FCC Goes 'Tactical' Nuclear With Net Neutrality, But ISPs Will Expect 'Strategic' Use Later

Federal Communications Commission officials seem well enough aware that proposed new 'network neutrality' rules could lead to a reduction of investment in broadband facilities, which is why, reports the the Wall Street Journal, FCC (News - Alert) officials are briefing market analysts who cover cable and telco equities before the market opens on Thursday, May 6.

 

The fear is that even before the rules have been announced, financial analysts will issue downgrades of cable and telco stocks as future revenue streams are jeopardized. Those analyst briefings will happen even before other FCC officials or congressional members are told how the FCC plans to proceed. 

 

Chairman Julius Genachowski (News - Alert) apparently plans to circulate a notice of inquiry to other FCC board members next week on his plans to reclassify broadband Internet access, provided by cable or telco providers, as common carrier services under Title II of the Communications Act.

 

That would put cable companies under common carrier regulation for the first time, something cable industry executives always have opposed, and will fight. Telco executives will not be any less combative. The FCC might think using tactical nuclear weapons (targeted Title II) is more palatable than strategic nuclear weapons (full Title II), but as is the danger in such scenarios, use of tactical weapons can escalate to use of strategic weapons. And it is not clear industry executives will view the 'tactical' approach as offering any long-term protection from use of strategic weapons. 

 

It appears the FCC will somehow try to thread a camel through a needle, exempting ISPs from some Title II requirements to focus more narrowly on the 'neutrality' rules, rather than wholesale obligations and so forth. It isn't clear whether phone and cable companies will have much incentive to go along with the new rules, as later commissions could simply apply all the rules, once the precedent is established.

 

In other words, the big issue is Title II regulation, not 'just some' Title II jurisdiction. Though the FCC will attempt to argue its 'forbearance' moves (exempting ISPs from some rules) offer a surgical approach, there is nothing to prevent the forbearance rules from being overturned later. 

 

The likelihood is for a period of uncertainty while the battle over the rules proceeds, with an extended period of uncertainty afterwards if the rules are passed as originally proposed. Either way, telco and cable stocks are likely to face pressure almost immediately, as it is hard to imagine how any proposed new rules will halp the business case for cable or telco broadband access providers. 

 

"We would expect a profoundly negative impact on capital investment," warned Stanford Bernstein analyst Craig Moffett in a research note to clients Wednesday night titled "The FCC Goes Nuclear."

 

"The only potential winners are the satellite providers, DirecTV (News - Alert) and Dish Network, for whom incremental broadband regulation would dramatically reduce the risk of competitive foreclosure in the video business at the hands of bottleneck broadband providers," he wrote.