On Wednesday, the Senate Commerce Committee held a confirmation hearing on the nomination of Gigi Sohn to the Federal Communications Commission (FCC). During the hearing, Sohn reaffirmed her support for net neutrality regulations, which threaten the future competitiveness of the U.S. telecommunications industry. Both Democrats and Republicans should oppose Sohn’s nomination for that reason.
Title II Net Neutrality Regulations Harm Broadband Investment and Innovation
In 2016, the FCC reclassified broadband networks as common carriers under the Title II of the 1934 Communications Act and Section 706 of the 1996 Telecommunications Act. As the American Enterprise Institute’s Daniel Lyons explains: “Title II subjects regulated entities to significant government oversight regarding what services they must offer, to whom, and at what rates.” Applying common carrier regulations, which typically cover public utilities such as water and electricity, to a dynamic industry could thwart broadband innovation and investment. Moreover, net neutrality regulations prevent Internet service providers from offering different internet speeds depending on internet usage.
Title II proponents, including Sohn, argue that Title II and net neutrality regulations do not pose a problem for broadband investment. In response to net neutrality regulations, some companies have pointed out that net neutrality rules would not substantially disrupt their operations, since they did not currently engage in activity that those provisions would prohibit.
However, many other broadband companies argued that the overall Title II regulations could harm their long-term investments. Data suggest that Title II regulations were associated with a decrease in broadband investment. Between 2003 and 2015, U.S. broadband investment increased every year except during the 2008-2009 financial crisis. After the FCC imposed Title II net neutrality ruless in 2016, annual broadband capital expenditures decreased by approximately $2.7 billion. Capital expenditures did not return to pre-Title II levels until the year after the FCC repealed Title II regulations during the Trump administration ($78 billion in 2014 vs. $80 billion in 2018).
Although some studies found that the effect on broadband investment was insignificant, multiple empirical studies found that neutrality regulations harm broadband investment. In Europe, net neutrality regulations have undermined investment and imposed various costs on consumers. Notably, one 2020 study, which examined broadband investment in 32 advanced economies, found that investment in these countries generally suffered due to net neutrality regulations.
Ultimately, in both the United States and Europe, net neutrality can create regulatory uncertainty and compliance costs that reduce the incentive to invest in broadband networks and decrease potential consumer welfare.
Net Neutrality in the Age of Fifth Generation (5G) Telecommunications Networks
A key reason telecommunications companies want to invest in 5G adoption is their future ability to charge varying 5G usage rates. While this distinction may not have been as critical in previous generations of wireless communications networks like 3G and 4G, it is crucial to the future development of 5G.
A fundamental feature of 5G Internet is “network slicing,” which allows broadband providers to divide radio waves into different segments depending on their usage. For instance, 5G-enabled remote surgical procedures and automated vehicles have very different data usage requirements than audio streaming. The absence of net neutrality rules will allow broadband companies greater flexibility to offer different services for varying 5G needs. Not having this ability to distinguish between varying types of Internet usage would significantly diminish incentives for the private sector to invest in 5G technologies.
Recognizing the obstacles that net neutrality regulations pose to investing in 5G networks, many Internet services providers in Europe and the United States have increasingly advocated a more flexible approach. The European Union’s strict net neutrality regulations remain a crucial reason why many EU countries lag the United States in 5G adoption and broadband speed. As a result, major European telecommunications companies, such as Siemens and Nokia, have called for the EU to relax net neutrality rules.
The United States would do well to heed such calls. Imposing strict net neutrality regulations will create further uncertainty for telecommunications investors and jeopardize America’s growth in 5G technology.
If the United States were to fall behind China and other global competitors in 5G adoption, it will significantly harm America’s future global competitiveness in 5G-dependent technology—in everything from automated production to driverless cars. That is why both Democrats and Republicans need to ensure an environment that reduces market uncertainties and encourages the private sector to invest in 5G technologies. Sohn’s plans to reimpose strict net neutrality regulations for U.S. telecommunications companies will do the opposite.