The FCC's Blurred Lines
The latest Open Internet Order won't magically level the playing field.
We believe the Federal Communications Commission's latest attempt to impose net neutrality principles on the telecom industry maintains the status quo, and the current functioning of the industry is unlikely to change meaningfully, leaving participants to operate under the same uncertainty they've faced for more than a decade. As a result, our advice to investors remains the same as in the past. We believe Internet access providers, particularly cable companies, will continue to enjoy competitive advantages thanks to the benefits of efficient scale. However, the persistent threat of regulation will limit these firms' ability to exploit these advantages fully, constraining growth prospects and protecting the economic moats around content/application/services companies (edge providers) such as Google (GOOG)/(GOOGL) and Netflix (NFLX).
Open Internet Order: Lots of Words but Little Solved
The FCC's Open Internet Order has, in our view, introduced additional complexity into an already incredibly convoluted matter without resolving any of the thorny issues at hand. The order consumes 300-plus pages to assert its authority over the Internet access market, reintroduces "net neutrality" rules similar to those promulgated in the past, and outlines vague principles intended to guide the case-by-case review of disputes or violations as they arise. We believe the FCC's "bright line" rules will have little impact on Internet access as it exists today. As with past attempts to ensure net neutrality, these rules address only the consumer-facing side of the Internet access business and largely institute practices that are already commonplace. In those areas of the consumer-facing market where disagreement does exist, such as sponsored data services (or zero rating) and data caps, the commission declined to provide concrete guidance. T-Mobile's (TMUS) Music Freedom offering is the most notable sponsored data service in the market today. The FCC believes a case can be made that these types of services benefit consumers, but it declined to provide any specific rules here.
Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.