Yesterday, AT&T took over Wall Street headlines after the FCC announced the beloved dividend payer will face steep fines.
AT&T to Pay $100 Million in Fines
The Federal Communications Commission said yesterday that AT&T (T ) will be fined $100 million due to allegations that the company deceived customers about its unlimited wireless data plans.
These plans were reportedly sold to customers on the assumption that all data was unlimited. The catch, however, was that after customers on these plans used 5 gigabytes of data within a billing cycle, the data speed would be “capped”. While the “fine print” seems somewhat reasonable, the reality is that the data speed cap is actually 20x slower than AT&T’s advertised normal network speeds. According to c|net, “AT&T dropped speeds to as low as 512 kilobits per second, which is about 5 percent of what it advertised for its 4G LTE service, and also failed to adequately notify its customers that they could receive slower-than-advertised speeds.” AT&T reportedly made billions off the practice.
AT&T’s offense, and subsequent fine, marks the first time that the FCC has taken action against companies violating net neutrality rules, which went into effect just last week.
Net Neutrality 101
One of the most sweeping forms of legislation in the internet industry has been net neutrality – or “open internet”. According to the FCC website:
“An Open Internet means consumers can go where they want, when they want. This principle is often referred to as Net Neutrality. It means innovators can develop products and services without asking for permission. It means consumers will demand more and better broadband as they enjoy new lawful Internet services, applications and content, and broadband providers cannot block, throttle, or create special “fast lanes” for that content. The FCC’s Open Internet rules protect and maintain open, uninhibited access to legal online content without broadband Internet access providers being allowed to block, impair, or establish fast/slow lanes to lawful content."
This concept is aimed toward leveling the playing field of internet providers – a novel concept in the corporate arena where regulations typically don’t focus much on the consumer and his or her rights. From a consumer standpoint, net neutrality is without a doubt a positive step forward, allowing individuals to more efficiently utilize, create, and exchange ideas. From an investor standpoint, however, stocks of internet providers may be in for a wake-up call as complying to these new regulations will likely mean business operations must change.
Here’s a list of a few big-name, dividend-paying companies that will need to comply with the FCC’s open internet policies, or face penalties like AT&T:
- Verizon (VZ ) The FCC has already warned Verizon about its practices.
- Comcast (CMCSA )
- Qwest (Q )
- Time Warner Cable (TWC )
- Frontier Communications (FTR )
- CenturyLink (CTL )
What is important to realize is that more than likely these companies will need to somehow differentiate themselves from the competition in an environment that is supposed to be “net neutral” and open. Does this mean that the future prospects of these companies are bleak? Not necessarily. It does, however, mean that the wireless and internet industry will likely encounter some major changes in the coming years. For us investors, it will be important to stay on top of these trends.
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