Net Neutrality Regulations Could Be Costly, Report Warns

As Federal Communications Commission Chairman Julius Genachowski prepares to outline the agency's plan for greater authority over broadband service providers, a report from The Advanced Communications Law & Policy Institute at New York Law School and technology research firm Entropy Economics warned new regulations for providers of broadband Internet service could result in the loss of hundreds of thousands of jobs and could also reduce U.S. Gross Domestic Product (GDP) by tens of billions of dollars per year.

Charles Davidson, director of Institute, and Bret Swanson, president of Entropy Economics, were the authors of the report, titled "Net Neutrality, Investment & Jobs: Assessing the Potential Impacts of the FCC's Proposed Net Neutrality Rules on the Broadband Ecosystem". The report examines the extent of likely damages to investment, jobs, and U.S. GDP resulting from the implementation of the FCC's proposed net neutrality regulations.

In the report, the authors describe net neutrality's restrictions on the development of new business models, its impediments to the reliable delivery of life-enhancing content and services, and the injection of uncertainty into the marketplace. The paper estimates the likely investment, job, and GDP losses resulting from the imposition of such rules. The authors argue because net neutrality could foreclose even larger investments than presumed in the paper's baseline scenario, the number of jobs lost or foregone could be even greater than the 10-30 percent drop forecast in the report, stretching to 700,000 jobs lost.

Davidson and Swanson analyzed the hundreds of billions of dollars in broadband network expansion and upgrades over the past decade and concluded they generated hundreds of thousands of jobs, annually contribute tens of billions of dollars to GDP and spurred innovation across the content and device sectors. The research suggests large investments and rapid innovation across the ecosystem have been spurred by the light-touch regulatory approach taken by the FCC over the last several years.

Davidson said with the U.S. economy still in a fragile state, imposing restrictive regulation on one of the country's most dynamic sectors is misguided. "The FCC's proposed net neutrality rules would reverse the many organic gains realized under the current regulatory framework - one that has allowed the broadband sector to flourish," he said. "The rules would likely result in significant job losses and would hinder a spectrum of innovative broadband-enabled services."

The report projected broadband service providers such as Verizon, Comcast and others are expected to invest at least $30 billion annually in new fiber-optic and wireless networks between 2010 and 2015, resulting in the creation or sustainment of more than 500,000 jobs. The authors argued these investments are likely to spur capital expenditures by others in the ecosystem. The report projected a five percent incremental increase in capital expenditures by these ecosystem companies could boost investment by approximately $18 billion per year between 2010 and 2015, and yield an additional 450,000 jobs created or sustained.

"The U.S. Internet is one of our healthiest industries," Swanson concluded. "We enjoy robust investment and vibrant innovation - and we're just getting started. Absent new constraints on this dynamic arena, we should expect more investment, creativity, and job creation. Net neutrality could give us just the opposite."