Impact of Common Carrier Rules on Internet Access is Either Unknowable or Mixed

"What might have happened" with U.S. infrastructure spending, had common carrier rules not been imposed, is unknowable. "What did happen" is complicated.

It remains difficult to assess whether capital spending, under common carrier rules, grew, remained the same or shrunk, for several reasons. Some argue capex in the U.S. market grew, while others argue it declined. Different assumptions matter here.

Some point to actual levels of spending, and argue that is the proof of what happened. Others argue the issue is “what would have happened, if the rules had not been in place?”

As to what actually happened, spending was up and down, depending on industry segment and by company. So it is possible--perhaps likely--that multiple drivers were at work, making it impossible to sort out the common carrier impact from the other forces at work.

It also is impossible to prove what investment levels might have been, in the absence of the rules and contestant perceptions of what value the higher investment could have delivered.

Nor is it easy to describe the change in expectations created by anticipation of the rules. 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.

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.
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