Barack Obama: Hero of Net Neutrality?

President Obama had some strong words earlier this week about net neutrality. Almost immediately, critics and supporters emerged from across the globe, many hailing Barack Obama as a hero of net neutrality.

If you’re unfamiliar with the term “net neutrality,” here’s a crash course: Net neutrality is the idea that data sent or received via the internet should be treated the same, regardless of origin.

As it pertains to Internet service providers – ISPs – net neutrality means that these companies can’t slow down or throttle your data speeds arbitrarily. Here’s an example of why they might do this.

Video streaming from Netflix (Nasdaq: NFLX) can, at times, account for up to 30% of web traffic. In late 2013 through February 2014, Comcast (Nasdaq: CMCSA) tried to get Netflix to pay for its heavy data usage. The chart below shows how connection speeds changed during those negotiations. Note the significant increase in connection speeds after Netflix finally paid up in February.

NFLX CMCSA 11.12.14

Source: Statista

To me, this chart proves that Comcast manipulated connection speeds to provide a bad streaming experience for Netflix’s customers, essentially extorting Netflix by treating data sent from Netflix to consumers different than other data.

The Federal Communications Commission, the federal agency responsible for rules pertaining to things like net neutrality, proposed a rule change earlier this year that would allow ISPs to charge extra for an internet “fast lane. The slippery slope here is that ISPs could make the slow lane so terrible that one would almost have to upgrade to the “fast lane” to use the Internet in a reasonable way.

The Internet spoke and it said the FCC’s proposed rules were terrible. The FCC backtracked a little bit and said it would continue to review the proposed changes and we didn’t hear much about net neutrality until President Obama chimed in on Monday.

net-neutrality

One important aspect of Obama’s plan is that the FCC would regulate wireless ISPs the same as wired ISPs, something that hasn’t yet taken place. Wireless ISP claim that their bandwidth and networks are different than that of wired ISPs and they should be free to block, manipulate and throttle data as they deem fit because their bandwidth is a finite resource.

The move would force wireless data to be treated more fairly. But regulated industries have high barriers of entry and little competition. If the future of my Internet access looks anything like my access to cable (insert angry story about a customer service interaction HERE), that’s a future I don’t like.

When it comes down to it, this looks like it is going to be net neutrality versus Comcast, Verizon (NYSE: VZ), Time Warner Cable (NYSE: TWC), CenturyLink (NYSE: CTL), AT&T (NYSE: T) and the telecommunications lobbyists. And while I’m not certain President Obama’s plan is the right one, I’m fairly certain that the telecommunications industry and the ISPs do not have our best interests at heart.

Without the ability to profit from what many argue would ruin the internet, these ISPs – particularly the wireless ISPs – may not earn the profits that they earn today. But with less competition, existing wireless ISPs would be significantly more secure in their market position. The Obama plan might result in a short term drop as stocks adjust to new profitability. But I expect these companies to benefit significantly over the long term, as disrupting a regulated wireless ISP industry would become considerably difficult.

A fight is brewing and we will hear a lot more about this in the coming months. Net neutrality needs a hero. And if that hero is President Obama then so be it.

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Published by Wyatt Investment Research at