The Federal Communications Commission injected a considerable amount of uncertainty into the high-tech sector in February when it reclassified Internet service providers (ISPs) as public utilities. If it is upheld by the courts, the Open Internet Order—which inserts the government directly into private dealings between ISPs and firms that generate or aggregate Internet content—will drag down investments in new networks and infrastructure and slow down innovation.
In a new paper for the Progressive Policy Institute, I estimate that ISP capital expenditures will fall between 5% and 12% per year relative to 2014 levels—based on experience in the late 1990s and early 2000s, the last time telecommunications companies were subject to public-utility rules.
This may not sound like much, but ISPs invested nearly $77 billion in 2014. A 5% drop means billions in network upgrades forgone. Thousands of jobs would also be lost—20 jobs for every million dollars of fiber investment, according to a paper I co-wrote with Jeffrey West in 2010. The losses won’t be limited to ISPs. Investment in new networks propels innovation everywhere, thanks to faster connections and greater capabilities.
From the late 1990s to 2005, telecommunications firms were required to offer a component of their DSL Internet service on a common-carrier basis. During that period their broadband investments grew at a significantly slower rate than those of cable competitors who were not subject to the utility regulations.
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