This morning Georgetown University sponsored a panel on regulation and the transition to Internet Protocol networks. The panel zeroed in on the role an all IP network can play in economic development. What I found of interest was how the capital markets were digesting all the policy talk; the regulatory environment in the broadband space and how it may impact the flow of capital.

There may be an opportunity to educate investors on how the policy initiatives at the Federal Communications Commission may impact their returns to capital. At least that is the impression I got from remarks made by Jennifer Fritzsche, a managing director and top flight telecommunications analyst for Wells Fargo Securities. According to Ms. Fritzsche regulatory changes are restrictive and could result in declines in broadband business. Not a good sign for investors.

Wall Street is bottom line minded, I gathered from Ms. Fritzsche. Traders and investors want to know if AT&T, for example, is going to hit their numbers. Concepts like net neutrality can result in that eyes glazed over look. It would take a real savvy telecommunications investor to be able to digest policy concepts like net neutrality and special access.

The FCC should take note of one thing, especially if they want to be true to their word about fostering economic growth, innovation, and employment: equity investors look at IP investment as a positive and are surprised that AT&T has not invested more especially at the low rates in the market. (And Ben Bernanke and friends at the Federal Reserve are still keeping rates low.)

Again, the take away for the FCC: the greater the level of regulation, the less the incentive to invest.

A post in the Motley Fool describes AT&T management as “bullish” when it comes to spectrum. The post uses AT&T’s attempts at acquiring T-Mobile last year (Wow, has it been a year?) as an example. Another example includes buying smaller companies in order to obtain more spectrum. AT&T’s two-year data plan package for 3G and 4G tablets is expected to eat into Sprint’s reputation as the cheapest provider of data, according to Motley Fool.

The bullishness appears like the appropriate strategy in my opinion. Sprint has made 70% of itself available for purchase by Japan’s Softbank and is also considering buying out the remaining investors in Clearwire. While Sprint’s pending moves won’t be enough to knock AT&T or Sprint from their industry leading positions, Sprint can become a stiffer competitor in the wireless market.

Hopefully the Federal Communications Commission continues to play observer this time around. A facilitating regulator the FCC was not as it signaled to the industry and the U.S. Department of Justice its lack of support for last year’s proposed takeover of T-Mobile by AT&T. By rule, the FCC must approve the transfer of licenses from Clearwire to Sprint assuming Clearwire no longer operates as a separate entity if Sprint goes ahead with a buy. I would not be surprised if Sprint goes ahead with a complete acquisition that sends Clearwire into spectrum heaven. It would probably make the company more valuable to Softbank if Sprint actually has its name on those licenses.

Either way, the FCC should, to use a sports term, let them play. If any regulatory approvals are needed, they should be granted with haste. A minimalist regulatory approach is what’s needed right now.

Yesterday the U.S. Court of Appeals for the District of Columbia Circuit held that the Federal Communications Commission was empowered under Title III of the Communications Act to promulgate its data roaming rule. The rule, however, does not impose any common carrier obligations on mobile Internet providers.

In 2007, the FCC mandated that mobile voice carriers offer roaming agreements to other carriers on a just, reasonable, and non-discriminatory basis. The FCC invoked Title II of the Communications Act reasoning that mobile voice providers have a common carrier obligation to provide roaming.

The 2007 mandate did not extend to mobile Internet or mobile data carriers that entered voluntarily into roaming agreements with other carriers for mobile data.

The FCC’s rationale for its rule was:

1. The mandate would promote access to seamless mobile data coverage nationwide;
2. The mandate balances incentives for new entrants and incumbents to deploy advanced networks across the country; and
3. The mandate would foster competition among multiple wireless providers

Verizon and AT&T opposed the rule, arguing that the rule was unnecessary given that carriers were already entering voluntary agreements for data roaming and that smaller carriers would have reduced incentive to build their own networks.

On the surface, investors in large carriers such as AT&T and Sprint should not see any additional losses from the ruling. The data roaming rule has been in place from 2007 and given that no new rules or divestitures resulted from the ruling, I see no additional costs of compliance to AT&T or Verizon due to this legal proceeding.

I don’t see how in the long run the ruling would benefit smaller carriers. If anything they may see increases in whatever charges they are assessed by the larger carriers as a result of negotiations in for future agreements, and they can thank the FCC’s competition posture for this.

As spectrum becomes harder to come by, larger carriers may feel compelled to pass on higher costs of handling additional traffic from smaller carriers. Delays by the FCC in releasing spectrum compounded by burdensome and lengthy scrutiny of license transfers will make a scarce resource more expensive. Smaller carriers will not be able to have their cake and eat it too.

For example, smaller carriers will argue that they do not have the capital to expand their networks on the one hand while on the other criticize any attempts by the FCC to ensure that spectrum goes to the carriers with the greatest economies of scale and the larger client base that would be negative impacted by a lack of sufficient spectrum. Either way, smaller carriers are going to have to absorb the costs of expanding traffic on the network either through sucking it up and deploying their own networks or paying increasing costs for roaming.

Smaller carriers may find themselves being more of a price taker in negotiations for roaming because all a larger carrier has to show is that the roaming charge being negotiated is commercially reasonable, a lower standard than the classic just and reasonable standard.

In the immediate term, the ruling may be deemed by Verizon and AT&T as a loss, but in the longer term, smaller carriers may have simply delayed the inevitable.

Nobody would ever accuse Harold Feld of playing nice with big telecom companies, so when Harold finds something to like about AT&T the rest of us should pay attention. Thanks to a prod by Harold, a long time telecom industry observer, consumer advocate, and senior vice president at Public Knowledge, I took a closer look at AT&T’s pledge last week to invest an additional $14 billion in its advanced high speed Internet protocol (IP) based wired and wireless broadband networks and its simultaneous proposal to the FCC to begin a dialogue about the future of Internet communications. Like Harold I found a lot of good things.

For one, the new investment, including plans to deliver its U-Verse television service to more consumers, is good for competition because it will push cable operators as well as wireless carriers to respond with their own investments and upgrades to keep customers happy. As Harold says: “This is how competition is supposed to work.”

It might even help consumers save money. I don’t think anybody should run out and spend big bucks with the dollars they think they will save on cable bills, but in Harold’s words: “This upgrade potentially restores DSL as a viable low cost alternative able to put price-pressure on cable systems and force cable operators (especially in mid-size markets) to accelerate their own upgrades.”

Perhaps equally important, AT&T’s investment plans indicate that the company is helping push the United States toward high-speed all-fiber IP networks in which all our communications services work seamlessly together on this Internet-based infrastructure. Once older technology is fully retired, Americans who use AT&T (and this should ultimately be true for other carriers as well) will be able to count on reliable and ultra-fast service for voice and video. That could carry special benefits for minority communities and rural areas that haven’t always been on the cutting edge of new technology.

Again, let me quote Harold: “There is no question that, handled correctly, this massive investment in infrastructure could prove a tremendous boon to communities that have been in danger of marginalization.”

Harold hasn’t joined the Hallelujah choir and neither have I. As he notes, AT&T is looking out for its own business interests, and as regulators consider the implications of fully shifting to 21st century technology, there may be some tough fights on policy and regulatory issues. But AT&T has taken the unusual step for Washington of proposing dialogue with regulators over managing the transition rather than trying to muscle its preferred outcome.

Bottom line, according to Harold: “We want this investment to happen. This investment will create a combined wireless and wireline network that is truly greater than the sum of its parts.” I couldn’t have said it better.

AT&T filed a request with the Federal Communications Commission asking the regulatory body to waive a requirement under section 214 of the Communications Act for a carrier to obtain a certificate of public convenience and necessity any time the carrier discontinues a service. Specifically, a wireless carrier that abandons a time-division multiplex wired network and transitions to an Internet Protocol enabled network would have to get a CPCN every time it does no. This requirement would entail a delay in moving to digital services, a policy the FCC has given lip service to.

AT&T is concerned, and rightfully so, that the 214 requirement will keep the company and other incumbent local exchange companies tethered to an old legacy network that does not provide the innovative services provided by an IP network. In addition, as more consumers leave the old public switched network choosing to have voice services provided by cable digital networks, voice over Internet protocol, or wireless networks, the average costs for serving consumers still stuck on the PSTN goes up. Combine that with universal support moving from the PSTN to wireless networks, and ILECs find themselves with fewer resources to innovate with.

I can understand requiring a certificate to provide service be obtained by a new entrant, but it is not reasonable to require an incumbent to get a new certificate to provide services when it has not even left a market. The FCC should approve AT&T’s petition.