Hill Gets an Econ 101 Primer in Title II

Majority: Title II-based rules will depress investment in broadband
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WASHINGTON — Three out of four economists agree — at least among those tapped by Republican leaders of the House Energy & Commerce Committee — that the Federal Communications Commission’s reclassification of broadband Internet service under Title II would be a drag on investment and innovation.

Cable operators and other Internet-service providers are taking aim at the legal arguments for Title II, but economists, including a former Clinton administration assistant secretary of commerce, focused on the investment picture. At least over the long term, they indicated, that picture will be gloomier than if the FCC had stuck with the pre-Title II “light-touch” approach.

One estimate put the investment hit at anywhere from $3 billion to $12 billion per year.

With the exception of New York University professor Nicholas Economides, a supporter of network-neutrality rules, economists on the panel were in ideological agreement with cable ISPs and the Republican majority.

Their point of agreement: The uncertainty over the FCC’s Internet-conduct standard, how interconnection reviews will be applied and whether the rate-regulation authority that the FCC has said it would forebear might resurface down the line will reduce investments and curtail broadband buildouts — either now or eventually.

“Eight months ago, the FCC decided to grab control of the Internet and regulate it like a monopoly utility under Title II,” Communications Subcommittee chairman Greg Walden (R-Ore.) said. “Rather than work with Congress to adopt a statute that would punish those who engaged in harmful actions, the FCC yielded to White House pressure and went all in for Title II.”

Republicans at the hearing pushed for a legislative solution that would uphold the basic network-neutrality rules, just without the Title II chaser.

Even House Energy & Commerce Committee chairman Fred Upton (R-Mich.) said, “We are no longer debating whether there should be net-neutrality rules, but instead, how to best put them into place.”

But those same Republicans did not seem to be sanguine about the prospects of legislation, though they pointed out it would prevent years of litigation that could chill that ISP investment.

Democrats who back the rules have argued that investment in the space continues apace. The sky is not falling, said ranking member Anna Eshoo (D-Calif.), who signaled that if protracted litigation created regulatory uncertainty, ISPs had themselves to blame for challenging the rules in court.

But the uncertainty targeted by ISPs and talked about by most economists at the hearing was over common-carrier regulations currently not being applied, but that the FCC might impose going forward.

“There are very significant benefits of network neutrality to applications and content providers sector, including investment in that sector,” Economides, professor of economics at NYU’s Stern School of Business, countered.

He also said that even if rules did reduce infrastructure investment — a point he did not concede — the boost to the edge would more than make up for it. But the goal of public policy should be public benefit, not boosting investment, he added.

Countering that was witness Robert Shapiro, chairman of Sonecon LLC and a former undersecretary of commerce in the Clinton administration. Those innovations at the edge are based on bandwidth, which depends on the infrastructure investment that powers it, Shapiro argued.

All of that edge innovation only comes after the infrastructure gets built, Shapiro said, because it isn’t possible without it.

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