The End of Net Neutrality…

On December 14th the FCC Open Meeting is going to vote on whether or not to retain Net Neutrality. Being as how the FCC’s chairman is strongly against retaining it, Net Neutrality will be ending shortly after the vote.

In an open statement regarding the upcoming vote, the chairman said the following:

“For almost twenty years, the Internet thrived under the light-touch regulatory approach established by President Clinton and a Republican Congress. This bipartisan framework led the private sector to invest $1.5 trillion building communications networks throughout the United States. And it gave us an Internet economy that became the envy of the world.

“But in 2015, the prior FCC bowed to pressure from President Obama. On a party-line vote, it imposed heavy-handed, utility-style regulations upon the Internet. That decision was a mistake. It’s depressed investment in building and expanding broadband networks and deterred innovation.”

It’s pretty clear where his bias lies. Net Neutrality is doomed for failure. But, is this a good thing? According to the Chairman, the changes to Net Neutrality in 2015 was a mistake that has depressed innovation, and hurt broadband network expansion. Our internet economy that was “the envy of the word” certainly must have suffered, right? Is this accurate? Sadly, like most things in Washington, it appears that a partisan decision here is being based on Fake News.

Looking at the top internet speeds on a per-country basis, you might think the chairman has a point…we are the 10th fastest country for broadband speeds globally.

However, the whole thesis of investment suffering under net neutrality suffers when you can see the same survey in 2014. At that time we were #14.

Two things are obvious here. First, Net Neutrality has not been a problem for the internet in this country. Heck, we trailed LATVIA in prior to Net Neutrality. Hello?!?

Secondly, our Internet Economy may be the envy of the world, but our internet service certainly isn’t. Something can certainly be done to improve this, but abandoning Net Neutrality doesn’t seem to be the right path.

If we do get rid of Net Neutrality, it will mean that your internet can no longer be regulated by the government like it’s a public utility. Now, I’m not a big fan of big government. When they get involved, it tends to become a clusterf***.

However, there are some cases where it makes perfect sense to have the government involved. For instance, do you want to have 20 companies stringing their own electricity wires around your neighborhood? Or, how about multiple water and sewer providers. It makes little sense. Some industries are not ready, from an infrastructure standpoint, for open competition.

If you think about it, the number of companies from which you can order internet access is incredibly limited. If they are not controlled, you will face a duopoly, or the equivalent, where pricing will be gouging at best. Check out the pricing sheet below from a country with no open internet policy.

Imagine an internet where you pay more for access to certain sites. Prices, without Net Neutrality, will be going up. A lot.

However, enough about my stance on this. It’s coming whether I complain or not…at least until the democrats take over the house again. Therefore, let’s look at this from an investment standpoint. Maybe we can make enough money from the changes to cover the increased expenses we’ll all be facing?

Bye Bye Neutrality…Winners and Losers

The Losers…
Netflix, YouTube, and Facebook
One reason the net neutrality rules are so contentious is because they block Internet broadband providers from collecting a toll from websites to deliver their traffic. Netflix, especially, has complained in the past that ISPs effectively extorted it to keep its shows streaming. The committee’s vote is a major strategic threat to Netflix (NFLX) and many other sites—including Facebook (FB) and YouTube (GOOG)—that rely on a smooth video flow for their business models.

The Winners…
ISPs and the Cable Industry
Companies like Comcast and Charter, and their trade associations, lobbied fiercely against the rules. They regard net neutrality as an unwelcome government intrusion into how they do business, arguing it is another example of Democrats siding with the tech industry over telecom interests. The rules also deprive them of the chance to earn money by charging the likes of Netflix a toll to reach customers. The ending of Net Neutrality may also stop the trend of “cord-cutting” in which consumers eliminate pay-TV in favor of online entertainment.

The Mobile Phone Industry
One aspect of the court decision that has not received much attention is that the net neutrality rules apply to mobile Internet as well. In other words, phone carriers haven’t been able to stream some websites faster than others. As more and more people access the internet from mobile devices, this could be a boon for the likes of AT&T (T), Verizon (VZ) and T-Mobile (TMUS).

While the long-term implications of the ending of Net Neutrality will take years to unfold, the upcoming FCC Open Meeting vote will certainly start gaining more attention in the next couple weeks. And, stocks should be reacting in the near-term to the upcoming changes.

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