As broadband
providers anticipated the repeal of the Open
Internet Order and its Title II public utility-style regulations with the
December 2017 Restoring Internet Freedom Order, broadband capital
investment increased significantly from 2016 to 2017. Using data collected from
annual reports of thirteen large broadband providers, I estimate that total
annual broadband capital investment increased by nearly 14% from the end of 2016
to the end of 2017.
The FCC’s adoption
of the Restoring Internet Freedom (RIF)
Order reclassified broadband as a
Title I information service, thereby restoring a light-touch regulatory
framework for broadband providers. While only five months have passed since the
RIF Order was adopted in an open
meeting, the proposal was announced back in April 2017. When FCC Chairman Ajit
Pai announced the proposal, he
cited the Free State Foundation’s initial estimate on broadband investment,
stating that the Open Internet Order "has
already cost our country $5.1 billion in broadband capital investment.” Given
the voting history of the new Republican majority at the Commission, it was
fairly clear then that a significant portion of the heavy-handed Title II
regulations would be overturned.
Although the RIF Order will not become fully effective until June 11,
2018, broadband Internet providers have now had a year since the proposal’s announcement
to prepare for a more investment-friendly regulatory environment. So, even
though broadband providers needed to abide by the Obama-era rules imposed by
the Open Internet Order throughout
2017, the data shows that competition in this dynamic marketplace encouraged additional
investment activity. My sample of thirteen large broadband providers found that
capital investment increased by 13.95% from the end of 2016 to the end of 2017.
In my view, this increase is likely due, at least in part, to the prospect of a
return to light-touch regulation.
USTelecom reported in
October 2017
that industry-wide aggregate broadband capital investment, which is comprised
of capital expenditure data for wireline telecommunications, wireless
telecommunications, and cable broadband providers, totaled $76 billion in 2016.
Therefore, an increase of 13.95% would mean that broadband capital investment increased
throughout the industry by $10.6 billion to $86.6 billion in 2017. That is
likely a high estimate for just a one-year increase. However, given that
broadband providers invested $5.6 billion less than they otherwise would have
in 2015 and 2016, industry-wide broadband capital investment should increase
dramatically especially now that the new rules will create a more
investment-friendly environment.
In fact, from the
end of 2011 to the end of 2014 my sample of annual broadband capital investment
grew by 14%. However, from the end of 2014 to the end of 2017, my sample of
broadband capital investment grew by only 6%. Similarly, USTelecom data show that
aggregate broadband capital investment for the U.S. industry grew by over 15%
from the end of 2011 to the end of 2014. If industry-wide broadband capital
investment totaled $86.6 billion in 2017, that would equate to a 10.5% increase
from the end of 2014 to the end of 2017.
In my sample of
broadband providers, I have companies like Comcast and Charter, which comprise
nearly half of all wireline broadband subscriptions. I also include Verizon,
AT&T, T-Mobile, and Sprint, which comprise a large majority of all wireless
subscriptions. I note that the $68.8 billion in investment by these 13
companies is 79.4% of the $86.6 billion in industry investment I estimated
above, so these companies account for a very large share of total industry
investment. So while my estimate of a 14% increase in capital investment should
be considered a fairly rough estimate of industry-wide broadband investment, I
am very confident that from 2016 to 2017 broadband providers significantly
increased capital investment. In fact, any increase in broadband capital investment
from 2016 to 2017 is worth noting because investment declined in both 2015 and
2016.
The graph below
shows broadband capital investment from 2011 to 2017 by the 13 large broadband
providers in my sample.
When regulatory
costs increase, as they did with the imposition of the Open Internet Order, broadband providers will invest less than they
otherwise would have absent such regulatory costs because the additional costs
reduce the return on investment. Although the RIF Order does not take full effect until June 2018, the mere
prospect of the FCC returning to a light-touch regulatory regime, along with
strong competition among many broadband providers and technologies, appears to
have played an important role in encouraging additional capital investment
throughout 2017.
There is little
doubt that broadband capital investment will continue to increase in 2018 so
long as the RIF Order is not
overturned by Congress. (See this recent blog by Randolph May.)
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