AT&T is making a bold promise to consumers: If federal regulators drop their attempt to strengthen net neutrality, subscribers will actually pay less for Internet than they would otherwise.
The gist of AT&T's argument is that the rise of bandwidth-intensive applications, such as streaming video, puts undue burdens on the company. If content firms like Netflix paid their fair share, broadband providers could reduce the cost to consumers. The implied threat, however, is that your Internet bills could actually go up if content companies refuse to pay a toll. A standoff seems inevitable.
But there is a third option: ISPs could accelerate upgrades to the country's broadband infrastructure now. It's not like they can't afford it.
In AT&T's view, it's only fair for content companies to pay for the use of the network (and for infrastructure upgrades), just as customers pay for their own use of the network. While that's a matter for debate in itself, AT&T's more significant implication is that payments by Netflix and other content providers are a necessary condition for further upgrades.
If companies like Netflix pay up, ISPs will be free to plow more resources into building infrastructure and lowering bills for people like you and me, according to AT&T. Failing to do that, AT&T hints, will lead to the opposite: It will "force" AT&T to pass costs that content companies should otherwise pay onto the consumer.
"It’s simply not fair for [Netflix chief executive Reed Hastings] to demand that ISPs provide him with zero delivery costs – at the high quality he demands – for free," wrote Jim Cicconi, AT&T's top public policy official, in a blog post Friday. "Nor is it fair that other Internet users, who couldn’t care less about Netflix, be forced to subsidize the high costs and stresses its service places on all broadband networks."
This reasoning makes it sound like there are only two options: Content providers must capitulate, or the consumer gets it. Yet what's gone overlooked is that broadband companies have extremely deep pockets, while many of the most innovative Web firms operate on less substantial margins. A look at AT&T's financials show that it has substantial profits and could likely afford to invest more.
Here's what the entire broadband industry spent on capital expenditures every year going back to 1996, according to the industry group U.S. Telecom. These figures include investments by companies on property and equipment that would reasonably be defined as broadband infrastructure. In 2012, the most recent year for which there was data, the industry as a whole invested $68 billion in capital expenditures.
Meanwhile, in 2013, AT&T turned a profit of $49 billion. If the company had funneled every penny into capex (not that it should have), that $49 billion would cover 72 percent of the industry total in 2012. (For comparison, Verizon and Comcast reported profits of $42 billion and $30 billion in 2013, respectively.) Analysts say a company's first duty is to its shareholders, and that's true as far as 21st-century business principles go. Yet that commitment is a relatively recent one, and not the only standard for success (even if it is the most commonly accepted one).
It's not like there isn't already surging demand for greater bandwidth, either. Cities are practically throwing themselves at Google for access to high-speed fiber optic lines. In Austin, AT&T itself is increasing speeds for consumers amid rising competition from Google Fiber and other rivals. Cisco estimates that by 2017, U.S. Internet users will consume enough data to fit on 9 billion DVDs every month. It's not clear why AT&T needs evidence of even more demand before it will commit to building infrastructure at a faster clip — especially when it makes tens of billions a year in profits.
To say that regulators must decide between increasing costs on companies like Netflix or raising prices on consumers is to present a false choice. Rising demand is a fact of the industry. Meeting that demand is what network operators are built to do.