Net neutrality, the principal that Internet service providers (ISPs) must treat all web traffic the same, was upheld under the Obama administration. However, under a new administration, those laws may be subject to change, which in turn may have a major impact on ISPs and companies that rely on them.

The argument for net neutrality is that ISPs should not be able to give preferential treatment to certain websites or internet services, while blocking or limiting access or speeds to others. The argument against net neutrality is that it would stifle investment in telecommunications networks and excessive bandwidth costs are borne on the ISP.

Net Neutrality searches in AlphaSense over time
“Net Neutrality” search results in AlphaSense over time

Using AlphaSense, I was able to research the regulation’s impact on the telecommunications industry by accessing top technology and telecom trade journals, as well as Dow Jones news.

In 2015, the Federal Communications Commission (FCC) voted that ISPs would be classified as Title II Common Carriers, allowing them to regulate ISPs to maintain net neutrality.[1] The decision was upheld by the U.S. Court of Appeals for the District of Columbia, after a suit brought on by lobbyist group United States Telecom Association, ruling that the “FCC had sufficient basis to impose utility-style regulation on broadband service…”[2]

These rulings may once again be brought to the forefront. Under President Trump, a new commissioner of the FCC has been appointed, Ajit Pai. Pai has been called a critic of net neutrality and pundits believe he may lead the charge to undo net neutrality regulation.[3]

Content and streaming providers, including Netflix ($NFLX) and YouTube ($GOOG), are in favor of this regulation. Not surprisingly, telecommunications providers such as Comcast ($CMCSA), AT&T ($T) and Verizon ($VZ) are against this regulation.

For any of these companies, how much concern is there about potential changes to net neutrality? Are firms actively addressing potential changes, or are they waiting on the sidelines to see what will unfold?

Since Q4 2016 earnings for the major cable companies and over-the-top content (OTT) providers occurred after Pai’s nomination, I wanted to see what kind of reaction these companies would have. I used AlphaSense to view earnings call transcripts, investor relations presentations, and SEC filings to hear companies direct thoughts on net neutrality.

Rather surprisingly, the only company to directly address net neutrality in its earnings communication was Netflix (which is also the largest consumer of bandwidth in the U.S.).

In their Q4 2016 Investor Relations Letter, Netflix writes “Weakening of U.S. net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable.”[4] The letter then continues to describe the necessity of net neutrality to “support innovation and smaller firms, and to prevent ISPs from favoring one service or another.”

Netflix Shareholder Letter discussing Net Neutrality on AlphaSense

The takeaway is that Netflix with its sizeable (and loyal) customer base, doesn’t appear to be too concerned about net neutrality potentially changing or going away.

As for the telecommunications companies, AT&T was the only one that addressed net neutrality in its earnings call. When asked about regulation, CEO Randall Stephenson said, “We happen to be advocates of net neutrality, just the concept of net neutrality, but placing utility style regulation on our mobility and Internet businesses. There’s no way anybody could argue that that is not suppressive to investment.”[5] Mr. Stephenson also noted that he is, “optimistic in terms of what a Chairman Pai would bring to the industry.”

Verizon did, however, address net neutrality at the Citi Internet, Media & Telecommunications Conference on January 5, 2017 wherein Mary Walden, EVP & President of Product Innovation & New Businesses said, “From a regulatory perspective, as I said, I think it is too early to tell what is going to happen with the administration. But it won’t change our strategy… if we see an opportunity to accelerate that strategy because of changes we will certainly look at that.”

It may be a too soon to see what changes net neutrality regulation (or de-regulation) will have on the telecommunications industry and streaming content providers, but it’s something we will monitor. Using AlphaSense, we saved the searches referenced above and set alerts, so we’ll be notified as soon as more information is available on proposed legislation affecting net neutrality.

Sources:
1. Venezia, Paul. Net Neutrality Triumphs as ISPs Weep. February 26, 2015. InfoWorld Daily. Accessed on AlphaSense.
2. McKinnon, John. FCC’s Net-Neutrality Rules Upheld by Appeals Court. June 14, 2016. Dow Jones Newswires. Accessed on AlphaSense.
3. McKinnon, John. Ajit Pai, Donald Trump’s FCC Pick, Set to Target Net Neutrality. January 24, 2017. Dow Jones Newswires. Accessed on AlphaSense.
4. Netflix Shareholder Letter, January 18, 2017. Accessed on AlphaSense.
5. AT&T Quarterly Earnings Call, Januay 25, 2017. Edited transcript from Thomson StreetEvents. Accessed on AlphaSense.




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