Despite FCC vote, net neutrality ruling issue remains far from settled

The views expressed represent the Manager's assessment of the market environment as of Feb. 27, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's current views.

The Federal Communications Commission (FCC) voted on Thursday to reclassify broadband service providers under the Telecommunications Act of 1996. Essentially, this means that broadband services can be regulated more like traditional telephone companies.

The ruling could have direct ramifications for internet service providers (ISPs). We believe there is a strong chance, for instance, that providers will restrain capital spending. This is especially likely if the ISPs believe that new regulations may prevent an acceptable return on capital investments (improvements in network infrastructure, for example). The extent to which spending could shrink is still unclear. What’s more, the ruling will almost certainly face legal challenges, which could prolong the period of uncertainty.

Broadly speaking, the ruling has not put pressure on the stock prices of the technology companies we follow. The concept of net neutrality is complex, however, and going forward we believe the ruling will continue to incite many questions for investors to wrestle with. We think one of the fundamental questions will be: Can issues related to internet traffic be settled through regulation, or should they be sorted out through open competition in the marketplace? Last week’s ruling was just the first shot in what we believe will be a long and drawn-out battle in the years to come. Stay tuned.

Investing involves risk, including the possible loss of principal.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors. Technology companies may be subject to severe competition and product obsolescence.

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