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Light Regulatory Touch May be the Best Way to Stimulate Investment in Broadband

Mon, 10/05/2009 - 8:40am
Tracy Ford, RCR Wireless News

Uncertain regulatory policies will stifle capital investments in broadband technology, panelists told the Federal Communications Commission today during a hearing on “Capital Formation in the Broadband Sector.”

While members of the various stages of capital investors may have disagreed about specific policies concerning net neutrality and access to spectrum, the panelists generally concurred that the FCC's power to significantly change rules after they have made investments based on previous rules was of great concern. The FCC is holding a series of meetings as it tries to develop a National Broadband Policy, as directed under President Obama’s American Recovery and Reinvestment Act of 2009. The agency is tasked with creating a plan by February 2010.

“How do we pay for all of this?” asked FCC Commissioner Robert McDowell, who moderated the meeting, noting that private-sector investment is critical to building out the nation's broadband infrastructure.

Panelists agreed a light regulatory touch that spurs competition in the private sector was much preferred to government mandates. Capital market investors like to know the rules at the beginning of their investments and want long-term regulatory certainty, said Christopher C. King, a principal with Stifel Nicolaus covering the telecommunications, ILECs, wireless and cable industries.

King said that changing government policy after the 700 MHz auction would amount to “bait-and-switch” regulation at the FCC. AT&T Mobility and Verizon Wireless were big winners in the 700 MHz auction. Net-neutrality discussions taking place at the FCC today inject some uncertainty into the investment community, which doesn't help reduce the cost of capital, he noted.

While the net-neutrality debate is an interesting philosophical discussion, there are very real implications to balance sheets and the cost of capital that will result from the debate, said Anna-Maria Kovacs, president of Regulatory Source Associates L.L.C.

Adopting net-neutrality rules can bring a lot of investment and innovation from applications developers, countered Phil Bronner, a general partner at Novak Biddle Venture Partners, which has made investments in a company offering a game app on the Apple iPhone.

The FCC must find the right balance on net-neutrality rules to not skew investments toward network providers or applications on the network or risk the unintended consequence of stifling capital investments in broadband, warned Thomas Aust, a senior analyst at GE Asset Management. Aust said wireless communications in particular have been innovative and competitive with little regulation and recommended that they continue to be regulated that way.

Unserved and underserved areas are getting a lot of attention under the broadband stimulus plan, panelists agreed. Between 3 million and 6 million people don't have any access to broadband, noted Monish Kundra, a venture partner at Columbia Capital. The FCC should be creative in trying to get broadband access to rural areas, Kondra said, suggesting that reverse auctions could be one way to get service providers to build out in those areas. “I like the idea of what's the least the government has to do to make it interesting for the private sector.” Beyond buildout, investors need to know that the business can operate on an ongoing basis.

Dean Manson, a senior vice president at Hughes Network Systems, which sells satellite-based broadband services to 500,000 subscribers, said satellite has an important role to play in cost-effectively offering broadband to those unserved areas, and said reallocating spectrum away from satellite services would hurt his business. Manson suggested the commission offer subsidies to consumers directly to implement a national broadband plan. Much like the cash-for-clunkers program, Manson said a program that subsidized services directly to consumers, rather than favored one technology over another, would be fairer to consumers.

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