FCC Chairman Ajit Pai listens during a Senate Appropriations Subcommittee hearing in Washington, DC on June 20, 2017.
In his ongoing push to get rid of net neutrality rules, FCC Chairman Ajit Pai claimed this month that the rules caused capital investment in wireless networks to drop in 2016. But in doing so, Pai hasn’t addressed data from earlier years that doesn’t fit his anti-net neutrality narrative.
“The most concerning emerging issue we are seeing is that investment in wireless networks was down significantly in 2016,” Pai said in a speech at Mobile World Congress on September 12. “According to the UBS Wireless 411 report, in fact, investment was down 9 percent, a huge drop outside of a recession.”
Eliminating net neutrality rules and the related classification of broadband providers as common carriers will reverse the trend, Pai predicted. “In our Restoring Internet Freedom proceeding, the FCC is currently examining whether we should change our Internet regulations in order to encourage greater deployment and investment and bring digital opportunity to more Americans,” he said.
Pai beat the drum again this week in the FCC’s annual report on wireless competition, which emphasizes the investment drop in 2016. The current net neutrality rules were voted in by the FCC in February 2015 and took effect in June 2015.
But investment also dropped between 2013 and 2015, before the current rules were in place, Democratic FCC Commissioner Mignon Clyburn pointed out. (There was no recession in those years, either.)
Clyburn said the following in her criticism of the report:
The discussion of investment in the mobile wireless services industry is fundamentally flawed. By highlighting a decrease in investment between 2015 and 2016, this section was clearly written to support the false narrative that the 2015 Open Internet Order deterred wireless carriers from investing in their networks.
Despite my office’s request, this Report does not include data from the 19th, 18th, and 16th Competition Reports, which showed investment from all commercial wireless companies declined from $33.1 billion in 2013 to $30.9 billion in 2015. In case you missed it, those reports predated the 2015 Order. Also, despite my request, this report does not include CTIA’s investment data indicating that investment per consumer measurements declined from 2006 to 2009. Just in case you missed it again, that predates the 2015 and 2010 Open Internet Orders. These statistics demonstrate that there must be other factors, other than the Open Internet Orders, that account for why wireless carriers decreased their investment in their networks.
An earlier, weaker set of net neutrality rules were approved by the FCC in 2010 but were vacated by a court decision in January 2014. The 2010 rules merely required mobile ISPs to disclose network management practices and prohibited them from blocking lawful websites—today, wireless providers face stricter rules against throttling and paid prioritization.
Investment rises and falls in cycles
Wireless network investment rose by 18.9 percent from 2011 to 2012 and rose another 10.1 percent from 2012 to 2013, despite there being limited net neutrality rules in place at the time, according to CTIA data cited by the FCC in its annual reports. As Clyburn noted, investment then declined from 2013 to 2015, despite there being no net neutrality rules for nearly all of 2014 and half of 2015.
The data shows investment going up and down in cyclical patterns, a trend the FCC has in previous years attributed to the beginnings and ends of technology upgrade cycles rather than to net neutrality rules.
In response to Clyburn’s statement, the FCC’s Republican majority edited a chart in the competition report to include annual capital expenditures by the four nationwide service providers since 2010. In the draft report released before the commission’s vote, the chart only went back to 2013.
But the final report doesn’t include all the data requested by Clyburn and is otherwise identical to the draft on the question of investment. The section on investment before the chart still makes no mention of the previous investment swings noted by Clyburn, focusing only on the most recent decline.
“According to the UBS Wireless 411 report, in 2016, wireless service providers spent an incremental $28.0 billion, which is a decline of approximately 9 percent from the $30.9 billion invested in 2015,” the report says.
The report also says that the four biggest carriers (AT&T, Sprint, T-Mobile USA, and Verizon Wireless) “spent a combined $27.5 billion in 2016, $30.3 billion in 2015, and $31.2 billion in 2014, accounting for close to 100 percent of total industry capital investment as tracked by UBS in these time periods.”
The report is otherwise a glowing review of the wireless industry and finds for the first time in nearly a decade that US wireless customers are benefiting from “effective competition.” This finding could influence how strictly the FCC regulates wireless carriers and whether it approves mergers such as a possible combination of T-Mobile and Sprint.
When contacted by Ars this week, the FCC chairman’s office pointed out the inclusion of data going back to 2010 in the updated chart. But Pai’s spokespeople did not give us any response to the statement by Clyburn or provide a theory on what caused previous investment declines.
The cyclical nature of investment was described by the FCC in its March 2013 report, which noted that investment increases in 2010 and 2011 followed the decline in 2009. “This pattern of a period of declining investment followed by a period of rising investment is consistent with the cyclical nature of technological adoption in the mobile wireless service industry, with the upswing in capital investment since 2009 likely reflecting the transition from third- to fourth-generation wireless network technologies,” the FCC said at the time.
“Chairman Pai continues to hide the truth”
Consumer advocacy group Free Press criticized Pai for focusing only on the 2016 investment drop in a letter to Pai and in a press release titled “Chairman Pai Continues to Hide the Truth About Broadband Investment to Justify His Vendetta Against Net Neutrality.” (A spokesperson for Pai declined comment on Free Press’s accusations.)
“The easily verifiable truth is that wireless-industry investments peaked in 2013, as carriers completed the bulk of 4G LTE deployments,” the Free Press letter said. “Both that peak, and the ongoing decline from it, predate the entire proceeding that led to the 2015 reclassification of broadband as a lightly regulated Title II service. What’s more, this is by no means the only years-long downturn for the wireless sector: Such periods of slower spending are natural—and, in the recent past, have likewise occurred outside of recessions.”
Even AT&T verified this in comments to the FCC in 2010, Free Press said.
“There is no reason to expect capital expenditures to increase by the same amount year after year,” AT&T said at the time. Carriers spend a lot of money to expand or upgrade networks when a new generation of technology has been introduced “and then focus the next year on signing up customers and integrating those new facilities into their existing networks, and then make additional capital expenditures later, and so on,” AT&T continued. “Minor variations from year to year thus should not be surprising, much less an indication of declining competition.”
But those minor variations are exactly what Pai is citing to justify eliminating net neutrality rules and other consumer protections that were implemented along with those rules. The millions of Internet users urging Pai to keep the net neutrality rules in place aren’t likely to sway him; Pai has said that the “raw number” of comments supporting or opposing net neutrality rules “is not as important as the substantive comments that are in the record.”
Pai was recently asked in a Congressional hearing whether anything might change his mind. Pai said he might change course in response to “economic analysis that shows credibly that there’s infrastructure investment that has increased dramatically” since the net neutrality rules went into effect. Pai said he also would take evidence seriously if it shows that the overall economy would suffer from a net neutrality rollback or that startups and consumers can’t thrive without the existing rules.
Senate Democrats are trying to block Pai’s confirmation to another five-year term on the commission, with his views on net neutrality playing a central role on the debate. But Pai has held firm when his investment claims have been questioned, even when it’s pointed out that ISPs themselves have told investors the rules don’t affect their investment.
“Since coming into office with the Trump administration, Pai has repeatedly lied about the state of broadband investment since the 2015 open-Internet rules came into effect,” Free Press Policy Director Matt Wood said. “He’s trying to paint a picture of decline and dysfunction to justify destroying the protections that Internet users need.”