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Net Neutrality Debate Focuses on Key Metric: Is Investment Up or Down?

FCC Chairman Ajit Pai, in calling for the rollback of the foundation for the agency’s net neutrality rules, has justified the proposal in part by citing a key statistic: Among the dozen largest internet providers, U.S. broadband capital expenditures fell by 5.6% between 2014 and 2016.

The commission on Thursday is likely to officially launch the process of repealing the underpinnings of its current net neutrality rules, a process that already has generated more than 1.6 million comments.

But the issue of investment — and whether the FCC’s passage of net neutrality regulation proved so onerous to internet providers that they scaled back their plans — will be a major part of the battle over the next several months.

On Wednesday, the Internet Association, representing such internet companies as Google, Netflix and Facebook, presented their own study refuting Pai’s figures. Far from seeing investment go down, ISPs actually have increased their expenditures on capital, according to their study.

Among their figures: Telecom investment rose 5.3%, or $7.3 billion, among publicly traded companies between 2013-14 and 2015-16. The figures are based on SEC filings and a report from Free Press, which released a 125-page report earlier this week.

It’s important because if the FCC reverses course on net neutrality — and Pai has the votes to do so — it is likely that the move will be challenged in court. It’s there that the FCC will have to demonstrate its justification for doing so, just two years after the rules were passed.

Abigail Slater, the general counsel for the Internet Association, said on a conference call with reporters on Wednesday that the ISPs “bear the burden” of showing that their investment has been impacted and that it is a result of Title II. She also said that another issue has to be taken into consideration: growth in investment from internet firms like Google, Netflix and the like, not just ISPs.

If the current approach to net neutrality is rolled back, she said, “edge competition will suffer and consumer choice will suffer as well.”

The FCC’s move on Thursday would merely launch a public comment period, expected to last throughout the summer, on Pai’s proposal to repeal the FCC’s 2015 classification of internet service as a common carrier. That regulatory maneuver — known as “Title II” — established the foundation for the FCC to impose rules banning ISPs from blocking or degrading content, or from selling so called “fast lanes” to give speedier access to their subscribers. Pai’s proposal leaves open the question of just what the rules should be if the FCC gets rid of the “Title II” classification.

Those who favor repealing Title II, like broadband industry trade association USTelecom, argue that the figures cited by the Internet Association and Free Press include such things as Sprint’s leased handsets and AT&T’s investments via DirecTV and a Mexican affiliate. In other words, their numbers include things that don’t really reflect broadband investment.

Hal Singer, senior fellow at George Washington Institute of Public Policy, wrote in a blog post on Wednesday that “the hypothesis being tested is whether Title II discouraged investment in the core of the network; a diversion of investment to non-core areas is not proof that Title II ‘is working,’ as Free Press claims.”  He said that the figures showing an investment decline, coming from USTelecom, are considered “by many to be the industry gold standard.”

On the Internet Association press call, its representatives said that their figures rely on data that is standard practice in the industry. “We use a broader set of companies,” said Christopher Hooton, chief economist for the Internet Association. “We would argue that it is a more representative sample.”

They also point to figures that NCTA- The Internet and Television Association, representing cable companies, has on its site showing the growth of the cable industry’s investment in infrastructure. The figures only include investment from cable — not telecom internet providers — so it is not the entire industry.

Those figures some from SNL Kagan. In March, the research firm, a group within S&P Global Market Intelligence, provided figures showing that revenue in U.S. and Canada for networking equipment used to deliver cable, DSL and fiber broadband increased from $2.29 billion in 2015 to $2.95 billion in 2016. An SNL Kagan spokesman said that Canadian spending is a small percentage of the total, and does not count investments made in new fiber or other materials, as well as aggregation switches and routers.

This may be really getting into the weeds when it comes to net neutrality, but based on where things are headed, it’s a good indicator that the battle ahead will be as much about numbers and figures as it is politically charged online campaigns and on-the-street protests.

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