This morning, FCC Chairman Ajit Pai made a claim that net neutrality, which hasn’t even been in place for two years, has driven investment in U.S. broadband to historically low levels. However, the actual numbers given by the nation’s largest cable and telecom companies don’t appear to back this up.
Speaking at Mobile World Congress in Barcelona, Pai blamed net neutrality for causing uncertainty in the broadband market and declared that “uncertainty is the enemy of growth.”
However, many of the nation’s largest broadband providers have grown in the last two years.
Since Feb. 26, 2015, the day that the FCC voted to approve the neutrality rules, AT&T’s share price has increased by more than 20%, Comcast’s is up 26%. Verizon’s stock price is at the same level as it was, though it has fluctuated as much as 15% in either direction since then. Charter’s share price is up 40%, after the FCC allowed it to acquire Time Warner Cable and Bright House in 2016. The only major broadband provider whose stock has fallen dramatically in the last two years is CenturyLink, whose share price has sunk around 50% in that time.
The real thrust of Pai’s anti-neutrality claim is that it’s hurt investment in broadband.
“After the FCC embraced utility-style regulation, the United States experienced the first-ever decline in broadband investment outside of a recession,” said the Chairman. “In fact, broadband investment remains lower today than it was when the FCC changed course in 2015.”
None of the companies we contacted — Comcast, AT&T, Verizon, or Charter — responded to our request for comment on the Chairman’s statement, so we just looked at the annual and quarterly earnings report for the industry’s biggest players.
In its most recent earnings report, Comcast — the nation’s largest broadband provider — noted that in 2016 year over year “capital expenditures increased 7.5% to $9.1 billion.”
Well, maybe those were investments in Comcast’s many non-broadband ventures like its NBCUniversal entertainment division or its theme parks? Nope.
The lion’s share ($7.6 billion) of that $9.6 billion went to the company’s Cable Communications division, “primarily reflecting increased investment in line extensions, a higher level of investment in scalable infrastructure to increase network capacity and continued spending on customer premise equipment related to the deployment of the X1 platform and wireless gateways.”
In case you were wondering, that $7.6 billion was an increase of 7.9% over the previous year.
Likewise, AT&T said it its most recent earnings that it spent $22.9 billion on capital investment in 2016, up from $20.7 billion in 2015. Granted, the 2015 number was slightly down from the $21.4 billion spent in 2014, but it’s higher than the $19.7 billion or $20.2 billion spent in 2012 or 2011, respectively, seeming to undercut Pai’s claims of historic low levels of investment.
Because of the massive merger with Time Warner Cable, there’s no apples-to-apples comparison to be made. However, Charter did spend $7.5 billion on capital expenditures in 2016, 85% of that on expanding and building out its network. That appears to more than the combined investment by Charter and TWC in capital expenditures during the pre-merger years.
Even Verizon, which has not seen the same growth as the other companies is spending more on capital expenditures than it did before the neutrality rules were put in place. In 2015, the year where Pai contends investment sunk to levels unseen outside of a recession, Verizon spent $17.8 billion on capital investments, more than in any other year since the U.S. came out of the recession.
Verizon’s most recent capital expenditures ($17.1 billion for 2016) are virtually identical to the amount spent in 2014, all of which is higher than the $16.2-$16.6 billion the company spent in the supposed glory years of post-recession investment.
Even CenturyLink, which has seen its stock price cut in half, managed to spend more in 2016 ($2.96 billion) on capital expenditures than it did in 2015 ($2.86 billion).
So maybe Pai was referencing capital investments by broadband backbone providers, those companies that connect all the disparate user-facing networks into one cohesive system? Again, the investment numbers don’t pan out.
Level 3 Communications, which is currently being acquired by CenturyLink, spent $1.33 billion in 2016, more than it spent in either 2015 ($1.23 billion) or 2014 ($1.25 billion). Cogent Communications spent $45.2 million last year, up from $35.6 million in 2015.
The numbers seen in these earnings reports generally jive with what many of these companies told investors at the beginning of 2016 — that they would continue to spend money on expanding and improving their networks.
So what is Pai’s justification for this claim? According to a rep at the FCC, the Chairman’s comment was based on data provided by USTelecom, the industry’s lobbying arm that is actively pushing for the FCC and Congress to roll back net neutrality and privacy regulations on broadband providers.
The FCC has not responded to our query as to why Chairman Pai would use data provided by industry lobbyists over the actual numbers these companies are providing publicly.
Pai also inexplicably claimed today that his decision to end the FCC’s investigation into “zero-rating” — the practice of not counting certain types of data against users’ monthly allotments — was somehow the impetus for the resurgence in unlimited data plans from wireless providers.
As The Verge notes, unlimited data plans really have nothing to do with zero-rating. For example, AT&T zero-rates DirecTV and DirecTV Now video streams for its wireless customers. That doesn’t make it an unlimited data plan (unless your entire data usage is DirecTV video). Similarly, Verizon doesn’t count streamed NFL games against data plans, but that’s not the same as an unlimited data plan. The fact that an FCC Chair doesn’t understand the difference — or is willing to gloss over this disparity — should be a cause for concern (for anyone who isn’t a telecom executive).