Net Neutrality Rules Struck Down By D.C. District Court

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The U.S. Court of Appeals for the District of Columbia struck down key provisions of the Federal Communication Commission’s so-called “net neutrality rules” yesterday. The provisions struck down by the court are part of the “net neutrality” section of the FCC’s Open Internet Order, including the “No Blocking” and the “No Discrimination” rules. According to a report released today from Wedbush Equity Research, if the ruling stands, Internet providers will now be able to make specialized commercial deals with content providers, such as creating paid “fast lanes” for consumers to access content by paying content providers.

Not the last word on Net Neutrality Rules

Yesterday’s decision is almost certainly not the end of this legal saga. The Wedbush report offers further details. “We expect that the FCC will appeal the decision to the U.S. Supreme Court, which will likely take several months to hear the case and render a verdict. We also note the possibility that the FCC could reclassify broadband providers as “Common Carriers” under the Telecommunications act which would give the FCC the legal authority to impose Net Neutrality rules.”

Implications for Google

Shyam Patil of Wedbush argues that this ruling is potentially a positive for Google Inc (NASDAQ:GOOG) over the long run. He says that Google and other service providers will probably have to pay for network bandwidth that was previously free, but Google Inc. (NASDAQ:GOOG)’s muscle in the market will enable it to “to use purchasing power to differentiate their offerings through speed and reliability, creating entry barriers for other players.”

Implications for Netflix

Wedbush analyst Michael Pachter says the ruling could be bad news for Netflix, Inc. (NASDAQ:NFLX). “We expect ISPs to behave as if they were profit motivated, and think that they will seek to extract as much value from all websites as the court’s ruling will permit. We think that Netflix will see its users throttled by ISPs unless they pay for unrestricted delivery. In our view, it is most likely that ISPs would seek to extract a set fee per gigabyte (GB) of data transmitted; if we are right, the result would be more costly for Netflix than the status quo, with little or no incremental benefit. It is impossible to predict how this will play out in dollar terms, but directionally, it should mean higher payments by Netflix and/or higher payments by Netflix subscribers.”

Implications for communications equipment sector

Rohit Chopra and Sangit Singh of Wedbush say the ruling is a major positive for the communications equipment sector. They point out, “DPI players such as Allot Communications Ltd (NASDAQ:ALLT) and larger network equipment players such as Cisco Systems, Inc. (NASDAQ:CSCO) and Juniper Networks, Inc. (NYSE:JNPR) could see significant incremental opportunities in the U.S. over the long term.”

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