weakened economy, this success shouldn't be
ignored, much less denigrated.
Where markets thrive,
government should stay its hand to best promote economic growth and efficient
results. But once more the FCC has positioned itself to second-guess the
workings of the expanding, investment-heavy broadband market through regulatory
restrictions. The agency risks injecting economic dislocations and investment
disincentives into the market. In an economy clamoring for investment and new
jobs, regulating a growing and competitive market is neither reasonable nor
[* CORRECTION AND CLARIFICATION: This post previously attributed 2003 deployment data to the National Broadband Plan instead of OBI work prepared in support of the Plan.]