Understanding Title II Regulation: The FCC is No Enemy of Investment and Infrastructure Companies

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By Dr. Martyn Roetter

Dr. Martyn Roetter is an independent management consultant with over 25 years of experience in consulting on business strategy and technology-related issues for companies in the telecommunications, electronics, and information systems industries. He can be reached at mroetter@gmail.com.

A recent publication from the Phoenix Center1 states that the Federal Communications Commission (FCC) under its current Chairman Tom Wheeler has, through a so-called “regulatory revival”, created a “toxic regulatory environment” for investment in broadband infrastructure in otherwise “favorable market conditions”. The FCC's purportedly harmful initiatives include theOpen Internet Orderapproved at the end of February 2015 in which broadband was reclassified under Title II.

The FCC is also allegedly treating the major Broadband Services Providers (BSPs) - such as AT&T, Verizon, and Comcast - as “villains of Voldemortian proportion.” Lord Voldemort murdered Harry Potter's parents2, so the implication of this latter assertion - that these BSPs are in the view of the FCC determined to kill, or to quote directly from the Phoenix Center's report, “sabotage the Internet” - is shocking if true, and an equally shocking misrepresentation if unjustified.

This report reviews the Phoenix Center's report, authored by its Chief Economist Dr. George S. Ford, as well as two other critiques of the FCC's regulatory actions. It identifies two serious flaws in the Phoenix document, namely that it:

1. Presents mutually inconsistent findings, and

2. Ignores a key question, although the answer to this question is central to a credible evaluation of the impact of regulation on broadband and BSPs.

The inconsistency in the Phoenix Center's report lies between its definitive pronouncements of the harmful consequences of the FCC's “regulatory revival” and its correct portrayal of the complexity of the challenge in determining these consequences. Since no credible evidence either of harm or of benefits ensuing from regulation is presented, in effect the Phoenix report is saying that if the impact of regulation is unknown, but it must be toxic.

Market Conditions and Perspectives on Regulation.

The elephantine question in the room that is not addressed is whether the US broadband market is or is not effectively competitive, as the BSPs claim, or is mostly controlled, depending on location, by a BSP monopoly or duopoly. The incentives, constraints and conditions that influence the behavior of BSPs are substantially different in uncompetitive compared to competitive markets, and hence so are the cases for and against regulation and its likely consequences in these two different market environments.

The argument for a competitive broadband market rests upon two key premises about the sources of competition:

•  Wireless or predominantly mobile broadband is an effective substitute for and direct competitor to fixed broadband services, and

•  Customers are facing a growing range of competitive fiber-based providers to cable operators from new entrants and expanding fiber deployments of telephone companies.


The ongoing expansion of fiber-based access networks will allegedly and foreseeably ensure that the great majority of customers will have three (not two or in a significant number of locations only one) choices of provider of fixed broadband access services offering speeds of 20-25 Mbps (megabits per second) and above. These speeds or capacity are required to carry the traffic generated by the use of increasingly bandwidth-intensive video and other services that account for the bulk of broadband demand and traffic, which copper-based DSL (Digital Subscriber Line) services are for the most part incapable of supporting.

If fixed broadband access is an effectively competitive market, the controversy about the impact of Title II on investment (or on any other aspect of the broadband business), and hence whether Title II should be applied or not, is largely if not completely resolved. In a competitive market there is no or little substantive justification for introducing rules such as those delineated in Title II (whether some or even most of them are forborne or not) to regulate the behavior of BSPs. In a competitive environment market forces alone - without any need for Title II or other significant rules governing interconnection, terms and conditions in customer contracts etc. - should ensure that competing BSPs collectively invest at the right level over any reasonable period of time3 and will be motivated to pursue consumer-friendly initiatives in a largely regulation-free environment with minimal oversight over their actions and behavior. In this scenario the best competitors--those who provide the most enticing, innovative and attractively priced broadband services--should succeed, while those who try to discriminate unreasonably against third parties who depend on access to their facilities and may be sources of innovative services, and/or who treat customers badly, should lose. Customers will easily be able to switch to another BSP if they become dissatisfied with their current provider.

In contrast, in an uncompetitive market BSPs will be tempted, and free, to act predominantly in their own interests even if their actions are harmful to consumers and are directed anti-competitively against some third party providers of online services and applications. In an uncompetitive market there are solid reasons for implementing intelligent and proportionate regulations that include incentives to stimulate desirable behavior and penalties to deter undesirable behavior. In this environment regulations and rules are needed to help ensure that BSPs do not succumb to temptations to act in ways that are harmful or unfair to customers but financially and otherwise beneficial for them. In an uncompetitive market, the BSPs are free to act in the knowledge that customers--and third party non-facilities-based providers who depend on access to the BSPs' facilities to deliver their services--have little choice in obtaining broadband access. Yet they cannot pursue their various legitimate goals without this access. Broadband access has become an essential 21st-century service in consumers' personal and social lives and the pursuit of their aspirations and economic livelihoods, as well as an indispensable element in the business models of third-party online providers.

The two premises on which the BSPs claim that the broadband market in which they operate is effectively--and even intensely--competitive 4 are both rebuttable, as is demonstrated by evidence presented in this document. If they are invalid, then the FCC is justifiably concerned, without having to tar BSPs with the brush of an evil Voldemortian culture, that these multi-billion dollar operators will be tempted and will have the power to act in the absence of substantive regulation in ways that are unacceptably harmful to customers and other legitimate interests.

This document presents and assesses evidence relevant to an objective assessment of the conclusions of the Phoenix report, to determine whether or not the FCC has:

(i) Created a regulatory environment which is having and will have deleterious consequences, including the adverse impact of Title II reclassification, and

(ii) Treated and is treating the major BSPs as wicked or evil actors.

This document also evaluates the credibility of work by other economists that purport to show that Title II will have, and has already had, the effect of depressing investment in broadband infrastructure in the US. On the broader issue of whether substantive regulation of BSPs is justified it stresses the need for an honest and objective investigation of the controversial and fundamental question of the effectiveness of competition in the broadband access market. The BSPs are presenting a picture of healthy and vigorous competition in this market that is belied by preponderant evidence.

Review of Findings of a Negative Impact of Title II on Investment.

Prior analyses to the Phoenix Center's report have claimed the reclassification of broadband under Title II included in the FCC's Open Internet Order has had a harmful depressing effect on investment. These analyses, by Drs. Hassett and Shapiro5 and Dr. Singer6, have found that Title II reclassification will lead to substantial reductions in the level of investment in broadband infrastructure, and indeed has already had this dampening effect in the months since the promulgation of the Open Internet Order.

The Hassett/Shapiro study predicts a substantial Title II-related decrease in broadband investment: up to and even greater than 30 percent. This finding, however, is based on a logically flawed analysis that relies on a highly selective use of data and an abuse of statistics. The study assumes causation from correlation (and correlation based on an unrepresentative set of data), without providing evidence or delineating a mechanism that shows how or why the presence or absence of Title II would have a discernible impact on investment7. There are many examples of significant correlations between two series of data or values of different variables that manifestly have no causal link8, so that the next and required step after finding a correlation is to provide plausible evidence that there is one. For example, it took many years after a correlation between smoking and lung cancer was established to identify the carcinogens in cigarette smoke.

Hassett/Shapiro also ignores evidence that points to how Title II may have sustained or enabled a better outcome from investments by an operator, thanks for example to the exploitation of the benefits and rights available to Verizon under Title II that have supported the funding of FiOS, i.e. its deployments of fiber-based broadband access infrastructure9.

The claim by Dr. Singer that Title II reclassification is the cause of a fluctuation in reported capital expenditures in the months since the approval of the Open Internet Order is the fruit, as Dr. Ford says, of a “pointless exercise”10 that neglects to consider the multiple factors that influence investment decisions, of which regulation is only one11. Dr. Singer uses reported data from AT&T, Verizon, Comcast, Charter, Time Warner Cable, CenturyLink and Cablevision to justify his finding that capital investment has decreased in 2015 compared to 2014, and furthermore that this is the direct result of the FCC's Open Internet Order approved during the first quarter of 2015. However, these declines (not all of which are real in any case) were anticipated by several of these operators for reasons that have nothing to do with Title II, e.g. the completion of their major network upgrade programs12, such as Charter's all-digital initiative, cited on p. 55 of the company's 2014 Form 10-K:

“We currently expect capital expenditures in 2015 to be approximately $1.7 billion excluding potential expenditures related to the Transactions. We anticipate capital expenditures to be driven by growth in residential and commercial customers long with further spend related to product development. Our expected capital expenditures for 2015 are lower than capital expenditures in 2014 due to the completion of our all-digital initiative in 2014. The actual amount of our capital expenditures in 2015 will depend on a number of factors including the pace of transition planning to service a larger customer base upon closing of the Transactions.”

Dr. Singer also raises the question of whether AT&T's decision to invest in Mexico is a consequence of Title II reclassification in the US, and these investments would otherwise have been directed north of the Rio Grande. This question at least is easy to answer unlike that of the overall impact of Title II reclassification.

AT&T took a business decision to enter the Mexican market under its own steam, breaking a longstanding relationship with the incumbent quasi-monopoly America Movil, as a direct consequence of the fundamental reform of the telecommunications sector initiated there by the Government of President Nieto13. This reform opened opportunities for AT&T in a market with strong social and economic ties to the US--the second-largest in Latin America after Brazil--that were previously unavailable. This decision and AT&T's subsequent acquisition of two mobile operators in Mexico, most notably bolstered by the Mexican assets acquired by AT&T in its purchase of DirecTV recently approved by the FCC, was reached before the Open Internet Order was promulgated, and was manifestly the result of factors that have nothing to do with Title II. In order to grow its market share in Mexico to achieve a sustainable position, AT&T has to make significant additional investments to expand the coverage and capacity of the networks it has acquired (Iusacell and Nextel Mexico). The idea that AT&T is diverting funds to Mexico because it finds the US market less attractive as a consequence of Title II is unfounded.

Review of The Phoenix Center Paper on the FCC's Regulatory Revival.

Dr. Ford's analysis offers a relatively sophisticated and thoughtful framework that is indicative of a more realistic perspective on the multiple drivers of decisions to invest in broadband infrastructure than the other analyses just referenced. He recognizes the complexity of the challenge of assessing the impact of specific regulations and policies on the future of broadband infrastructure. He refers to a misguided “intense focus on capital expenditures as not reflecting the economic aspect of investment. As already noted he characterizes as pointless squabbling over quarterly changes in capital expenditures. He further avers (emphasis added) that: “…increasing capital expenditures, absent some context, is not a sensible policy goal.The goal of policy is to produce the right amountof capital investment.”

Dr. Ford states, “Regulation is but one of many inputs into the investment decision, so what is needed to decipher the effect of regulation on investment is referred to in the scientific community as a counterfactual. That is, we need to know what would happen in the absence of (or but for) the regulation.”

This is a reasonable statement of the situation and scope of the challenge in assessing the impact of regulation on investment and formulating ways of how to achieve a desirable outcome. Two questions arise within Dr. Ford's framework for analysis:

•  How to define or understand better what is the “right amount” that will achieve desirable goals, including the deployment of excellent broadband infrastructure to deliver high quality affordable services to all US residents and entities; and

•  Whether this “right” mount will be forthcoming absent any significant regulatory intervention, or will only be ensured in a regulatory environment that includes some significant incentives and curbs on the behavior of investors in broadband infrastructure compared to an environment in which they will only be motivated by their own purely commercial concerns.


The implication of Dr. Ford's framework is that sensibly the focus should be on outputs such as the quality, performance and coverage of broadband networks, or the “bang for the buck.” These outputs are a function of investment, but this function is not monotonic. The amount of investment required to achieve a specific output may be increased above, or discouraged to fall below the “right” or optimum level by harmful policies and rules emanating from the public sector, such as the imposition of unreasonably high taxes on equipment and/or the application of expensive, lengthy bureaucratic procedures at the federal, state or local level to obtain permits for network deployments. Shortfalls or wasteful inefficiencies in investment may also result from decisions and actions by operators themselves such as:

•  Unwise (e.g. overpriced and/or poorly executed) acquisitions that divert resources away from productive investments;

•  Poor choices of technology; and/or

•  Obstructive anti-competitive tactics by some operators in providing the interconnections other operators need to be able to offer services nationwide, without which they cannot attract financing to invest in their own facilities.


There is no compelling or even credible evidence available or presented to date that permits the quantification of the effects of the FCC's regulatory initiatives and policies on the future of broadband infrastructure in the US. There have been significant changes and fluctuations in the historical patterns of broadband investment in which major developments in technology, new demands from customers, the release of additional spectrum and other factors have played roles that are directly related to the timing and levels of the investments made by infrastructure operators. Operators themselves have acknowledged in their own reports that the timing, extent, and level of completion of major network upgrade programs and of the introduction of new generations of technology have influenced their patterns of capital expenditures over time14.

Rivalry and Balance between Investment and Regulation.

At several points in the Phoenix Center Report Dr. Ford refers to the balance and rivalry between regulation and investment, in the context of BSPs' need to achieve a return on their investments. For example, he references an observation by FCC Chairman Wheeler that“reclassification aims to balance the goals of openness with the needs of network operators to receive a return on their investment,’’ and concludes that “This statement plainly acknowledges that neutrality and investment are rivals.” Dr. Ford concludes later that: “Whether capital expenditure rises or falls will depend, as the FCC's Chairman observes, on the ''balance’’ of these rival influences.”

It is not entirely clear whether these remarks are meant as a criticism of reclassification - because the FCC itself recognizes it can have an effect on investment - or simply as an acknowledgement of an obvious and perfectly normal fact of business (and indeed of all) life, namely that people and organizations pursue multiple goals and have more than one need or desire driving their behavior and actions. They must therefore seek “balances” or compromise solutions that achieveas many of these goals as possible, because they cannot all be maximized or pursued with equal intensity simultaneously. For example, BSPs legitimately require and expect that they should be able to achieve a return on their investment. But that does not mean either that BSPs should be able to achieve any level of return, no matter how high, if the steps they take to secure this outcome are harmful to customers or involve anti-competitive behavior, or that regulations will inevitably reduce the BSPs' returns below a level at which the “right” amount of investment in broadband will be forthcoming.

There are tradeoffs to be made between goals that in some situations are complementary or mutually reinforcing (e.g. increasing investments to deliver services that are more pleasing to customers and hence generate additional revenues), but in other respects are competing with each other (e.g., investing in less profitable customers or to serve less profitable locations in pursuit of the goal of universal service that may reduce the overall return on investment). The pursuit of “balance” is not an unworthy or undesirable goal, and “rival” in this context should be viewed as a synonym for a word with a positive not a negative connotation, i.e. for “competing” not “conflicting”.

The FCC's Perception and Treatment of Major BSPs.

There is considerable evidence that refutes the characterization in Dr. Ford's report that the FCC regards major BSPs as “villains of Voldemortian proportion.” If the FCC held this view and operated accordingly it would be doing its utmost to limit and even reduce the alleged villains' power. However the history of various substantial proposed initiatives by major BSPs that are subject to review by the FCC does not support this conclusion. This history suggests a much more nuanced and in some perspectives even conflicting or possibly mutually inconsistent set of attitudes within the Commission towards these multi-billion dollar corporations. The outcomes of various significant proposed acquisitions or asset purchases by major BSPs that involve significant expansion of their activities have been:

•  Verizon-Alltel: Approved with conditions (2008, during the previous Republican Administration)

•  Comcast - NBCUniversal: Approved with conditions (2011)

•  AT&T-T-Mobile: Withdrawn when it became apparent that the FCC would reject it (2011)

•  Verizon - Spectrum Co: Approved with conditions (2012)

•  AT&T - Leap Wireless: Approved with conditions (2014)

•  Comcast - Time Warner Cable: Withdrawn when it became apparent that the FCC would reject it (2015)

•  AT&T - DirecTV: Approved with conditions (2015).


In another instance of non-Voldemortian treatment, the FCC is providing almost $428 million in annual support from Connect America Fund II to AT&T to expand and support broadband for its rural customers15.

There may be good-faith reasons to disagree with any of the outcomes of the proposed acquisitions illustrated above, but the issue of whether or not the proposal by the BSP would be good or bad for competition has been central to their evaluations by the FCC under Chairman Wheeler. He has expressed his attitude clearly on multiple occasions, as when he said, “The underpinning of broadband policy today is that competition is the most effective tool for driving innovation, investment, and consumer and economic benefits. Unfortunately, the reality we face today is that as bandwidth increases, competitive choice decreases.”16

The outcomes of initiatives by the BSPs subject to review by the FCC demonstrates that Dr. Ford's portrayal of the Commission as viewing and treating the major BSPs as villains is ill informed. This characterization is belied by the record of the FCC's decisions throughout the current Democratic Administration and under its current Chairman and his predecessor17.

The Case for and against Regulation.

The justification for establishing a substantive regulatory environment within which the BSPs must operate, such as is included in the FCC's Open Internet Order, is based on a key traditional goal of public policy embedded in the Communications Act: to achieve and sustain affordable access to effective broadband services that have now become a critical infrastructure on which individuals, families, and private and public sector organizations in all sectors of the economy and society depend in order to be able to pursue and fulfill their personal, social and economic goals and aspirations. The key question is whether the US broadband market, whose providers operate within franchises awarded by federal, state and local authorities that give them privileged access to and rights of use of scarce public resources (such as rights-of-way) is effectively competitive in all or most, or only a few locations.

If the answer to this question is mostly positive, then the BSPs will be motivated to act in the interests of all potential and actual customers without having to be constrained by rules that limit their freedom to discriminate against some customers and/or against non-facilities-based third-party providers of online service and applications that compete directly with them, if or when there is a perceived financial or competitive advantage to be derived from such discrimination. In a competitive market,the argument goes, the BSPs will not be so motivated; to the contrary, they will recognize that they will lose if they behave and act in ways that are discriminatory or anti-competitive and unfair to or unpopular with customers. But if the answer is negative, the BSPs will be tempted to abuse their market power for their own advantage unless there is a countervailing force from regulation.

There is no reason to expect that BSPs, any more than other organizations or individuals, will not succumb to the temptation to behave badly if the benefits that accrue to them for doing so are substantial, and the risks of incurring losses or being subject to penalties are and are perceived to be minor or even negligible. BSPs do not have to be “Voldemortian villains” to succumb to temptation. They can reasonably be expected to respond as typical humans and organizations that are susceptible to the lure of the combination and concentration of great power in their hands and the rewards that abuse of this power may generate. The nation's founders appreciated and took account of this intrinsic aspect of human nature and the dangers of excessive concentration of power in one place, or in a few hands, in their institution of the separation of powers in the US Constitution. The BSPs' claim that they are subject to strong or even intense and dynamic competition lies at the heart of their justification for minimal regulatory oversight and rules, including but not limited to their objections to the FCC's Open Internet Order. If the premise of a strongly competitive broadband market is not accepted or is disproved the basis of this claim is demolished.

Regulation and Competition: The State of the US Broadband Access Market.

The predicted harmful consequences of the Open Internet Order, and more broadly of the so-called “regulatory revival” at the FCC, that are invoked in attacks on the agency's actions are not limited to their supposed dampening effect in discouraging productive, value-creating investment. Regulation by the FCC is also allegedly leading to increased prices for consumers and distortions in the market by encouraging “unfair” competition from municipal networks that will also waste taxpayers' money when they “inevitably” fail, as well as from commercial “winners” that are unfairly favored by regulation.

The BSPs consistently argue that the best regulatory policy is that which imposes the minimum oversight and curbs on their freedom to act as they please or at their sole discretion. They justify this position on the claim that the broadband market in which they operate is intensely competitive and dynamic18. Hence market forces are strong, and customers can switch readily to alternative broadband providers if dissatisfied with their present one for reasons of pricing, quality, or the attractiveness of the portfolios of services and applications they can access via their broadband subscriptions.

In this competitive scenario the BSPs are subject to powerful pressures and incentives to do their utmost to satisfy customers and to ensure that they have access to each and every application, service and source of content they find attractive and wish to try out. Hence there is no need for substantive regulatory oversight and rules to govern the behavior of the BSPs. These rules only impose additional costs and other burdens that have to be passed on to customers.

The BSPs' view that the US broadband access market is robustly competitive rests in significant part on the premise that mobile broadband services are an effective competitor to or substitute for fixed broadband and that entrants--Google Fiber is most prominently cited in this context--are providing additional competition to cable operators and telephone companies, andare all actively upgrading their networks, whether through upgrading cable networks to the DOCSIS 3.1 standard19 or pushing fiber deeper and more widely into their telco networks20, like Verizon's FiOS plant. Hence broadband access services in many places are supposedly available from three fixed and four wireless broadband providers in a supply side structure that is inherently dynamic and competitive.

There is however an alternative scenario or reality in which the US fixed broadband market is only weakly or even in some locations not at all competitive. In this depiction of the broadband access market there are only one or two operators that provide services to customers in many locations, so they are not subject to effective competitive forces21. Underlying this view is the belief that wireless broadband (predominantly mobile broadband) is not an effective competitor to fixed broadband, since the former's capacity to handle the demands of many simultaneous users within densely populated areas is intrinsically much more limited than that of modern and foreseeable fixed broadband services. The operators themselves are not marketing mobile services as competitors to their fixed services (as is evident, for example, in looking at the data caps imposed in mobile subscriptions) but as a complementary component of the service package, satisfying customers' comprehensive needs for anywhere, anytime, static, nomadic and mobile connectivity. The significantly higher pricing of mobile in comparison to fixed broadband services in terms of $ per gigabyte (GB) is another demonstrable point of differentiation between the fixed and the mobile broadband environment22.

In an uncompetitive market BSPs can afford to treat customer service as a relatively low priority and are able to exercise choke point control over third parties whose online offerings depend on access to their facilities. They can operate without any significant risk of customer or revenue loss while being able to extract more money if or when they think they can get away with it.23 A revealing perspective on the weak competition that US cable operators face is found in a presentation by Altice, the Europe-based operator that has applied to acquire cable properties in the US, Suddenlink and Cablevision, as shown here.

The point of this chart is to show the extent to which there are locations in the US where the telephone company is not offering broadband services that can compete in performance with those available from cable operators24. In these locations, absent an entrant such as Google Fiber or a municipal network, the cable operator has no competition for the provision of services that offer higher than DSL speeds of a few megabits per second.

In sum, if wireless broadband is not an effective substitute for modern fixed broadband services25, and fiber entrants will not foreseeably match the coverage of cable operators and telephone companies26, the alternative uncompetitive scenario is a credible one And if it is a reality, consumers in many locations will continue to face a choice between no more than two fixed broadband providers offering speeds adequate to satisfy current and emerging needs and demands for capacity. In some locations, where the telephone company only offers copper-based DSL service, the cable operator enjoys and will continue to enjoy, a monopoly for the provision of broadband performance that can handle the demands of video and other bandwidth-intensive services.


The economists who claim to have found evidence of a negative causal link between Title II and broadband investment have yet to make their case convincingly. While the Phoenix Center Report is honest in its depiction of the complexity of the challenge to quantify any such link (negative or positive) between Title II and investment as well as in pointing out that the level of investment per seor its maximization is not the appropriate goal of public policy or regulation, it shares with earlier analyses logical flaws are logically flawed, based on unreasonably selective and/or “pointless” data, and concrete refutations of evidence that contradicts their findings.

In light of the absence of evidence supporting a positive or a negative impact of the Open Internet Order on broadband investment, there is no justification for major BSPs to include as one highly publicized plank in their campaign against the FCC's Open Internet Order the forecast that it will lead inevitably to an allegedly undesirable significant decrease in investment in US broadband networks below what it could (and by implication) should be in a Title II-free environment. The BSPs' purpose seems to be to escape and block any attempt to exert significant regulatory influence over their freedom to act at their sole discretion, whether or not there is evidence to justify this outcome.

Dr. Ford avers correctly that: “Quantifying the effect of the FCC's Regulatory Revival on infrastructure investment will be a difficult task.” The task is indeed formidable, because there are many influences and forces involved. They are embedded in and drive decisions taken by private sector actors with considerable power and resources (arguably much greater than the FCC's) for their own purposes and motives. These forces also shape policy and regulatory initiatives taken by the public sector, which the BSPs themselves are entitled and are aggressively and expensively seeking to influence through their lobbying.

It is strange that despite his recognition of the complexities and difficulties in sorting out the impact of the FCC's so-called Regulatory Revival, Dr. Ford nevertheless asserts, “Today, market conditions are favorable for investment, but the regulatory environment is toxic.” One can only speculate about the basis or evidence on which he reaches this conclusion.

An alternative formulation to Dr. Ford's based on the uncompetitive scenario of the US broadband access market would be, “Today market conditions are favorable for generating unreasonably high profits to the detriment of consumers and others, while the regulatory environment is having a hard time achieving a balance between the legitimate expectations of infrastructure operators for satisfactory returns on their investments and the goal of public policy to ensure the universal availability of affordable, high quality services.”

The debate that has not yet been settled is which of these two formulations of the state of US broadband affairs is closer to the truth. The answer hinges on whether the supply side of US broadband is or is not effectively competitive.

1 Dr. George S. Ford, “Is the FCC's Regulatory Revival Deterring Infrastructure Investment?”, http://phoenix-center.org/BloombergBNAInvestmentCounterfactual13Nov2015.pdf (Ford)

2 “J.K. Rowling, “Harry Potter and the Philosopher's Stone,” ISBN 0-7475-3269-9

3 There is always the potential for collective delusion as in the telecommunications “bubble” around the turn of the century when there was substantial overinvestment in fiber networks that turned out to be premature, nevertheless demand eventually caught up with the capacity that was installed, much of which was acquired for a few cents on the dollar from bankrupt investors.

4 For example, Charter Opposition to Petitions to Deny, pp. 35-38, http://apps.fcc.gov/ecfs/document/view?id=60001332667

5 Drs. Kevin Hassett and Robert Shapiro, http://www.sonecon.com/docs/studies/Impact_of_Title_II_Reg_on_Investment-Hassett-Shapiro-Nov-14-2014.pdf (Hassett/Shapiro)

6 Dr. Hal Singer, http://www.forbes.com/sites/halsinger/2015/08/25/does-the-tumble-in-broadband-investment-spell-doom-for-the-fccs-open-internet-order/ (Singer)

7 MFRConsulting, Title II and Broadband Investment: Spurious Correlations, http://apps.fcc.gov/ecfs/document/view?id=60001044394

8 MFRConsulting, ibid.

9 MFRConsulting, ibid.

10 Ford, ibid.

11 Although Dr. Ford rejects the exploitation of quarterly data on investment as a basis for reaching a conclusion about Title II he nevertheless refers to changes in stock prices over a few days as a “plausible counterfactual” that “shows that reclassification has been baked into stock prices, which indirectly point to investment decisions, since the spring of 2010.” He also refers to an increase in stock prices when retail price regulation was excluded from the 2015 Open Internet Order (“Investors viewed favorably the Open Internet Order's failure to impose retail price regulation at this time, so stock prices rose a bit”). Stock prices of individual and groups of companies fluctuate significantly over short periods of time for a wide variety of reasons (and emotions), and often on the basis of rumors that turn out later to be false or as reactions to perceptions by financial analysts of dubious quality. The second observation he makes about stock prices could plausibly be interpreted as meaning that the impact of Title II on the prices BSPs are free to charge is as much a concern as worries about its implications for investment. Attention to short term or even daily fluctuations in stock prices as a basis for proving any hypothesis seems to be as “pointless” as the search for valuable lessons from or attempts to decipher the long-term implications of quarterly reports on capital expenditures.

12 See the references cited in http://www.freepress.net/resource/107138/scare-quotes-and-scare-tactics-cannot-hide-truth-on-title-ii-and-investment

13 AT&T In Competition With America Movil In Mexico With Iusacell Acquisition,”


14 Changes in accounting practices over time - what is expensed and what is capitalized - may also have had an effect on reported investment levels, but this effect has not been investigated for the purposes of this document.

15 https://www.fcc.gov/document/att-accepts-428-m-connect-america-fund-rural-broadband

16 Prepared Remarks of FCC Chairman Tom Wheeler “The Facts and Future of Broadband Competition”, 1776 Headquarters, Washington, D.C., September 4, 2014, https://apps.fcc.gov/edocs_public/attachmatch/DOC-329161A1.pdf

17 The current FCC Chairman, Tom Wheeler, took office in early November 2013, and his predecessor Julius Genachowski held this office from end-June 2009.

18 Charter Opposition to Petitions to Deny, ibid.

19 https://www.telegeography.com/products/commsupdate/articles/2015/08/25/comcast-executive-reveals-docsis-3-1-deployment-targets/

20 http://www.fiercetelecom.com/story/centurylink-extends-1-gig-fiber-based-service-16-cities/2014-08-05

21 MFRConsulting, T”he Case Against New Charter”, Section 5 - The State of Competition in the US Fixed Broadband Market - http://apps.fcc.gov/ecfs/document/view?id=60001335330

22 The fundamental differentiation and hence complementarity between and non-substitutability of fixed and wireless-based broadband services is presented in MFRConsulting, “The Case Against New Charter,” ibid. and in the references cited therein.

23 For example by raising monthly rental fees on customer premises equipment or adding so-called “administrative charges” that are not classified as price increases, e.g. http://www.fool.com/investing/general/2015/01/05/how-to-avoid-comcasts-newest-fee.aspx; http://www.cnet.com/news/is-at-ts-admin-fee-just-a-sneaky-way-of-raising-rates/

24 Telephone companies are not covering all locations within their franchises with fiber but leaving some proportion reliant on copper for fixed service - http://gizmodo.com/after-billions-in-subsidies-the-final-verizon-fios-map-1682854728?sidebar_promotions_icons=testingoff&utm_expid=66866090-67.e9PWeE2DSnKObFD7vNEoqg.1&utm_referrer=https%3A%2F%2Fwww.google.com. Moreover some locations are only being covered by higher capacity access networks as one of the conditions for the FCC's approval of a proposed transaction (e.g. AT&T-DirecTV). Dr. Ford alludes to this condition as “forced” upon AT&T by the FCC and “camouflaging the ill effects” of regulatory acts, but does not consider whether its effect if fulfilled would be to increase broadband competition to the benefit of customers in these locations.

25 MFRConsulting, The Case Against New Charter, ibid.

26 Google Fiber's current (almost four years after initial launch) and possible future coverage, described on the company's website, is as follows: Current Fiber Cities are Kansas City, Austin, and Provo; Upcoming Fiber Cities are Raleigh-Durham, Nashville, Atlanta, Charlotte, San Antonio and Salt Lake City; Potential Fiber Cities are San Jose, Irvine, San Diego, Phoenix, Oklahoma City, Tampa, Jacksonville, Louisville, and Portland.