New Federal Communications Commission Chairman Ajit Pai has quickly taken action to loosen regulation on internet service providers (ISPs). After exempting ISPs with fewer than 250,000 subscribers from disclosing network performance, fees, and data caps back in February, the next proposal takes aim at net neutrality rules that were put in place in 2015. The debate has been dredged back up, but it may not be the same this go-around.
Net neutrality regulation revisited
Last month, Pai proposed scaling back regulation on ISPs and scheduled an FCC meeting on it for May 18. That regulation, now known as net neutrality, gives the FCC strict oversight and regulation of ISPs and puts them in the same category as utility companies.
What is net neutrality? Here is the FCC’s description: “The FCC’s Open Internet rules protect and maintain open, uninhibited access to legal online content without broadband Internet access providers being allowed to block, impair, or establish fast/slow lanes to lawful content.”
In other words, your internet connection provider of choice, whether it’s a cable company such as Time Warner Cable or a cellphone company such as Verizon (NYSE:VZ), cannot arbitrarily slow down, speed up, or block your connection based on what website you’re on or how you’re using the web.
The new FCC proposal would still support an open internet, but specific net neutrality rules would be eliminated in lieu of a “light-touch” approach to oversight.
The debate turns seriously funny
The FCC invited comment from the public on the proposal in the period leading up to the May 18 meeting. Taking advantage of that invitation was comedian John Oliver, telling viewers of his comedy news show to use a website he set up, gofccyourself.com. The address took you to the FCC page where you could weigh in on the net neutrality debate.
The day after the show, the FCC website went down, which it claims was not due to increased commenting volume but rather the result of a cyberattack.
Funny business aside, this debate can be argued either way. Oliver, a champion of the net neutrality rules now in place, makes the point that if the FCC defangs itself, who would prevent ISPs from tampering with our portal to the internet? That’s a valid concern, as there are cases of it happening before the landmark ruling in 2015.
And some of the ISPs could be more incentivized than ever to do so. Using Verizon as an example, the company bought AOL shortly after the net neutrality ruling in early 2015 and is closing in on purchasing Yahoo!. Some people worry the company, as a gatekeeper to the internet, could begin looking for ways to drive traffic to its new media sites.
On the other side of the argument, there is concern that strict net neutrality rules have driven down investment in networks. However, ISPs have come out in support of net neutrality since the concept entered public awareness and have stated that the regulation doesn’t affect how they invest in infrastructure. To back that up, Verizon and other mobile providers have been busy building out the infrastructure for next-generation networks called 5G. As part of this effort, Verizon bought out the ISP XO Communications for $1.8 billion last year and has followed it up this year with Straight Path Communications for over $3.1 billion.
It hasn’t all been about acquisitions either. Verizon recently signed a contract with Corning, a maker of materials for fiber optic line, for a minimum of $1.05 billion in new material through 2020 to help Verizon build its 5G infrastructure.
What it means for the ISP industry
I think the important takeaway here is that ISPs have moved on from this debate. They have found ways to continue expanding and improving internet service, so getting rid of net neutrality should theoretically be a non-issue. Many of them have also begun transforming themselves into media companies as well, diversifying revenue streams away from subscription internet services.
Net neutrality or not, the plain-vanilla ISP business is as old and boring as a utility company. Should the rules cracking down on throttling of internet delivery be loosened, the ISPs should have already figured out by now that the “tampering with the internet” game isn’t one they need to play.
Nicholas Rossolillo owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.
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