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Are you in the race for faster internet speeds?

22 August 2016 in Trading Ideas

Key Takeaways

  • 34 million Americans don’t have access to high-speed internet service.
  • A federal court ruled in June that broadband is considered a utility that can be regulated by the FCC.
  • Fixed broadband download speeds have improved 42 percent in the U.S. over the last year.

It’s easy to take fast internet speed for granted and leaves us wondering how we ever survived without it. Unfortunately, there are many Americans who don’t have easy access to the web, let alone at high speeds.

The upside is there’s still plenty of room for the industry to grow, which may be beneficial for investors. Let’s look at what’s happening in the industry today.

Millions of Americans can’t access high-speed internet

The Federal Communications Commission (FCC) released a 2016 Broadband Progress Report earlier this year that revealed there are 34 million Americans who lack access to high speed internet service, defined as 25 Mbps download/3 Mbps upload or greater. That’s equivalent to 10 percent of Americans who are located in rural areas, on tribal lands or in U.S. territories.[1]

While 34 million Americans is certainly a large number, it’s an improvement from the previous year, when 55 million Americans didn’t have access to high speed internet. Unfortunately, about 47 percent of U.S. students today still don’t have access to the FCC’s short-term goal of 100 Mbps per 1,000 students in schools, however. This accessibility gap puts many students at a disadvantage as assignments and studying are assigned with the assumption that students have internet access at home.[2]

So what’s being done about the gaps in the market? Competition continues between Internet Service Providers (ISPs) to provide faster speeds to more customers and the government is also trying to step in.

Net neutrality is making headway

Net neutrality, also known as open internet, is a principle backed by the government, many tech companies, startups and consumers that would require ISPs to provide all lawful content to consumers without blocking or throttling.

Net neutrality would prevent ISPs from creating fast lanes and slow lanes for one source of content over another. For example, without net neutrality an ISP could push its own video content to consumers at super fast speeds and restrict Netflix or Youtube content to stream at a snail’s pace.[3]

net neutrality Without net neutrality, ISPs could control how fast or slow content is delivered to customers based on the source. Source: BitsNBytes

The Obama Administration passed the Open Internet Act passed in early 2015 which re-classified broadband providers as common carriers. Since common carriers fall under government supervision, it wasn’t a surprise that the U.S. Telecom Association and ISPs such as AT&T filed a lawsuit against the FCC shortly thereafter to try and block the regulatory changes.[4]

The U.S. Court of Appeals’ District of Columbia Circuit rejected the telco industry’s claims this June. Now high-speed internet service on both fixed and mobile networks is defined as a utility, making it as essential and no longer allowing a luxury service exempt from government supervision.

Opponents including AT&T plan to appeal the ruling. Meanwhile, politicians are actively trying to cut the FCC’s funding by $69 million and prohibit the agency from enforcing net neutrality rules until all legal challenges and appeals are resolved. [5]

Just how fast is the internet in the U.S.?

A recent study released by Ookla reports sizeable improvements in both fixed broadband and mobile internet speeds in the U.S. Here are some notable stats from their August 3rd Speedtest Market Report.[6]

  • Average fixed broadband download speeds surpassed 50 Mbps for the first time in 1H 2016, an improvement of 42 percent since July 2015.
  • Upload speeds for fixed broadband improved 51 percent over the last year, reaching 18.88 Mbps.
  • The fastest ISP for download speeds was Comcast’s XFINITY at 125.53 Mbps. Cox Communications came in a close second at 117.85 Mbps
  • Verizon Fios was the fastest ISP for upload speeds at 97.71 Mbps. Spectrum ranked in second place at a much slower 23.37 Mbps.
  • Mobile download speeds increased to an average 19.27 Mbps, an increase of more than 30 percent since last year.
  • Verizon Wireless, AT&T, T-Mobile and Sprint are competing aggressively for the fastest download speeds and pricing to grow their subscriber base.
  • The fastest U.S. Mobile carriers were Verizon Wireless and T-Mobile with download speeds above 21 Mbps and T-Mobile for upload speeds over 11 Mbps.

Mobile carrier internet speedsCompetition remains high amongst U.S. mobile carriers. Source: Speedtest, Ookla

While these improvements may appear impressive, the U.S. still lags behind on an international benchmark. The U.S ranks the 20th country in fixed broadband speeds and 42nd in mobile internet performance.

The top 10 countries for average internet connection speed in Q1 2016 according to Statisa were South Korea, Norway, Sweden, Hong Kong, Switzerland, Latvia, Japan, the Netherlands, Czech Republic and Finland.[7]

Stocks to watch

AT&T [T] On August 17, AT&T announced it was eliminating overage fees for customers and reducing wireless speeds to 128 kbps for the remainder of a customer’s cycle instead of charging $15 per additional gigabyte.[8]

Comcast [CMCSA] Comcast reported better-than-expected earnings for Q2 2016 and grew revenue 2.8 percent to $19.27 billion. The company had the lowest number of Q2 subscriber cancellations in a decade largely due to bundling TV products with fast broadband.[9]

Alphabet [GOOGL] Excitement over Google Fiber has waned since its launch six years ago due to much slower and costlier rollouts than expected. Digging up streets to lay fiber-optic cable has already cost the company hundreds of millions for only a small number of locations.[10]

Verizon [VZ] Wireless comprises 70 percent of Verizon’s sales and 93 percent of operating income. The company has paid continuous quarterly dividends that have increased each year since 2006.[11]

T-Mobile [TMUS] and Sprint [S] both announced on August 18th they will start offering unlimited data plans. T-Mobile added 646,000 new wireless subscribers last quarter while Sprint added 173,000 its largest gain in nine years.[12]

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[1] FCC, “2016 Broadband Progress Report,” FCC, January 29, 2016.

[2] Gorman, Michele, “Hillary Clinton’s broadband-for-all plan faces hurdles,” Newsweek, August 12, 2016.

[3] Kang, Cecilia, “Court backs rules treating internet as utility, not luxury,” The New York Times, June 14, 2016.

[4] Finley, Klint, “Net neutrality won big today, but don’t celebrate just yet,” Wired, June 14, 2016.

[5] Ibid.

[6] Speedtest, “Speedtest Market Report United States,“ Ookla, August 3, 2016.

[7] Statista, “Average internet connection speed by country as of 1st quarter 2016,” Statista, August 18, 2016.

[8] O’Brien, Sara Ashley, “AT&T says goodbye to frustrating overage fees,” CNN Money, August 17, 2016.

[9] Ramachandran, Shalini, Cassandra Jaramillo, “Comcast revenue tops estimates as it loses fewer video customers,” The Wall Street Journal, July 27, 2016.

[10] Nicas, Jack, “Google’s high-speed web plans hit snags,” The Wall Street Journal, August 15, 2016.

[11] Bollinger, Brian, “These 10 safe dividend stocks for retirees can beat a bear market,” TheStreet, August 18, 2016.

[12] Snider, Mike, “New T-Mobile, Sprint tout unlimited data plans as CEOs spar,” USA Today, August 18, 2016.