Regulatory Uncertainty Created by FCC Seen Limiting Network Investment
FCC proposals to reclassify broadband transmission under Title II of the Communications Act and impose net neutrality rules on the industry could have a chilling effect on investment in broadband, two analysts and an investor said Wednesday. Telecom companies look at whether there is the “commercial opportunity” for more profits by increasing investment in broadband, Citigroup Managing Director Mike Rollins said at a panel at a New York Law School. “Investors like certainty and visibility of policy,” he said. “The reason it’s so important in telecom is these investments are very long term in nature.”
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"You put a dollar of capital in the ground for broadband today, the payback could be at least three to five years, in more cases than not, it’s five to 10,” Rollins said. Reclassification could prove a “slippery slope,” he said. A later FCC could decide to further limit the number of Title II provisions form which it will forbear, Rollins said. “When investors are looking at policy decisions they're not just looking at what the FCC wants to accomplish today but what those policies can do over time.”
Height Analytics Managing Director Tom Seitz agreed the FCC could be inhibiting investment through its net neutrality and reclassifications investigations. “Investors hate uncertainty and clearly what is being created right now is uncertainty in the marketplace,” he said. Under the worst case scenario for the industry, if broadband is reclassified under Title II, a group could come into the commission at a future date and convince the agency that prices charged are not fair and reasonable, Seitz said. “That is not a good outcome for the industry. They have to know with some certainty that they can price appropriately, be able to make a return.”
Changing how broadband is regulated would invariably mean a drawn-out court fight and delays in investments, said Wise Harbor founder Keith Mallinson. “I really don’t see the need to increase regulation at this time,” he said: “I think people are hungry to have more capabilities [in their broadband connections] and the market has the capability to deliver that, but increasing regulation has the risk of stifling that through the uncertainties but also by limiting some basic economic freedoms.”
Net neutrality could mean limits on tiered pricing offer by carriers, Mallinson said. “That is going to impair the profitability of the operators and does necessarily have the effect of making it more difficult for them to justify making additional investments.” Mallinson likened tiered pricing to flying on a plane. “When I'm riding in coach I know that the people who are paying maybe four or five times as much as me in first class are actually helping keep the price of my ticket down, so I feel good about that. The notion of having some kind of restraints on pricing … is completely dysfunctional in my opinion.” Mallinson said net neutrality rules taken to the extreme would mean “first in, first out” for every packet moved on the network. “That is just daft,” he said. “My concern is this regulation is putting a straight-jacket around things. … The system is not broken.”