Cable Operator Stocks Plunge as FCC Goes ‘Nuclear’
(Bloomberg) — Comcast Corp., Time Warner Cable Inc., and Cablevision Systems Corp., the three largest publicly traded cable operators in the U.S., all fell more than 5 percent as U.S. regulators moved to gain authority over their fastest- growing business, the Internet.
Federal Communications Commission Chairman Julius Genachowski said today that the agency plans to impose more regulations on Web-access providers after a court stripped the agency of its powers last month.
“This move could essentially make the Internet business a public utility,” said Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York. “Markets abhor uncertainty.”
Genachowski is proposing to extend a suite of regulations for telephone services to Internet access providers, with a pledge not to apply some of the rules. The regulations are meant to require cable companies and Internet providers such as AT&T Inc. and Verizon Communications Inc. to treat all Web traffic equally and not to slow or block access to some websites.
The FCC’s move is a “sound, sensible approach,” Joel Kelsey, policy analyst for Consumers Union, said in a statement today.
Reclassifying Internet services could subject the cable operators to regulations including “fair and reasonable pricing” and the filing of “tariffs” ahead of all pricing changes, Moffett said in a report. Moffett calls the action “the nuclear option.”
The reclassification comes just as cable companies are beginning to profit from investments in their networks and luring in more Internet customers from their rivals. Comcast, Time Warner Cable and Cablevision all beat analysts’ forecasts for adding Internet customers in the first quarter and boosted free cash flow by at least 38 percent.
Cable and phone companies say the new regulations will make it harder for them to justify network investments to shareholders because the FCC may require them to share their pipes with rivals in the future, limiting returns. In addition, phone and cable executives worry the regulations will fetter their ability to handle growing Web traffic and manage pricing.
“It opens up a Pandora’s Box of regulatory issues for them,” said Christopher King, an analyst with Stifel Nicolaus & Co. in Baltimore. “While the FCC’s statement promises a light regulatory fist, everything is up in the air at this point.”
Regulating network providers under a set of rules that were drawn up in the early 20th century is a bad decision, said Tom Rutledge, Cablevision’s chief operating officer, in a conference call today.
“We operate in a highly competitive environment,” said Rutledge. “We’ve built fantastic products as a result of the competitive situation that has existed under existing law. We don’t think there’s a real problem.”
The regulations will likely prompt a long and drawn-out lobbying war between Internet companies like Google Inc., who favor the ruling, and the phone and cable companies, said Matthew Harrigan, an analyst at Wunderlich Securities in Denver.
“This is a territorial land grab by the FCC,” said Harrigan. “It isn’t very plausible this won’t get challenged for a long period of time and will be an overhang on the stocks.”
Comcast fell 97 cents, or 4.9 percent, to $18.77 at 1:23 p.m. New York time in Nasdaq Stock Market trading, after sliding to $18.70 for the biggest intraday plunge since October. Time Warner Cable sank $4.59, or 8 percent, to $50.40 in New York Stock Exchange composite trading. Cablevision slid $2.70, or 10 percent, to $24.11.