This week the FCC concluded that “broadband is not being deployed to all Americans in a reasonable and timely fashion” in its eighth annual “Broadband Progress Report.” It found 19 million Americans are still without fixed broadband access.
But note the word ‘fixed’ – this conclusion doesn’t include mobile access. The FCC didn’t forget wireless broadband; they explicitly chose not to include it. In fact, the FCC is operating under the mandate that all Americans should have access to fixed and mobile broadband. They use this as a justification for excluding mobile in their determination – that it should be assessed separately, even though no such assessment has been made. So someone who has a smartphone but no access to a wireline connection still counts as not having access.
That’s just silly – by excluding mobile access, the FCC is missing the fastest growing segment of the broadband market. And at this point it may take longer for all Americans to have access to fixed broadband than to mobile. The Telecommunications Industry Association estimates investment on mobile broadband infrastructure could total $100 billion through 2015. The FCC’s own data suggests that if access to either fixed or mobile were counted, the number of Americans without broadband access could be as low as 5.5 million.
Such an obvious exclusion makes the report’s findings hard to use in a meaningful way. It’s like judging a book by its cover – you’re missing a vital part of the story. Yet important regulatory decisions are being derived from this report. The only conclusion I derived from this report is that the FCC needs to adapt its mandates in a way that keeps pace with the fast-changing broadband landscape.
There seems to be a theory going around that the current tech boom has entered into bubble territory. In a piece entitled “Is the dot com bubble about to burst?”, one journalist wrote:
Sometimes, when a love affair ends, you can’t remember what it was you ever saw in someone in the first place. That is the feeling right now of a lot of once-amorous investors who breathlessly wooed Facebook at its flotation in May and paid $38 for the privilege of a share in the social network.
And certainly some other tech stocks have been disappointing to investors, including Zynga and Pandora. Indeed, some skeptical spirits have pointed to the surge in the venture capital investments as a sign that the top is here.
But let’s be serious. While the tech boom will likely enter Bubble-land eventually, we are nowhere near that point. I will offer three reasons. First, as long as the big telecom companies are still pouring billions into extending the capabilities of their high speed mobile networks, there will be new apps to develop and new companies to start. Indeed, we have not yet seen an iPhone with 4G connections.
Will Marshall compiled four positive economic stories for Real Clear Politics that President Obama should be making better use of in his campaign for re-election. From farming to exports there are positive signs in the economy according to Marshall.
Despite a string of doleful job and sales reports, there are signs that America is starting to get its productive mojo working again. The good news can’t come fast enough for President Obama, who needs some economic success stories he can point to.
So, at the risk of diverting readers from the cosmically important question of when, exactly, Mitt Romney stopped running Bain Capital, let’s examine four pinpricks of light that have begun to penetrate the economic gloom:
First, check out America’s phenomenally productive farmers; Monday’s Washington Post notes that the agriculture sector last year sold $136 billion worth of goods abroad, boosting farm income to a record $98 billion. When it comes to high quality and affordable food, America is still number one in the world.
But, in a perfect example of the disjuncture between what’s happening in the real world and Washington’s thralldom to entrenched interests, Congress is cooking up new justifications for costly federal subsidies for the thriving agricultural sector. The culprits include supposedly fiscally conservative Republicans, who added callousness to hypocrisy by also voting to slash food stamps for poor families.
The Washington Post covers Diana Carew’s and Michael Mandel’s Investment Heroes paper, focusing on the strong telecoms and energy presence amongst the leading companies.
AT&T, Exxon Mobil and Wal-Mart are leaders among a top 25 list of corporations still investing within U.S. borders, according to a new study from a progressive think tank.
These “Investment Heroes,” according to the Progressive Policy Institute (PPI), continue to invest domestically in buildings, equipment and software — something most companies have slowed or stopped throughout the lackluster economic recovery. However, telecom and energy companies, which are ubiquitous on the list, are still building broadband infrastructure to keep up with demand and are investing in the discovery of new sources of oil and gas.
The report’s authors, PPI economists Diana Carew and Michael Mandel, have no misconceptions that these companies are doing everything right — they are often criticized for environmental issues, privacy concerns and low tax rates, among other things — but want to point out the positive impact these companies are having when it comes to creating jobs and growth through their domestic investment.
PPI’s recent report on Investment Heroes has continued to be picked up by major media outlets. This time, National Journal focused on the investment in the U.S. economy made by telecom companies.
AT&T and Verizon top a list of 25 major companies investing in the United States, according to a report released by the Progressive Policy Institute.
The think tank named its top 25 “investment heroes” that are spending resources domestically.The list of non-financial companies also includes tech and telecom giants such as Intel, IBM, Comcast, Time Warner, Sprint, Google, and Apple.
Tech companies like Apple have faced scrutiny over their outsourcing policies as domestic joblessness remains high. Other companies have cited their relative economic strength and contributions to the broader economy as reasons why lawmakers should be hesitant to impose new regulations on issues like privacy, cybersecurity, or antitrust.
I was looking at the April CPI this morning, and I got to thinking about Dropbox. I use Dropbox literally 25-50 times a day. I’m working on a file on my Apple laptop, save it to the Dropbox folder, and I can be sure that the same file will show up on my PC when I get home.
Dropbox costs me nothing for 2.5 GB worth of storage. More important, I’m getting a valuable service for nothing.
Now comes along Google Drive, which supposedly functions much the same way, and offers 5 GB of storage. Now, I’m not going to switch any time soon because Dropbox is working fine for me. But a reasonable interpretation here is that the “price” of seamless online storage has fallen.
PPI has long held the position that quickly reallocating spectrum to the most efficient users– big and small –is essential for the continued growth of the wireless communications sector.
This stance was echoed last week at a hearing on the upcoming spectrum auction held by the House Subcommittee on Technology and Innovation. At the hearing, “Avoiding the Spectrum Crunch: Growing the Wireless Economy through Innovation,” industry experts and policymakers agreed that the upcoming auction needs take place as soon as possible at the risk of wireless communications companies running out of spectrum.
In his opening remarks, Subcommittee Chair Ben Quayle reiterated the importance of efficiently using available spectrum, saying “The U.S. wireless industry has been experiencing exponential growth…like the “app” market that we never envisioned a few years ago…As spectrum has become more crowded, it is necessary to ensure that it is being used as efficiently as possible, and that we have the policies in place to encourage industry’s continued investment and growth.”
PPI Chief Economic Strategist Michael Mandel explains to Bloomberg why the recent surge in technology industry hiring is only the beginning of a communications-led economic boom:
A surge in technology-industry hiring is helping to spearhead a jobs-market revival as demand swells for computer-software applications and data.
Online help-wanted advertising for computer and mathematical occupations rose 3.4 percent in January from December to the third-highest since the Conference Board began compiling the data in 2005. Vacancies outnumbered job seekers by more than three to one, according to the New York-based research group. Postings on tech-career website Dice.com are 12 percent higher than a year ago, with openings for workers skilled in mobile applications up more than 100 percent.
“This feels like the beginning of another tech-driven jobs boom,” said Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington. “The broad communications sector resisted the downward pull” of the recession and “is going to be a leader in the expansion.”
PPI Chief Economic Strategist Michael Mandel brought forward one very important fact yesterday at the Institute for Policy Innovation’s “Creating the Future” Summit: for the first time, the communications sector will shape the economic recovery and drive future economic policy. At the summit, Mandel explained how the sector drove investment in innovation and added jobs over a period where total net investment dropped 50 percent and millions of jobs across other sectors were lost. Mandel’s recent study on the “App Economy” estimates at least 500,000 jobs have been created since 2007 by the explosion of apps.
Mandel argued that the future importance of the communications sector during the next expansion follows historical trends—in previous downturns the sectors that brought the economy back to life also drove the subsequent expansion. And of all the sectors that could be fueling the next economic boom, communications—a sector whose innovations have transformed how we live and our quality of life—is a good sector to have in this position.
AT&T is a big company, which perhaps explains why federal regulators are ganging up to block its proposed merger with T-Mobile. Big must be bad, right?
That’s certainly the view of consumer advocacy groups, which routinely oppose business mergers as threats to competition. They seem to have the ear of the Federal Communications Commission, which announced last week that it would join the Justice Department in opposing the deal, citing concerns about job losses and higher consumer prices.
But there’s another important group of stakeholders that regulators should be listening to: AT&T’s workers. They are urging the government to take a broader view of the merger’s potential impact on U.S. investment and competitiveness.
At a time of shrinking private sector union membership, it’s worth noting that the company’s 42,000 wireless workers are represented by the Communications Workers of America (CWA). The union issued a report this month strongly supporting the company’s acquisition of T-Mobile as a spur to innovation and a job-creator.
Such arguments merit attention, if only because it’s not often that you find a successful U.S. company in synch with its unionized workforce. Beyond that, however, there are compelling economic reasons for regulators to start looking at proposed mergers through the eyes of America’s producers, not just its consumers.
President Obama, fresh from a tour of the Asia-Pacific, articulated them in a recent radio address. “Over the last decade, we became a country that relied too much on what we bought and consumed,” he said. “We racked up a lot of debt, but we didn’t create many jobs at all.” Reviving U.S. competitiveness, he said, will require Americans to focus more on building things than buying them. Obama also called for “restoring America’s manufacturing might, which is what helped us build the largest middle-class in history.”
Opponents say CWA backs the merger because it has its eyes on T-Mobile’s workers, who aren’t organized. But the union’s analysis of the $39 billion deal emphasizes AT&T’s plans to boost capital investment in the wireless broadband sector. It cites think tank estimates that such investment could produce up to 96,000 new jobs, not including another 5,000 jobs the company promises to bring back to the United States from overseas.
AT&T has said it will merge its networks with those of T-Mobile, and invest an additional $8 billion to expand its 4G LTE wireless broadband infrastructure. It also has pledged to retain T-Mobile’s non-managerial workers. The CWA report asserts that, absent the merger, T-Mobile is headed toward extinction. Having been cut loose by its parent company, Deutsch Telecom, it lacks the capital to acquire spectrum and build its own 4G network.
Opponents of the merger—including AT&T’s competitors as well as consumer groups—say the merger would give the telecom giant too much market power and lead to higher prices. Regulators ought to carefully weigh such claims. But as a forthcoming PPI report argues, mergers and acquisitions among dynamic, high-tech companies often have the effect of spurring more innovation. In the fiercely competitive telecommunications sector, prices for wireless services—voice, text, and data—have been trending downward, even as quality of these services has improved dramatically.
Even so, low consumer prices aren’t the only public interest at stake here. More important is expanding investment—in technological innovation, a highly skilled workforce and world-class infrastructure. This is the only way to make U.S. companies and workers more competitive in global markets that does not entail lowering our standard of living.
As the Progressive Policy Institute has documented here, the telecom sector is leading a dynamic wave of innovation in mobile telephony and broadband that is creating good jobs in the United States. That’s no mean achievement at a time when unemployment is stuck at 9 percent—and about twice that if you take into account people who have given up looking for jobs.
While other corporations chase cheap labor by moving production offshore, we have dubbed communications companies like AT&T, Verizon and Comcast “Investment Heroes” because they are making huge bets on the American economy. Surely that’s something government regulators ought to factor into their decisions.
Our country needs a new model for economic growth that emphasizes production over consumption, saving over borrowing, and exports over imports. Such a shift is essential not only to rebuild the great American job machine, but also to rebalance a global economy that has become overly dependent on U.S. consumers.
It’s time once again for America to be a global center for production—and we need federal regulators to get with the program too.
Have you checked your wireless bill lately? You’ll see a hefty set of extra taxes on mobile service—taxes that are not imposed on any other good or service. These excise taxes represent a toll that state and local governments impose on their population of phone users. It is very tempting, at this time of tight budgets, to keep raising and raising the excise tax on wireless. After all, no one really wants to give up using their iPhone.
It is time to remove that temptation.
Congress is finally considering a bill that makes good economic and social sense – the Wireless Tax Fairness Act (WTFA). The WTFA will prohibit state and local governments from imposing any new discriminatory tax on or with respect to mobile services, mobile service providers, or mobile service property for five years from the date of its enactment. Currently, wireless tax rates average 16.3 percent nationally, two times the national sales tax rate, according to Scott Mackey, an economist who works on wireless tax policy. These taxes are paid by us, 300 million everyday consumers, and each of us pays an average $7.84 a month in wireless taxes, fees, and government surcharges.
Wireless taxes are a perfect example of how excise taxes can lead to distortions in the market, hurting consumers. In fact, wireless taxes are more distortionary than other taxes, because of how narrow they are in scope, explicitly targeting wireless services (and therefore explicitly targeting the people who rely on wireless services). Further, demand for wireless services have been found to be rather sensitive to price, causing consumers to drop service as wireless taxes creep ever higher. This means that as taxes on wireless services increase, people will consume less – less of a service integral to everyday activities.
Worse, the market distortion caused by wireless taxes is particularly hard on poor and middle-income families. Studies by the Pew Foundation show wireless taxes are “regressive” in that they negatively affect poor and middle-income families more than the wealthy, as poorer families rely more heavily on wireless services for internet and phone access. So, not only do wireless taxes impose distortions on the entire population of wireless users, but they more negatively affect the people who struggle the most to pay for it.
Wireless taxes, unlike other “sin” taxes on alcohol and cigarettes, are simply a means for states and local governments to collect money for general funds with no other intended purpose. In other words, states and local governments are not imposing wireless taxes as a way to encourage less wireless use. Yet that is exactly what wireless taxes do.
Dissenters say states and local governments won’t be able to pay for basic public goods and services if the WFTA goes into effect. They argue states need all the money they can get in these tough economic times. But state and local government budget gaps should not be resolved at the cost of people’s ability to access wireless services. The idea of taxing people’s connection to the information economy, which allows people to be more productive and make larger economic contributions to society, makes no sense. It is in these tough economic times Congress should implement policies that encourage more wireless use, and more participation in the information economy of the future, not less.
Almost 30 years after the landmark study A Nation at Risk, and the subsequent hundreds of billions spent trying to ramp-up children’s mastery of basic skills through Head Start, Title 1 and No Child Left Behind, American school performance is stuck in wet cement. In the United States today, the majority of low-income children and a shocking one-third of their more affluent peers are behind when it comes to one key predictor of future achievement: fourth grade reading. Only 14 percent of African-American and 17 percent of Hispanic children are deemed “proficient” readers in fourth grade as judged by the National Assessment of Educational Progress scores.
Why is fourth grade so important? Because if children are not well on their way toward being confident readers by the age of 10, they will fall progressively behind in learning complex academic content. Researchers have found a nearly 80 percent correlation between being two years behind in reading at the 4th grade mark and dropping out of high school later.
But instead of meeting these pressing needs with modern approaches and new technologies, national education policy has unintentionally turned many of our schools into test-prep academies focused on standardized skill sets in a world that demands higher-level critical thinking. Policymakers also have ignored the central modernizing force of the 21st century—the creative media tools that have transformed nearly every element of life today except schools. In this policy brief, we suggest a new way to get over the early learning hump: Create a Digital Teacher Corps to unleash the untapped power of digital media to boost literacy among our most vulnerable children.
The model for this proposal is Teach for America (TFA), a non-profit civic enterprise that also receives some public funding from the Corporation for National and Community Service. We challenge U.S. foundations to create a competition for the best design for a non-profit organization focused on a specific goal: Ensure that 80 percent of all 10-year-olds are competent readers by 2020. The winning design would receive seed money to launch the Digital Teacher Corps, which would recruit and dispatch digitally proficient teachers into low-income school districts where they are most needed.
There’s a good rule of thumb–you get what you reward.
Here’s a summary of current U.S. policy towards big corporations: Invest in the U.S., create jobs, and get sued by the government.
You would think that during a business investment drought, any company that puts big money into the U.S. would be patted on the back. But no…
AT&T is the company which is putting the most money into the U.S.—almost $20 billion in capital spending in 2010. AT&T is also planning to bring back call center jobs from overseas. AT&T is also getting sued by the Justice Department to block the merger with T-Mobile.
Frankly, this sends a signal to U.S. companies that getting out of the reach of government regulators by going overseas is the right strategy.
In May, on the heels of a record year for industry revenue, employment at U.S. wireless carriers hit a 12-year low of 166,600, according to U.S. Labor Department figures released earlier this month. That’s about 20,000 fewer jobs than when the recession ended in June 2009 and 2,000 fewer than a year ago. While the industry’s revenue has grown 28% since 2006, when wireless employment peaked at 207,000 workers, its mostly nonunion work force has shrunk about 20%.”
In addition, the Journal digs further into the official data and claims that:
The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department
Seems like a pretty straightforward story, doesn’t it? The Journal is quoting directly from authoritative BLS data to demonstrate that the wireless industry has been losing jobs, despite the mobile boom. The big picture message: Innovation does not equal job growth.
Unfortunately, the reporters and editors at the WSJ fell into the same trap that has ensnared many other journalists, policymakers, and even economists. They looked at the label on a piece of official economic data, and assumed that they understood it. But as we saw during the financial crisis and subsequently, government economic data can all too easily be misinterpreted.
In this case, the article was based on the Journal’s analysis of jobs in the “wireless telecommunications carrier industry,” as defined by the BLS. However, despite the name of the data series, it turns out that:
The BLS definition of the “wireless” industry does notinclude company-owned retail stores or stand-alone company-owned call-centers.
The customer service numbers cited do not include company-owned retail stores or stand-alone company-owned call centers.
The 2007 occupational data in telecom cited in the story cannot be compared with later years, because the telecom industry classifications in the occupational data were substantially redone in 2008.
As a result:
The data cited in the WSJ article completely misses the growth of jobs at company-owned retail stores (see Metro PCS chart below)
The data cited in the WSJ article potentially misses call center job growth such as the expansion of Verizon’s Nashville call center (see example below)
The phrase “employment at U.S. wireless carriers hit a 12-year low” simply cannot be supported by the available data. Data from the industry trade association (CTIA), which shows wireless employment up 36% since 2000, is much more plausible (see chart below).
In my view, the WSJ article is a classic case of misinterpreting official statistics.
Before getting into the details, why am I taking the time and trouble to disassemble this particular article? Historically innovation and job creation have been closely linked, as I have argued in multiple papers and articles. With Washington now fighting tooth and nail over the budget, it’s very important for policymakers to understand that successful innovation creates jobs, not the opposite.
Second, journalists, policymakers, and economists need to understand how easily government statistics can be misinterpreted. For example, the statisticians at the BLS have reported huge U.S. productivity gains over the past decade, including the years following the financial crisis–a fact that has been duly repeated by journalists and applauded by economists. However, in a recent paper, Sue Houseman of the Upjohn Institute and I argued that these reported U.S. productivity gains could be interpreted, in part, as an increase in the efficiency of global supply chains. It matters enormously for jobs and wages whether productivity increases are coming from more efficient domestic operations, or more efficient offshoring.
Or consider consumer spending. Journalists regularly report that ”consumer spending accounts for 70 percent of economic activity.” (see, for example, this recent Associated Press story that ran on the New York Times website). However this number, calculated by dividing consumer spending into GDP, is pernicious nonsense. Nonsense, because consumer spending includes a big chunk of imports, which does not correspond to economic activity in the U.S. Pernicious, because it perpetuates the fallacy that the U.S. cannot recover without gains in consumer spending (see my blog post on the subject here).
Details
Now let me turn to the details of the WSJ’s mistake, or if you’d like, misintepretation. The WSJ analyzed BLS jobs data for the “wireless telecommunications carrier industry”, (with the NAICS ID 5172). That data looks pretty bleak (if you want to download the data for yourself, instructions are at the end of this post).
However, the WSJ apparentlydid not realize that the BLS collects industry employment by establishment, not by company. The BLS defines an establishment in this wa:y
An establishment is an economic unit, such as a farm, mine, factory, or store, that produces goods or provides services. It is typically at a single physical location and engaged in one, or predominantly one, type of economic activity for which a single industrial classification may be applied.
Whenever possible, the BLS assigns each establishment to an industry, and counts all the employment at that establishment at part of that industry.
Viewed from this perspective, a single wireless carrier, such as Verizon Wireless or Metro PCS, will typically include several different types of establishments, each of which will be assigned to a different industry.
Wireless operations are in NAICS 5172 (“Wireless telecommunications carriers”)
Company-owned call centers are in NAICS 56142 (“telephone call centers”)
Company-owned retail stores are in retail trade, probably NAICS 443112 (“Radio, TV and electronics stores”)
Mobile tower and base construction could be in NAICS 23713 (“Power and Communication Line and Related Structures Construction”)
There might even be more different types of establishments in the wireless industry…it’s hard to tell.
This has several implications. First, retail expansion by wireless providers is counted in the retail trade industry, not the BLS “Wireless Industry” numbers that the WSJ used. This is true even if the store is carrier-operated.
For example, the tremendous expansions of retail stores by Metro PCS in recent years, with added jobs, did not show up in the WSJ data (for a related example, employees at Apple stores are counted in the retail industry, not the computer industry).
Second, to the degree that wireless carriers are expanding stand-alone call centers, those additional jobs are not being picked up by the WSJ data. We don’t know exactly how many there are, but we do know that overall national employment at telephone call centers have been rising, surprisingly enough. It’s likely that the expansion of the wireless industry is a factor in that rise in call center employment.
We also know that at least some wireless telecom companies have been hiring at their call centers. For example, it took the work of five minutes to find this example of Verizon hiring workers for a call center outside of Nashville. Here’s an excerpt from the July 1, 2011 story in the Nashville Post:
Verizon Wireless has announced via Facebook and Twitter that it will expand its Sanctuary Park Center of Excellence Loyalty Retention Center by opening an office in Franklin. The company plans to add some 300 jobs in the Franklin area over the next 18 months.
“We’re excited about this expansion for several reasons. It allows us to continue to provide customers with the high quality of service they expect from Verizon Wireless,” said James Nelson, associate director of customer service. “It’s also great to be a source for new job opportunities – especially in this economy.”
Further, the company said, “Many of the thousands of calls handled by LRC representatives each month are from customers requesting to discontinue service. It is their responsibility to convert as many of those disconnect requests into satisfied customers.”
The company ran its first training sessions in May and plans to begin taking calls at the center starting July 5.
I didn’t research this example any further. But it looks like these new call center jobs are not counted in the BLS data that the WSJ was using.
Finally, those customer service figures that the Journal made such a big deal about. Let me repeat the quote from the Journal story.
The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department
Actually, that sentence is not correct as it stands. The WSJ is citing occupational data pertaining to the “wireless” industry as defined by the BLS (NAICS 5172). By definition, the WSJ’s figure for customer-service workers excludes company-owned stand-alone call centers (like the previous example for Verizon Wireless). As a result, the figures cited by the Journal are absolutely useless for determining whether wireless carriers are hiring or firing customer-service workers.
Just to add insult to injury, there’s a subtle twist that no reporter could be expected to know. Buried deep in the documentation, the BLS explains that:
In 2008, the OES survey switched to the 2007 NAICS classification system from the 2002 NAICS. The most significant revisions were in the Information Sector, particularly within the Telecommunications area.
The implication is that telecom occupational data from 2007 simply cannot be compared to later years (I believe that the BLS would agree with that, if asked).
What’s the bottom line here? Let me show you again the chart of the jobs in the BLS “wireless industry” (the data the WSJ used), and compare it to the survey of wireless industry employment done by CTIA, the wireless industry association.
The industry association figures-rose by 46% from 2000 until 2008, before dipping by 7% from 2008 to 2010. By contrast, the BLS “wireless” data, which does not include call centers, retail stores, and tower construction, rose by only 8% from 2000 to 2008. Now, honestly, in the middle of a wireless boom of historic proportions, which figure do you think is more likely to reflect “employment at wireless carriers”, the phrase used in the WSJ story?
Now, that brings me to my final ethical question: Does the Journal have an obligation to run a retraction or a corrective story? The article did not slander or libel anyone, and the reporter used the government statistics in good faith. However, because the statistics did not mean what the Journal thought they meant, the story is filled with statements which leave readers with the wrong impression. The typical reader would read the story and naturally conclude that the phrase “ employment at U.S. wireless carriers hit a 12-year low” referred to the number of workers who receive paychecks from Verizon Wireless, Metro PCS, the wireless part of AT&T, and the like. But as we have seen, that phrase is based on government figures that only reflect a portion of wireless carrier employment.
More importantly, the story’s big picture conclusion–that innovation does not equal job growth–is not supported by the statistics. In this era of distrust of the press, should publications make an effort to clarify the record if their original story is faulty?
Coda: How to Get the Government Data that the WSJ used
America’s job drought is really America’s capital spending drought. As of the first quarter of 2011—a year and a half after the recession officially ended—business capital spending in the U.S. is still 23 percent below its long-term trend. If domestic businesses are not expanding and investing, they are not going to create jobs.
The weakness in domestic capital spending is both perplexing and disturbing. It’s accepted wisdom that we needed to work off the aftereffects of the housing and consumption bubbles, but very few economists believe that the U.S. suffered from an excess of business capital spending in the years leading up to the financial crisis. And there’s no sign of a credit crunch for large businesses, which mostly seem to have access to sufficient funds to invest if they wanted.
However, there is one important exception to the investment drought: the communications sector. To keep up with the communications boom and soaring demand for mobile data, PPI estimates that telecom and broadcasting companies have stepped up their investment in new equipment and software by 45 percent since 2005, after adjusting for price changes (see the chart “Communications: No Investment Drought”). By comparison, overall private real spending on nonresidential equipment and software is only up by 6 percent over the same stretch.
In fact, the big telecom companies head the list of the businesses investing in America (see the table “Investment Heroes”). According to PPI’s analysis of public documents, AT&T reported $19.5 billion in capital spending in the U.S. in 2010, tops among nonfinancial companies. Next was Verizon, with $16.5 billion in domestic capital spending in 2010. Comcast was seventh on the list, with about $5 billion in domestic capital spending (companies such as Google and Intel were a bit further down the list.).
Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy. Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years. Finally, imagine that industry charged falling prices for both consumers and businesses.
But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has outperformed the rest of the economy on key measures such as customer satisfaction, investment, and price. Moreover, at a time when President Obama is calling for more innovation, the wireless industry has produced more genuine new products and services than anyone else.
So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7, the FCC issued an order forcing the big wireless providers to sign ‘data-roaming’ agreements with smaller carriers. In effect, the smaller carriers can now tell their customers that they could have data service all over the U.S., free-riding on the mammoth investments by the big carriers. In addition, the FCC made it clear that it is willing to set the price for each data roaming agreement if it doesn’t like what the big carriers are offering–effectively reinstituting price regulation for the most dynamic sector of the economy.
This aggressive regulatory move by the FCC follow its enactment of confusing ‘net neutrality regulations’ in December 2010, an 87-page order that raises more questions than it resolves. And then coming down the road is the ‘bill shock’ regulation. In order to address the rather rare and fixable problem of a surprisingly high bill, this regulation would force providers to spend scarce investment dollars on revamping their billing system rather than building out their networks.
In many ways, enacting this series of regulations is like throwing pebbles in a stream. One pebble doesn’t make much of a difference, but throwing enough pebbles in the stream can dam it up.
Frankly, the degree of regulation that the FCC wants to impose is more appropriate to a failing industry rather than one which is demonstrably successful and growing. Let’s just run through the performance of the telecom/wireless industry over the past five years. According to the American Customer Satisfaction Index, satisfaction with wireless service has increased by 14% over the past five years, by far the biggest jump of any industry.
Now let’s look at investment. The data on investment is somewhat fuzzier than for satisfaction, since the government’s figures on industry investment only run through 2009, and merges the telecom and broadcasting industries.
But here’s what we see: In the telecom/broadcasting industry, real investment in equipment and software is up 30% since 2005, despite the turbulence of the financial crisis. By contrast, overall private sector real investment in equipment and software is down 8% over the same period.
And then of course the price of wireless service keeps falling. The latest figures from the Bureau of Labor Statistics say that consumer wireless prices are down 6% since 2011, and business wireless prices are down a lot more.
Right now the FCC has the good fortune to preside over one of the few growing industries in the economy. If the commissioners genuinely want to support innovation and growth, they should stop throwing regulatory pebbles into the stream.
Will Marshall compiled four positive economic stories for Real Clear Politics that President Obama should be making better use of in his campaign for re-election. From farming to exports there are positive signs in the economy according to Marshall.
PPI’s recent report on Investment Heroes has continued to be picked up by major media outlets. This time, National Journal focused on the investment in the U.S. economy made by telecom companies.
I was looking at the April CPI this morning, and I got to thinking about Dropbox. I use Dropbox literally 25-50 times a day. I’m working on a file on my Apple laptop, save it to the Dropbox folder, and I can be sure that the same file will show up on my PC when I get home.
PPI has long held the 
AT&T is a big company, which perhaps explains why federal regulators are ganging up to block its proposed merger with T-Mobile. Big must be bad, right?
Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy. Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years. Finally, imagine that industry charged falling prices for both consumers and businesses.
