Patrick Brogan

Broadband Investment Heads in the Wrong Direction

USTelecom’s seventh annual report on broadband investment numbers will be finalized soon, but our initial analysis strongly suggests that investment in 2016 continued to trend downward following the Federal Communications Commission’s (FCC) adoption of the 2015 Open Internet Order.


Data compiled from internet service providers (ISPs) which usually represent between 90 to 95 percent of annual industry capital expenditures, suggests the dip in broadband investment we reported on in 2015 is more than a one-year phenomenon.


In 2016, capital expenditures for these ISPs was $71 billion, down from $73 billion in 2015 and $74 billion in 2014, our current estimate shows. That’s $2.5 billion to $3 billion lower in 2016 than it was in 2014, the year before the FCC adopted Title II utility regulations.


This data includes capital expenditures by cable, wireless and wireline ILECs, but does not include information from certain CLECs, which are mostly privately held. To ensure our comparisons are apples-to-apples, this estimate excludes investment figures from competitive carriers for all years from 2014 through 2016. While we are still collecting this data, this group represented approximately $5 billion of capex in 2014 and 2015. If their capital spending in 2016 grew, our estimate will be revised.


Claims by some interest groups that broadband provider capex actually may have increased in 2015 and 2016 depend on figures that ignore accounting adjustments for certain non-material items like leased cellphones and acquisitions, such as AT&T’s merger with DirecTV and a Mexican wireless operation.


One-year moves in investment that are seen in a time-series don’t tell the whole story.  The overall trend is important, however, and a data series that declines, or even just slows, when it was previously growing should raise a red flag. Indeed, Michael Horney of The Free State Foundation postulated in a report using data from a USTelecom study, that broadband investment slowed by $5.6 billion since the Open Internet Order. The crucial question going forward is what would have capex been if Title II had not been imposed, controlling for other factors?


Closing the digital divide and bringing more Americans access to the benefits of high-speed internet service won’t happen if new investment in broadband infrastructure continues to fall. Consumers deserve, and broadband providers support, net neutrality protections such as no blocking or throttling. But these numbers highlight why Title II regulation is the wrong approach for the internet economy, for consumers, and for our common goal of deploying more high speed broadband to all Americans.