New Bill Boosts Telecom

The introduction of new legislation that would re-tool the Telecom Act of 1996 had a warming effect on telecom stocks Wednesday

July 27, 2005

2 Min Read
New Bill Boosts Telecom

Telecom stocks today reacted positively to the unveiling of sweeping new telecom legislation in Washington.

The legislation, called the Broadband Consumer Choice Act of 2005, would broadly curtail the economic regulation in broadband-related telecom areas such as IP telephony and IP video (see Picture Fuzzy for Video Franchise Bills).

The iShares S&P Global Telecom index (AMEX: IXP) rose nearly 2 percent today, outperforming the S&P index, which rose only half a percentage point. Some individual telecom infrastructure stocks showed healthy gains. Juniper Networks Inc. (Nasdaq: JNPR) and Nortel Networks Ltd. (NYSE/Toronto: NT) each gained roughly 4.5 percent, while Lucent Technologies Inc. (NYSE: LU) gained 5.5 percent.

For such technology providers, it also didn't hurt that Verizon Communications Inc. (NYSE: VZ) executives said in their second-quarter earnings call that they may plan to increase capital spending. Verizon reported second-quarter 2005 earnings of $2.1 billion, or 75 cents per diluted share (see Verizon Reports Q2 Results).

Are the two related? It's quite possible.

Regulatory uncertainty has been blamed for a chilling effect on investment in such new technologies as VOIP and fiber optic cable. Many believe the purse strings of investors would loosen considerably if a lighter regulatory touch were written into the law. Apparently some on the Street believe Senator Ensign’s bill could have such an effect.

The new bill expressly prohibits broadband service providers from blocking a consumer’s use of “competing” VOIP services or devices.

The bill states that all service providers using the North American Numbering Plan must provide number portability for all consumers, and may not charge “excessive fees” to consumers who wish to change plans.

On the potentially contentious video franchising issue, the bill states simply: “A video service provider may not be required to obtain a state or local franchise or to build out its video distribution system in any particular manner.”

Without the hindrance of local or state franchising, companies such as SBC Communications Inc. (NYSE: SBC) and Verizon could roll out new video services much more quickly, which would strengthen the demand for gear needed in fiber optic networks.

The Act was penned by Senator John Ensign (R-Nevada), with the support of Sen. Ted Stevens (R-Alaska), who chairs the Senate Commerce Committee. Ensign chairs the Senate Commerce Committee Subcommittee on Technology, Innovation, and Competitiveness.

Washington sources say the desire to “re-tool” the 1996 Telecom act is running high this session. However, some believe the process cannot be a quick one.

“Once you open up the Telecom Act, you have a lot of different kinds of people who want to get their interests forwarded in the legislation,” says Washington-based telecom attorney Dana Frix. “So no matter how good or bad an individual piece of legislation is at this point, that’s really beside the point.”

— Mark Sullivan, Reporter, Light Reading

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