What Policies Matter to Telco’s Success: Supply Side or Demand Side? Or Something Else?

AT&T CEO John Stankey recently said, “I’ve never seen federal policy this supportive of market-based investment in advanced networks.” That statement raises multiple interesting investor related questions about what does, and does not, support investment in advanced networks, including the relative importance of those policies that drive supply and those that drive demand, and how government is treating advanced networks versus networks that have lower cost structures but also involve lower performance metrics. In this note I provide some history and raise those questions so that investors can evaluate the broad spectrum of policies that help predict and determine the financial performance of AT&T and others in the sector in the years to come.

This admittedly long note seeks to assist investors as described above, by examining four subjects:

• The history of the relationship between government policy and deployment, which, while complicated, demonstrates that companies invest most in deploying advanced networks when there is a threat to existing services or an opportunity for to drive revenues due to new services but that policies often debated in the context of investment may have no impact at all;

• The supply side policies, particularly taxes, permitting, and copper retirement can affect deployment, but so can other policies such as immigration which can negatively affect the already problematic workforce shortage in construction;
• The demand side policies, often overlooked in communications policy debates, can affect the economic return on investment by decreasing population growth or undercutting the social safety net reducing the ability to pay for large market segments; and

• The policy advocacy environment, in which the consensus view among business leaders is that the most effective lobbying strategy is one that is loud in praise of favored policies, silent where the policies are problematic and, above all, to stay out of the range of fire, causing executive comments to reflect that tactical calculus, not truth.