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The markets don’t tell me that net neutrality rules are working

Posted December 9th, 2015 in Broadband, Federal Communications Commission, net neutrality and tagged , by Alton Drew

The telecommunications services sector is in the red, and has been in the red for the past year. If net neutrality was such an enabler of the virtuous innovation cycle as Federal Communications Commission chairman Tom Wheeler is fond of mentioning, then the concept gets an “F.”  The market value of the telecommunications sector is down 4.14%, according to The New York Times. Within the sector, the integrated telecommunications services industry (companies that provide telecom services minus wireless) has seen market value fall 5.05% over the last year.  The wireless industry didn’t fare that badly, falling 2.09% over the same period.

The irony regarding the Commission’s application of Title II/net neutrality regulation is that it assumes that the sector’s broadband operators are monopolist deserving of utility type regulation in order to protect consumers and grow competition.  On the contrary. Investors in the sector, while historically viewing the sector as a hedge during the valley of a business cycle, are wary of the sectors performance as companies face an increasing amount of competition. Title II/net neutrality policy doesn’t appear helpful to a sector that sees declining pricing power as consumers seek out better pricing plans; falling profits that come along with decreasing pricing power; rising expenses as broadband providers spend more to upgrade their networks; and heavy debt loads, given its position as having the highest debt-to-equity ratio of any non-financial sector, according to an analysis by Charles Schwab. With the Federal Reserve expected to increase rates next week, credit markets may get even tighter for the telecom sector.

If the Commission is really concerned about a robust, competitive telecom sector, Title II/net neutrality public policy is not where you start.

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