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Memo to the FCC -- Stop Trying to Regulate the Net and Get to Work Helping to Create More Jobs

According to polls and pundits jobs and the economy were the number one issue on the mind of voters in the November midterm elections. And for good reason: The latest jobs report shows that the U.S. unemployment rate remains stubbornly high at 9.6 percent. To restore jobs, the economy needs more private-sector investment. But firms are sitting on cash, and as result, job creation is lethargic.

Formerly dependable sectors of the economy, such as technology and telecommunications, have been stuck in a storm of uncertainty. For the past two years, regulators in Washington have been peddling investment-discouraging proposals, such as "net neutrality," which would impose new rules over the Internet by reclassifying Internet services under outdated Title II regulation dating back to the Telecommunications Act of 1934.

So what is the fate of net neutrality in the wake of a new political landscape in Congress? As previously envisioned by the Federal Communications Commission majority, net neutrality would contain the poison pill of price regulation, which zaps investment and kills jobs. In this respect, there is no way to reconcile the election results with net neutrality – despite news this week that the FCC is likely to take a vote on net neutrality as soon as December. 

Consider these impressive election outcomes: All 95 challengers and open seat candidates who signed the campaign pledge in favor of net neutrality last week lost. 

In contrast, Democrats who opposed Title II reclassification -- which would invite price regulation of broadband carriers -- fared much better: nearly 70 percent of those survived. Although it is a stretch to say that net neutrality moved voters, the candidates who embraced net neutrality likely embraced other extreme interventionist policies, and for that, they were punished.

To the extent there is a problem that needs fixing, Congress should move first on the issue of net neutrality. Any bill that shuns the poison pill of price regulation in favor of a case-by-case approach to detecting and punishing discrimination on the Internet is an obvious starting place for compromise. If the FCC moves on its Title II proposal before Congress finds that compromise, Republicans have made it abundantly clear they will step in to ensure these job-killing proposals do not move forward.

At least three independent analysts have found that Title II is not the correct path to create jobs. First, The Phoenix Center for Advanced Economic Studies estimates that the May 6, 2010 announcement of the FCC's plans to reclassify Internet service shaved ten percent from the value of stocks of cable companies.

Second, Cambridge Strategic Management Group projects that the FCC's planned reclassification of Internet Service Providers would cause 47 percent fewer households to financially justify fiber-to-the-home investment. 

Third, noted telecom analyst Craig Moffett of Bernstein Research opines that, with the imposition of net neutrality rules and Title II reclassification, Verizon FiOS "would be stopped in its tracks," AT&T's U-Verse "deployments would slow," and Clearwire's investment in wireless 4G service might be scaled back. Indeed, Clearwire announced last week that it has already halted its operations due to a cash crunch from investor uncertainty, which is only further clouded by proposed government regulations. 

This is not the type of environment that American voters are looking for, and they have spoken at the ballot box for a new direction from Washington.

A better use of the Commission's time, and one that is more consistent with the outcome of the election, would be to proceed with achieving its ambitious goals for broadband access and adoption across America that were outlined in its 2010 National Broadband Plan by way of its current authority under Title I. Under this regulatory framework, the Internet as we know it today has exploded into a massive tool essential for consumers and businesses in a 2010 society.

Moving forward, Washington needs to create a healthy environment for job growth. The state of the economy is the most important issue facing our country. Rather than addressing hypothetical issues that do not touch the average voter, the FCC should turn its attention to real-world, job-promoting issues. Like what, you ask? Like more spectrum for wireless entrepreneurs and the implementation of the National Broadband Plan. -- two items that have been universally recognized as being capable of stimulating job creation and economic growth.

Hal J. Singer is a Managing Director at Navigant Economics and has served as Adjunct Professor at Georgetown University.