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Economist: Title II Will Cost Billions

WASHINGTON — The Federal Communications Commission's decision to reclassify broadband as a Title II telecom service under common-carrier regulations could cost the economy billions in lost investment, plow up potential new services before they have a chance to take root, and deny lower-cost broadband to lower-income Americans — at a time when the agency is ostensibly laser-focused on trying to promote high-speed Internet deployment and adoption.

That’s according to a new policy memo from Progressive Policy Institute senior Fellow Hal Singer.

The FCC's rule barring paid priority could undermine telemedicine and high-definition voice applications, in Singer’s view, the agency's creation of a waiver process notwithstanding. That could mean hundreds of millions of dollars per year in lost economic value, he said.

"The nascent markets for certain real-time applications, including telemedicine, virtual reality, and HD voice, are expected to develop into billion dollar industries in the coming years," he says. "The ban on payments for priority arrangements could undermine certain collaborations among ISPs and websites/application providers (‘content providers’), and thereby thwart a non-trivial portion of these applications."

The FCC in its Title II order did create a waiver process for paid priority, with a standard of demonstrable consumer welfare. But Singer suggested that standard would be a high bar, and pointed again to the public nature of the waiver process as a damper on innovation.

"[T]hat the intimate details of the priority arrangement between an ISP and content provider would be subject to public scrutiny and potentially shared with rivals further undermines any incentives to innovate in the real-time application space," he wrote.

Singer also had big issues with the impact of Title II on subsidized-access business models.

Were the FCC, for instance, to discourage such “content-subsidized” access as zero rating plans or other sponsored data plans, it would discourage potentially lower-price broadband offerings. The FCC in its Title II decision said that such subsidized plans could "hamper innovation and monetize artificial scarcity," Singer points out.

The FCC has said it would take a case-by-case approach to whether various businesses models violate its new general conduct standard for any non-neutral conduct falling outside of its bright-line rules against blocking, throttling or paid prioritization. But that that process includes seeking advisory opinions, according to Singer, potentially sharing prospective business plans with competitors and the public will have the practical effect of discouraging innovative business models.

"The discouragement of sponsored-data plans would prevent certain low-income Americans from connecting to the Internet," he said. That could mean hundreds of million of dollars in lost benefits to poorer Americans.

Singer sees the biggest economic hit coming from the reclassification of ISPs as telecom services under Title II. Broadband providers told the FCC in the run-up to the order that reclassification would hurt network investment, but agency chairman Tom Wheeler disputed that claim.

Singer clearly sided with the investment-chilling camp, arguing that the "regulatory risk" of Title II could translate to a reduction in annual investment of $4 billion to $10 billion.

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.