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Hill Briefed on Title II Economics

Economists weighed in on the impact of Title II-based network neutrality regulations at a House Communications Subcommittee hearing Tuesday, with most of them painting a gloomy picture.

There was talk of higher risk, lower returns, and less innovation by the majority, while the lone Title II fan said investment might even go up, and in any event, overall public benefit, not ISP investments should be the goal of the rules.

There was no doubt where Republicans, who picked the panel, stood on the issue of the FCC's decision to reclassify Internet access as a telecom service, which was made clear by Subcommittee chairman Greg Walden (R-Ore.) in his opening remarks.

"Eight months ago the FCC decided to grab control of the Internet and regulate it like a monopoly utility under Title II," said Walden. "Rather than work with Congress to adopt a statute that would punish those who engaged in harmful actions, the FCC yielded to White House pressure and went all in for Title II."

Republicans argued throughout the hearing that legislation to clarify the FCC's authority to regulate network neutrality would be preferable to the uncertainty of lengthy legal battles that could stretch to 18 months or more, though Rep. Anna Eshoo (D-Calif.), a fan of reclassification, pointed out that it was the ISPs suing the FCC over the rules that created the legal uncertainty.

But the focus of the hearing was the economic uncertainty of the rules.

There was a range of opinions on the panel as to the immediate impact of the rules, if any, though the majority suggested Title II would ultimately have a negative affect on investment and the economy.

One estimate suggested infrastructure investment could ultimately be reduced by anywhere from $3 billion to $12 billion annually, figures Walden focused on in a portion of his questioning.

But while Republicans focused on that alleged hit on infrastructure investment, Democrats suggested that focus was too narrow, and that the benefits of network neutrality to investment and innovation on the edge should be factored in.

"There are very significant benefits of network neutrality to applications and content providers sector, including investment in that sector,"  said net neutrality rule fan and witness Nicholas Economides, professor of economics at the New York University Stern School of Business.

He also said that even if rules did reduce infrastructure investment—which he did not concede—the boost to the edge would more than make up for it. But he also said that public benefit, not boosting investment, should be the goal of public policy.

Countering that was witness Robert Shapiro, chairman of Sonecon LLC and former undersecretary of commerce in the Clinton Administration. He said that those innovations at the edge are based on bandwidth, and all depended on the infrastructure investment that produces it. All that innovation only comes after the infrastructure because it isn't possible without it.

Michael Mandel, chief economic strategist at the Progressive Policy Institute, pointed out that ISPs have been some of the biggest investors in the U.S. under light-touch regulation, and feared that the new, tighter regs, "in the interest of protecting consumers [may] have the perverse effect of reducing investment and increasing consumer costs."

Economides, the only economist favoring the new regs, including applying them to interconnection agreements, suggested AT&T had sought to "kill" network neutrality by proposing paid prioritization, and referred to Comcast as capturing subs who could become pawns in an interconnection chess game of sorts.

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.