Fitch Ratings Sees Longer Term Constraints on ISP Investment Because of Common Carrier Rules

The U.S. Court of Appeals for the District of Columbia has upheld Federal Communications Commission rules on common carrier regulation of Internet access services, but an appeal is certain.

Fitch Ratings says “we believe there will be very little near-term effect on revenues or operating profits from existing services” as a result of the ruling, because of the certain appeal.

But Fitch also believes that unless the rules are overturned, the major telecom and cable operators are likely to constrain investments in potential new growth areas affected by the net neutrality rules.

“Ultimately, Title II rules could change the way Internet traffic is managed, as well as affect future revenue opportunities and business models,” Fitch Ratings argues.

Some analysts, and Internet service providers themselves, have argued that common carrier rules imposed on U.S. Internet access services would depress investment. Critics have argued that would not happen.

At risk are not simply common carrier rules that could include rate regulation and prohibition of some business models.

Title II regulation--despite the FCC’s current “forbearance” on imposition of wider common carrier rules--opens the door for much greater regulation of the Internet in the future.

As presently applied, the common carrier rules do not impose  rate regulation, tariffs and last-mile unbundling, but a future commission could decide to enforce the provision.

Additionally, the FCC believes it can, under those rules, ban "zero-rating.”

At a high level, Fitch Ratings says, a long term negative impact of common carrier regulation is “reduced opportunity for wireline or wireless operators to benefit from potential new business models that deliver targeted advertising.”

The winners? Google and Facebook.
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