Would Common Carrier Regulation Slow High Speed Access Investment?

May 13, 2014
By: Gary Kim

Predictably, as potential regulation of Internet access as a common carrier service is at least raised by the Federal Communications Commission, opponents and proponents will make clear their respective views on whether such a move would harm, or would not harm, investment in gigabit and other faster networks.

The argument by Internet service providers will be that such regulation will have clear and negative impact on future investment. Supporters of common carrier regulation of access services will argue the ISPs are bluffing, and that common carrier regulation will not reduce investment.

The dispute about future investment is not limited to the U.S. market. In Europe, common carrier regulation arguably has restricted telco investment in faster networks, while cable TV networks, not covered by common carrier regulations have invested significantly.

The European Commission’s Connected Continent proposals, for example, are a direct response to regulator concern that not enough investment is happening.

The relatively low cost of upgrading cable TV networks and the widespread availability of cable TV networks in the United States has meant high availability of “superfast” broadband access in the U.S. market, a report by Ofcom, the U.K. communications regulator, suggests.

The high amount of facilities-based competition also has spurred matching investments by U.S. telcos, Ofcom says.

In Europe, where similar fixed-infrastructure competition is less common, regulators have opted instead for robust wholesale access requirements on telco fixed networks. That has lead to lots of retail competition in the high speed access market, but at the cost of lower investment  in faster facilities.

High speed access provided by cable TV companies, in fact, accounts for much of the higher-speed market share in European Union countries.

McKinsey analysts have estimated it will cost about $275 billion to $340 billion to upgrade half of EU homes to fiber to the home networks capable of delivering 100 Mbps service.

Though government subsidies will help, the bulk of that investment will have to be made by private firms making rational decisions about the financial return from making such investments.

One might argue that common carrier regulation of Internet access within the EU has contributed mightily to the problem of lagging investment in next generation access facilities.

Edited by Maurice Nagle