The debate over whether and how to regulate broadband has been a vicious, no-holds-barred throwdown. It is expected to come to a head with a vote at the Federal Communications Commissions (FCC) next month. Appropriately, much of the debate has focused on how broadband and its uses will develop under different regulatory approaches. One of the biggest disputes is how classifying broadband under Title II of the 1996 Telecommunications Act is likely to affect investment.

Opponents of Title II classification have argued that applying it to Internet service providers (ISPs) will reduce investment. Proponents of Title II reacted with smug glee when executives at several ISPs suggested that Title II was unlikely to affect "the way we invest," as Verizon CFO Francis Shammo said.

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Comparing what companies tell regulators to what they tell investors is a fun sport, especially for those of us — and I include myself in this group — whom Ralph Waldo Emerson might have dismissed as "small minds." Although there is a certain schadenfreude in seeing lobbyists and executives undercut each other, the inconsistencies between K Street and Wall Street talking points arise not because one side is lying, but because both are talking about future events, which are inherently uncertain, and want to emphasize the outcome that is most in their interest in a given forum.

The truth is that new rules under plausible consideration are unlikely to affect the bulk of near-term investment decisions. At the same time, regulations can and do affect returns to investments, and reducing expected returns will affect investments "on the margin," as economists call them. Think about an array of investment options facing a company. The company will first invest in the option with the highest expected return and continue with investments expected to have lower and lower returns until finally some potential investment has an expected return too low to justify the expenditure.

In other words, any change in regulation will have some effect on investment, but the size of that change depends on how much the new rules affect expected profitability. If a regulation has only a small effect on expected returns, then it is likely to make only a small share of investment options unprofitable. For example, certain network investments in core areas may have such high expected returns that almost no regulation that the FCC would plausibly consider would take those investments off the table. But some investment, somewhere, is barely profitable without the rules and would not happen with new rules.

The share of investments that become unprofitable becomes bigger the more a regulation affects potential returns. At some point the rules become so strict that they have large and noticeable effects on investment.

The point is that estimating the effect of investment is not as simple as saying that reclassifying ISPs under Title II or using Section 706 as a foundation for expanding regulation will or will not affect investment. Instead, the specific rules adopted combined with uncertainty about the future of the rules will determine the investment effect. For example, a no-blocking rule probably would have little effect, while 1990s-style network unbundling rules would likely have a large effect. Similarly, uncertainty regarding forbearance under Title II and the probability of the FCC prevailing in a court challenge will also affect investment.

In charting the way forward, the FCC should consider each specific rule that would take effect under different proposals and review the relevant research regarding what we know about each. With that information, the commission can, if not conduct a thorough cost-benefit analysis, at least have some informed idea of how its rules will affect the investment landscape.

Wallsten is vice president for research and senior fellow at the Technology Policy Institute.