Recently, the Senate and House Democrats submitted a bill called “Save the Internet Act” to the U.S. Congress in an attempt to reinstate net neutrality laws, which were repealed by the Federal Communications Commission (“FCC”) on Dec 14, 2017. The newly constructed FCC under the Trump administration, with Ajit Pai at the helm, repealed the Obama-era rules that had altered the dynamics of the Internet Service Providers (ISP) industry.
Democrats are hopeful that the bill will be passed by both houses. However, the bill will require the approval of President Donald Trump who can veto Net Neutrality even if it is cleared by both.
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, 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 users should pay more for that.
Several billion dollars of investment by the ISPs in high-speed broadband network will be jeopardized if discriminatory pricing is disallowed, eventually resulting in loss of jobs for the economy.
In a nutshell, the primary viewpoint of Net Neutrality proponents is that choice of content should be left to consumers. No discrimination should be allowed in treating content. An open Internet should be the backbone for product innovation in a free-market environment.
On the other hand, the opponents of Net Neutrality argue that a light-touch regulatory measure will lead to higher investment in the overall telecom industry. This they believe will help web-based service providers to flourish.
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 in the same league.
Who Will Lose if Net Neutrality is Recalled?
There is little doubt that the ISP industry will be the major loser if Net Neutrality stages 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) have strongly criticized Net Neutrality rules. All four ISPs carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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