Investing in Internet Traffic

It might be the dumbest tax idea I’ve heard yet: a tax on the Internet.

It’s not a tax on Internet sales, like the sales tax regular brick-and-mortar retailers are responsible for. That might make a little sense because Internet retailers like Amazon.com enjoy a huge competitive advantage by not paying a sales tax.

No, this Internet tax is simply a tax on Internet traffic levied against the Internet Service Providers (ISP) — the companies that give consumers Internet access for a fee. The idea is that Internet Service Providers would have to pay for every gigabyte of data they send over the Internet.

Now, it’s not like the government built the Internet. It didn’t. Private companies did. And they pay taxes, too.

It may sound outrageous, but the Hungarian government is attempting to pass an Internet tax law right now. How long before the U.S. government attempts to pass a similar one?

I mean, our president is already trying to take control of the Internet. He wants to force what’s called “net neutrality” on Internet companies because he thinks the current way Internet companies work is unfair.

For instance, let’s say you get Internet with Comcast. And let’s say you like to watch movies on Netflix. Right now, Comcast charges Netflix a little extra cash for it to get a better direct connection to your home.

Comcast makes a little more money, Netflix provides a better service, and you get the best movie experience possible, without interruptions and pauses. It’s a win-win-win.

But our president doesn’t think it should be like that. He thinks Comcast shouldn’t be able to charge more for Internet companies like Netflix to get a “premium” connection to your house.

In yet another example of his anti-free market attitude, Obama think the U.S. government should mandate how Comcast does business.

Let the Free Market Do Its Job

Comcast built its network. It spends on advertising to get customers. It pays hundreds of millions to companies like Disney, Fox, Discovery, and others for content. And the company employs 136,000 people and pays its taxes.

How in the world can our government justify telling it how to run its business? That’s the market’s job… and the consumer’s.

If Comcast’s Internet gets too expensive, we cancel and get cheaper service elsewhere. If Comcast’s Internet gets too slow, we find a faster provider. That’s how a free market works.

If speed is important to a company’s business model — and there’s no doubt this is true for Netflix — then why in the world should it be prevented from paying a little more to ensure it gets the best possible delivery to its customers’ houses?

Have you ever noticed a difference between the service you get from the U.S. Post Office and what you get from UPS or FedEx? Have you ever heard of UPS losing a package and having no idea where it is? Have you ever heard of FedEx missing an overnight delivery?

Sure, we pay a little more for FedEx or UPS — but it’s worth it. And that’s exactly the point. Obama’s ideas about net neutrality will certainly turn a FedEx-like Internet into a U.S. Post Office-like Internet.

And that just plain sucks for everyone.

The Internet is NOT Broken

Let’s face it: the Internet is awesome. We get movies and TV shows. We can comparison shop. The market for used goods (Craigslist and eBay) is amazing, and you can find great deals. We can Skype with family members, plan vacations, listen to music, and watch funny videos of cats.

The Internet is definitely NOT broken. Why does anyone want to fix it?

The fact is, Internet use is growing off the charts. It’s growing so fast they are inventing new words to describe the amount of data it carries. Like “zettabyte.”

Apparently a zettabyte is a thousand exabytes. And I don’t even know what an exabyte is.

(I looked it up — an exabyte is one billion gigabytes).

They say that in less than two years, Internet traffic will be measured in zettabytes. Traffic has gone up 500% over the last five years and will go up another 300% in the next five to get us into that zettabyte territory.

You think we watch a lot of Netflix movies now? They say the equivalent of 6 billion DVDs travels across the Internet right now. It would take you 2 million years to watch just a month’s worth.

And that will double by 2018.

That’s just nuts.

The key to it all is spending. We spend to access the Internet, Internet providers spend to build bigger, better networks, and Internet content companies spend to get on those networks. This spending is expected to fund the tripling of Internet speeds in the next three years.

As far as the Internet has come — and as much money as investors have made off Internet companies like Comcast, Netflix, and Amazon — there’s a lot more on the way.

And now, there’s an easy way to make money from the massive growth in Internet traffic. And it has to with the money that companies like Netflix spend to make sure they get a good connection to your house.

Fact is, you can collect a portion of this loot every few months. Over time, it can really add up.

Here’s what you need to know to get started.

Until next time,

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.