Anyone who doubts that the Federal Communications Commission’s (FCC’s) 2015 invocation of the Communications Act’s Title II utility-style regulation reduced broadband investment need only look at CTIA’s statistics for wireless capital investment, which show a radical decline following that order. These figures come from the group’s annual survey of its members – all wireless industry players – and use consistent accounting year to year.
In December 2010, the FCC issued an order that promulgated open-internet rules without invoking Title II. During the next three years, annual wireless capital investment grew from $24.9 billion in 2010 to $33.1 billion in 2013, an increase of $8.3 billion or 33 percent.
The FCC began a reconsideration of the 2010 order in 2014, and the following year invoked Title II for all broadband internet access providers, including mobile providers. From 2014 to 2016, the three years during which the FCC considered and then implemented Title II regulation for wireless providers, annual wireless capital investment first stumbled and then fell radically, tumbling to $26.4 billion in 2016. The cumulative decline in annual capex during those three years was $6.8 billion, or around 20 percent, with $5.6 billion of that in 2016, the first full year of Title II implementation for wireless broadband.
Wireless capital investment declined not only in absolute terms but as a percent of revenue and per subscriber. In 2013, capital investment was 18 percent of revenues but by 2016 it had fallen to 14 percent. Additionally, capital investment per subscriber was $98.74 in 2013, but by 2016 it was down to $66.67, a stunning decline of nearly a third (32 percent).
Sprint’s wireless capital expenditures gyrated wildly during the 2010 to 2016 period, as they have over the past two decades. But even if one allows for Sprint’s internal financial issues, that still leaves widespread and deep cuts by the rest of the industry concomitant with the FCC’s implementation of Title II for wireless broadband.
What makes the decrease in capital investment even more striking is that it occurred during a period of phenomenal traffic growth. In 2013, America’s wireless networks carried 3.2 trillion megabytes of data traffic. In 2016, they carried 13.7 trillion megabytes of data traffic, a data-traffic increase of 325 percent over three years.
This decline in capital investment is not sustainable without damaging a sector on which the economy increasingly relies. In a May 2017 paper titled U.S. App Economy Update, Dr. Michael Mandel of the Progressive Policy Institute estimated app-economy jobs have grown at a compound annual rate of 30 percent per year in the last five years, while overall U.S. job growth was only 1.6 percent. The continued rapid growth of those app-economy jobs depends on continued investment and innovation in America’s wireless networks.
Cisco VNI, in its February 2016 mobile forecast highlights, indicated it expects U.S. mobile internet-protocol traffic to more than quadruple in the next five years. Such growth will require a full transition from fourth generation to fifth generation wireless technology, with an enormous increase in the number of cell sites and in fiber backhaul from those cell sites. To enable such growth in traffic, wireless capital investment must grow rapidly.
It is time to stop defending the FCC’s 2015 order, which is stifling investment in America’s most critical networks. It is time to resume a light-touch approach that will revive the wireless capital investment on which much of the U.S. economy relies.
Anna-Maria Kovacs, Ph.D., CFA, is a Visiting Senior Policy Scholar at the Georgetown Center for Business and Public Policy. She has covered the communications industry for more than three decades as a financial analyst and consultant.
Filed Under: Industry regulations