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Will Net Neutrality Stage a Comeback? Winners & Losers

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The U.S. Senate will vote in the coming week as a last ditch attempt  to save the Net Neutrality laws which were repealed by the Federal Communications Commission (FCC) on Dec 14, 2017. The newly constructed FCC under Trump administration with Ajit Pai at the helm repealed the Obama-era rules which altered the dynamics of the Internet Service Providers (ISP) industry.

Senate Democrats are hopeful to win the vote regarding the restoration of Net Neutrality. However, the same needs to be approved by the House of Representative and finally by the President himself, who can veto Net Neutrality even if the bill is cleared by both the houses.

Controversy Over Net Neutrality

The champions of Net Neutrality argued that strong regulatory measures are required to ensure free availability of Internet to everyone. If ISPs are allowed to practice paid prioritization, a method through which content developers strike deals with ISPs for fast and smooth transmission of their data traffic, then only a handful of large web-based content and application developers will benefit.

This will have a negative impact on start-up companies resulting in less innovation and competition. General consumers will also be affected since established content and application developers will ultimately raise their price to recoup the extra charge they pay to the ISPs.

Meanwhile, opponents of Net Neutrality argued that market equilibrium is achieved when marginal utility equalizes marginal cost. If multi-media application generates more demand than simple text message, users need to pay accordingly. If an application requires more bandwidth consumption, then the users should pay more for that.

Several billion dollars of investment for high-speed broadband network which the ISP’s spend will be significantly jeopardized if discriminatory pricing is disallowed and it would eventually result in loss of jobs for the economy.

Who Will Gain if Net Neutrality Returns?

Implementation of Net Neutrality by FCC was a huge positive for several web-based application and content developers. Internet-based tech giants and content developers are the major beneficiaries of Net Neutrality rules. Netflix Inc. (NFLX - Free Report) , Google of Alphabet Inc. (GOOGL - Free Report) , Amazon.com Inc. (AMZN - Free Report) , Hulu, Facebook Inc. (FB - Free Report) and Twitter Inc. (TWTR - Free Report) are a few of the companies in the same league.

Who Will Lose if Net Neutrality is Recalled? 

There is little doubt that the ISP industry will be the major losers if Net Neutrality staged a comeback. Leading ISPs including AT&T Inc. (T - Free Report) , Verizon Communications Inc. (VZ - Free Report) , Comcast Corp. (CMCSA - Free Report) and Charter Communications Inc. (CHTR - Free Report) strongly criticized Net Neutrality rules.

Each of Netflix, Alphabet, Facebook, AT&T, Verizon, Comcast and Charter carry a Zacks Rank #3 (Hold). Amazon and Twitter sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart below shows price performnace of all above mentioned stocks in the last three months.

Bottom Line

Telecommunications is a necessary utility. Net Neutrality may discourage large investments in the telecom sector but will cut down the cost of online access for end-users since content providers will no longer need to pay extra fees. However, it is to be seen how the government manages a trade-off between the two.

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