ISP Capital Expenditures in the Title II Era

Here is a quick update to my survey of changes in ISP capital expenditures (“capex”) since the dawn of the Title II era.

Some #TechReporters are claiming that Title II is associated with a “spike” in broadband investment, and that “investment is doing just fine.” Others claim that investment is up at select ISPs such as Comcast, Time Warner Cable, and the wireless division of Verizon. Still others claim that we should ignore changes to ISP capex in the first quarter of 2015, despite the fact that ISPs knew which direction the FCC (and President Obama) were heading since November 2014.

The updated table below compares capex for the largest ISPs—those investing at least $300 million in the first nine months of 2014—for the nine-month period ending in September 2014 (the pre-Title II era) with the nine-month period ending in September 2015 (the Title II era).

capex

As the table shows, capex was down significantly in the first nine months of the Title II era for AT&T (-21%), Charter (-23%), and US Cellular (-11%). Although some ISPs experienced an increase in capex, this lift was not sufficiently large to offset the aforementioned declines.

On net, capex fell by a staggering $2.9 billion across the largest ISPs excluding Sprint, T-Mobile, and US Cellular (the pure wireless ISPs). Including the pure wireless ISPs still results in an aggregate decline of nearly $2 billion relative to the same period in the pre-Title era.

Critically, the nearly four percent decline in ISP capex in the Title II era is highly abnormal since the end of Great Recession. According to USTelecom, broadband capex increased every year since 2009. Indeed, broadband capex increased by nearly 10 and 3 percent in 2013 and 2014, respectively. What some call a “spike” in ISP capex in 2015, others would call a U-Turn.

Strong net neutrality was supposed to stimulate investment at the “edge” of the network among content providers, without discouraging investment at the network’s “core.” But large content providers such as Google, Microsoft, and Amazon are also pulling back on capex in the Title II era. So far, the FCC’s grand experiment in market design (and overt favoritism for edge providers) isn’t going according to plan.

When confronted with this gloomy data, the naysayers claim we don’t need any more investment because the days of broadband upgrades are over. Like Fukuyama’s “The End of History,” which posited that Western liberal democracy was the most advanced form of government, the “End of Technology” posits that LTE 4G wireless and DOCSIS 3.0 are the most advanced broadband technologies. (Let’s not inform them of 5G wireless or DOCSIS 3.1.)

Funny how the “End of Technology” just happened to coincide with the dawn of the common carrier era.

Twitter: @halsinger

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  1. #1 by RipeForDiscussion on November 11, 2015 - 2:04 am

    I appreciate a man who posts his opposition’s side of the story in the opening paragraph of his post. Even when the opposition is obviously pissed about the contents of the material being discussed. I am a member of the opposition, but I promise I’m not pissed off and to prove my calm demeanor I wont attack you personally in my comment!

    In consideration of this CAPEX discussion, I truly believe that the opportunity to argue both sides is invaluable to the overall picture. My issue with Mr. Singer’s side of the argument is that I do not believe the CAPEX numbers used are capable of painting a forward looking view of Title II’s affect on broadband internet.

    YOUR #s FROM ABOVE:

    $16,829.00 $13,356.00 -$3,473.00 -26.00%
    $12,624.00 $12,540.00 -$84.00 -0.67%
    $5,196.00 $5,862.00 $666.00 11.36%
    $3,877.00 $4,572.00 $695.00 15.20%
    $3,179.00 $3,500.00 $321.00 9.17%
    $3,000.00 $3,300.00 $300.00 9.09%
    $2,096.00 $2,031.00 -$65.00 -3.20%
    $1,678.00 $1,292.00 -$386.00 -29.88%
    $630.00 $604.00 -$26.00 -4.30%
    $413.00 $525.00 $112.00 21.33%
    $376.00 $335.00 -$41.00 -12.24%
    $314.00 $357.00 $43.00 12.04%
    $50,212.00 $48,274.00 -$1,938.00 -4.01%

    $33,383.00 $34,918.00 $1,535.00 4.40% <—————–

    What i did here was i duplicated your numbers, but took a look at them without AT&T. I realize that this can be deemed unfair since AT&T had the largest drop in CAPEX and is a pivotal part of your analysis, but AT&T's drop in CAPEX is also the most explainable in my opinion. *** Remember that I am personal injury attorney and not a math major or a telecom buff, just someone who is extremely interested in the subject *** Please feel free to critique my numbers.

    The arrow represents my point… without AT&T's extreme drop in CAPEX, the ISPs used in your analysis actually increased. I already discussed that this can be looked at as unfair, but as a premature counter argument I would like to point out that your numbers do not include Sprint or T-Mobile which had substantial rises in CAPEX… So were even :).

    The discussion I would like to entice is (1) whether it's reasonable to include AT&T as the face of CAPEX decline when they have forecasted this drop since 12' and recently wrapped up Project VIP; (2) whether discussing CAPEX is prudent at this stage of Title II's existence; (3) whether its even a bad thing for ISPs to slow down CAPEX in times of legal uncertainty.

    I would also like to point out that with Verizon rolling out 5G, and Comcast rolling out X1 (two points that go against this decline in CAPEX) its reasonable to foresee AT&T following suit, which will undoubtedly increase future CAPEX.

  2. #2 by RipeForDiscussion on November 11, 2015 - 3:42 am

    Correction Mr. Singers data does include Sprint and T-mobile.

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