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#TechWeek: The Economic Cost of Title II

By Katie McAuliffe and Demri Scott | June 22, 2017

There is a growing conversation about investment in the internet during the Title II era. While proponents of Title II argue that investment increased under Title II, in evaluating the economic impact of Title II the question is not if investment increased or decreased through time. Rather, economists ask if projected investment would have been more or less if Title II was not imposed on ISPs. By comparing the projected investment levels to real investment that occurred, economists are able to find the true economic impact of Title II regulations.

Through this “but for regulations” approach, George Ford of Phoenix Center finds that between 2011 and 2015, fear of regulations on ISPs reduced telecommunications investment from projected investment levels by 20% to 30%, costing about $30 to $40 billion in investment. Other estimates produced by Ford find that since 2010, Obama Era policies on the internet--including uncertainty caused by Title II-- cost the US over $100 billion in investment.

Hal Singer of Economists Inc. and Georgetown University also found that all wireline ISPs’ capital expenditures dropped an average of 12% in the first half of 2015 when Title II regulations were imposed compared to the first half of 2014. In addition, Title II brought $3.3 billion in capital flight in the six largest ISPs alone--costing 20 American jobs per million dollar in capital flight. Other estimates project that nearly 174,000 broadband related jobs would be at risk by 2020 as a result of the decline in investment created by Title II.

While some argue that Title II did not discourage investment, many of these reports included leased handsets—for a report on Sprint’s investments—and investments in affiliates outside the United States—for a report on AT&T’s investments. This diversion of investments, rather, shows the depressant effect of Title II regulations on the market.

Uncertainty created by Title II is costing average Americans jobs, small businesses their livelihoods and ultimately innovation on the internet for generations to come. Investment levels would have been even higher if Title II regulations were not imposed on the internet—something that would have helped all Americans.

During President Trump's TechWeek there has been significant focus on the digital economy and the productivity the digital sector creates in America. There has also been talk about hastening the speed of 5G infrastructure deployment, particularly through deregulation. Title II is another massive regulation that slows infrastructure deployment and limits the productivity of America's economy as a whole.

On May 18, FCC Chairman Ajit Pai started the regulatory process of rolling back Title II regulations on ISPs. By beginning the process of reversing Title II and rejuvenating the light touch regulatory framework for ISPs, Pai took the first steps in ensuring that the internet will be the home of innovation for many years to come.

Starting during the Clinton Administration, ISPs were regulated under a bipartisan light touch regulatory framework. The light touch framework survived for nearly two decades from the passage of Republican to Democrat administrations. The internet flourished with innovations such as the gigabyte to Netflix and everything in between. Despite a flourishing internet, in 2015 the FCC --under the purview of the Obama Administration--reclassified ISPs as a common carrier, subjecting the internet to outdated Title II regulations initially meant to reign in the Ma Bell monopoly during the 1930s.

There is clear evidence that Title II hurts investment, it’s about time we return to the bipartisan light touch regulatory framework that helped create a flourishing internet. 

Photo Credit: 401(K) 2012