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Net Neutrality and Telecom ETFs

Stocks in this article: PTE IYZ TTH

By Eric Dutram of ETF Database

In the ongoing battle between phone and cable companies and the Federal Communications Commission, it appears as if Comcast (CMCSA) and its allies have won the latest round.

The U.S. Appeals Court for the District of Columbia ruled in a 3-0 vote that the FCC lacks the authority to determine how Comcast and other Internet providers manage their networks.

According to MarketWatch, the case stems from several incidents in 2007 in which the cable and Internet provider blocked some subscribers from sharing large files over the Internet in what are known as peer-to-peer transactions.

Comcast complained that such users took up too much capacity and slowed down the network for other customers, which eventually led to a lawsuit from free media and free Internet groups.

The ruling could allow firms like Comcast and AT&T (T) to decide how bandwidth is allocated and which sites customers can use freely, potentially permitting telecom firms to better manage their bandwidths without having to invest in costly infrastructure and network upgrades.

Although it seems to be good news for the industry, Tuesday's announcement had little effect on stock prices, with many of the major telecom names staying relatively flat in light trading. This collective yawn from investors is largely due to the perception that this battle appears to be heating up rather than cooling down.

According to the case ruling ( PDF), in the still-binding 2002 Cable Modem Order, the Commission ruled that cable Internet service is neither a "telecommunications service" covered by Title II of the Communications Act nor a "cable service" covered by Title VI and thus is not subject to restrictions from the FCC.

The FCC plans to either get the law changed to include the Internet as a "telecommunications service," or get Congress to directly grant the Commission power over the industry. Furthermore, the FCC has recently proposed a national plan designed to put the Internet in every home and vastly increase connection speeds over the next 10 years, suggesting that this debate is far from over as the FCC further moves into the Internet's domain.

Although telecom ETFs and media funds didn't have much of a reaction to the recent court decision, the major components of these funds have a lot on the line as the saga unfolds. On the following pages, we profile three ETFs to watch as the debate truly heats up. (All charts are 52-week.)

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