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Will ISPs be the New Digital Advertising Powerhouse in 2018?

Zacks Equity Research
Internet Service Providers (ISPs) are gradually adopting the data-driven advertising technique, which is already popular in the web-based advertisement arena.

Online digital advertising is the new buzzword for major advertisers and advertising agencies. Ad spending through 2017 continued to shift from traditional venues, including TV, toward digital platforms. Moreover, advertisement on both legacy and mobile video platform is gradually shifting from simple selling of banner ads to automated or programmatic ad selling.

Leading Internet Service Providers (ISPs), such as Verizon Communications Inc. VZ, AT&T Inc. T, Comcast Corp. CMCSA and Charter Communications Inc. CHTR plan to create an innovative digital advertisement platform that can challenge tech giants Alphabet Inc. GOOGL and Facebook Inc. FB, which together command nearly 65% of U.S. digital advertising market.

ISPs are also gradually adopting the data-driven advertising technique, which is already popular in the web-based advertisement arena. Advertisement in mobile TV network is gaining huge market traction for the corporate world. Since each mobile device is connected to a specific viewer, the scope for target audience advertisement is enormous in this industry. The multicast mobile TV industry has achieved a significant milestone in viewership rating and advertising impression reporting system.

In order to derive maximum synergy from the combined video content and video distribution platform, ISPs are aggressively penetrating into the advertising technology market. Inclusion of dynamic ad-insertion, targeted audience advertising and data-driven TV advertisements is a step toward the same objective. The advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting.

Two Favorable Regulatory Verdicts in 2017

President Donald Trump has stated that he wants to do away with nearly 75% of all governmental regulations during his term as the President. A new Federal Communications Commission (FCC), headed by Ajit Pai, exercising lesser restrictions, certainly augurs well for the ISP industry.

On Apr 3, Trump signed a repeal of the Obama-era broadband privacy rules. This has given a major boost to the ISPs. The digital advertisement market is growing exponentially and ISPs have been increasingly investing resources to cash in on bountiful opportunities. However, the FCC’s previous directive stipulated that the ISP should notify customers before sharing any user data for advertising. This would have marred ISP prospects.

More importantly, on Dec 14, the FCC repealed the Net Neutrality laws that it had imposed under the Obama regime. On Feb 26, 2015, the FCC under the chairmanship of Tom Wheeler adopted Net Neutrality implying an open-Internet atmosphere, which will prohibit ISPs from discriminating against applications.

So far, these companies were allowed to restrict any device, application, service, or content from running on their respective networks. There is little doubt that the ISP industry will be the major beneficiary after FCC dismantling Net Neutrality. A light-touch regulatory measure will generate higher revenues to the ISP industry.

Zacks Rank

AT&T has a Zacks Rank #4 (Sell). Verizon, Comcast and Charter Communications carry a Zacks Rank #3 (Hold) each. Alphabet and Facebook sport a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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