Net Neutrality: The Aftermath (from an Investor's Perspective)

December 15, 2017

For those who do not know what net neutrality is, click here before reading.

 

As I predicted on my Instagram account, the FCC has voted in a 3-2 decision to repeal net neutrality, a proposal made by chairman Ajit Pai (picture above). This is a big blow to the consumer experience and the biggest decision in the history of American Internet from recent memory. In this post, I will analyze the decision and how it will impact certain companies and, possibly, your investments (or trades).

 

Still, this decision is not complete, as it is expected that some states (California, mainly) will sue the FCC and enter into enormous legal battles with them. Likewise, Congress will have to make a decision on this very important subject in 2018. For now, however, I will assume the decision will stand and I will help prepare you for what can happen to certain companies and how this can affect you and your money.

 

1. Verizon, AT&T, and other ISPs won't win as much as you think

This decision is expected to be a huge victory for Internet Service Providers (ISPs) as they now have control over the speed of certain traffic. Obviously, this power would immediately increase investments in Verizon or T-Mobile or other ISPs. However, investors and traders are forgetting one thing: consumers are king. Consumers will use less of something if there are restrictions, let alone if they have to pay extra for it if said service is already free. Even though internet is a necessity in most cases, people will just reduce useless searches and stick to only the basics, therefore driving less traffic to certain websites (which I will describe further) and less money to ISPs (there is rumored to be specific plans for what websites you can get with your internet, so most people will choose a basic plan which will reduce the ISPs revenue from what they are currently getting with a "all-in-one" approach).

The Move: If you have positions in any ISP stock, hold if their balance sheets are solid. If not, avoid ISPs' stocks as there are more growth opportunities elsewhere.

 

2. Netflix and other streaming services are taking an L.

As I mentioned above, certain websites are going to be slower than others, and it is a well-know fact that ISPs like Charter or Comcast HATE streaming services like Hulu or Netflix because of their battle with cable. Essentially, net neutrality has been acting as a glue between streaming services and ISPs, meaning that ISPs could not slow down speeds or discourage consumers from visiting these sites. Now that they have the power to do so, Netflix and others will either have to lower their monthly subscription fees or consumers must decide whether or not it is worth it to pay extra for these services. Either way, from a purely financial perspective, revenues would decrease and the already expensive (relative to P/E) valuation of Netflix would come back to Earth at a rapid pace.

The Move: If you have a position in Netflix, sell immediately. If not, avoid the stock and look elsewhere for growth.

 

3. Net Neutrality and............. Bitcoin?

Bitcoin has gained major popularity over the past couple of weeks for its explosive growth in price. I wrote an article about how you should have purchased Bitcoin ASAP in late October (its price has risen more than 300% since then). Now, the question is, should you still buy it? Net neutrality has played a big role in the American usage of Bitcoin, as it has allowed nearly anyone who is able to buy Bitcoin on a free platform(s) (Coinbase, namely). However, big banks and the manner is which their influence spreads may impact what ISPs do to these platforms. Although this might frighten BTC holders (and future owners), it shouldn't. Bitcoin is revolutionizing something that has been around for more than 250 years (the dollar). Although this is an impactful decision on the internet, it cannot stop something as powerful and with as much potential as BTC. Plus, some people are forgetting that this is an American decision (with some relation to Canada), and Bitcoin is a global currency. So, I believe you should have nothing to worry about

The Move: Buy whatever amount of Bitcoin you can if you have not already. If you already own some, KEEP it. Also, do research on other cryptocurrencies (Ripple and Ethereum have grown to be some of my favorites).

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