Net Neutrality, Reclassification and Investment: A Counterfactual Analysis

Applying the difference-in-differences method to a broad measure of investment (thus accounting for the Federal Communications Commission's "virtuous circle" effects), the author estimates the investment effects in telecommunications following the introduction of Title II reclassification to the Net Neutrality debate. Using standard econometric methods, George finds sizable investment effects from reclassification.

Between 2011 and 2015 (the last year data are available), telecommunications investment differed from expectations by between 20% and 30%, or about $30 to $40 billion annually. Actual investment averaged $126 billion annually, a sizable expenditure, but the counterfactual analysis indicates the average investment over the five-year window would have been about $160 billion (or more) annually. That is, over the interval 2011 to 2015, another $150-$200 billion in additional investment would have been made "but for" Title II reclassification. Notably, Dr. Ford finds no decline in investment following the release of the FCC's "Four Principles" to promote an Open Internet in 2005, suggesting it is reclassification -- and not Net Neutrality principles -- that is reducing investment.