FCC Net Neutrality Vote Could Impact ISP Stocks

The Federal Communications Commission will be holding an open meeting on May 18 to discuss two major changes to its policies. The FCC will hold a vote on reforming media ownership policies and repealing Obama-era net neutrality rules, decisions that could have major implications for telecom and internet investors.

The FCC’s current broadcast ownership rules are similar to antitrust regulations, limiting the broadcast station market share of any one company to no greater than 39 percent.

“We believe the FCC will approve the [Notice of Proposed Rulemaking] and the commission will redefine national television market share to account for [over-the-top] and streaming services,” Height Securities analyst Nils Tracy says.

Under the current rules, a potential merger between Tribune Media Co. (ticker: TRCO) and Sinclair Broadcast Group (SBGI) could be at risk. Tribune presently holds 44 percent of the national audience market share, while Sinclair holds 38 percent.

The other primary topic the FCC will address at the meeting is net neutrality. The FCC will vote on eliminating the 2015 Open Internet Order, which gave the FCC the right to regulate internet service providers as common carriers under Title II of the Communications Act of 1934. These types of net neutrality regulations are aimed at preventing ISPs from giving certain content providers, such as Netflix (NFLX) and Amazon.com (AMZN), preferential treatment over others.

Tracy expects the FCC to approve the rollback, which should be good news for telecom companies Verizon Communications (VZ), AT&T, (T), T-Mobile US (TMUS) and Sprint Corp. (S). It would also theoretically give more power to ISPs such as Comcast Corp. (CMCSA) to give preferential treatment to their own online content.

Tracy says larger content providers such as Netflix and Amazon are relatively safe from being hurt by a reduction of net neutrality because they have the resources to combat its potential negative effects.

“[Over-the-top] providers with large capitalizations … should be able to fend off predatory paid prioritization by ISPs through the strength of their content and the economic clout of their subscriber numbers. On the other hand, new market entrants and smaller OTT providers will be at risk of increasing overhead due to the possibility of ISPs requiring paid prioritization,” Tracy says.

In addition to the uncertainty of net neutrality regulations, telecom investors have also been dealing…

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