Investors, private equity firms, and venture capital firms concerned about the impact of public policy on broadband investment should support advocacy for the Telecommunications Act of 1996′s current Section 706 regime versus the imposition of additional net neutrality rules that run the risk of needlessly expanding the Federal Communications Commission’s jurisdiction and its penchant for ex-ante regulation into the edge provider space.
John Mayo raises a couple good arguments for why I believe that investors should stay off of the net neutrality bad wagon. Regulation should be output centric. According to Professor Mayo, Section 706 places policy emphasis on output and policies that emphasize output ensures competitive behavior.
How so? look at the opposite of competitive behavior; monopolistic or collusive behavior. Increased pricing on the part of monopolies and oligopolies are the result of reduction in output. This is counter to our social policy of increased deployment of broadband access to all American households. According to Professor Mayo, Section 706 aligns an economic policy rationale for Internet governance with traditional, policy proven anti-trust tools that focus on the output altering effects of firm behavior.
On the other hand, argues, Professor Mayo, Title II public utility style regulation takes an ex-ante approach that risks squelching novel, output enhancing innovation. And where would this innovation and increased output occur? On the edge.
I recently argued that the FCC should take into consideration the impact regulation has on an edge provider’s ability to enter markets. Professor Mayo argues that an example of increasing output is the ability of edge provider’s to expand investment. If an ISP’s behavior discourages edge provider investment, then yes, the FCC could make a call that Section 706 was violated because output has been restricted resulting in less content distribution choice and probably higher prices for subscribers to such services.
Investors should not let what appears as equivocation on the part of edge providers like Netflix confuse them. A net neutrality regime further enhanced by additional rules does nothing for increase in output or entry by more viable edge providers. Further regulations amount to additional barriers to entry manifested in greater costs of compliance, costs that impact that bottom line.