Rural communities would suffer most by an estimated $1.4 billion eliminated from potential investment

A new report released today by a former Federal Communications Commission (FCC) senior economist highlights the significant harm that an FCC proposal could do to future broadband investment—particularly in rural communities—with new price cap regulations.

The report details that the FCC has proposed potentially drastic rate cuts on incumbent local exchange carriers (ILECs) that provide business broadband services. While the FCC says that the price cap regulation would adjust provider rates to account for rural markets that the FCC perceives to be noncompetitive, new research shows that the FCC’s market data fails to accurately represent the market as it currently stands. As the FCC moves forward without updated research on the areas deemed noncompetitive, the Commission leaves the impending local and national effects that the regulation would cause unexplored.

“Given the huge potential impacts of the proposed price regulation of business data services—billions in lost revenue for providers, curtailed investment by incumbents and competitors, forgone economic benefits for business, workers, and rural economies—it is important to craft regulation carefully in a fully informed manner,” according to the report by James E. Prieger, Professor of Economics and Public Policy at Pepperdine University.

The price cap regulation on providers would eliminate an estimated $1.4 billion in revenue from the ILECs that service rural communities, which would discourage future investment by both ILECs and new providers looking to enter the market. Without enough revenue to continue supporting rural network infrastructures across the country, ILECs lose the ability to fully support and continue investing in the services that smaller communities across America need to remain nationally competitive.

Prieger’s report elaborates on the risks of imposing price cap regulations without including recently updated data on competitiveness in the business broadband market.

“The lost opportunities for revenue will lead to less broadband investment for the communities that need it most – slowing deployment and hurting economies that need help competing,” Prieger states in the report. “Regulators must understand that incentives for investment are paramount to the continued health of existing and expanding networks.”

The report was sponsored by the Invest in Broadband for America coalition. The coalition is insisting the FCC account for acknowledgements by four of the largest cable providers that they had significantly undercounted the number of locations that are capable of providing business data services.

“In a rush to regulate, the FCC has missed the negative consequences of this proposal, particularly the potential for widening the digital divide between urban and rural economies,” said John Jones, Senior Vice President, Public Policy and Government Relations for CenturyLink, a member of the coalition.

Last week, a group of U.S. senators, led by Jon Tester (D-MT), expressed their own concern with the FCC proposal, stating that rural communities “depend on robust investments in business data services to connect small business and anchor institutions, support wireless data service, and enable economic development.”

The "Invest in Broadband for America" coalition (investinbroadband.org) is made up of CenturyLink, Inc. (NYSE:  CTL), Cincinnati Bell, Inc. (NYSE:  CBB), Consolidated Communications, Inc. (NASDAQ:  CNSL), FairPoint Communications, Inc. (NASDAQ:  FRP) and Frontier Communications (NASDAQ:  FTR).