Regulatory Impact on Capital Expenditure Remains Unclear, For Reasons
One never can be completely sure about how well any set of public policies related to telecommunications is working, or how much impact such policies might have, any more than it is possible to have complete clarity about the impact of any policies designed to affect the economy. There simply are too many independent variables.
Consider the matter of whether current U./S. federal policy encourages, discourages or has no impact on investment in core communications infrastructure. Some argue that new common carrier regulation has not lead to a decline in service provider investment, while others note there has been a decline.
But Dr. George S. Ford is Chief Economist of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, argues the motivating rationale for investment is driven by strategic and competitive concerns, even under an investment climate that might be deemed unhelpful.
The argument Ford makes is that service providers “continue to invest,” despite a more-difficult investment climate, for several reasons. Demand for high speed Internet access continues to grow, especially for higher-speed services that require additional investment.
But extraordinarily low interest rates have been crucial. When firms can borrow at nearly-zero rates, it makes sense to borrow to build, as it makes sense to borrow to acquire.
“Regulation is but one of many inputs into the investment decision, so what is needed to decipher the effect of regulation on investment is referred to in the scientific community as a counterfactual,” Ford argues. “That is, we need to know what would happen in the absence of (or but for) the regulation.”
In other words, it is not terribly helpful to note incremental increases or declines in investment. The issue is whether investment would have been higher or lower in the absence of the regulation. And that always is a hypothetical exercise.
Generally speaking, economic theory is ambiguous about the effects of regulation and investment, said Ford.
But one form of regulation unambiguously reduces investment: regulation that is expected to reduce returns on investments made today, Ford argues.
Means and ends matter, he argues. “A rule that increases capital expenditures but has no discernible effect, or a diminished effect, on the deployment or adoption of Internet service in the U.S. is pointless,” Ford argues.
The bottom line is that it actually is not easy to tell, in the moment, whether capital expenditure actually represents net “investment” or not, whether policies are helping or harming investment.