Phoenix Center

Looking at the Federal Communications Commission’s Form 477 data from 2015 and 2016, three empirical facts emerge:

Free Press Policy Director Matt Wood told Congress that “Comcast’s total capital spending for the two years following the 2015 [net neutrality] vote increased by 26 percent." In contrast to claims, Comcast’s investment data provide, if anything, evidence that reclassification has been detrimental to capital spending. 

Free Press recently released a report on the capital expenditures of broadband service providers entitled, It’s Working: How the Internet Access and Online Video Markets are Thriving in the Title II Era. The Free Press Report, authored by S. Derek Turner, claims that capital spending by Broadband Service Providers (“BSPs”) “accelerated” following the Federal Communications Commission’s reclassification of broadband Internet access connections as a Title II common carrier telecommunications service in its 2015 Open Internet Order, increasing by 5.3 percent between 2013-2014 and 2015-2016. The Internet Alliance, a trade group representing the interests of companies supporting reclassification, appears to use the Free Press’ data to support the same claim.

Free Press’ analysis, as usual, fails to meet the most basic of professional standards, and involves nothing more than the adding up of nominal total capital expenditures for a sample of BSPs and comparing the sums between two periods. Such simple-minded analysis is incapable of measuring the effect of a policy change. The relevant question is not whether capital spending rises or falls in any given year or pair of years, but whether such expenditures are below the levels they would have been “but for” the regulatory intervention. To answer that question, we need a counterfactual. That is, if absent a regulatory intervention capital spending was scheduled to rise by 10 percent next year (the counterfactual), but rises by only 5 percent due to an intervention, the intervention reduces investment despite the fact expenditures were higher. Unlike recent research finding sizable harmful effects from reclassification, the Free Press Report offers no counterfactual, so their Report adds nothing serious to the analysis of Net Neutrality and reclassification.

Central to the debate over the Federal Communications Commission's reclassification of broadband as a "common carrier" telecommunications service under Title II of the Communications Act of 1934 is the effect on broadband network investment. In April 2017, the Phoenix Center released its first statistical analysis of the investment question and found that between 2011 and 2015, telecommunications investment differed from expectations by between 20 percent and 30 percent, or about $30 to $40 billion annually. That is, over the interval 2011 to 2015, another $150-$200 billion in additional investment would have been made "but for" Title II reclassification. In this paper I expand my statistical analysis, restricting the analysis to investments in property and equipment (thereby excluding investment in intellectual property), altering the control group, and evaluating other modifications to the statistical model. My prior results are confirmed in this updated analysis, again finding "that investment in total fixed assets would have been about $30 billion more annually" and "[i]nvestment in equipment and property would have been $20 billion more 'but for' reclassification."

Applying the difference-in-differences method to a broad measure of investment (thus accounting for the Federal Communications Commission's "virtuous circle" effects), the author estimates the investment effects in telecommunications following the introduction of Title II reclassification to the Net Neutrality debate. Using standard econometric methods, George finds sizable investment effects from reclassification.

Between 2011 and 2015 (the last year data are available), telecommunications investment differed from expectations by between 20% and 30%, or about $30 to $40 billion annually. Actual investment averaged $126 billion annually, a sizable expenditure, but the counterfactual analysis indicates the average investment over the five-year window would have been about $160 billion (or more) annually. That is, over the interval 2011 to 2015, another $150-$200 billion in additional investment would have been made "but for" Title II reclassification. Notably, Dr. Ford finds no decline in investment following the release of the FCC's "Four Principles" to promote an Open Internet in 2005, suggesting it is reclassification -- and not Net Neutrality principles -- that is reducing investment.