Why Online Video Streaming May Get More Expensive

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online-video-streaming Like many of you, I stream a fair amount of video over the Internet. This past summer I canceled cable, installed a high-def antenna on my roof for local channels, and purchased a Roku. We get more than enough content to keep my wife and I entertained. And the price is great since we just pay for what we watch, which isn't a lot.

But the price for online video streaming services (think Netflix, YouTube, Amazon Instant Video, etc.) may be going up.

That's because the U.S. Court of Appeals in Washington ruled that the FCC's net neutrality rules had no basis in federal law. The idea of "net neutrality" is that all telecom customers should have equal access to bandwidth and should all pay the same rate for the same service, regardless of the amount of data downloaded or streamed.


Internet service providers (ISPs), including Verizon ( VZ ), AT&T ( T ) and Comcast ( CMCSA ), disagree. They think bandwidth hogs (Netflix and YouTube account for half of U.S. downstream Internet traffic during peak periods) should have to pay more since they consume more.

This court ruling clears the path for ISPs to hit up streaming services for more cash, based on how much video they stream. Whether or not that will happen is unclear as of yet.

There are two schools of thought here. One side thinks it would be silly for an ISP, say Verizon, to charge more since a streaming service like Netflix ( NFLX ) could just say "no." If it did, Verizon customers would arguably get poorer service, and might consider leaving Verizon. In effect, Verizon's attempt to charge Netflix more could backfire.

On the other hand, Verizon spent millions of dollars on this case. There is probably a reason, and that reason could easily be that it expects it could get 5% to 10% revenue growth by charging the data hogs. At least that's what Wedbush Securities Analyst Michael Pachter believes, according to the Financial Times .

I don't know exactly how this will turn out, but I do know one way to play it. Allot Communications (Nasdaq: ALLT) is an Israeli company that develops technology specifically designed to help ISPs manage bandwidth use.

Allot manages mobile networks and tracks wireless activity. It's great business around much of the world. But not here in the U.S. where net neutrality laws mean that ISPs have had to treat all traffic equally. That has limited Allot's ability to do business with Verizon and AT&T, among other ISPs.  It does a lot of business overseas where net neutrality laws don't exist.

It's much more likely that ALLT will now do more business in the U.S. While nothing is guaranteed, removal of the net neutrality dark cloud certainly opens up a lot of opportunities.

I've held ALLT in my 100% Letter advisory service for several years now, in part because I anticipated this day. The stock is up 260% since I recommended it, and I expect this development opens the door to another leg higher. It is a big catalyst for the stock, which is why I've recommended investors keep holding it.

This story isn't getting a ton of play in the major media outlets yet, but you can bet that it will if and when online video streaming companies like Netflix are hit with a higher bill. I expect the next two quarterly reports will shed some light on how Allot sees the U.S. opportunity. I rate the stock as a "Buy" right now.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: VZ , T , CMCSA , NFLX

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