NEW YORK (TheStreet) -- The corporate fallout from President Obama's call to regulate the Internet as a utility is already hitting full stride.
AT&T (T) - Get Report CEO Randall Stephenson on Wednesday said that until the federal government can sort out its rules to administer the Web, the country's second-largest telecommunications provider would slow down its plans to expand and upgrade its broadband services in 100 U.S. cities.
"We are now starting infrastructure projects that we don't have any clarity or line of sight, in terms of what rules those will be governed under," Stephenson said at a Wells Fargo investor conference held in New York. "That can have no effect other than to cause one to pause," he said.
And if other Internet providers join AT&T, the big losers could be telecom equipment makers including Cisco (CSCO) - Get Report , Ciena (CIEN) - Get Report , Finisar (FNSR) - Get Report , Infinera (INFN) - Get Report and Juniper (JNPR) - Get Report , said Goldman Sachs in a report published Wednesday. Shares of Cisco and Ciena were slipping 0.5% in Wednesday trading while Infinera was 0.8% lower and Finisar was losing 1.7%.
Obama, in a statement issued by the White House on Monday, urged the Federal Communications Commission to write rules that treat all content on the Internet equally. He called upon the FCC to classify the Internet as a public utility commensurate with Title II of the 1934 Communications Act, which requires so-called "common carriers" to conduct business "in the public interest."
Obama said the commission's rules should mandate that "neither the cable company nor the phone company will be able to act as a gatekeeper, restricting what you can do or see online."
If the FCC does classify the Internet as a utility under Title II, capital spending by the country's Internet providers could indeed slow, said Goldman Sachs in its report led by Simona Jankowski. Furthermore, Obama's call for the FCC to take a more aggressive position on Internet oversight could delay the entire rule making process.
"We believe bringing broadband services under Title II could dampen service providers' capex, as they would have less incentive to invest in their networks if they perceive fewer opportunities to monetize them," wrote Jankowski. "This likely prolongs the period of uncertainty around the impending policy change, as well as the possible regulatory and legal actions that may potentially follow."
While voicing his opposition to rate regulation, Obama said he wants the FCC to guarantee that broadband operators cannot block, slow or create "fast lanes" of paid prioritization that could tilt the Internet's playing field toward companies with more money to spend.
Stephenson called Obama's proposal a "mistake," adding that AT&T, which successfully challenged the FCC's 2010 Open Internet Order in federal court, would likely do the same if the commission follows Obama's prescription.
-- Written by Leon Lazaroff in New York
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Leon Lazaroff is TheStreet's deputy managing editor.