Proposed FCC regulations threaten U.S. economic recovery

It is puzzling, then, that the Federal Communications Commission has outlined a plan for the broadband sector that will likely result in tens of thousands of job losses if implemented. Indeed, the FCC has proposed a series of heavy-handed regulations for a sector that has been one of the economy’s few bright spots over the last few years. The Internet has blossomed into a competitive and innovative space as a result of a light-touch regulatory approach to broadband that the FCC has carefully developed and implemented over the last decade.

The results of this approach have been spectacular. Between 2003 and 2009, broadband service providers invested an average of $30 billion per year in deploying new broadband networks and enhancing existing ones, resulting in some 431,000 jobs created or sustained. In the absence of new regulations, many expect these investment levels to continue apace through 2015. Most importantly, sustained capital investments by broadband service providers will likely create or sustain an additional 500,000 jobs between 2010 and 2015.

These prospective investments, however, are tenuous. As the Internet opens huge new opportunities, it also disrupts existing business models. It has already thrown the media world into tumult, and the disruptions will spread through most other industries. The changes should greatly enhance productivity and wealth over time, but each industry and company will have to adapt and pursue new entrepreneurial strategies, none more so than the very companies building our broadband networks. They will need the flexibility to experiment with new business models that reflect a marketplace dominated by increasingly insatiable consumer demand for bandwidth-intensive services.

Unfortunately, the FCC’s proposed regulations would severely restrict the ability of broadband service providers to implement a wide range of critical business models and robust services, which could put into question the smooth functioning and profitability of networks. We estimate that even a modest 10 percent decrease in capital spending by broadband service providers coupled with likely spillover effects could result in over 500,000 job losses across the entire broadband ecosystem and $62 billion in annual lost GDP.

Policymakers across the country, including bipartisan majorities in Congress, have recognized the real threat of these proposed regulations to jobs and investment and have called on the FCC to yield to a legislative fix to any actual problems. Despite these calls and mounting evidence of the likely negative economic consequences of its actions, the FCC marches on undeterred. With the economy still in a vulnerable state, all efforts should be focused laser-like on spurring private-sector job creation. The FCC’s proposed regulations do not further this agenda and should be ditched lest the best intentions of unelected regulators block a robust economic expansion.

Charles M. Davidson is a director of the Advanced Communications Law & Policy Institute at New York Law School. Bret T. Swanson is president of the technology research firm Entropy Economics LLC. Their new paper, “Net Neutrality, Investment & Jobs: Assessing the Potential Impacts of the FCC’s Proposed Net Neutrality Rules on the Broadband Ecosystem,” was released this past week. To read the full research report, click here.