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Trump’s FCC Appointments Cast Doubts Over Net Neutrality


The surprising victory of Republican Donald Trump as the next U.S. president is starting to show its impact on telecom policy parameters. Recently, Donald Trump confirmed the appointment of Jeff Eisenach and Mark Jamison as advisors of the U.S. telecom regulator Federal Communications Commission (FCC). The appointment to the transition team appears to put net neutrality back in the spotlight at the FCC as both of them are staunch net neutrality opponents.

Notably, the current FCC chairman Tom Wheeler’s term will come to an end this month. Trump will take charge of White House on Jan 20, 2017 and will select a new FCC head. Last week, the FCC abandoned its plans to reform the Business Data Services (BDS) market and decided not to proceed with its set top box reform proposals. The FCC was persuaded to take these decisions after a group of Republican lawmakers asked Wheeler to refrain from acting on "controversial" issues during his final months in office.

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. In order to control the flow of bandwidth-consuming applications such as video streaming, the ISPs have been discriminating against several web-based contents and applications. Content developers have to pay heavy sums to ISPs for accelerated data transfer.

In a historic decision, the FCC approved net neutrality rules, on Feb 26, 2015, following a majority vote. The five-member regulatory body voted in favor of net neutrality with a 3-2 margin. However, the voting pattern was clearly divided along party lines, as three Democrat representatives voted in favor of net neutrality while the two Republican representatives opposed it.

The new 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 a stronger control over the ISPs now.

The implementation of the new 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 quick and smooth transmission of their data traffic. But with the implementation of the law, the FCC could now closely monitor and put a check on all such deals. Moreover, the FCC can also supervise interconnection deals, in which content developers pay ISPs to connect with their networks.

Arguments Against Net Neutrality

All ISPs, along with several cable and telecommunications industry bodies have vehemently opposed net neutrality. Notably, Republican senators were also not in favor of this newly implemented directive. These groups believe that a slight law reformation under section 706 of the 1996 Telecom Act will be enough to enforce net neutrality.

The major argument however stands that the ISPs have to expend several billion dollars to install and upgrade high-speed mobile/fixed broadband network. Disallowing discriminatory pricing policy will significantly reduce their revenues and margins which will in turn result in lower investments in the high-speed broadband sector. Consequently, broadband equipment service providers are likely to suffer (due to lesser investment by ISPs) and loss of jobs is also likely from the sector.

Who Will Benefit if FCC Abandons Net Neutrality?

Donald Trump himself is a strong critic of net neutrality. There is little doubt that if the new FCC scraps net neutrality laws either fully or partially the ISP industry will be the major beneficiary. Leading ISPs including AT&T Inc. T, Verizon Communications Inc. VZ, Comcast Corp. CMCSA and Charter Communications Inc. CHTR decided to challenge the net neutrality laws in Supreme Court. Except Charter Communications, all three above mentioned stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

Telecommunications is a necessary in both rural and urban areas. Its role in the infrastructural development of an economy is of vital importance. Net neutrality may discourage large investments in the telecom sector but will cut down the cost of online access for end-users since content providers will no longer need to pay extra fees. However, it is to be seen how the government manages a trade-off between the two.

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