The politics of Washington is not commensurate with capital flow when it concerns broadband investment. The Federal Communications Commission’s decision to apply Title II common carrier rules has resulted in a decrease in capital expenditures.
It has been reported that during the first half of 2015, AT&T saw a decrease in capital expenditures of 29% relative to 2014. Charter Communications also saw a decline of 29% relative to 2014 while Cablevision saw capital expenditures fall off by 10% versus last year. CenturyLink was down nine percent while Verizon saw a fall in capex of four percent.
The politics pushing the FCC toward their anti-capital decision was driven by a grass roots group argument that freedom of expression was being challenged by the potential bottlenecks that broadband providers could create. With narratives that included claims that consumers would not be able to create content on the internet or access the content of their choice, at least the three Democratic FCC members fell sway to it.
Edge providers, like Netflix, also played the “threat to democracy” card, arguing that broadband access providers , via paid prioritization, would discriminate among content providers and deny consumers access to their content. Netflix, however, has been able to hedge its political bets by paying some of these broadband providers for fast lanes so that video traffic to its subscribers is not congested.
Now the political center of gravity lies in the Congress, at least this week, as the House committee on energy and commerce takes a look at how Title II common carrier treatment of broadband will impact investment. Given Republican control of the committee, it’s no surprise that the committee’s leadership sees Title II as a burden on investment. For example, the committee’s majority takes issue with the FCC’s finding that the total annual cost on all broadband providers for complying with the application of the FCC’s Title II rules would be approximately $700,000. The majority believes the annual cost of compliance could be as much as $52 million.
Having supervised a tariff shop for a state regulator and drafting and filing tariffs as a staff attorney for a law firm, I can assure you that the cost of complying with Title II rules will well exceed the $6.95 per hour that the FCC estimates. We are not talking flipping burgers here.
Politically, reversing the impact Title II regulation will have on broadband investment is out of the hands of Congress, at least in the short term. Should a Republican win the White House in 2016 and the GOP maintain control of both chambers of Congress, then investors should expect a new FCC Republican majority to repeal the rules.
A repeal by the Republicans could be moot should the United States Court of Appeals-District of Columbia find that the rules have no statutory basis or that the FCC has not shown why its earlier treatment of broadband as an information service should be abandoned.
The probabilities of a court decision or an election outcome in favor of broadband providers is difficult to calculate but the likelihood of the FCC or the Obama administration changing its mindset about Title II’s impact on capital flows to broadband is definitely zero. Both the President and the FCC’s three Democrats have invested too much political capital in steering the wrong course.