Weekly Update

FCC moving closer to Title II?

Federal Communications Chairman Tom Wheeler has taken a lot of heat from net neutrality proponents over his resume, which includes stints running both he main wireless industry trade association in Washington as well as the main cable organization, both of which are strongly opposed to stricter net neutrality rules, particularly reclassifying broadband access under Title II of the Communications Act. But there are times when that background comes in handy, such as when it comes to recognizing when his former colleagues are blowing smoke.

This week provided ample opportunity. Speaking at UBS Global Media and Communications conference, Verizon CFO Fran Shammo appeared to depart from the telecom industry line that imposing Title II rules could cost more than $45 billion in forgone infrastructure investment over the next five years by suggesting reclassification would not impact Verizon’s capital investment plans.

Here’s the full exchange with UBS analyst John Hodulik:

Hodulik: Obviously there’s a lot of commentary coming out of Washington about this move to Title II. Obviously Verizon has been one of the more vociferous opponents of any sort of increased regulation, especially on the Wireless side. What’s your view of that potential occurrence down in Washington? Does it affect your view on the attractiveness of investing further in the United States?

Shammo: Yes, to be real clear this does not influence the way we invest. We’re going to continue to invest in our networks and our platforms both in Wireless and Wireline FiOS and where we need to. So nothing will influence that. If you think about it we were born out of a highly regulated company so we know how this operates. But related to this discussion around Net Neutrality, the FCC has the right to regulate under 706.

They do not need to go to Title II. And why would you go to a 1930 piece of literature to try to regulate something that is a 21st-century technology? And I also think that if you look at other countries who have done this it kind of leads you down a path of total failure because it really, really slows down investment and slows down innovation.

So I guess the last comment is it’s working, why do we need regulation around something that’s working? And again they can do this under the
realms of their legal ability. And I think if they go all the way to the extreme of Title II I’ll quote what Randall said on stage about a month ago which is I think it’s going to be a very litigious environment.

Shammo quickly pivoted to a partial walk-back. In a blog post he insisted there was no daylight between what he said and the official line:

Last night, a few news sites ran stories about recent comments I made at an investor conference in response to a question about how the threat of Title II regulation might impact Verizon’s capital investment.

As Verizon has indicated on several occasions over the past few weeks, discussions about potential regulatory changes related to net neutrality have been going on for a decade, and we don’t change our short-term view on investment based on rumors of what might or might not happen. But as we and other observers of the net neutrality debate have made abundantly clear, experience in other countries shows that over-regulation decreases network investment. If the U.S. ends up with permanent regulations inflicting Title II’s 1930s-era rules on broadband Internet access, the same thing will happen in the U.S. and investment in broadband networks will go down.

The cat was out of the bag, however, and Wheeler knew it. At the FCC’s monthly open meeting this week, the chairman said he was not surprised by Shammo’s original comments.

“When Verizon makes that kind of statement, I think it is logical. I think it is reflected in what various Wall Street analysts have said in terms of Title II being less of a bugaboo if it is done correctly,” Wheeler said. “I think it is also, in a greater sense, reflective of a world that Verizon has been living in. Section 332 of the Communications Act specifically says that wireless will be treated as a common carrier but that the Commission shall forbear from the vast majority of common carriage sections of Title 2, except for 201, 202 and 208. So for 20 years, Verizon Wireless, AT&T Wireless, all the wireless carriers have been living under Title II with appropriate forbearance and have been able to raise and invest hundreds of billions of dollars and build a mobile network that is the envy of the world.”

To which he could have added, “So don’t be bringing that weak s&#t about Title II undercutting investment ’round here.”

Wheeler also smacked down AT&T last month after CEO Randall Stephenson sputtered that if the FCC followed through on President Barack Obama’s call for Title II reclassification AT&T would have to hit “pause” on its fiber rollout. Wheeler quickly dispatched the FCC’s antitrust attorney Jamillia Ferris to remind the wireless company, in a tersely worded letter, of the investment commitments it had made as part of its petition for approval of its $45 billion acquisition of DirecTV.

This week’s open meeting was interrupted at one point by protesters upset that a vote on Title II had not made it onto the official agenda for the meeting. At a press conference following the meeting Wheeler refused to be pinned down by reporters on when a vote on new open internet rules might take place but said he wanted to “do it quickly,” but “do it right” and “do it sustainably.”

It’s clear from his responses to Verizon and AT&T, however, that Wheeler is skeptical of their apocalyptic warnings about the dire impact on future broadband investment that would ensue from reclassification. That in itself should be welcome news for Title II proponents. But it also suggests, perhaps thanks to Obama, that he could be warming to an idea he previously seemed inclined to avoid, and that we’re moving closer than many, including me, thought we would get to full reclassification.

“When speaking publicly about net neutrality, Mr. Wheeler has always tried to balance protecting an Open Internet with preserving carrier network incentives,” Guggenheim Partners analyst Paul Gallant wrote in a research note following the FCC meeting. “But today, he appeared to go farther by essentially saying, ‘Not only should the net neutrality rules themselves have little effect on carrier investment levels, but neither should Title 2.'”