Fitch: Overturned Net Neutrality L/T Positive for Cable/Telecom

Tuesday's U.S. Court of Appeals decision on net neutrality, if it is not appealed to the United States Supreme Court by the FCC, is a long-term positive for cable and telecom providers that removes regulatory restrictions on potential data services business models, according to Fitch Ratings.

On Jan. 14, the U.S. Court of Appeals for the District Court of Columbia Circuit vacated the anti-blocking and anti-discrimination portions of The Federal Communications Commission (FCC) Open Internet (net neutrality) Order, which had been issued in 2010. The order had compelled broadband services providers, such as cable and telecom operators, to treat all Internet traffic equally regardless of source. The order had been appealed by Verizon Communications Inc. (Verizon). The Court did uphold the FCC's authority to regulate the broadband providers' network management practices.

Operators now have greater freedom to experiment with new business models, charging edge providers of content (such as Netflix) fees for faster data services. The overturned net neutrality rules were forwarding looking, essentially designed to prevent the carriers from instituting practices considered restrictive by edge providers, rather than curtailing existing products and services. Therefore, Fitch believes the ruling's near-term impact on companies' operating profits and cash flows will be minimal.

Fitch believes benefits are likely in the long term, as the removal of the restrictions could pave the way for innovative products and services while supporting continued broadband network investment. Potential revenues from suppliers of bandwidth-intensive services, such as video, would provide such support, and share some of the costs for broadband services currently falling on consumers and other end users. Many cable and telecom companies will benefit, although Fitch notes that Comcast, as part of the approval process to acquire NBCUniversal, agreed to adhere to the rules through January 2018.

The FCC has not yet decided if it will appeal the court decision. If it does not, the regulator will still likely have a role, along with antitrust authorities and consumer protection agencies, in corralling anti-competitive behavior or abuses. Alternatively, the FCC could decide to reclassify broadband services as telecommunications services subject to common carrier regulation under Title II of the Communications Act, as amended. Prior decisions by the FCC had classified broadband services as information services under Title I of the act.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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