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Connection between the AT&T–DIRECTV Merger and Net Neutrality

Telecom Industry Updates on Dish–T-Mobile Merger

(Continued from Prior Part)

Net neutrality basics

In June, Engadget reported that the US Court of Appeals for the District of Columbia had rejected the telecom industry’s petition to put a stay on net neutrality regulations that would come into effect on Friday, June 12, 2015.

The FCC (Federal Communications Commission) decided in February 2015 to reclassify broadband Internet as a public utility, similar to a phone service. This would give the FCC more regulatory power over ISPs such as AT&T (T) and Verizon (VZ).

The FCC’s net neutrality rules ban ISPs (Internet service providers), or wireless service providers like AT&T and Comcast (CMCSA) from blocking or slowing down Internet traffic or providing priority delivery of traffic for certain content providers.

How net neutrality could affect the AT&T–DIRECTV merger

Currently, companies like Netflix (NFLX) pay interconnection fees to ISPs like AT&T and Verizon (VZ) to move data traffic like Netflix’s streaming videos across their networks in a fast and efficient manner.

As the chart above indicates, for May 2015, Verizon’s FiOS was the fastest ISP to stream Netflix’s videos, while AT&T’s U-Verse occupied a distant tenth place.

Netflix is concerned that if the AT&T–DIRECTV merger is approved, AT&T would give preferential treatment to DIRECTV ’s (DTV) content over others. It could also use the interconnection fees as leverage for priority delivery of traffic. This is the reason that Cogent Communications (CCOI) and Netflix had proposed to the FCC that AT&T adopt net neutrality rules as a part of this deal.

It remains to be seen whether the FCC approves the deal—with or without the net neutrality commitment for the AT&T–DIRECTV merger.

You can get a diversified exposure to AT&T by investing in the Core S&P 500 ETF (IVV), which holds ~1% in the company.

Continue to Next Part

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