Jonathan Spalter

Two Cities, One Message: Title II Creates Uncertainty

One of the talking points repeated by advocates of heavy-handed utility-style regulation on broadband internet service is that internet service providers say one thing to Wall Street and something else to Washington.

Like other arguments made by some of these advocates, that suggestion is both simplistic and incorrect. Broadband providers have repeatedly told both Wall Street and the Federal Communications Commission the agency’s decision in 2015 to regulate internet service akin to a public utility under Title II of the Communications Act has created risk and uncertainty. That harms confidence and may diminish investments in new products or network expansions.

Publicly-traded companies are required to disclose any material legal or regulatory risk to investors. These disclosures are filed both quarterly and annually in filings with the Securities and Exchange Commission. These filings are signed by each company’s CEO and other senior executives.

So what have the U.S.’s largest broadband providers told Wall Street about net neutrality lately?


Verizon’s SEC filings have repeatedly detailed the risks from Title II regulation of broadband service. Here’s what the company said about the risk of Title II and broadband in its latest 10-K:

“Traditionally, the FCC recognized that broadband Internet access services as ‘information services’ subject to a ‘light touch’ regulatory approach rather than to the traditional, utilities-style regulations. In 2015, the FCC reversed course and declared that broadband Internet access services are ‘telecommunications services’ subject to common carriage regulation under Title II of the Communications Act. This decision created uncertainty concerning the level of regulation that will apply to broadband services.  It created a risk that such regulation would limit the ways that broadband Internet access service providers structure their business arrangements and manage their networks and could spur additional restrictions, including rate regulation, that could adversely affect broadband investment and innovation.” (page 14)


AT&T said in its 2016 10-K that “the final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) involving issues that are important to our business, including, without limitation, special access and business data services… competition policy; privacy, net neutrality, including the FCC’s order classifying broadband as Title II services subject to much more comprehensive regulation; unbundled network elements and other wholesale obligations…” (page 12)

During an investor call in January, AT&T CEO Randall Stephenson told analysts that:

“We happen to be advocates of net neutrality, just the concept of neutrality but placing utility style regulation on our mobility and internet businesses. There is no way anybody can argue that that is not suppressive to investment… And I’ll also say that it’s not an inconsequential attitude, if you will, among the CEO community about the potential in terms of what can happen with regulation. And nobody thinks that regulations should go away. We all believe that the customers still [need] protection and safety and all that is so critical. But we’ve had a regulation that has been just unpredictable; it’s interfering with how you think about designing products; it’s interfering with how you think about entering new markets. And if you really begin to get confident, the regulatory burden is rationalized somewhat, that in and of itself is going to free up investment.”


CenturyLink devoted an entire section in the “Risks Relating to Legal and Regulatory Matters” section of its 2016 10-K to the issue of internet regulations:

“Regulation of the Internet could limit our ability to operate our broadband business profitably and to manage our broadband facilities efficiently.

In order to continue to provide quality broadband service at attractive prices, we believe we need the continued flexibility to respond to changing consumer demands, to manage bandwidth usage efficiently for the benefit of all customers and to invest in our networks. In 2015, the FCC adopted new regulations that regulate broadband services as a public utility under Title II of the Communications Act. The ultimate impact of the new regulations will depend on several factors, including the manner in which the new regulations are implemented and enforced and whether those regulations are altered by the newly-constituted FCC or Congress. Although it is premature for us to determine the ultimate impact of the new regulations upon our operations, we currently anticipate that implementation of the proposed rules could hamper our ability to operate our data networks efficiently, restrict our ability to implement network management practices necessary to ensure quality service, increase the cost of network extensions and upgrades, and otherwise negatively impact our current operations. Our service offerings could become subject to additional laws and regulations as they are adopted or applied to the Internet. As the significance of the Internet expands, federal, state, local or foreign governments may adopt new laws or regulations, or apply existing laws and regulations to the Internet. We cannot predict the outcome of any such changes.”


Asked about the prospect of new tax legislation and a “deregulated FCC philosophy” during a call with analysts on January 26, Comcast CEO Brian Roberts responded that, “I think regulatory certainty for investors is the same as it is for management: it helps you have the confidence to make long-term plans…whether it’s fiber or other investments in in-home equipment and what your business opportunities are, the more uncertainty, the less encouraging it is to want to invest.”

He said the company is encouraged “by the prospect of rules that we believe will encourage that investment, stimulate investment, whether that’s tax decreases or revisiting the authority of the government to go to places that they said they weren’t going to but legally they could go to in the Open Internet order with Title II.”

Comcast mentioned “Open Internet regulations” ten times throughout its 2016 10-K:

“The new open Internet regulations bar ISPs from blocking access to lawful content, applications, services or non-harmful devices; prohibit ISPs from impairing or degrading lawful Internet traffic on the basis of content, applications or services, or impairing or degrading the use of non-harmful devices; prohibit ISPs from favoring lawful traffic from one provider of Internet content, applications or services (called an “edge provider”) over lawful traffic of another edge provider in exchange for consideration (“paid prioritization”); establish a new “general conduct standard” that prohibits ISPs from unreasonably interfering with or unreasonably disadvantaging the ability of consumers to select, access and use the lawful Internet content, applications, services or devices of their choosing or of edge providers to make lawful content, applications, services or devices available to consumers; and require ISPs to disclose information regarding network management, performance and commercial terms of the service… These requirements could adversely affect our business, although the extent to which they do so will depend upon the manner in which the FCC interprets and enforces them.” (page 17)


In its 10-K, Charter Communications noted that “regulation of the cable industry has increased cable operators’ operational and administrative expenses and limited their revenues” such as “the provision of high-speed Internet service, including net neutrality or open Internet rules.”

“Legislators and regulators at all levels of government frequently consider changing, and sometimes do change, existing statutes, rules, regulations, or interpretations thereof, or prescribe new ones. Any future legislative, judicial, regulatory or administrative actions may increase our costs or impose additional restrictions on our businesses. For example, with respect to our retail broadband Internet access service, the FCC has (1) reclassified the service as a Title II service, (2) applied certain existing Title II provisions and associated regulations to it, (3) forborne from applying a range of other existing Title II provisions and associated regulations, but to varying degrees indicated that this forbearance may be only temporary, and (4) issued new rules expanding disclosure requirements and prohibiting blocking, throttling, paid prioritization, and unreasonable interference with the ability of end users and edge providers to reach each other.” (page 29)

Just in case there’s any confusion, it’s worth repeating: broadband providers are committed to enforceable, permanent net neutrality rules and ensuring that consumers and the innovation community don’t face issues with blocked or throttled internet traffic or uncompetitive traffic prioritization.

Given the rhetoric in this debate, we believe Congress should address this issue once and for all.