The Effects of Net Neutrality Laws on the Earnings of the Isp Industry

The Effects of Net Neutrality Laws on the Earnings of the ISP Industry

Introduction

The Internet service provider (ISP) industry offers consumers Internet access and related services such as domain name registration, web hosting, and software consulting related to Internet connectivity. The industry is considered an oligopoly, with the five major internet service providers obtaining an 86.6% market share (Crompton 2014). Recently, ISP’s, consumers, and businesses with online operations have been affected by the FCC voting in favor of net neutrality and the Internet became included as a ‘common carrier’ under Title II of the Communications Act of 1934 (Crompton 2014). Reclassifying the Internet under Title II means that the Internet will be treated as a utility just like telephone lines, for which the original Act in 1934 was intended. This memo will take an in-depth look at the ISP industry structure and net neutrality legislation. A prediction of the effects net neutrality laws will have on the future earnings of the ISP Industry will be determined following the analysis of tech companies, consumers, and ISP’s.

Industry Structure

Since the end of the recession in 2009, the Internet service provider industry has grown an average of 4.8% annually, with revenue over $54 billion (Crompton 2014). The consistent revenue increase is no surprise given the rapid growth in Internet traffic volume in the past decade, shown in Figure 1. The Internet is now viewed by many consumers as a requirement rather than luxury, and “as Internet traffic continues to increase, ISPs will exercise more control over their networks and will likely restructure their pricing to a usage-based model” (Crompton 2014). The five largest Internet service providers and their respective market shares are Comcast with 20.5%, AT&T with 18.6%, Verizon with 18.1%, Century Link with 16.9%, and Time-Warner with 12.5%., making it a concentrated industry (Crompton 2014).

Figure...