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Wall Street Flags Net Neutrality

WASHINGTON -- Wall Street is taking a dim view of net neutrality proposals before Congress and is warning of unintended consequences, none of them good, according to one analyst.

"Mandated net neutrality would further sour Wall Street's taste for broadband infrastructure investments, making it increasingly difficult to sustain the necessary capital investments," Craig E. Moffitt, a VP and senior analyst at Sanford C. Bernstein and Co., told the Senate Commerce Committee Tuesday.

Cable companies and incumbent Bells, both of which are currently considered poor investments by the capital markets, have invested billions in new wireline-based fiber networks to bring video, voice and data bundles to consumers.

To recoup those investments, Verizon and AT&T are proposing to charge high bandwidth content providers extra fees for faster delivery of their products, creating a furor among technology companies and consumers.

The Bells' proposal has prompted concerns that it would allow deep pocketed content providers to buy quick access to consumers, leaving those content providers who can't afford the extra fee in the broadband slow lane.

And that, Moffitt argued, would be disastrous to U.S. efforts to promote broadband use.

"Despite a great deal of arm waving from 'visionaries," our telecommunications infrastructure is woefully unprepared for widespread delivery of advanced services, especially video, over the Internet," he said.

Moffitt said downloading a single 30-minute television consumes more bandwidth than receiving 200 e-mails a day for a full year. Downloading a single high definition movie consumes more bandwidth than downloading 35,000 Web pages.

"Today's networks simply aren't scaled for that," Moffitt said.

He also noted that is a misconception to believe the Bells are rushing to fill a swelling demand for broadband. The demand is there, he said, but the Bells are not.

"In fact, by their [Bells] own best estimates, they'll be able to reach no more than 40 percent or so of American households with fiber over the next seven years," he said.

Moffitt's comments come at time with consumer broadband demand "exploding." Microsoft, Sony and other tech companies tout their plans to "owning the living room," while Yahoo, Google and AOL plan video-rich strategies. Video telephony and video surveillance have barely started.

"Despite this strong demand for networks, however, Wall Street harbors grave doubts about the ability to earn a return on networks," Moffitt said. "Excessive competition and an uncertain, and at times hostile, regulatory environment are dampening capital formation and slowing the pace of investment."

Net neutrality bills, such as the one introduced earlier this month by Sen. Ron Wyden (D-Ore.) that would prohibit network operators from charging different fees to content providers, would only further cloud the issue, Moffitt said.

"The very phrase suggests that the First Amendment is about to be trampled lest it be legislatively protected," Moffitt said. "And the very idea that third parties who benefit from Internet infrastructure investments - say, Google and Yahoo - might economically contribute in some way to those costs has been roundly greeted as if it is a threat to basic liberties."

Not so on Wall Street, though.

"Allowing a 'multiplicity of payers' - say, advertisers or Web services providers - to support network investments would greatly bolster the business case for deploying new infrastructure, as it would offer the prospect of more attractive returns," he said.