Net Neutrality and Stocks

By Malcolm Berko

May 13, 2015 5 min read

Dear Mr. Berko: I'm a shareholder of Charter Communications, CenturyLink and Comcast. I have big profits in Charter Communications and Comcast and a small loss in CenturyLink. I don't understand this new "net neutrality" regulation thing. It seems that this industry has gotten along for decades without government regulation. As you know, these are some of the largest Internet service provider stocks, and I'm concerned about how the FCC's new rules will affect these stocks — especially Comcast, which I bought at $12, and Charter Communications, which I bought at $33 in 2009. I have no profit in CenturyLink, but it has a good dividend. Please explain net neutrality to me. Is it good, or is it bad? This really worries me, and I wonder whether I should sell any of the three issues I own. — NS, Punta Gorda, Fla.

Dear NS: In Spanish, "punta gorda" sounds like a grossly overweight lady of the evening. However, Punta Gorda, Florida, is a lovely town along the Peace River, about a 100-minute drive south from Tampa. It's a cozy upper-middle-class retirement community of 20,000 friendly folks on Florida's west coast. And everyone seems to own a computer.

Net neutrality prevents Internet service providers from moving data or content faster than other data or content and prohibits the providers from entering into paid agreements with companies such as Netflix and Amazon.com to prioritize their data. Most broadband providers — such as Charter Communications, AT&T, Verizon, Cox and Comcast — are uncomfortable with this idea. These companies have invested billions in sophisticated infrastructure and don't want Washington bureaucrats telling them how to run their business or package their services. After decades of independence, trouble-free growth and innovation for these companies, Washington's inexorable need to regulate will be a hard blow to swallow. And as an honest auto mechanic would say, if it ain't busted, don't fix it.

I'm familiar with many of the pros and cons of net neutrality. I've read good articles supporting both sides of the argument and talked with several knowledgeable industry people, but I'm still undecided. Therefore, I'm bending overboard to be fair because I don't have enough understanding of net neutrality to form a conclusion. So either the snake in the grass is barking up the wrong tree or it's time to grab the bull by the tail and look it in the eye. However, there are certainties that can be counted on: 1) The Federal Communications Commission will have to greatly increase the size of its staff and its operating budget. 2) Internet law will become an enormously lucrative practice. 3) Internet lobbyists will be spreading money among members of Congress like frosting on a cake. 4) The federal courts will be backed up with numerous challenges, creating confusing and costly federal regulation. 5) In a few years, your monthly Internet bills will be subject to a tax of an extra 20 to 25 percent to pay for and ensure compliance with new federal regulations. And some alarmists believe that Washington's new authority to monitor the Internet could evolve into "content control," more commonly called censorship.

Net neutrality is basically a nonevent for your three ISPs, so don't get sidetracked into a tangent! Comcast (CMCSA-$58) hasn't moved much in the past few months and recently gave up its quest to acquire Time Warner Cable. But keep the stock, as Wall Street has a $90 price target for CMCSA next year. Charter Communications (CHTR-$178), after five years of losses, is on track to earn 70 cents a share this year and as much as $3 in 2016. The talk is that CHTR may split by Thanksgiving. CHTR shares are expected to outperform the broader market and should be held. CenturyLink (CTL-$35), an unimpressive company with a sweet but stable 6 percent dividend, has limited growth prospects. The decision to sell this no-growth company should be as easy as falling off a piece of cake. There are far better fish in the sea than CTL.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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