AT&T Halts Broadband Plans Over Neutrality

AT&T on Wednesday halted plans to expand superfast Internet service across the U.S. in what one analyst called a "symbolic protest" against President Obama's call for public-utility regulation of broadband service.

Obama on Monday urged the Federal Communications Commission to impose Title II regulation on cable TV and phone companies, a move opposed by Comcast (CMCSA), Verizon Communications (VZ) and others.

Broadband service providers say the Title II regulation, originally part of the Communications Act of 1934, would stifle investment and innovation, hurting the economy.

AT&T (T) will spend $21 billion in 2014 on its 4G wireless network as well as its landline network, including U-Verse video and Internet service upgrades.

It has rolled out 1-gigabit-per-second service in parts of Austin, Texas, as well as in Dallas and Fort Worth, in response to Internet giant Google's (GOOGL) buildout of a fiber-optic network. Both have touted plans to expand their fiber projects, depending on the terms and incentives provided by local governments.

AT&T has stated it will launch 1 Gbps service in North Carolina; Cupertino, Calif.; Houston; Jacksonville, Fla.; Miami; Nashville, Tenn.; and St. Louis. In April, it said it was in talks with local governments to bring GigaPower to 25 more markets — representing over 100 cities and suburbs.

'Prudent To Just Pause'

CEO Randall Stephenson on Wednesday said AT&T will pause its GigaPower fiber network investments.

"We can't go out and invest that kind of money deploying fiber to 100 cities not knowing under what rules those investments will be governed," he said at a Wells Fargo financial conference in New York. "We think it is prudent to just pause and make sure we have line of sight and understanding as to what those rules would look like.

Google has built out its 1 Gbps service in parts of Kansas City, Mo.; Kansas City, Kan.; Austin; and Provo, Utah. Google has been expected to announce an expansion to more cities by year-end.

"AT&T's announcement this morning that they will withhold further investment in fiber is really just a symbolic protest, but it still speaks to a genuine problem. How can you commit to capital spending with this level of uncertainty around regulation?" said Craig Moffett, analyst at MoffettNathanson.

The FCC is revising net neutrality, or Open Internet rules, after a Washington, D.C., Court of Appeals ruling in January gutted much of the agency's authority.

Obama in a letter Monday asked the FCC to reclassify the Internet — and mobile broadband — as a public utility under Title II regulations. Following January's court decision, the FCC has been studying whether to re-regulate broadband under section 706 of the 1996 Telecom Act or take a hybrid approach — melding Title II and 706 rules.

If FCC Chairman Tom Wheeler goes along, a Republican-controlled Congress next year could grill him in hearings or respond with new legislation, analysts say.

The FCC and the Justice Department are reviewing Comcast's proposed acquisition of Time Warner Cable (TWC) as well as AT&T's purchase of satellite TV broadcaster DirecTV Group (DTV).

Andrew Lipman, attorney at Bingham McCutchen, said at a RBC Capital conference on Monday that the FCC is likely to decide on new net neutrality rules before voting on the Comcast and AT&T takeovers. The FCC may put net neutrality-related conditions on the deals, he said.

Obama, in his letter, asked the FCC to restrain from regulating prices for broadband services, even if it imposes Title II rules.

Lipman said at the RBC conference that the FCC and broadband providers may negotiate a deal to avoid prolonged litigation.

Stephenson warned that "the FCC has to do this under full knowledge and full expectation that what they do will be litigated. There's no doubt, whatever happens here, either way it's going to be litigated.

Broadband Patriots?

Google, Amazon.com (AMZN), Microsoft (MSFT) and others have invested in warehouse-sized data centers for cloud computing services. But the server-packed centers don't create many jobs.

"AT&T, Verizon and Comcast all rank in the top 10 of PPI's (Progressive Policy Institute) annual list of companies that are investing capital in the U.S.," said Fred Campbell, executive director of the Center for Boundless Innovation in Technology. "The president's response to their massive bet on our future? A plan that would shift the value of their investment to his allies in Silicon Valley — allies who haven't made a similar commitment to investment in American infrastructure and jobs."