September 28, 2018
Reflecting the day-to-day experience of consumers and bowing to calls from analysts, asset managers and investors, the classification system used to categorize stocks by industry has undergone an ambitious restructuring that has united in one new “communications services” category, the leading broadband investors in our connected economy and most of the top stocks across a converging media, entertainment and digital landscape.
Companies such as Google, Netflix and Facebook have departed the “information technology” category to join the new bracket. Disney, Comcast, DISH and others have shed their odd-duck status in “consumer discretionary.” Among others, the remaining companies in the “telecommunications” category—AT&T, Verizon and CenturyLink—have joined their true market rivals in this freshly minted “communications services” segment.
“The lines among media, communications, and content are blurred,” said David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, explaining the move. “It is time to acknowledge this convergence and the overlapping services these companies provide.”
Finally, the U.S. economy has one investment category that unites what has clearly become a single ecosystem. From a consumer perspective, the decision is a no-brainer. In a world where Google sells broadband service, AT&T owns Game of Thrones, nearly half of Americans get their news from Facebook, and Netflix is hot on the heels of Disney among the world’s most valuable media ventures, competition among these companies is heated, complex and increasingly direct.
Such top-level changes to the so-called Global Industry Classification Standard are rare, and this move is the biggest reshuffling of the deck in the framework’s nearly 20-year history.
It should be matched by the most ambitious update of U.S. innovation policy that has gone mostly untouched for roughly the same timeframe.
With its new communications lineup, Wall Street is following Main Street. It’s time for Washington to do the same and acknowledge this reality with a modern U.S. innovation policy that companies across the internet have long burst through the neat regulatory silos of a bygone era.
Outdated investment categories have their corollary in separate and unequal regulatory classification of directly competing companies in Washington. Beyond the impact on company valuations, the fallout for consumers is readily apparent in recent policy debates.
For example, one might assume the current net neutrality debate is between those who support this central principle of a connected and free society and those who don’t. But the actual disagreement is far deeper in the weeds, and it boils down to precisely this issue of outdated borders that Wall Street is addressing. All sides support net neutrality safeguards. The difference? One camp insists on using regulations drafted in the 1930s. The other understands such an approach cannot legally be applied to the most powerful online companies today—for the simple reason that they didn’t exist nearly a century ago. This creates an intolerable, truck-sized loophole for consumer protections.
The Federal Communications Commission, under Chairman Ajit Pai, has done what it can under existing authority. But only a modern act of Congress rooted in the world as we know it today can ensure consumers have consistent protections across the entire internet—whether they visit Verizon or Google, Comcast or Amazon.
On privacy, too, consumer confidence in the digital economy would be shored up by an effort to put into statute one high standard that consumers can count on no matter where they go online.
When it comes to the internet, if we can break down silos in Washington, as Wall Street is doing, then we lay the essential groundwork for a more rational and forward-looking policy approach—one that unlocks even more value for American stockholders and consumers alike. Modern, even-handed policies will allow us to organize our innovation economy in a way that better ensures the whole ecosystem can thrive, grow and be dynamic—by delivering uniform expectations for all companies and equally consistent protections for consumers.
In fairness, government can’t move as quickly as the markets—or the innovation companies it’s tasked with overseeing. But Wall Street’s move should put Washington on notice: It is time for lawmakers to do the hard work of crafting a 21st century policy framework for the world as it is and could be—versus the one now so plainly in the rearview mirror.