It's a complicated and tangled debate. (Michael Bocchieri/Getty Images)

There are two stories people are trying to tell right now about the future of the Internet.

One is that we need some basic rules to make sure the Web remains open and free so that companies that depend on the Internet can grow. The other is that strict rules will discourage Internet providers from making the investments that will enhance the network for everybody.

Whichever narrative wins out will go a long way toward determining what your online experience will look like in the years to come. Although the Federal Communications Commission approved a historic set of net neutrality regulations in February, Internet providers are trying to overturn those rules in court. And if they can convince judges that the rules will cause irreparable damage to their business, the Internet providers will get a major leg up on the FCC.

[Internet providers are opening a new front in the net neutrality fight]

To bolster that case, some economists are turning to historical data about what the industry spent on infrastructure over the last couple decades. The result is a game of correlation, with one side trying to prove that regulation had little effect on investment and the other side trying to prove that it did.

If you boil it down, it's a disagreement over the Internet's basic origin story. And both sides are essentially accusing each other of historical revisionism.

To understand why, let's dive into some of the data. A new paper by Progressive Policy Institute economist Hal Singer says the FCC and its defenders have cherry-picked some of the statistics on infrastructure spending in response to the industry's anti-regulatory critique. Consumer advocacy groups have said that when the early Internet was more heavily regulated (because it was an outgrowth of the heavily regulated telephone system at the time), telecom companies spent 55 percent more per year on average than when regulators relaxed their oversight in the mid-2000s.

Singer argues that's a stretch. Using data provided by USTelecom, an industry association, he noted that much of the capital expenditure among DSL providers took place during just two years: 1999 and 2000.


(Hal Singer/PPI; data via USTelecom)

Why was the spending so high in those years? It had to do with the dot-com bubble more than anything else, according to Singer, so the FCC can't rely on those data points to make its case. In fact, he argued, when the FCC later decided in the mid-2000s to regulate Internet providers more lightly, investment saw another boom. The implication? With Internet pipes now freed from the shackles of traditional telephone regulation, telecom providers decided to pour more money into upgrades.

Compared to the spike we saw at the turn of the decade, the more recent jump in capital expenditure is much more closely related to regulation, Singer said. "If you go back 20 years," as opposed to 10, "you're going to include a whole bunch of data that's driven by lots of things unrelated to the change in [regulatory] regime," he said.

Singer also noted that the lightly regulated cable industry's spending soared between 1996 and the mid-2000s, right during the years when telecom companies' Internet offerings were being more heavily regulated. During this period, the FCC policed DSL (the big connection technology of the time) using Title II of the Communications Act, which was written to govern phone services and as of February has now been applied to all Internet providers, including cable companies and wireless carriers.

"The growth rate of cable capex was double that of Title II-regulated telcos over this period (7.5 percent versus 3.2 percent)," Singer writes. "This is hardly consistent with the FCC’s claim that Title II was good for telco investment."

Consumer groups say that Singer's own interpretation of economic history is flawed. What the record actually shows, they argue, is that the use of Title II in the past never prevented Internet providers from investing in their networks (which is what this debate is all about).

The 1990s were some of the most heavily regulated years for Internet providers. At the time, cable hadn't developed into a big Internet technology, so we're talking mostly about providers of DSL, which were phone companies. During that period, the FCC ruled not only that DSL would be regulated under Title II, but that those companies had to lend their networks to other providers, too.

During this period, DSL providers' investment saw a huge jump, one that we didn't see again even after the FCC relaxed its regulations in the mid-2000s.

It may not have been as big as the investment that the cable industry made, but that's also because cable was starting from a lower baseline, consumer groups say. When telcos ramped up their spending, cable had little existing Internet service to offer, which led the industry to make substantial investments to catch up.

"We're not trying to say Title II caused the investment — in fact, we're saying the regulatory regime is not the decisive factor," said Matt Wood, policy director of the advocacy organization Free Press. "The decisive factor is demand for the service," which really exploded during, yes, the dot-com boom.


(Free Press)

It's arbitrary to claim on the one hand that regulation didn't matter to investment during the dot-com boom but that it mattered a great deal in the years after, said Harold Feld, senior vice president of the advocacy organization Public Knowledge. "The more natural explanation is that the regulatory framework was irrelevant to investment" no matter which time period you're looking at, said Feld.

More relevant, consumer advocates say, are factors such as Google Fiber, which have forced Internet providers to step up their rollouts of next-generation infrastructure. AT&T and Comcast have both announced substantial expansions in their Internet capacity over the past year, including a new service from Comcast that will enable customers to surf the Web at 200 times the current national average speed.

If this debate reveals anything, it's the extent to which the Internet's early history can be massaged and coaxed to reflect differing points of view. One view is that network investment can thrive even amid aggressive regulatory oversight (see the 1990s). Another view is that relaxing regulation is linked with increases in network investment (see the mid-2000s).

How aggressively we regulate Internet providers will be shaped by this ideological battle. As more of our media and communications move to the Web, expect these themes to come up again and again.