If you're looking for the Armageddon version of net neutrality analysis, search no further than a new study released by New York Law School's Advanced Communications Law & Policy Institute. The assessment, titled Net Neutrality, Investment & Jobs, damns the Federal Communications Commission's proposed net neutrality rules as "destabilizing" and suggests they could "place the nation's economy at even greater risk."

The passage of such rules "could have devastating impacts across the ecosystem between 2010 and 2015," warn authors Charles M. Davidson and Bret T. Swanson. The assessment comes as the FCC released a Notice of Inquiry on its new Open Internet proposals on Thursday, and AT&T's threat that such proposals could cause it to downgrade its investment in its U-Verse IP-video network.

How devastating would this impact be? The paper claims that wireless and wireline broadband could suffer huge investment losses as a consequence of the rules. A ten percent drop in investment could rob the United States of 502,000 jobs with a $62 billion impact on its Gross Domestic Product. Three times that decline could punish the economy with a loss of 604,000 jobs and $80 billion in GDP loss.

"Despite FCC assertions to the contrary, history suggests that the Commission is incapable of micromanaging a dynamic sector via regulatory fiat and that such action results in consumer welfare and economic losses," the study asserts.

Apocalypse times three

Ars readers who dislike the dispassionate tone associated with most economics papers will find this one refreshing. Its subheadings include the following: "Apocalypse Now? Assessing the Impact of Proposed Net Neutrality Rules on Investment & Jobs in the Broadband Ecosystem." The question, of course, is how the study's authors came up with those half-a-million job-loss estimates.

First, the agency's proposals could block "voluntary partnerships and transactions with upstream providers of content, applications, and services," the document warns. Indeed the FCC's net neutrality plan, as released late last year, worried out loud where the freedom to cut these kind of deals could go.

"A broadband Internet access service provider that is also a pay television provider could charge providers or end users more to transmit or receive video programming over the Internet in order to protect the broadband Internet access service provider's own pay television service," the document speculated. "Alternatively, such a broadband Internet access service provider could seek to protect its pay television service by degrading the performance of video programming delivered over the Internet by third parties."

But Net Neutrality, Investment, and Jobs argues that as more video watching migrates to the Web, companies and investors will need to find "new hybrid business models to successfully manage this historic transition." Internet video doesn't pay yet, the paper contends. Video accounts for 73 percent of consumer Internet traffic, but just 8 percent of consumer Internet revenue. So new revenue models will have to be found—a prospect supposedly foreclosed by the agency's proposed rules.

Second, net neutrality could block needed Quality of Service techniques to manage user traffic, especially when it comes to handling latency-sensitive services and video. The survey notes the ongoing AT&T/iPhone network traffic malaise, then quotes a sympathetic assessment of the problem:

Unless a long-term plan is put in place that addresses and manages the traffic at a very granular level, the cost incurred due to an explosive demand will become unsustainable by 2013. At that point the revenue being generated could fall below the cost of sustaining such traffic. However, if the operators attack the problem using several different strategies, the growth can be managed and brought in line with the technology evolution such that the industry can take advantage of the falling per megabit costs.

Restricting experimentation on business models for network management "would exacerbate existing problems and allow a tiny number of users and applications to completely dominate the network, degrading service and value for other users," the report fears. And if various cybersecurity technologies which employ network management are also hamstrung, "then these technologies will become vastly more expensive to deploy and will therefore be less widely used."

Negative shocks

So how does the study extrapolate half-a-million jobs from these negative prospects? It takes existing projections of broadband related job growth, then plugs in the "negative shock" of net neutrality rules along four percentage tiers of possible investment decline: ten percent, twenty, third, and a "severe wireless drop." Bottom line: the prospect of 100,000 to 200,000 lost jobs each year over the next five years, with negative ripple effects in the healthcare and energy sectors.

Why would those seemingly nice people at the FCC put the nation in such economic jeopardy? In the face of overwhelming industry opposition to the Commission's Open Internet proposals, the Commission has "panicked," the report asserts, and is now resorting to the implementation of "century-old common carrier requirements" on broadband. "Such actions reflect only a selfish determination to consolidate regulatory power within an agency that has proven time and again to be incapable of micromanaging a dynamic sector like broadband," the report concludes.

Study author Charles Davidson is the director of New York Law School's Advanced Communications Law & Policy Institute. Bret Swanson runs the Entropy Economics research firm.