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PPI Memo: Title II Will Cost Billions

The FCC's decision to reclassify broadband as a Title II telecom service under common carrier regs 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 FCC is ostensibly laser-focused on trying to promote deployment and adoption.

That is according to a new policy memo from Progressive Policy Institute senior fellow Hal Singer.

Singer says the FCC's rule barring paid priority could undermine telemedicine and HD voice applications, the FCC's creation of a waiver process notwithstanding. That, he said, could mean hundreds of millions of dollars annually in lost economic value.

"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 said. "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 said Title II did create a waiver process for paid priority with demonstrable consumer welfare, but Singer suggests that will be a high bar, and points 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 has big issues with the impact of Title II on subsidized access business models.

He says that if the FCC discourages "content-subsidized" access—zero rating plans, for example—it would be discouraging potential 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 that fall outside of its bright-line rules against blocking, throttling or paid prioritization. But Singer points out that that process includes seeking advisory opinions, 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 millions of dollars in lost benefits to poorer Americans.

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

Singer clearly sides with the investment-chilling camp, arguing that the "regulatory risk" of Title II could translate to a reduction in ammual 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.