FCC's Net Neutrality Rules: Who Benefits The Most?

U.S. Telecom is currently busy with arguments and counter-arguments on Net Neutrality. In November 2014, former President Obama actively endorsed Net Neutrality to bring in a radical change in the way the government treats high-speed Internet service. In an historic decision, the Federal Communications Commission (FCC) approved Net Neutrality on Feb 26, 2015, after a majority 3-2 vote.

As the telecom industry is busy defining the pros and cons of Net Neutrality, we discuss the law in brief and point out who will gain if FCC repeals the laws. We will also try to understand Net Neutrality from an international perspective. Today is the first part.

What Is Net Neutrality?

Net Neutrality implies an open-Internet atmosphere, which will prohibit ISPs (Internet Service Providers), especially the telecom and cable TV operators, from discriminating against applications. So far, these companies were allowed to restrict any device, application, service or content from running on their respective networks.

The 2015 Net Neutrality laws reclassified high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act. Importantly, these regulations were applicable to both mobile and fixed broadband networks. The reclassification of the Internet called for a radical change in the way the government treats high-speed broadband service. This gives the FCC increased control over the ISPs.

Arguments for Net Neutrality

Massive implementation of 4G LTE wireless networks has resulted in significant growth of mobile data traffic over the net. There is enormous demand for web-enabled 4G phones now used to access Internet-based multimedia applications like games and movie downloads, online TV streaming, etc. This situation is only expected to take more concrete shape as the global wireless community is waiting of deploying upcoming 5G networks.

In order to control the flow of bandwidth-consuming applications such as video streaming, the ISPs have been discriminating against certain web-based contents and applications. Content developers have to pay hefty sums to ISPs for accelerated data transfer. In this situation, implementation of Net Neutrality by FCC was a huge positive for several web-based application and content developers.

Effects of Net Neutrality

The implementation of the Net Neutrality law banned common ISP practices such as data traffic blocking, slowing any data traffic and paid prioritization. Notably, paid prioritization is a method through which content developers strike deals with ISPs for fast and smooth transmission of their data traffic. Net Neutrality rules also allow the FCC to supervise interconnection deals, in which content developers pay ISPs to connect with their networks.

Nevertheless, Net Neutrality law does not include retail price controls on high-speed broadband services, rate regulation, tariff regulation and last-mile unbundling. In fact, ISPs also get an upper hand when it comes to levying charges on some specialized broadband services.

Beneficiaries of Net Neutrality

Internet-based tech giants and content developers are the major beneficiaries of Net Neutrality rules. Netflix Inc. (NASDAQ:NFLX) , Google of Alphabet Inc. (NASDAQ:GOOGL) , Amazon.com Inc. (NASDAQ:AMZN) , Hulu, Facebook Inc. (NASDAQ:FB) and Twitter Inc. (NYSE:TWTR) are a few of the companies in the same league.

Except, Twitter, all above-mentioned stocks currently carry a Zacks Rank #3 (Hold). Twitter carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

Net Neutrality rules have significantly altered online access charges of contents including video, music, email, photos, social networks and maps for consumers. As a result these service providers are no more needed to pay special charge to ISPs for speedy transmission of their contents. Although the final outcome is still not clear, several proponents of the law have argued that it may uplift the financial condition of end-users as the cost of online access may go down since content providers will no longer need to pay extra fees.

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