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ISP execs say net neutrality order impacted broadband investment

A major question around the Federal Communications Commission's Open Internet Order and the current net neutrality debate is what impact the order had on investment in broadband.

According to executives from both AT&T Inc. and Comcast Corp., the impact has been real and significant.

Speaking at non-partisan, free market-oriented think tank Free State Foundation's May 31 event, AT&T's Bob Quinn Jr. said after the 2015 adoption of the order, AT&T "moved in a lot of different places." Specifically, he noted the company moved into Mexico, which had instituted regulatory reforms "trying to encourage other companies to come in to build infrastructure."

In other words, the company moved into a market where the regulatory environment was more conducive to investment, according to Quinn, AT&T's senior executive vice president of external and legislative affairs.

At Comcast, Senior Executive Vice President and Chief Diversity Officer David Cohen said the FCC's order impacted the company's business plans in myriad ways, especially in regards to capital budgets and long-range plans. "The notion that the regulatory structure here has not impacted our decision-making is dead wrong. It impacted every single day," he said.

In particular, Cohen referred to recent data from two net neutrality proponents, the Internet Association and Free Press, that showed publicly traded internet service providers had increased their capital expenditures by more than 5% in the two years after the Open Internet Order. According to Cohen, overall capital expenditures is the wrong metric to measure when gauging the impact of the order.

Instead, Cohen said it is better to look at capital intensity, or the percentage of revenues a company is spending on capital expenditures. For Comcast, based on capital intensity levels prior to adoption of the order versus current levels, the company will spend $2.5 billion less over a three-year period as a result of the order.

While Quinn and Cohen both focused on how net neutrality and the Open Internet Order affected investment decisions within the companies, Blair Levin, a nonresident senior fellow at the public policy organization the Brookings Institution, noted that he had not seen the order impact how outside investors viewed internet service providers.

The order, according to Levin, "hasn't been an issue" on Wall Street. As an example, Levin pointed to a recent analyst upgrade of AT&T and the U.S. telecom sector from MoffettNathanson analyst Craig Moffett. While the upgrade considers a number of factors, including competition and spectrum, Levin noted, "The words 'net neutrality' don't appear."

The overall impact of the Open Internet Order will be considered as the FCC moves forward on its proposal to overturn the rules by reclassifying broadband service as a Title I information service under the Communications Act. Since the adoption of the 2015 Open Internet Order, broadband service has been classified as a Title II telecommunications service.

The significance of the classifications is the different regulatory powers they bestow. Specifically, Title II services are subject to stricter common carrier regulations, giving the FCC the legal authority to enforce net neutrality rules, such as its current rules against blocking, throttling and paid prioritization.