FCC Appeal Could be Big for NFLX Stock
Netflix, Inc. (NASADQ:NFLX) hates data caps, which is unsurprising when you consider that NFLX stock depends on people streaming lots of TV shows and movies. So to secure the future of Netflix stock, the company is asking the U.S. Federal Communications Commission (FCC) to ban data caps.
To be specific, Netflix wants the FCC to outlaw data caps on all wired connections. (Source: “Netflix wants annoying data caps to be illegal,” The Verge, September 12, 2016.)
The company added a qualifier for mobile connections, saying that only low data caps should be abolished. According to Netflix, data caps for wired connections are completely “ineffective” at preventing Internet logjams.
“Data caps (especially low data caps) and usage based pricing discourage a consumer’s consumption of broadband and may impede the ability of some households to watch internet television in a manner and amount that they would like,” Netflix writes.
The company seems to think that these data caps could endanger NFLX stock. In the case of a hard cap, Netflix users can’t satiate their TV appetites, which limits growth in the “hours streamed” metric. Investors could mistake this lack of growth as weakening interest in the streaming platform.
On the other hand, charging customers for each gigabyte is also a way of raising the cost of existing connections. Netflix argues that it is unfriendly toward consumers (and undoubtedly toward Netflix stock as well.)
However, cable providers like Comcast Corporation would argue that they have tried to appease Netflix. Although they began trials for 300GB data caps in major American cities, there was significant pushback. Comcast responded by raising the ceiling to 1TB, which even Netflix’s CEO said was almost impossible to hit.
The friction is expected to intensify as Netflix and Comcast spar over the FCC’s new set-top box rules. In a nutshell, the commission is making cable providers write apps for smart TVs, but those apps can be used to disadvantage Netflix.
Cable providers can impose data caps through them, or else zero-rate their own video streaming services. In other words, their video streaming services might not count against customers’ data usage, but Netflix would. Losing this fight would almost certainly expose vulnerabilities in NFLX stock. That’s why Netflix is fighting to hard to abolish data caps.
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