Now that the Federal Communications Commission approved the latest net neutrality rules, telecommunication sector exchange traded funds with exposure to broadband providers face a murkier long-term outlook.
For instance, the Vanguard Telecommunication Services ETF (NYSEArca: VOX) includes a heavy 21.8% position in AT&T (NYSE: T) and 21.2% in Verizon Communications (NYSE: VZ), iShares U.S. Telecommunications ETF (NYSEArca: IYZ) includes VZ 12.8% and T 12.2%, and the Fidelity MSCI Telecommunication Services Index ETF (NYSEArca: FCOM) holds VZ 21.5% and T 21.5%.
The telecom-sector ETFs have remained relatively flat since the announcement of the new FCC’s reclassification of broadband providers into utility companies under Tittle II to regulate prices.
The net neutrality rules were seen as a way to ensure content through the internet was being dispersed in a just and reasonable manner for consumers and content providers. It would ban broadband providers from blocking or slowing track and from deals with content companies for paid prioritization, or internet fast lanes.
However, the new classification can potentially stifle profitability among the broadband providers, reports Miriam Gottfried for the Wall Street Journal.
Cable companies would typically generate profits through growing market share and raising prices. For example, cable and telecom companies argue that higher fees are inevitable to cover the cost of increasing capacity due to rising internet usage, reports Aaron Pressman for Yahoo! Finance.