Telecom in turmoil

Uncertainty over how regulators will police the Internet is threatening to wreak havoc in the telecommunications industry, even before new rules are announced.

President Obama’s call this week for the Federal Communications Commission (FCC) to regulate Internet service like a public utility sent stock prices tumbling and has caused at least one company to pause its infrastructure build-out.

If the FCC takes months to mull its new rules, that could spell even more trouble for the industry’s plans, analysts say.

“They’re not going to go down this path until they’re sure it’s going to be profitable,” Jeff Kagan, an industry analyst.

{mosads}“If all of the sudden the president is rocking the boat and being profitable is now a question mark … now all of the sudden responsible executives have to say to themselves, ‘Whoa, we have to wait and see what the environment looks like going forward before we invest another dollar,’” he added.

Moments after Obama called Monday for the FCC to reclassify Internet service to give the agency more power to regulate companies such as Comcast, AT&T, Time Warner Cable and Verizon, their stocks plummeted.

At a conference on Wednesday, AT&T CEO Randall Stephenson said that his company is pausing its plans to lay new superfast fiber-optic Internet lines to as many as 100 cities because of uncertainty around the rules.  

“We can’t go out and just invest that kind of money, deploying fiber to 100 cities … not knowing under what rules that investment will be governed,” he said. “And so, we have to pause, and we have to just put a stop on those kind of investments that we’re doing today.”

Other services could be next on the chopping block, he added, such as AT&T’s work to make sure that people on airplanes can connect to high-speed LTE service on their phones and tablets.

“We’re in a pause moment right now on those kind of investments,” he said.

Analysts were not surprised by the news.

“The simple comment that was made by the president has rattled everyone in the industry — not just AT&T,” said Kagan.

The uncertainty could grow as months drag on while the FCC considers new rules.

Though the commission had initially planned to vote on regulations this year, officials have pushed that back in recent days. Now, the timing is much less certain.

While supporters of strong net neutrality rules say that regulating the Internet like a public utility is the only way to ensure Internet users have free and unfettered access to the Web, industry groups have warned the move would be a drag on businesses.

“Injecting heavy regulation and marketplace uncertainty into this vibrant sector is a recipe for less investment and slower network upgrades at a time when consumers are demanding more robust networks and increasingly faster speeds,” said Brian Dietz, a spokesman with the National Cable and Telecommunications Association.

No matter which rules do eventually get issued, AT&T and other telecom companies have already threatened a lawsuit against the FCC, meaning that it could be years until the dust finally settles.

With multibillion-dollar infrastructure plans on the table, lack of clarity about what’s around the corner “can have no effect other than to cause one to pause,” Stephenson said.

FCC Chairman Tom Wheeler, a former cable industry lobbyist, surely understands the predicament facing the industry.

Before leading the FCC, he helped to lead strategy and venture capital firms, oversaw multiple tech companies and, from 1979 to 1984, was the head of the National Cable Television Association.

Making sure that any new rules can pass legal muster seems to be his top priority for the moment.

“It’s more important to get something done right than get something done quickly,” an FCC official told The Hill.

For the time being, at least, other companies are not following AT&T’s lead.

A Verizon spokesman said that there had been “no change” to his company’s plans.

A Time Warner Cable official declined to comment on the company’s plans. A Comcast representative did not respond to an inquiry from The Hill.

One of the biggest impacts of the net neutrality battle may be that it distracts from the FCC’s other work, such as preparing for an upcoming auction of the nation’s airwaves. 

Access to spectrum currently in the hands of TV broadcasters is critical for wireless companies including Verizon and AT&T, they say, so that they can keep up with the growing demand to stream videos and play games on phones and tablets. An auction was originally scheduled for next year but was recently pushed back, partly because of a lawsuit from broadcast companies about terms of the process.

The net neutrality rule-making process is “going to delay them even further,” said Larry Downes, an Internet industry analyst and project director at Georgetown University’s Center for Business and Public Policy. “It may jeopardize the outcome, whether we get enough spectrum or we get enough bids in to make it work at all.”

“If that’s the result of this, then it’s really a very bitter irony that while we’re trying to save the Internet we actually make things so much worse, particularly for mobile users,” he added.