House Panel to Probe Economic Impact of Net Neutrality

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By Lydia Beyoud

Oct. 26 — A House subcommittee is set to hear a chorus of concern about potentially negative effects of the Federal Communications Commission's net neutrality regulations on broadband Internet investment.

Three of the four witnesses scheduled to appear Oct. 27 at a House Energy and Commerce Communications and Technology Subcommittee hearing on the subject are expected to warn of the impact that the agency's controversial Open Internet rules might have on Internet service providers, according to prepared witness testimony.

“In general, we believe the move by the FCC to impose Title II regulation on the Internet is a mistake that ultimately harms consumers, restricts investment, and adds unnecessary costs and burdens to the industry,” Frank Louthan, managing director of equity research at investment firm Raymond James & Associates, Inc., said in prepared remarks.

Congressional Republicans share that view, but lawmakers are confining themselves to hearings, rather than legislation, while they await the outcome of a legal challenge to the rules in United States Telecom v. FCC, D.C. Cir., 15-1063, amicus briefs filed, 10/13/15 by Internet service providers and trade groups at the U.S. Court of Appeals for the District of Columbia Circuit.

Majority View

Louthan and other like-minded witnesses are expected to argue that the agency's reclassification of wireline and wireless ISPs as Title II common carriers under the Communications Act of 1934 will have a potentially harmful impact on the broadband industry.

“Carriers have limited their investment in networks and products to fit the current rules and the potential future changes that they perceive as likely when Title II regulation becomes implemented after the legal cases are resolved,” Louthan said in his prepared remarks.

The FCC sparked criticism on and off Capitol Hill for what opponents say amounts to a bid to regulate against future action, not present harms. In Louthan's view, this approach “remains a significant restriction on the industries [sic] ability to innovate,” according to his prepared remarks. “This is unfortunate and unnecessary in an environment where there are approximately 10 major wireline ISPs in the U.S. and six national and regional wireless providers who represent a significant diversity of Internet access such that industry observers and savvy customers are likely to have multiple vantage points from which to judge discriminatory behavior,” he said.

Health-Care Comparison

Michael Mandel, chief economic strategist at the Progressive Policy Institute, a D.C.-based think tank, is expected to point to heavy regulation of the health-care industry as an illustration of what could occur in the broadband market.

“Investment per worker in health care has lagged the rest of the economy by a wide margin over the long run. This investment gap holds down productivity in health care and ultimately drives up costs for consumers,” Mandel said in prepared remarks.

“Now, broadband is not the same as health care. However, the impact of regulation on investment may be similar, since the application of common carrier regulation to broadband is moving towards the all-encompassing regulatory environment that historically has characterized health care,” Mandel said in his prepared statement.

‘Internet Ecosystem.'

However, one witness plans to ask the subcommittee to look at the broader Internet environment before deciding how deeply the FCC's rules cut.

“We should measure the impact of network neutrality on benefits to society of the whole Internet ecosystem, and not just on the ISPs,” Nicholas Economides, professor at the Stern School of Business, New York University, said in his prepared remarks.

With the D.C. Circuit case pending against FCC rules that were issued on Feb. 26, it may be too soon to tell how great of a financial impact the rules are having on the telecommunications industry, Economides said. 

“Even if one believed that the ISPs would decrease their investment as a result of the regulation, the period of observation between the time of the passage of the regulation at the end of February 2015 and the end of the second quarter of 2015 is too short to have any meaningful inferences. From an economics point of view, it is incorrect to draw conclusions that the FCC regulation has either an adverse or a positive impact on investment based on one or two quarters observations on investment,” he said.

Investment isn't the goal of public policy, and focusing on the costs and benefits of only one group would be “incorrect both from an economic and a public policy point of view,” Economides is expected to say. “The goal of public policy, such as the network neutrality rules, is to maximize the total public benefit to participants of the Internet ecosystem that includes consumers/users, applications and content providers, and ISPs,” he said in the remarks.

The Communications and Technology panel plans to follow the Oct. 27 hearing with an Oct. 28 hearing on policies to spur broadband infrastructure deployment.

To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editor responsible for this story: Keith Perine in Washington at

Text of Economides' prepared remarks is at

Texts of prepared remarks by Louthan and Mandel are at

Information on the net neutrality hearing is at

Information on the broadband infrastructure hearing is at


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