How Net Neutrality Can Affect The Markets

2017-12-13 | Simpler Trading Team

With all eyes on Bitcoin, the exposing of sexual predators throughout the country thanks to the #MeToo movement, and all things Trump, a lot of major news can slip through the cracks.

One such major news event is the Federal Communications Commission’s (FCC) upcoming vote on whether or not to repeal Net Neutrality.

If you’re unfamiliar with Net Neutrality, it’s the name of a law passed in 2015 which reclassified broadband internet as a public utility under the Communications Act of 1934. That law made sure that internet service providers (ISPs) treat all data on the Internet the same, and not discriminate or charge differently by user, content, website, platform, application, type of attached equipment, or method of communication.

Net Neutrality is a hotly contested issue, with vocal advocates on both sides. On the one side, many ISPs and telecom companies are actively against Net Neutrality, saying that it limits innovation if there is no financial incentive to bring new technologies to consumers. Their belief is that government regulation of an industry hinders the free market, thus hindering options for consumers.

WhileAnd on the other side are consumers, who avidly support Net Neutrality. Net Neutrality supporters fear an unregulated internet. Their fears are that each ISP would then charge premiums for certain services and throttle speeds to other content. Users could end up paying for a base internet package, but then have to pay an additional monthly cost to access Facebook, or use Netflix at speeds that allow for streaming service. As a worst case scenario, political groups could pay ISPs to block traffic to opposing news sources, thereby manipulating the flow of news and information.

The FCC votes on the issue December 14th, with repeal looking likely, as FCC Chairman Ajit Pai has already come out strongly in favor of repeal.

How would the repeal of Net Neutrality affect traders?

In theory, a repeal of Net Neutrality could affect a trader’s connectivity. Having financial information as soon as it happens is critical to trading. If you’re a tick or two behind, you could miss a trade. That means that traders would need to pay a premium to maintain the fastest possible connection. And because the ISPs could also charge heavy-bandwidth sites a fee for allowing consumers to access their content without delays., Translation for the average internet user, which means any sites you use for information could in theory pass those rate hikes onto you their members.

For the time being, companies such as Verizon and AT&T have vowed there will be no paid prioritization under their service following a repeal of Net Neutrality. Comcast also had that same promise on their site for the last 3 years … until the day the FCC announced a repeal.

Regardless of how ISPs affect internet service for traders, there are still some winners and losers in the market should a repeal happen.

The big winners? Wireless providers.

Companies like Verizon (VZ), AT&T (T), Time Warner, Inc. (TWX) and Comcast Corp. (CMCSA) are set to soar. With the deregulation of internet policies, these companies can raise prices, come up with new service offerings, and bring in more revenue and profits. Verizon, for example, could launch its 5G service in 2018 as a direct result of this repeal, adding to its current 115 million customers. The repeal of Net Neutrality could also clear the way for the AT&T and Time Warner merger, boosting share price for both companies.

On the losing side is internet based companies such as Facebook (FB), Netflix (NFLX), and YouTube (GOOG), which rely on high speed broadband internet to deliver content as quickly as possible without pausing for buffering. If users must pay more to access these sites, they may decide they don’t actually need those sites. That fear can be expected to drive share prices down. Even if these sites decide to pay providers extra to ensure customers don’t lose speed or service, that cost will eat into the bottom line, driving share prices down anyways.

With all the commotion about Net Neutrality, it’s easy to forget that this policy has only been in place since 2015. There was internet access before 2015, and if Net Neutrality is repealed, there will still be internet options after. But regardless, traders should keep an eye on Net Neutrality news and monitor the aforementioned winners and losers accordingly.

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