17 July 2018
With the Trump administration dismantling net neutrality rules, internet service providers like Comcast will benefit. Photo: Reuters

Net neutrality repeal may lead to re-rating of ISPs

The US Federal Communications Commission (FCC) has repealed the Obama-era regulation on net neutrality. That will eliminate the right to equal access to the internet, and allow big telecom companies to charge internet users extra fees to visit certain websites or use certain apps.

Under existing rules, internet service providers (ISPs) are not allowed to discriminate between internet traffic among different websites. That means they are not allowed to block certain websites or change the speed at which the sites will load on users’ computers.

Former US President Barack Obama once said that internet as an infrastructure is an essential service like roads or water pipes. Therefore, ISPs should be neutral in managing internet traffic rather than increase prices or curtail access to certain websites.

Many countries don’t have specific legislations for net neutrality, but it’s always been the basic stance of global telecom industry.

However, the Trump administration believes that minimum regulation is best for the corporate sector. The FCC has thus voted to repeal the net neutrality rule. That will enable ISPs to provide differentiate services and change the internet traffic for certain websites.

Leading US ISPs like Verizon and Comcast all run their own TV business. Therefore, video sites like YouTube and Netflix are their biggest rivals. Though these rivals occupy the bulk share of the internet traffic, they can’t do anything about it.

The rule change means the ISPs have several options now.

For example, they can charge rival video sites a higher fee. They can also partner with certain video websites, and offer their users preferential speed.

Another approach is to provide differentiating speed and services. For example, an ISP can team up with Amazon and let users shop online at desirable speed. By contrast, they can slow down internet traffic when users try to access eBay. The same applies to other sectors like social networking, online gaming and messaging websites.

Against this scenario, major users of ISP services, including internet giants like Google, may look at the possibility of acquiring an ISP to beef up their competitiveness.

ISPs are valued at similar multiples as their infrastructure peers with 8 to 10 times P/E ratio. The new rule may trigger a re-rating of those firms.

This article appeared in the Hong Kong Economic Journal on Dec 18

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]


Hong Kong Economic Journal columnist

EJI Weekly Newsletter

Please click here to unsubscribe