WASHINGTON — On Monday, Free Press released a comprehensive report examining internet-industry developments in the two years since the Federal Communications Commission’s February 2015 Open Internet Order. At that time, the agency adopted strong Net Neutrality rules and reclassified broadband-internet access as a Title II telecommunications service.
It’s Working: How the Internet Access and Online Video Markets Are Thriving in the Title II Era documents financial disclosures, statements to investors, and infrastructure deployments publicly traded internet service providers (ISPs) in the United States made during the years leading up to and following the FCC’s historic vote. The report also examines investments, growth and other developments for businesses and industry sectors that rely on the open internet to reach their customers. The data overwhelmingly suggest continued growth in investment and innovation in both the ISP and internet “edge” sectors.
“If investment is the FCC’s preferred metric, then there’s only one possible conclusion: Net Neutrality and Title II are smashing successes,” said Free Press Research Director S. Derek Turner, the author of the report. “The restoration of Title II for broadband-internet access was designed to preserve what the FCC rightly calls the internet’s virtuous cycle of investment and innovation. All available data indicate that the 2015 decision to adopt strong rules on a sound legal footing is working as intended, benefiting internet users, broadband-access providers and the myriad businesses that distribute services over the open internet.”
Despite the wealth of facts pointing to the Open Internet Order’s successes, President Trump’s FCC chairman, Ajit Pai, has launched a proceeding to repeal the 2015 policy. The centerpiece of Pai’s push is his demonstrably false claim that the mere existence of Title II authority has caused a reduction in broadband investment.
“This claim is both false on its face — aggregate investment by publicly traded ISPs is up since the FCC’s vote — and completely illogical,” Turner said. “Infrastructure investment is influenced by a number of factors, including interest rates and investment climates, competition and consumer demand, and of course the networks and capacities that a company has already built out. The idea that a single FCC decision could have this impact on investment is preposterous. Yet Pai continues to repeat the claim, ignore what these companies are telling their own investors, and look away from the mountain of available evidence showing that the internet economy overall is thriving since the FCC acted in 2015.”
Instead of having FCC staff produce their own objective analysis, Pai has relied on manipulated data from ISP-funded analysts. These estimates selectively removed billions of dollars in capital expenditures by AT&T and Sprint from their investment tallies.
“These rigged estimates arrive at their intended result by distorting two companies’ publicly reported data,” Turner said. “The manipulation of AT&T’s and Sprint’s investment data is unjustified. But it also shows the danger of assessing the broadband market’s health solely through this simplistic lens of aggregate industry investment. If we drop AT&T and Sprint out of the equation, the rest of the publicly traded ISPs’ investments are collectively 9 percent higher than they were before Title II. In other words, most ISPs are investing more, not less, after the 2015 vote. This is a strong indicator that Title II has not caused a systemic decline in investment.”
“It’s irresponsible to reach sweeping conclusions about Title II’s impact without looking at what each individual ISP is telling its investors, and what capacities these individual ISPs are actually deploying,” Turner said. “Maybe Chairman Pai should have paid attention when AT&T’s CEO explained that Title II had nothing to do with his company’s capital spending. In fact, every single ISP makes it abundantly clear to its investors why its spending goes up or down, and not a single one of the publicly traded carriers has claimed that Title II had a negative impact on its investments. If the FCC is interested in the truth and not ideology, it would pay attention to these irrefutable facts and stop peddling falsehoods.”
As the report demonstrates, and as Turner concludes, “ISPs are investing, and just as important or more is the explosive growth in online video competition and edge company investment. More new over-the-top video services are launching, and these are generating tremendous value for consumers and content creators. All of this is occurring with the certainty of the FCC rules as a backdrop. Net Neutrality and Title II are benefiting businesses and internet users alike. The case is clear. ”
Key findings from It’s Working include:
- Aggregate capital investments at publicly traded ISPs were 5 percent higher during the two-year period following the FCC’s Open Internet vote when compared to the two years prior to the vote. Claims of a decline are based on manipulated data, and in any event do not support a causal impact from Title II.
- Capital investments were higher at 16 of the 24 publicly traded ISP firms (or units) following the FCC’s vote. These increases are due primarily to continued core network expansion.
- During the two years following the adoption of the Open Internet Order, cable-industry physical network investments increased 48 percent compared to the amount invested during the two prior years. Cable ISPs’ core network investments accelerated dramatically during 2016, representing the highest single-year jump since 1999.
- Telecom-company spending on fiber-to-the-home network terminals and terminal ports rose nearly 50 percent during 2016.
- Not one single publicly traded U.S. internet service provider has ever told its investors (or the Securities and Exchange Commission) that Title II had a negative impact or negatively impacted its investments. The topic of Title II largely disappeared from all ISP investor calls following the FCC’s vote until after the November 2016 election, when political considerations returned to the conversation after more than a year of industry successes under the Title II framework. Despite the return of these politically motivated questions, several ISP executives have flatly stated both before and after the election that Title II had no impact on their investments or how they run their businesses.
- None of the ISPs that saw declines attributed them to any FCC policy. Declines were uniformly due to completion of prior cyclical upgrades and/or completion of the more capital-intensive portion of upgrades. All publicly traded ISPs, including those with temporarily declining capital investments, continue to increase broadband-network capacities.
- U.S. Census data, which measure capital expenditures at all public and private firms, indicate greater investment following the FCC’s 2015 vote. Capital investment at all U.S. wired telecom carriers was up nearly $2.7 billion during 2015, nearly a 6 percent increase over 2014.
- The industry-backed “analyses” Chairman Pai touts claim that investment is down by manipulating the publicly available information in two key ways. First, it improperly discounts billions of dollars that Sprint invested in leased customer equipment yet counts such investments by other ISPs. Second, it fails to count billions of dollars in AT&T’s DirecTV-related investments, manipulating that company’s publicly reported total expenditures and ignoring the capital synergies from that recent merger. None of the analysis Pai favors confronts the fact that both Sprint and AT&T completed nationwide 4G LTE deployments ahead of the FCC’s vote; each company told investors that its capital investments would decline in the short term after completion of these massive projects.
- ISPs continue to enjoy robust revenue and profit growth after Title II reclassification. This is particularly the case for wired ISPs that face limited competition. But even the nation’s dominant wireless carriers, which face a higher level of competition, reported record profit margins following the restoration of Title II.
- In the wake of the FCC’s Open Internet Order, many ISPs have accelerated or completed next-generation network upgrades. Comcast launched 2 Gigabit services to a third of its footprint and expects to offer multi-gigabit services to all of its customers by 2018. Mid-sized cable ISP Mediacom started and finished a systemwide gigabit upgrade in just 10 months during 2016. Cincinnati Bell increased its capital investments by 50 percent following the FCC’s vote as the company ramped up fiber-to-the-home deployment. All national U.S. cellular carriers began offering uncapped data packages again after the Title II vote, with AT&T marketing its wireless service as a full pay-TV/home-internet replacement option.
- Pai’s singular focus on ISP-industry developments ignores the fact that the Open Internet Order ensures the continued availability of nondiscriminatory broadband-telecom services. That enables a wide variety of economic activity in so-called “edge” industries. The data here show remarkable growth since the FCC’s vote. Total capital expenditures in the United States’ “data processing, hosting, and related services” sector (which includes app-hosting services like Amazon AWS and video-streaming services like Netflix) increased 26 percent in the year following Title II reclassification.
- More U.S. online video services were launched in the two years following the FCC’s Open Internet vote than in the seven preceding years. Online video companies are making massive investments in new content and the capital equipment needed to distribute that content over the open internet.
- The certainty the FCC’s action created spurred the entry of numerous full pay-TV replacement providers. Even vertically integrated ISPs with legacy pay-TV services, like AT&T, now distribute their pay-TV services via other ISPs’ last-mile networks. U.S. video consumers now have an unprecedented array of traditional pay-TV replacement choices, but those depend on the continued existence of an open and nondiscriminatory pathway to their customers.
Read more of Free Press’ findings in It’s Working: How the Internet Access and Online Video Markets Are Thriving in the Title II Era.