You may have read some of the headlines or seen the trending hashtag #FreeTheInternet. Tech stocks are hardly promoting the hashtag on their website but everyone’s talking about net neutrality. It may be a hot topic, but few people actually understand the true consequences of the proposed regulation repeal.
What is net neutrality?
In 2015, the Federal Communications Commission (FCC) passed regulation. This regulation forced all Internet Service Providers (ISPs) to treat all data on the internet the same. Specifically, ISPs could not charge users different amounts, alter the connection speeds of different sites, or discriminate of any sort. However, the FCC recently proposed to repeal this regulation. This would allow ISPs to treat its customers differently depending on payments or personal relationships.
Think about it like this: imagine an airplane. Right now, we are riding on a plane. Every seat costs the same. They provide the same leg room and offer the same view outside the plane. As you can see, we are all equals on this plane. Under the proposed reform, we would add first class to our plane. In fact, we’d add several more tiers of classes. And to make matters worse? The airline can decide which class to put you in based a number of factors.
If net neutrality laws are repealed, ISPs will be able to treat their customers like this airline. ISPs can offer the largest tech stocks, like Netflix (NFLX) and Disney (DIS), incentives to purchase faster speeds. This will attract more viewers to their streaming sites. The largest companies will be able to pay these fees. Smaller sites with similar content will lose customers. The government will offer faster connection to the companies who pay the most and ensure other’s connections are slower.
Tech Stocks & General Market Impact
We have already seen the immediate impact of this proposed reform. Soon after, AT&T (T) bid to acquire Time Warner Cable (TWX). The Justice Department recently filed a lawsuit to block AT&T’s proposed $85.4 billion bid due to monopoly concerns. ISPs can treat its customers differently. Therefore AT&T would be able to slow down Time Warner content on streaming sites not paying its highest fees.
The entire internet would no longer being treated equally. Thus, the Justice Department must be extra wary of potential monopolies taking advantage of the market. If we see proposed reforms pass, regulators hopefully increase scrutiny around mergers and acquisitions in the industry. This would be precautionary against monopoly concerns. Unfortunately, there are no guarantees.
THE BOTTOM LINE FOR TECH STOCKS:
We cannot confidently bet on the smaller sites losing customers. Many of them are not publicly traded or discussed, but we can bet on the opposite. Tech stocks like Netflix, Facebook (FB) and Alphabet (GOOGL) will be able to pay for the fastest delivery speeds. This means they will see a bump in users. They are already industry giants; however, these tech stocks will continue to grow under the reformed regulation.
so they will all see a bump in users. They are already industry giants; however, these tech stocks will only grow under the reformed regulation since they are the richest companies. Only the wealthiest can afford first class while the rest of us are relegated to economy.
Net neutrality has far-reaching impacts. These range from the speeds of the shows we watch to the expansion of some of the internet’s largest sites. The vote on the proposed repeal will take place on December 14th. Indisputably, it will impact the fairness and democratic nature of the internet. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency.
In case you missed it… Check out our recent post about the G20 and if global leaders (and investors) are chasing an elusive dream
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