The Ajit Pai Effect

On December 14, 2017, the Federal Communications Commission voted to repeal net neutrality. Ever since then, the FCC and the organization’s chairman, Ajit Pai, have been facing continuous criticism.

The University of Maryland’s Program for Public Consultation published a poll a few days before the repeal had received a vote. After introducing respondents to the topic and asking them to evaluate arguments for and against the proposal, they had conducted a survey. Conclusion: overwhelming bipartisan majority opposes repealing net neutrality. According to their poll, 75 percent of Republicans, as well as 89 percent of Democrats and 86 percent of independents, oppose repealing net neutrality.

At a glance, this seems to be the general consensus. Data suggests the same. Reddit, one of internet’s most visited websites, is a good example. Data scientist Michael Gardner and director of policy Jessica Ashooh published a blog post on Reddit’s official blog, analyzing net neutrality activism on the website. “Reddit users care about net neutrality, and the organic voting patterns we observed around these events showed it,” they wrote. Over 70 percent of front page votes went to net neutrality posts. To put things into perspective, according to Alexa, Reddit is the fourth most popular website in the USA and the seventh most popular in the world. The activism has not remained a phenomenon exclusive to obscure corners of the internet.

Ever since its inception, net neutrality activism has been pouring into the real world. It has poured into the streets, reached desks of public officials, and found its way into the Senate. Silicon Valley giants like Amazon, Facebook, Google and Netflix have, according to the Business Insider, spoken up against the FCC’s plan to kill net neutrality. To no avail.

Some have, however, remained silent. Quite predictably some would say, America’s largest internet service providers have been wisely waiting in the shadows, waiting for the scenario to reach its epilogue. Meanwhile, their stocks have, at worst, remained stable and, at best, experienced a healthy rise.

Below are some examples.

Comcast stock performance

Verizon stock performance

AT&T stock performance

Charter stock performance

Time Warner stock performance

The graphs above illustrate stock activity from the past three months. The net neutrality repeal, perhaps coupled with Trump’s corporate tax cut, seems to have done wonders for titans among internet service providers.

What about the competition?

There is almost none. The ISP market appears to have been oligopolized by the titans, and for a good reason. The market has an extremely high barrier to entry. The costs associated with creating cabling infrastructure are beyond astronomical. So, even if a would-be start up had the incentive to enter the market, doing so is virtually impossible. To illustrate this, let’s take a look at an example.

Back in 2013, Google announced its Fiber project. Digital Trends estimated that it could cost $94 million to build. Since the net neutrality repeal puts power back into the hands of ISPs, the end users are expected to suffer. Corporations like Comcast, Verizon, AT&T, Charter, and Time Warner will profit.

According to data published on BGR in December 2013, 67 percent of Americans have two or less options when it comes to internet service providers.

At the moment, the ripple effect of FCC’s net neutrality repeal seems to be leaving its mark on the market. Although it has always been dominated by a small number of corporations, the repeal seems to have given even more maneuver space to industry titans.

Since the repeal is practically still in its infancy, end users still haven’t been really affected by it. However, it has recently come out that the FCC wants to redefine (and lower) American broadband standards in relation to upload and download speed, so instead of having to offer a minimum of 25 megabits per second for download speed and 3 megabits for upload speed, ISPs will now have to meet a minimum of 10 megabits per second for download speed and 1 megabit per second for upload speed.

Lowering these standards will affect the end user, but will it affect the market? Lack of competition, a high barrier to entry, and the market’s oligopolistic nature promise more of the same.

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