Saturday, February 7, 2015

[MUSING] Why Wall Street Is Excited About Cable Companies Being Treated As Utilities

As detailed in Kevin Drum's Mother Jones article here, the stock prices for major cable companies went up following the FCC's proposal to enforce strict net neutrality rules. Why? After all, regulation is bad, right?

Wrong.

I don't believe Kevin Drum got it right anymore than I think the high paid analysts at BTIG got it right. The analysts believe it was because price regulation wasn't mentioned- and it never has been, except by the internet service providers themselves. Kevin Drum believes it is because Wall Street doesn't know what it is doing. (Efficient market hypothesis notwithstanding, that is not the case)

Regulation of internet service providers is a net good for the business of internet service providers and anyone with a modicum of common sense (read: not the internet service providers themselves) realizes this. That is why the content creators of the Internet lined up almost universally on the side of net neutrality.

The thing that sells a utility is not the product itself- its the possibilities. We don't buy electricity because we like electricity and want to keep turbines somewhere spinning. We buy electricity because it enables all of our other wondrous, modern devices. It is the same with the internet. We don't buy internet packages because we love the idea of cables transmitting 1s and 0s. We buy internet access from the internet service providers because it gives us access to all of the many wondrous services available on the internet. And many of those services would not exist if internet service providers had anything to say about it. Remember the Netflix-Comcast feud?

If internet service providers are given the ability to decide what services will run through 'their' internet, the Internet as we know it will cease to exist. The reasons people would have to buy internet access would dwindle and the internet service providers would ultimately suffer. What would be the valuation of General Electric if they had to produce a new product for every power provider? What would the valuation of electric power generation be? Would it have ever become ubiquitous?

Regulation is, in this case, good. Wall Street has long followed Silicon Valley's lead (see: the tech bubble of the 90s) and this is just an extension of that.

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