Study Shows Broadband Added $1 Trillion to U.S. Economy Before Net Neutrality

The broadband industry helped add $1 trillion to the U.S. economy in 2014 — a roughly stable figure since 2004 that could take a hit as a result of the Federal Communications Commission’s net neutrality rules, a study by the industry said Thursday.

According to the Internet Innovation Alliance, an industry advocacy group whose members include AT&T and other broadband providers, the broadband Internet and information and communications technologies (ICT) sectors contributed more than $1 trillion to the U.S. economy in 2014 — 5.9 percent of the U.S.’s GDP of over $17 trillion.

“This substantial share of all U.S. economic value added has been roughly stable for the past decade and likely understates the sector’s full contribution by undervaluing technological improvements,” wrote study authors Kevin Hassett, an economist for the American Enterprise Institute, and Robert Shapiro, chairman of economic advisory firm Sonecon.

The authors included Internet infrastructure, software publishing, information and data processing services, computer systems design and computer and electronic products all as part of the broadband and ICT sectors analyzed for the study.

“Over the last decade, virtually every other industry and sector has integrated goods and services from the broadband/ICT sector into their operations and products,” they wrote.

Demand for broadband and ICT goods and services in manufacturing, corporate and asset management, professional, scientific and technical services industries, wholesale and retail trade, finance, insurance, and education industries among private companies accounted for $692 billion, while government and others produced another $843.3 billion.

The sector overall employed 4,933,000 full-time workers — 4.2 percent of all U.S. private employment — and produced demand in other industries for another 2,784,683 jobs in 2014. The average salary of a worker in the broadband and ICT sector was $104,390, 59.3 percent higher than the average annual compensation of $65,517 in the U.S.

“The large economic gains associated with the broadband and ICT sector have flourished in an environment of light federal regulation,” Hassett and Shapiro said. “The FCC’s proposed regulation of broadband ISPs and their service offerings would stifle broadband/ICT sector investment, growth and employment, negatively impacting the American economy.”

While the study doesn’t examine how specific FCC regulations could potentially impact the economic benefit of the broadband and ICT economic boon, Shapiro, while testifying before Congress last year, said government-imposed fees to fund subsidies would likely slow consumer spending on broadband.

When the FCC reclassified broadband in 2015 from an information service to a public utility regulated under Title II of the Telecommunications Act, like telephone service, it opened the door to impose fees on consumers like those used to fund the FCC’s Universal Service Fund.

The USF is funded via a fee on Americans’ monthly telephone bills and distributed to low-income Americans as a subsidy for phone service through a program dubbed Lifeline.

The FCC voted in March to expand Lifeline to include broadband and raise the program budget with no cap — a move Republican FCC Commissioners Ajit Pai and Michael O’Rielly warned would result in Americans seeing “their wireless bills increase substantially.”

Shapiro, who previously served as an economic advisor to former President Bill Clinton, added the rules would also force ISPs to divert resources from their daily business activities to ensure compliance with the regulations.

“This reasoning leads us to conclude that Title II would negatively affect ISP investment,” Shapiro said, adding that could mean a decline of 5 to 20 percent annually.

The economist said broadband adoption went from 4 to 68 percent of U.S. households between 2000 and 2010 absent regulation, exceeding the adoption rate of telephones, TV, computers and cell phones. Broadband is now accessible to 94 percent of U.S. homes, and capital expenditures by ISPs have only fallen two times since relative to 2015 — in 2001 after the dotcom bubble burst, and in 2009 as a result of the housing bubble, both of which sent the U.S. economy into recession.

“Unnecessary price regulation in competitive broadband markets will have far-reaching negative impacts on U.S. economic growth and development,” chairman of the IIA Rick Boucher said in a statement.

Boucher previously chaired a subcommittee under the House Energy and Commerce Committee charged with overseeing the FCC.

“Without ample investment in modern networks, consumers and the entire broadband ecosystem – from Internet Service Providers (ISPs) to edge providers – will suffer from reduced innovation and fewer cutting edge broadband services, as well as reduced jobs and economic growth in the nation’s Internet economy,” he added.

In March, FCC Chairman Tom Wheeler countered that narrative, arguing the “virtuous circle” of investment the FCC predicted would happen as a result of consumer confidence in a fair and open Internet is already occurring.

“As many of you recall, when the commission adopted these rules, critics howled that the rules would be devastating for network investment – that broadband deployment would screech to a halt,” Wheeler said at the GnoviCon 2016 event held at Georgetown University in Washington, D.C. “Well, as the virtuous circle predicts, investment continues pouring into startups whose ability to reach users requires unfettered Internet access. In 2015, venture investment in Internet-specific businesses was up 35 percent over the previous year. Score one for innovation investment!”

In a hearing before Congress the same month, Wheeler said the rules have encouraged investment in new services like fiber, with Internet companies reporting increased revenue per subscriber in their earnings reports.

“Understand the economics driving that investment,” Wheeler told attendees at Georgetown. “Each of these companies saw gains in revenue per broadband subscriber in 2015. Let’s stop and consider that often overlooked statistic. An open Internet is driving more network usage and – surprise – that increased usage is driving more revenue per user. More openness, more demand, more broadband. It’s just that simple.”

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