America’s investment heroes are going it alone

If there has been one constant in my observations of the telecom industry, it is this: Policies that lead to regulatory uncertainty will deter investment. 

Now, the Progressive Policy Institute (PPI) is out with its fifth annual report on investment in the U.S., and the news is not good.

{mosads}The headline number is that the most recent annual rate of investment in the U.S. grew 2.9 percent, a sharp decline from the 12.7 percent increase from 2013 to 2014. 

Why the shift? The PPI blames regulatory uncertainty, and it’s the likely culprit. If companies can’t reliably predict an acceptable return on their investments, they will not invest. Or, if they do invest, it will likely be in markets across the globe that offer better returns on investment, rather than here. Or they can simply hoard cash, as so many companies are doing, hoping for better times ahead.

The report notes, as in previous years, so many of America’s “investment heroes” come from the telecom and internet sectors. AT&T once again takes the prize for the most investment in the U.S. in 2015, followed by Verizon and ExxonMobil. 

The telecom and cable sector as a whole is first at $48 billion, or about 27 percent of the domestic total; tech and internet companies are third, at $30.7 billion. 

But these numbers are significantly down from the prior year, and one does not have to look very far to find the causes. The Federal Communications Commission (FCC) regulates telecom and is taking a number of steps to regulate broadband. 

Here the scene is disheartening, and uncertainty abounds. The agency has released a string of decisions and proposed actions that have placed planned telecom investments on hold. Even when the final regulation is sensible, the intervening confusion has dampened investment enthusiasm and delayed deployments.

 Take the decision to treat competitive broadband providers as “common carriers,” exposing them to rules adopted for the monopoly rotary telephone era. 

Companies don’t know what rules, including price regulation, the FCC may impose on them under this heavy-handed regime. 

Or take business data services, where the FCC is actively considering price regulation on incumbent carriers and mandated access to the incumbents’ infrastructure to benefit a favored few companies in markets that are characterized by a high level of new competitive entry — especially from those cable companies that the PPI cites as major investors. 

Or consider the FCC’s proposed internet privacy rules that would provide consumer protections only for the use by internet service providers of sensitive consumer information while affording no protections if the same data is collected and used by an internet “edge provider.”

Or take the case of the data-roaming order that mandates access to incumbent-owned infrastructure at determined rates, even for the benefit of competitors that own their own spectrum but have chosen not to deploy their own networks. This rule, in particular, represents a glaring example of a missed opportunity to encourage infrastructure investment. 

Few things deter investment more than price regulation and new requirements on the provision of services. The problem is only compounded when there is uncertainty about whether and to what extent new rules will apply.

At bottom, the FCC has taken a dramatic departure from the previous bipartisan polices employed by the Clinton administration and by both Democratic- and Republican-led FCCs that encouraged facilities-based competition. 

As the term implies, facilities-based competition cannot take place without infrastructure investment. Now, as the PPI reports, capital expenditures in the telecom and cable sector have actually fallen by 1.3 percent. 

Both AT&T and Verizon reduced their cap expenditures in this period, and there can be little doubt that looming broadband price regulation and new restrictions on broadband services have been the major contributors to investment declines. Capital investment has been a victim of the unwise departure from the bipartisan regulatory policies of the past.

The subtitle of the PPI’s report this year is “Fighting Short-termism.” Exactly. 

Investment is building for the long term. 

It may be tempting for government agencies to go for a quick fix, to try to respond to a favored company, to try to address a hot political issue. But make no mistake: Policies that promote regulatory uncertainty will deter investment and leave the entire country worse off in both the short term and the long term. 

In Europe, pervasive network unbundling requirements and mandated broadband prices have deeply depressed telecom infrastructure investments. And now that Europe has fallen behind, it is proving very hard for it to catch up to the U.S. 

Let’s learn from the mistakes of others and return to the bipartisan pro-investment, pro-infrastructure deployment policies that over the past 20 years underpinned the dramatic growth of the internet economy, the time of greatest overall economic growth our nation has experienced.

Boucher represented Virginia’s 9th District from 1983 to 2011, chairing the Energy and Commerce subcommittee on communications. He is honorary chairman of the Internet Innovation Alliance (IIA) and head of the government strategies practice at the law firm Sidley Austin.