Federal Communications Commission (FCC) Chairman Ajit Pai yesterday delivered an important speech at The Newseum in Washington, D.C. on the highest profile issue with which his FCC will deal: the roll back to the net neutrality rules put in place under his predecessor, Tom Wheeler. Wheeler, interestingly, is not mentioned by name in the nearly 3,500-word speech.
Pai’s argument boils down to the belief that the internet exploded onto the scene because it was unfettered by intrusive regulation. There were no problems of access and fairness. “Light-touch” oversight flowed out of the Telecommunications Act of 1996 that was created by President Clinton and a Republican Congress. These wise leaders, Pai asserts, set conditions under which the internet thrived:
Under this framework, a free and open Internet flourished. Under this framework, America’s Internet economy produced the world’s most successful online companies: Google, Facebook, and Netflix, just to name a few. Under this framework, the private sector invested about $1.5 trillion to build the networks that gave people high-speed access to the Internet. And under this framework, consumers benefited from unparalleled innovation.
The Democrats, once they gained control, imagined problems of access and fairness that didn’t exist and used them to put rules in place that choked off investment, cost jobs and limited expansion. His FCC will reverse these moves – he outlines three preliminary steps to doing so — and return to the light-touch approach that was so successful.
It is impossible to say if rules put in place by Pai’s FCC will succeed. It just may be that the internet is stable and so deeply engrained in our way of life that nothing can slow it down. It is possible, however, to say that his arguments are flawed.
The first flaw is in the discussion of investment. The prepared version of his speech has this passage:
So what happened after the Commission adopted Title II? Sure enough, infrastructure investment declined. Among our nation’s 12 largest Internet service providers, domestic broadband capital expenditures decreased by 5.6% percent, or $3.6 billion, between 2014 and 2016, the first two years of the Title II era. This decline is extremely unusual. It is the first time that such investment has declined outside of a recession in the Internet era.
The causes of the rise and fall of capital investments are varied. Assuming causation is silly. Macroeconomics plays a role, of course. It is also a function of industry growth. Investment levels change as major capital intensive phases end: A person who builds a house makes a major capital investment because he or she starts with a big hole in the ground. His or her investment is less a decade later, even if the kitchen is redone and a room added in the backyard. The reduced investment doesn’t mean that he or she has lost interest in the house. Indeed, the incremental investment indicates that interest still is high.
A third element is technology evolution. The shift from legacy architectures to software-defined networks (SDNs) and other significant shifts leads telecommunications companies to bide their time on major purchases. Why deploy new gear that could quickly become antiquated? The internet is approaching what likely will be a new age of capex as SDNs and 5G move from labs and trials to production networks. It doesn’t fit Pai’s argument and, therefore, wasn’t mentioned in the speech.
Clearly, investment shifts have many causes. One of these may or may not be dissatisfaction with the FCC.
The second and perhaps even greater flaw is that 2017 is not 1996. It is disingenuous to say that an effective approach to administering a nascent industry will work once investors arrive with boatloads of cash that they have every intention of protecting. Everything is different. Pai knows this and, at least in the speech, paid no attention.
Instead of making a logical case for reversing the net neutrality rules, Pai set up premises that he didn’t come close to proving: That net neutrality is chilling investments and that the previous administration put in place unneeded and destructive rules for political and philosophical reasons. He also didn’t offer a compelling argument that what worked two decades ago is a savvy path to the future.
Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at cweinsch@optonline.net and via twitter at @DailyMusicBrk.
