[February 27, 2015]

Fitch: Net Neutrality Rules May Affect Telecom Investment Plans

The U.S. Federal Communications Commission (FCC (News - Alert)) decision on net neutrality could affect telecom investment plans, according to Fitch Ratings.

This week, the FCC adopted rules on net neutrality that will impose Title II regulation on broadband internet access providers. We believe there will be no immediate effect on the credit profiles of cable and telecom companies in our rated universe as the decision was not unexpected and it is a virtual certainty that the rules will be challenged in the courts, with the process taking two or three years to play out. While the rules are litigated, the most likely impact would be to lower investments by the major telecom and cable operators in potential new growth areas.

The FCC has introduced the Title II rules as the outcome of challenges to its 2010 Open Internet Rules. In December 2010, the FCC issued its Open Internet Rules and Verizon (News - Alert) later sued to overturn the rules. In January 2014, an appeals court vacated the anti-blocking and anti-discrimination portions of the 2010 Open Internet Rules, but left the door open for the FCC to implement Title II regulation.

Unlike its 2010 Open Internet Rules which had limited applicability to mobile broadband services, the FCC has decided to apply the new rules, in their entirety, to both fixed and mobile broadband services.

Fitch believes even if the rules were implemented immediately, there would be very little near-term effect on revenues or operating profits from existing services. If put firmly in place, Title II rules could ultimately change the way internet traffic is managed as wellas impact future revenue opportunities and business models.

Operators are concerned that this decision opens the door for much greater regulation of the Internet in the future. The FCC's order has refrained from enforcing numerous provisions of Title II and other regulations -- known as forbearance -- but lead regulators to further ramp up regulation. For example, the order forbears from rate regulation, tariffs, and last-mile unbundling, but a future commission could decide to enforce the provision.

Negative aspects for investors in the long-term would include the potential for greater regulation of broadband services and the reduced opportunity to benefit from potential new business models.

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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