More and more, the debate over net neutrality centers on the question of government regulation, and the telcos and cable companies have done a pretty good job of invoking the bogeyman of government intervention in markets. Hands off the Net, right? At yesterday's Senate Commerce Committee hearings, Blair Levin, managing director and telecommunications analyst at Stifel, Nicolaus and Company testified on the potential impact of net neutrality regulations on investment. Investment analysis may not be your cup of tea, but Levin's testimony is intelligent and thoughtful, a far cry from the dogmatic anti-regulation rhetoric that we often hear from the anti-Net Neutrality side. And he comes to some surprising conclusions about the link between net neutrality and network investment.
He begins by addressing the link between government and regulation in the telecom industry:
In listening to the debate on network neutrality, one often hears the view that any regulation will hurt investment in the network. In my view, this is like believing that a piece of a puzzle is the entire puzzle.
That is, while it is true that regulation, looked at in isolation, has a negative impact on investment in the enterprise being regulated, it may not be true when one looks at the whole picture. The decision of whether, and if so, how much to invest in infrastructure involves a complex weighing of a number of factors.
That is, it's not a direct negative correlation between regulation and investment. The picture is much more complicated, and in many cases in the telecom industry, regulation has helped to spur economic growth. In fact, the same companies now fighting net neutrality once sought government regulation to make their new business models possible. Levin gives some examples:
While some have suggested the government should never be involved in such matters, it is important to remember that government has often intervened in value chain disputes to help jump-start new industries and stimulate competition. To help the fledging cable industry, government imposed regulations on owners of utility poles and mandated compulsory copyrights for broadcast content. To help the Direct Broadcast Satellite industry, government imposed program access rules on cable-affiliated programming, which, as noted above also stimulated broadband investments. To help broadcasters, government imposed must-carry and retransmission consent rules on cable operators. To help wireless, the government limited the wireline companies' ability to change excessive terminating access charges. To help various providers of telecom services, such as the long-distance industry and competitive access providers, constraints were placed on the way incumbent local exchange carriers could price or deny access to certain of their facilities.
The last example, of course, is the forty-year old net neutrality rules that the FCC and the Supreme Court did away with last year. The entire testimony is worth a read, and while I don't agree with all of Levin's conclusions, it's good to see commentary that rises above the “soundbites, lies, misleading arguments, and propaganda” that have clouded the net neutrality debate.