US telecom stocks sustained their recent strong performance on Monday, ahead of a crucial vote this week that will determine the “neutrality” of the internet and the ability for providers to slow or block particular services.
The Nasdaq’s Telecoms sector climbed 0.8 per cent, taking its advance over the past month to almost 10 per cent. Those gains have helped prop up the broader Nasdaq Composite in recent weeks as the technology companies that dominate the index have dipped lower.
On Thursday, the Federal Communication Commission will vote to repeal so-called net neutrality laws, with expectations that the move will be successful under the now Republican-dominated agency.
The reversal of net neutrality, introduced under the Obama administration in 2015, is seen as a boon for cable companies and internet service providers that will be able to charge more to particular internet services.
But critics fear that it could mean a deterioration in service for companies not willing to pay more, as well as higher prices for consumers. It also allows large telecoms companies like AT&T and Verizon to discriminate the service it offers to different websites, letting them give preferential treatment to sites they own.
Allan Nichols, a senior analyst at Morningstar, said the repeal made sense for the industry but warned that if telecoms companies abused the anticipated new freedom, then even a Republican-led FCC might see cause for controls.
“Not all bandwidth is created equal,” he said. “A video of cats having fun is lower priority than running a business. To me some difference there in which some data needs to be pushed through faster makes sense.”
Strategists also pointed to advancing tax reform proposals as a help for the telecoms sector. Thanks to their relatively high effective tax rates the companies are seen as beneficiaries of reforms currently being debated between the House and the Senate.
The proposals have spurred a rotation out of information technology companies that have driven Wall Street’s rally this year, and into stocks that stand to benefit from lower effective tax rates, like telecoms and financials.
The computer sector of the Nasdaq Composite is down 0.8 per cent over the past month, trailing the broader index which has risen 1.9 per cent. On Monday, the S&P 500 rose 0.2 per cent to 2,657.26 and the Dow Jones Industrial Average gained 0.2 per cent to 24,368.82.
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