Supreme Court decision hits telecom stocks AT&T, Verizon

On Monday, telecom giants AT&T (NYSE:T ), Verizon (NYSE:VZ ), and Comcast (NASDAQ:CMCSA ) saw their shares decline following the Supreme Court's decision not to hear an appeal contesting a New York law that mandates broadband rate caps for low-income households. The law, which was passed in 2021, requires internet service providers (ISPs) to offer discounted service rates to a significant portion of New York households.

AT&T shares fell by 3.5%, Verizon by 3.3%, Comcast by 2.5%, and Charter Communications (NASDAQ:CHTR ) by 0.5% as the market reacted to the implications of the ruling for the telecom industry. The Supreme Court's refusal to take up the case leaves in place a ruling by the 2nd Circuit from April 2024, which upheld the New York law. This law was challenged by ISPs on the basis that broadband had been classified as a Title 1 service, arguing that states lacked the authority to regulate such "information services."

The decision by the Supreme Court effectively means that states can step in to regulate broadband pricing when the Federal Communications Commission (FCC (BME:FCC )) is not, under the current Title 1 classification. The telecom industry views this as a setback, given that the FCC is likely to lose its Title 2 authority, which would have allowed it to regulate prices at the federal level.

Analysts from TD Cowen suggest that the Supreme Court may review the state's power to regulate broadband pricing in its 2025-26 term. This would likely follow a final ruling from the 6th Circuit, expected in mid-2025, which may prevent the FCC from classifying broadband as a Title 2 service.

Investors are now faced with the question of whether other states will follow New York's lead and implement similar price regulations. This scenario is anticipated to become clearer in the first half of 2025, as state legislatures reconvene and potentially consider such legislation. California is highlighted as a potential state to watch, given its history of imposing net neutrality requirements on ISPs.

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Source: Investing.com