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The Title II Capex Argument Is Ridiculous

Mari Silbey
5/1/2017

For all the arguments over net neutrality, many Internet service providers will tell you they actually support net neutrality principles, just not the reclassification of ISPs as Title II common carriers.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) has been one of the most vocal on the matter, publishing blog posts and promoting tweets that highlight the cable company's belief in making the Internet free and fair for all. And whether you believe in the company's sincerity, or think the rhetoric is just a PR move, the fact remains that Comcast has gone on the record saying it supports the edicts of no blocking, throttling or paid prioritization.

So what is it Comcast and other ISPs object to so stridently in the Open Internet Order that Federal Communications Commission (FCC) Chairman Ajit Pai is working to roll back? The answer is price regulation.

It's quite simple really. Even though the FCC under Democratic Chairman Tom Wheeler promised to forbear from (i.e., avoid implementing) pricing controls, ISPs worry that Title II classification still opens the door to the possibility. Never mind the fact that there would be an absolute uproar in Congress if the FCC even made the attempt. ISPs argue that the mere threat of price regulation puts a "chill" on infrastructure investment plans.

And here's where I have a problem. Leaving aside all the other debates around net neutrality, what is this nonsense that ISPs will stop investing in their networks under the threat of price regulation? Really? They're going to stop upgrading and expanding their networks so that competitors can step in instead? Telcos like Verizon Communications Inc. (NYSE: VZ) are going to stop partnering with cities like Boston to deploy fiber that will support future 5G services? AT&T Inc. (NYSE: T) is going to let Alphabet Inc. use its new Webpass assets under Google Fiber to retake control of the gigabit city narrative? And cable companies are going to give up their massive head start in last-mile infrastructure to allow both telco and municipal competitors to catch up?

Oh, I can hear ISPs saying, but with the threat of price regulation (just the threat, mind you), we won't expand to neighboring footprints in more rural areas because there's no economic incentive to do so.

Well, clearly that's a problem with or without Title II classification because many rural areas have few if any competitive broadband offerings today.


For more fixed broadband market coverage and insights, check out our dedicated Gigabit/Broadband content channel here on Light Reading.


One piece of evidence that Title II detractors like to cite in their arguments about the impact on network investments is data on recent capital expenditure trends. According to Chairman Pai: "Among our nation's 12 largest Internet service providers, domestic broadband capital expenditures decreased by 5.6% or $3.6 billion between 2014 and 2016, the first two years of the Title II era." (See Net Neutrality, Here We Go Again.)

That doesn't sound like a good thing, but it also doesn't do anything to correlate changes in capex spending with the threat and then implementation of Title II. Capex spending varies for a number of reasons.

Also, in saying "between 2014 and 2016," is Pai counting investments during 2016, or only up until the start of 2016? It's not clear.

I decided to do my own research. It wasn't hard. I looked at capex spending for AT&T, Verizon and Comcast over the last three years - that's full-year spending for 2014, 2015 and 2016. (I didn't include Charter only because it bought a large broadband network from Time Warner Cable in that time frame, which makes spending more difficult to analyze.)

In tallying the total spending by all three, I found that capex increased by just under $1 billion between 2014 and 2015, and by $3 billion between 2014 and 2016.

Capex Spending, 2014-2016
Source: AT&T, Verizon and Comcast earnings reports
Source: AT&T, Verizon and Comcast earnings reports

I'll say again that there are many different reasons for capex to go up and down. But in this case, even suggesting that recent numbers are evidence that Title II has chilled network investment is ridiculous. Unless you think AT&T, Verizon and Comcast don't count for much.

There's another problem in getting rid of Title II too. As many people have pointed out, without Title II, the FCC has no authority to police ISP behavior, and all assurances that ISPs abide by the rules of no blocking, no throttling and no paid prioritization become voluntary only.

I appreciate that Comcast says it supports these bright line rules. However, that doesn't mean I trust them -- or any company -- to always abide by those principles if there's financial incentive to do otherwise and no chance of legal punishment.

As you might be aware by now, I'm against the rollback of the Open Internet Order. That's not a knee-jerk reaction; it's an opinion formed after years of following this debate. And after following the money trail.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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dhickey
dhickey
5/5/2017 | 11:00:00 AM
Re: Bingo
My comment was directed at the LightReading article, not your link, which lays out a very clear and compelling argument against more gov't meddling.
nextinning
nextinning
5/5/2017 | 9:15:53 AM
Re: Bingo
It's not clear by your comment that you read the linked article that I wrote.  I realize it's a little long, but this is a serious topic that is more often than not misrepresented.  I wrote it to point out those misrepresentations and to help people understand the truth behind the myths.
dhickey
dhickey
5/5/2017 | 9:06:45 AM
Re: Bingo
I don't understand the arguement.  Did they say they would stop spending all together?  If not, how do you know they wouldn't have spent even more without the threat of price regulation?
nextinning
nextinning
5/1/2017 | 2:31:31 PM
Bingo
Below is a link to an article you might enjoy.  It provides background and color for some of the topics covered above.

http://www.realclearmarkets.com/articles/2014/12/08/net_neutrality_is_a_brand_name_not_a_policy_101423.html

Tiny URL for above link: 

http://preview.tinyurl.com/m2dacoc

 
msilbey
msilbey
5/1/2017 | 1:39:44 PM
More Detail on AT&T Capex #s
One analyst has posited that the AT&T capex numbers should only be considered in terms of the money the telco spent specifically on its broadband networks. He estimates that we should shave around $1.9 billion off of AT&T's 2015 capex total and roughly $3.8 billion off of the 2016 total because of the money the operator spent on DirecTV and certain Mexican cellular properties in recent years. There may be some merit to the argument, but on the whole, I still disagree with the analysis. Investing in DirecTV is still about AT&T investing in its broadband product because the telco has said repeatedly that it believes it will be most successful where it can bundle services. AT&T has some catching up to do on the video side, hence the DirecTV capex. But that's not evidence of a chill on broadband investment. 
Carol Wilson
Carol Wilson
5/1/2017 | 12:46:18 PM
Also ridiculous - reactions to today's court decisoin
So the DC Court of Appeals decides not to review its earlier decision supporting the Net Neutrality rules and both sides claim victory.

Pro Net Neutrality folks say, "See, the court still upholds these rules as legal.."

Pai says, "See, the court knows we're going to change this so they didn't waste time on this..."

Everybody wins, everybody loses - the perfect encapsulation of this debate. 
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