Net Neutrality, Reclassification and Investment: A Counterfactual Analysis
Phoenix Center Perspectives No. 17-02
13 Pages Posted: 5 May 2017
Date Written: April 25, 2017
In the heated debate over Net Neutrality, the effects of regulation on investment are a central concern, with special attention given to the presence or absence of investment effects from the FCC’s 2010 proposal and subsequent controversial 2015 decision to reclassify broadband Internet access as a common carrier telecommunications service under Title II of the Communications Act of 1934. Applying the difference-in-differences method to a broad measure of investment (thus accounting for “virtuous circle” effects), I estimate the investment effects in telecommunications caused by the overhang of reclassification. Between 2011 and 2015 (the last year data are available), the threat of reclassification reduced telecommunications investment by about 20% to 30%, or about $30 to $40 billion annually. Actual investment averaged $126 billion annually, a sizable expenditure, but the counterfactual analysis indicates the average investment over the five-year window would have been about $160 billion (or more) annually. That is, over the interval 2011 to 2015, another $150-$200 billion in additional investment would have been made “but for” Title II reclassification. Notably, I find no decline in investment following the release of the FCC’s “Four Principles” to promote an Open Internet in 2005, suggesting it is reclassification — and not neutrality principles — that have reduced investment.
Keywords: Net Neutrality, Investment, Title II, Open Internet, Telecommunications, Broadband, Regulation
JEL Classification: M38, L86, L96
Suggested Citation: Suggested Citation