Capex Under Common Carrier Rules Still Debated

Some questions simply cannot be answered. We really do not know whether, in fact, ubiquitous high speed internet "causes" economic growth, though everybody acts as though that were the case. We do not know whether high speed access helps grow incomes, or whether higher incomes lead to high speed access adoption. 

Likewise, it remains difficult to assess what impact common carrier rules had on capital spending. You might argue it is a simple exercise: simply add up the numbers. So some make the argument that overall investment was, in fact, not lessened by common carrier regulation.

Others would argue that investment grew in some segments, declined elsewhere, but would likely have been higher if common carrier rules were not in place.

Some might note that there also are other important drivers of behavior, aside from the rules, as well.

Although the common carrier rules were levied in 2015, industry observers had been expecting those rules for some time, causing investment hesitance, it is argued. That also is hard to know for certain.

It might be reasonable to argue that expectations matter. It is logical to invest more heavily when a market with good profit margin is growing; less logical when markets are declining and have poorer prospects. It is logical to invest more when there is a guaranteed rate of return; less logical to invest heavily when markets are competitive.

It is logical to invest more heavily when there is a chance to significantly take market share; the opposite stance being logical when, despite investment, share might still be lost.

So it can be argued that there are clearly different dynamics at play in the U.S. mobile, fixed and cable TV segments, not a single trend.

At a high level, mobility capex tended to grow (growth was possible and competition increasing, so there was an investment push and a pull); fixed network capex was flat to declining (unclear whether revenue would increase, even if the investments were made); and cable TV capex was up slightly (cable could see a way to take a clear lead, and was gaining market share).

As a background trend, global telecom capital investment levels have been flat or declining since about 2000.

Further, investment sometimes is driven by reasons other than immediate expected return. In other words, investment might have been driven, in the current period, by considerations other than the common carrier rules.

I remember well being told, off the record, by a fixed network telecom executive, that the fiber ot home decision was, in fact, not driven by the usual investment considerations (invest A, earn a 20-percent return above return of capital) but by strategic concerns.

In other words, “we are investing to keep our business,” and not because the financial return really was expected to be positive in the normal sense. Given the heightened levels of telecom industry competition, some decisions were driven by competitive issues unrelated to common carrier rules, and, again, might well have been higher in the absence of the rules.

The point is that a number of drivers exist for capital investment decisions. It is hard to isolate the impact of common carrier regulations from the rest of the considerations. And it is impossible to determine what might have happened, had the rules not been in place.