Net Neutrality: Much Bigger Than The Sirius Vs. Pandora Debate

Includes: P, SIRI, T, VZ
by: Richard Saintvilus

A lot has been made over the years about the concerns over "net neutrality" and its potential adverse effect on companies such as Pandora (NYSE:P) that relies on exclusive internet streaming of its content while utilizing bandwidth that consume significant data charges. The argument is that, on the flipside, it has been said to present a competitive advantage for satellite radio company Sirius XM (NASDAQ:SIRI), where streaming is only an added benefit since its primary source of content distribution is via satellite transmission for a flat rate.

While many continue to make net neutrality an issue impacting only Pandora while favoring Sirius XM, all of that pales in comparison to the bigger issue at hand and proves how misguided some continue to be by being only concerned about the value proposition on either product and the effect net neutrality may have.

As it stands, the discussions of net neutrality and what it actually means (or its true importance) have surrounded mostly land-line internet service providers such as AT&T (NYSE:T) and Verizon (NYSE:VZ). However, a recent Securities and Exchange Commission decision makes it so that shareholders can now vote on the issue without being blocked by the companies themselves as they choose to impose data caps on their customers.

Civil rights movement of the internet

For those of you who are unfamiliar with the term "net neutrality" and have only been sold on its potential adverse effect to companies such as Pandora or Netflix (NASDAQ:NFLX) that relies on internet streaming, "net neutrality", in fact is a central organizing principle of the internet. What this means is that internet service providers such as the ones mentioned above cannot discriminate among the origins, types, or destinations of the data they handle. Think of it as the "civil rights" movement of the internet and something that every American that values his/her internet freedom should really endorse.

For example, as the debate continues between Pandora versus Sirius XM, what is to stop AT&T from making a side deal with Sirius XM to favor all streaming from its website to make it faster to its customers over those coming from Pandora - or a better example, Apple (NASDAQ:AAPL), with its soon to be released iTV and iCloud service having a higher bandwidth transmission over Netflix and Amazon (NASDAQ:AMZN)? It does not sound like a good situation now, does it? The question is, who in their right mind would be opposed to this without bordering on pure hypocrisy?

It's anti-competition

The question is, why should content of any kind be discriminated against? I don't think anyone has truly gone on record to make a valid point for this. As a net neutrality advocate, I think that all online content should be treated the same - regardless if I was pulling up, yahoo finance or (my favorite web destination) - they should all load with the same speed. It is unfair for internet service providers to have the autonomy of ranking traffic according to the size of the site or its level of popularity. Doing so is not only anti-competition, but it is also an inconvenience towards receiving content via my smartphone if I wish.

Be careful what you wish for

There are many investors who have become opposed to "net neutrality" because of their bias towards Sirius XM and any competitive leverage that an imposed data cap by the ISPs can present. While it may be a temporary win, it will indeed prove to be a long term loss. For this, I advise that you be careful what you wish for. Instead of lauding Pandora and/or Spotify's enormous data charge potential, instead smart investors need to focus on the costs of overall applications smartphone charges that may also become extraordinary absent any type of regulation.

Consider this, a company such as AT&T generates a significant amount of revenue from its subscribers via its text messaging service, as does other carriers. However, there is a free service out there from Google (NASDAQ:GOOG) called Google Talk. Why would AT&T not want to block users or at the very least discourage many from using this free service since it would compete with its own pay-as-you-go service? Without net neutrality, AT&T can easily block access to Google Talk, forcing subscribers to continue using AT&T's SMS plan. So you can see where this can get pretty out of control. So let's stop believing all of the hype and listening to those who want you to think that this is about Sirius XM versus Pandora - both of which are merely small pawns on a bigger chess board.


I think this debate is far from over. But consumers and shareholders need to educate themselves on the true ramifications of this issue. Let's not let our views become so narrow and focused solely on a few stocks where the impact of net neutrality may or may not even matter. Companies continue to argue that net neutrality could interfere with the future development of the internet. Telephone and cable companies argue that they have spent billions of dollars building their networks, and the government should not be allowed to tell them how to use it.

I will concede that these are valid points indeed, as with anything else, at least some form of democracy will be upheld in that the SEC has decided it should be up for a vote. Only time will tell which side eventually wins, but at least we can start to realize that this issue is much bigger than the usual Sirius versus Pandora chatter.

Disclosure: I am long AAPL, T.