In an economy that continues to struggle, one bright spot is the so-called “app economy” fueled by the explosive proliferation of mobile devices and advances in wireless infrastructure. However, industry experts are concerned that regulatory overreach could halt the fast pace of progress.

There are more mobile devices than people in the United States. Smartphones, tablets and other mobile technology linked to high-speed broadband networks have revolutionized communication, entertainment, shopping, and the way in which we find information.

In 2005, streaming video accounted for less than 10% of Web traffic, says Mike Ritter, chief marketing officer for Verizon's consumer and mass market business unit. By the end of 2012 it will climb to 50%, reaching 90% within a few years.

Consumers are increasingly engaged in e-commerce, many by using handheld Internet-connected devices. About one third of all U.S. businesses garner revenue online, according to a study by Connected Nation, with such sales constituting more than $410 billion in annual revenues.

The U.S. wireless industry accounts for 3.8 million jobs (directly and indirectly), accounting for 2.6% of all U.S. employment, according to a study from Recon Analytics.

With the development of 4G networks, which can handle many times more data than their 3G predecessors, American innovators and entrepreneurs have access to a powerful new tool that can fuel the development of new products, services, businesses, and even industries. 

The private sector will need to invest billions of dollars to build out 4G networks. Verizon announced earlier this year that it would double the speeds of several FiOS Internet tiers and introduce two additional tiers. Verizon said that the effort is important to "address the burgeoning growth of bandwidth-intensive applications and the increase in the number of Internet-connected devices being used simultaneously in the same household."

In comments to the Federal Communications Commission (FCC), CTIA-The Wireless Association noted the cascading economic benefits inherent in rapidly developing mobile and broadband networks. The association calls this a “virtuous cycle.”

“New spectrum spurs the roll-out of new services, these services fuel the construction of advanced networks, advanced networks stimulate the development of innovative devices and operating systems featuring new capabilities, new devices and operating systems spur the creation of novel applications and content, and applications and content result in increased consumer demand and adoption.”

According to a report from Deloitte about the impact of 4G technology, broadband networks combined with other advanced technologies “can enhance the functioning of the entrepreneurial innovation ecosystem that has made the United States a mobile broadband leader…So long as U.S. firms are in the vanguard of those rolling out 4G networks and developing leading-edge devices and services based on the new technology, the economic benefits could be substantial.”

Analysis Group reports that broadband infrastructure construction could spur $75 billion in capital spending and create more than 300,000 jobs and $230 billion in additional Gross Domestic Product (GDP).

The pay-off is America’s growing App Economy.

Just five years ago, before the iPhone and other smart phones hit the market, there were no mobile application-related jobs. Today, the App Economy supports about 500,000 jobs throughout the United States. More than two-thirds of those jobs are found outside of the two states with the most app jobs, New York and California, according to a study from TechNet.

Don’t Mess with Success

However, the burgeoning App Economy is potentially threatened by dated and overreaching government rules, according to some industry observers. As CTIA noted to the FCC, the virtuous cycle “is driven by competition, not regulation.” Many experts say that increased regulation would reduce the flow of capital investment in advanced networks, which rose 8.2% in 2011 to $335.3 billion.

 Michael Mandel, chief economic strategist of the Progressive Policy Institute, notes that the App Economy is pushing companies to create new jobs and invest in business during an otherwise weak economic environment. A heavy regulatory hand could squash this.

“Government agencies should restrict themselves to 'light-touch' regulation of the App Economy unless there are real problems in the market,” he writes. “Nobody could have predicted the rise of the App Economy before it happened. It's the rarest of birds these days -- unexpected good economic news -- and we should draw the right lessons from its success.”

Some experts, including AT&T’s Jim Cicconi, say that existing regulations are outdated, negatively impacting wireless growth and innovation. Indeed, the regulatory structure in place today was designed to oversee a wireline voice monopoly that no longer exists. Further, the Telecom Act is out of date, and Cicconi suggests that there is a need to modernize the FCC’s function.

How the government deals with these regulatory issues could determine whether the United States remains a leader in broadband and the innovation it spurs.