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Sam Altman on the end of net neutrality: 'I think this could decimate start-ups'

Cable companies have the right to make profits — but not from picking and choosing which content to favor, Sam Altman, president of Y Combinator, told CNBC's "Power Lunch" on Thursday.

"The internet is no longer optional," Altman said, "if you want to be part of the economy."

Altman helps lead one of Silicon Valley's leading start-up factories, which has invested in companies like Dropbox, Airbnb and Stripe.

He has been a vocal proponent for net neutrality — regulations that defenders say keep internet service providers from discriminating against certain content when it comes to speed. Y Combinator, alongside two other start-up programs, have organized a letter, "Start-ups for Net Neutrality."

But the current FCC regulators have taken steps to roll back protections of net neutrality.

"I think this could decimate start-ups," Altman said. "It will be a slow erosion. But I think we've seen this in many other industries — where at some point the incumbents get very powerful, lobby to get laws passed to protect themselves, and then this regulation prevents new start-ups and new innovation."

Some opponents of net neutrality have said that if cable companies have more pricing power over internet services, it will give them the money to invest in faster internet. But Altman disagreed, noting that power companies do not charge different rates for powering light switches and toasters.

"I absolutely support the need for internet infrastructure providers to make substantial profits, and I think they have been, and they'll continue to do that," Altman said. "Because consumers really want internet. .... What I don't think is fair is for the companies — that control the only ability you have to get access to the internet in your home or business — to say, 'We're going to prioritize this service, and we are going to do a backroom deal with this other service.'"

Altman, who endorsed Hillary Clinton, also has ties to President Trump's administration, which favors the stance that cable companies should be able to decide how to allocate their bandwidth. Trump backer Peter Thiel is a "part-time partner" at Y Combinator.

Though some experts argue that big tech giants themselves are monopolies, Altman defended players like Amazon and Google, which report quarterly earnings after the bell on Thursday. He said that internet companies should have to compete based on who is the best, not who is favored by regulation.

"This is critical to the internet," Altman said. "We have had just an unbelievable run. Those companies .... that are releasing earnings today — those companies didn't exist a couple of decades ago. And there are newer companies that didn't even exist a few years ago. All these services we use and love are possible because we've had fair rules and an open platform where entrepreneurs and small start-ups can compete. This isn't possible in most of American industry."

Disclosure: Comcast, an internet service provider, is CNBC's parent company.