High-Speed Internet Rules Might Prove Costly

Proposed regulation of high-speed Internet service providers by the U.S. government could cost the economy at least $62 billion annually over the next five years and eliminate 502,000 jobs, according to a study released by New York Law School.

The report estimates that broadband providers and related industries may cut their investments by 10 percent to 30 percent from 2010 to 2015 in response to additional regulation. At 30 percent, the economy might sustain an $80 billion hit, according to Charles Davidson, director of the law school’s Advanced Communications Law & Policy Institute, which released the report on June 16.

“There will be follow-on effects in the whole ecosystem,” said Bret Swanson, president of technology researcher Entropy Economics in Zionsville, Ind., who co-authored the study with Davidson. “A diminution of investment by the big infrastructure companies will reduce network capacity, new services, and investment by all the ecosystem companies,” such as application providers and device manufacturers, he said in an interview.

On June 17, the Federal Communications Commission is set to vote on taking public comment on Chairman Julius Genachowski’s proposal to give the agency greater authority over broadband service providers such as Comcast (CMCSA), Verizon Communications (VZ), and AT&T (T). The agency wants the power to impose so-called net neutrality rules that would require providers of traditional broadband and wireless services to allow all applications and devices onto their networks. In April, a court ruled that the FCC currently lacks the authority to impose such regulations.


FCC commissioners may vote to grant themselves authority to regulate the Internet as early as this summer. “It’s not a lengthy process,” says Darrell West, a director at Brookings Institution, a Washington think tank. “They’ll make a decision in the next few months. But it could be years before the issue could get resolved.” Lawsuits or Congressional actions challenging the FCC’s authority are likely, he says.

On May 24, 74 House Democrats sent a letter to the FCC expressing “serious concerns” about the proposed regulation. “We urge you not to move forward with a proposal that undermines critically important investment in broadband and the jobs that come with it,” the letter said.

The FCC aims to allow companies such as Google (GOOG) and Skype to offer their services freely on the nation’s wired and wireless broadband networks. Today service providers can ban or degrade the quality of certain services. “Google believes that forcing people and companies to get permission from—and pay special fees to—the phone and cable companies to connect with one another online is fundamentally counter to the freedom and innovation that have defined the Internet,” the search giant wrote in a 2006 blog advocating net neutrality.

The FCC may also be striving to lower the price of high-speed Internet access for consumers. In a May 28 report, Sanford C. Bernstein analyst Craig Moffett pointed out that about one-third of Americans can’t afford broadband access, which the new regulation could change. Still, his report begins with the sentence: “The road to Hell, it is said, is paved with good intentions.”


The study’s authors believe regulation would reduce service providers’ willingness to invest by shrinking their revenue opportunities. For example, they say service providers wouldn’t be able to offer a hospital a higher-quality network service needed for telemedicine applications. “A lot of telemedicine services are real-time in nature,” says Davidson. “If network owners are not allowed to manage their networks to allow for reliable delivery of those services, then we’ll see those services not developing as they should.”

The study is one of several in recent months to warn that net neutrality regulation may lead to lower investment and job losses in telecom and other industries. In May, consultant Frost & Sullivan released a study that said additional regulation would increase business risks for service providers, forcing them to pass certain costs on to consumers. “Net neutrality could, ironically, have the effect of actually reducing broadband penetration,” cautioned Frost analyst Mike Jude.

In April, the Brattle Group released a report that said net neutrality regulation “could slow the growth of the broadband sector, potentially affecting as many as 1.5 million jobs.” Broadband industry job losses could reach 14,217 in 2011, and 342,065 in 2020, according to that report, which was sponsored by Mobile Future, a coalition of companies that includes AT&T and T-Mobile. “The possibility that such losses would be offset by gains in other parts of the Internet economy is remote,” according to the report.