Reclassification and Investment: An Analysis of Free Press’ “It’s Working” Report

Free Press recently released a report on the capital expenditures of broadband service providers entitled, It’s Working: How the Internet Access and Online Video Markets are Thriving in the Title II Era. The Free Press Report, authored by S. Derek Turner, claims that capital spending by Broadband Service Providers (“BSPs”) “accelerated” following the Federal Communications Commission’s reclassification of broadband Internet access connections as a Title II common carrier telecommunications service in its 2015 Open Internet Order, increasing by 5.3 percent between 2013-2014 and 2015-2016. The Internet Alliance, a trade group representing the interests of companies supporting reclassification, appears to use the Free Press’ data to support the same claim.

Free Press’ analysis, as usual, fails to meet the most basic of professional standards, and involves nothing more than the adding up of nominal total capital expenditures for a sample of BSPs and comparing the sums between two periods. Such simple-minded analysis is incapable of measuring the effect of a policy change. The relevant question is not whether capital spending rises or falls in any given year or pair of years, but whether such expenditures are below the levels they would have been “but for” the regulatory intervention. To answer that question, we need a counterfactual. That is, if absent a regulatory intervention capital spending was scheduled to rise by 10 percent next year (the counterfactual), but rises by only 5 percent due to an intervention, the intervention reduces investment despite the fact expenditures were higher. Unlike recent research finding sizable harmful effects from reclassification, the Free Press Report offers no counterfactual, so their Report adds nothing serious to the analysis of Net Neutrality and reclassification.