On Monday, the Dow Jones Industrials (DJINDICES:^DJI) jumped out to an early gain, rising more than 88 points as of 11 a.m. EDT. More big news on the merger and acquisition front helped drive stocks higher, as investors increasingly believe that consolidation in several key industries could lead to a long-lived wave of greater buyout activity and produce attractive bids at substantial premiums to current share prices. Moreover, a rebound in the tech sector helped raise confidence in the overall market. Yet both AT&T (NYSE:T) and Verizon (NYSE:VZ)traded slightly lower after the first hour of trading this morning.
The return of net neutrality?
Back in January, a federal appeals court ruled in favor of Verizon's argument that the Federal Communications Commission's net-neutrality rules unfairly required the company to avoid discriminating against particular websites. The ruling has led video-streaming services and other high-traffic websites to make agreements with Verizon and other Internet service providers in order to introduce speed-enhancing features.
But over the weekend, The Wall Street Journal reported that FCC Chairman Tom Wheeler would introduce new proposed rules to regulate the broadband Internet industry, specifically aiming at reinstating aspects of net neutrality that would prevent a two-tiered Internet service environment in which paying websites would enjoy faster service at the expense of those that chose not to enter into special agreements with Verizon, AT&T, and other ISPs. Specifically, the FCC would claim the right to consider and potentially reject those special agreements on a case-by-case basis if Verizon or AT&T effectively put those that didn't pay at a competitive disadvantage.
Even though the prospect of charging certain websites for faster access is appealing to AT&T and Verizon as a potential way to raise revenue, companies that rely on the Internet for their business models are understandably opposed to the demise of net neutrality. Going even further than Wheeler's planned proposals, most Internet companies want full net neutrality reinstated, with an outright ban on the types of agreements that AT&T and Verizon are looking to ramp up.
At this point, the rules haven't even been proposed yet, and even if they get through the FCC, Verizon and AT&T would have the right to challenge them in court and produce a potentially long and drawn out process before the regulations could take effect. Still, with the long-term threat out there, shareholders need to keep an eye on AT&T and Verizon until this highly contentious issue gets resolved once and for all.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.