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Farewell to Net Neutrality: Winners and Losers

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The Net Neutrality laws, which were repealed by the Federal Communications Commission (“FCC”) on Dec 14, 2017, finally received the death knell on Jun 11. The newly constructed FCC under Trump administration with Ajit Pai at the helm rescinded the Obama-era open-Internet rules. Notably, the rules had altered the dynamics of the Internet Service Providers (ISP) industry.

Following the abandonment of Net Neutrality, the regulator’s sole concern will be transparency of ISP practices by ensuring that consumers can buy service plans best suited to them. Further, large and SMB (small and medium business) enterprises can avail instant technical information for product innovation. The Federal Trade Commission (“FTC”) will be in charge of overseeing ISP practices for the protection of consumers’ online privacy.

Proponents of 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-ups 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.

Opponents of Net Neutrality

Meanwhile, Net Neutrality adversaries 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.

In the last 20 years, private sector has invested a mammoth $1.5 trillion to install communications network throughout the United States. This enormous expenditure took place primarily due to not-so-stringent rules implemented by the regulator. Due to this exponential deployment of telecom network, the web-based applications and solutions developers are flourishing.

Who Will Gain as U.S. Bids Adieu to Net Neutrality?

There is little doubt that the ISP industry will be the major beneficiary after United States officially dismantling Net Neutrality. 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. All four stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows price performance of major ISPs in the last three months.

 

Who Will Lose as Net Neutrality is Revoked?

Implementation of Net Neutrality was a huge positive for several web-based application and content developers. Consequently, Internet-based tech giants and content developers will be major losers after the FCC revoked Net Neutrality rules. Netflix Inc., Google of Alphabet Inc., Amazon.com Inc., Hulu, Facebook Inc. and Twitter Inc. are a few of the companies in the same league.

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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