During the annual State of the Union address, President Barack Obama urged Americans to "turn the page" on the recession mind-set that has plagued his presidency. And that makes sense, although we still haven't seen wage growth increase as fast as many would prefer. The United States is creating jobs at the fastest pace since the late 90s heyday -- a stark contrast to the massive 8.2% drop in the fourth quarter of 2008, which was the largest quarterly GDP drop since 1958.
And while it is easy to forget the panic that gripped our markets during that period and the subsequent reforms designed to prevent another crisis -- namely Dodd-Frank legislation -- Wall Street certainly didn't. After contributing heavily to then-Candidate Barack Obama's campaign in 2008, the money swung to Governor Mitt Romney in 2012. So much so that afterward, many on Wall Street worried about backlash from a regime they so bitterly attacked during the election.
However, in classic turn-the-page fashion, it appears President Obama has mostly moved on from Wall Street: Dodd-Frank rulemaking and implementation has slowed to a crawl, references to Wall Street "fat cats" are mostly gone, and President Obama faces criticism from his own party regarding perceived Wall Street favoritism. But it appears he's got a new target: Internet Service Providers. And if his newest cause is of any indication, it could cost these providers dearly.
Businesses don't want you to have a choice
In the State of the Union address, when President Obama commented on expanding Internet access to "every community," it was widely interpreted as increasing competition among Internet service providers. Before the speech, Obama called for repealing laws to prevent municipalities from developing their own broadband Internet networks. And this is important for consumers; more providers equal more choice and, eventually, lower costs as businesses compete to win customers.
The other side of that economic transaction, however, is the business. Obviously, the business would prefer not to have any competition and to be a monopolist. That way, they would monetize scarcity value in addition to the economic value they produce. Now, there are many ways a business can limit competition, but perhaps no industries outside of public utilities have used government to limit choice quite like pay-TV and Internet Service Providers -- both have used government and oligopolistic "gentleman's agreements" to create geographical monopolies.
Sadly, this is where we are with many businesses today. In many cases, businesses seek to use government to limit consumer choice, but loudly complain when any governmental rule even lightly infringes upon its business model. A great read on the subject is a Josh Barro New York Times article; while his argument tends to take a side -- and both political parties are guilty of this -- the piece outlines how businesses regularly engage in regulatory arbitrage to limit consumer choice on the local and state levels.
The Show-Me State doesn't want to show you municipal broadband
If Missouri is of any indication, states and municipalities appear to be moving away from Obama on this matter (nearly 20 at last count) as it introduced legislation that would restrict its local municipalities from providing Internet services to its citizens. Missouri argues that eliminating the threat of a socialized ISP competitor evens the playing field with ISPs like Verizon (NYSE:VZ), Time Warner Cable (NYSE:TWC), and Comcast (NASDAQ:CMCSA), which are essentially required by shareholders to turn a profit.
To be fair, there's a legitimate argument, here: In the event those ISPs have to compete with a network of municipalities providing broadband Internet in a state, lowering the cost it charges subscribers through competition, it is possible for investment to suffer amid a lower profit margin (and lower revenue) for the provider. But shouldn't this choice be presented to fully informed voters and not decided by elected representatives?
Between potential Net Neutrality/Title II designations and the support of municipal broadband providers, it appears Obama's administration has a new target in his sights. It will be interesting to see if industry political donations violently swing like Wall Street's did as Internet service providers require more Internet monetization as their pay-TV business suffers because of cord-cutters (people who no longer pay for TV). Either way, this industry will be an interesting one to watch in 2015.
Jamal Carnette owns shares of Verizon Communications. The Motley Fool recommends Verizon Communications. 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.
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