McDonough School of Business
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Regulation and Investment: Sk(r)ewing the Future for 21st Century Telecommunications?

John Mayo, professor of economics, business, and public policy at Georgetown University’s McDonough School of Business and executive director of the Georgetown Center for Business and Public Policy, has issued an economic policy vignette, “Regulation and Investment: Sk(r)ewing the Future for 21st Century Telecommunications?

In the policy vignette, Mayo explains that many in policy circles have written about the possible relationship between the imposition of regulation and regulated firms’ level of investment in the telecommunications sector: “Most recently, some have argued, in the context of the Federal Communication Commission’s (FCC) imposition of common-carrier regulation on broadband providers, that the consequence will be that firms subject to the additional regulation will significantly reduce investments needed to upgrade and expand the digital infrastructure necessary to produce the high-quality, affordable broadband services that Americans have come to expect and that policymakers want to see provided. Others have argued that no such effect should be expected or observed.”

According to Mayo:

  • Assessing which narrative is correct is difficult because the degree of regulatory stringency of an industry is just one of numerous factors that affect a company’s evaluation of whether and how much to invest at any particular time.
  • While the debate over the potential relationship of regulation and the level of investment in the broadband sector is crucial, it misses another equally important impact that regulation has in investment-hungry industries – independent of any impact regulation may have on the level of investment, the imposition of additional regulation may alter the mix of investments.
  • Importantly, any resulting distortions to the mix of investment may be as harmful to consumers and the future of the telecommunications industry as any impacts on the level of investment.

View the full paper.