Title II Threat Slams Cable Stocks

Cable stocks took a pounding in the hours after news broke that President Obama favored Title II regulation for multichannel video programming distributors, with Comcast and Time Warner Cable taking the biggest hits.

President Obama’s message that he would prefer the Federal Communications Commission reclassify MVPDs under Title II regulation (which would treat them like common telecommunications carriers) came just days after FCC Chairman Tom Wheeler proposed a hybrid approach, which would regulate edge providers’ access to individual subscribers via Internet service providers as a one-to-one telecommunications service under Title II, but regulate subscribers’ access to all those edge providers and services via their ISP as an information service under Section 706.

MVPDs have warned that a move toward Title II would stifle investment in the broadband infrastructure.

Comcast and Time Warner Cable, currently awaiting FCC approval for their pending $69 billion merger, understandably took a big hit, with TWC shares dropping as much as 7.2% ($10.34 per share) to $133.26 each in early trading Monday. By the early afternoon, TWC had regained some of that ground and closed at $136.50, down $7.10 each or 5% per share. Comcast shares fared slightly better – they were down as much as 6.1% ($3.36 each) to $51.79 before clawing back to close at $52.95 per share (down 4% or $2.20 per share).

Charter Communications stock also fell on the news, falling as low as $145.68 (down $10.69, or 6.8% each) in early trading, but regaining ground to close at $146.62 each (down $9.75 each or 6.2%) later in the day.

Liberty Broadband, the tracking stock created by Liberty Media Nov. 4 that includes its 26%  interest in Charter, also took a beating, dropping as much as 6% ($2.95 each) to $46.57 per share, before closing at $46.73 each, down 5.6%, or $2.79 per share. 

Cablevision Systems stock was hit the least, down as much as 60 cents each (3.2%) to $18.32 per share earlier in the day. The stock closed at $18.60 per dshare down 32 cents, or  about 1.7% each.

Analyst were puzzled at the President’s stance, especially since it came so soon after Wheeler’s call for a compromise on the issue.

In a research note, Elevation Partners analysts Stephen Sweeney said that full-blown Title II has little chance of passing regulatory muster, especially in the wake of the Republican Party taking control of the U.S. Senate in the recent mid-term elections.

“The FCC has jurisdiction over Net Neutrality and Democrats do have the edge 3-2 at the FCC, but we are very skeptical that Chairman Wheeler would yield to Obama’s pressure on this,” Sweeney wrote. “First, Wheeler would not have allowed his hybrid proposal to be leaked in the press if he wasn’t serious about pushing it forward. But after the mid-terms, we are not sure how much clout Obama has at all left to influence policy outside the use of executive orders.”

Cable operators began voicing their opposition to Title II, with Charter stating that a return to "1930's-era rotary telephone" telecom regulation is not the answer to an open Internet.

"Charter Communications unambiguously supports an open Internet, which is vital for consumers and central to our continued success," Charter said in a statement. "The extraordinary growth of broadband service in the United States, which now reaches more than 70 million households, has largely been the result of the current regulatory environment. For these reasons, we strongly oppose the reclassification of broadband as a Title II service under the Telecommunications Act. Efforts to reclassify broadband ignore the fact that the current rules have encouraged billions of dollars of investment in our broadband infrastructure and Americans' access to open, fast, and reliable service has never been greater.  Applying 1930's-era, rotary telephone legislation to a 21st century computer technology comes with significant risks to consumers. It is a solution in search of a problem and threatens to undermine continued investment to improve and expand our nation's broadband infrastructure."

Suddenlink Communications chairman and CEO Jerry Kent, in the midst of its own $250 million broadband upgrade dubbbed "Operation Gigaspeed," said a return to Title II would squelch any investment in the telecom infrastructure.

"To date, the bipartisan approach to the Internet of a light regulatory touch has resulted in  billions of dollars of investments and the creation of new jobs," Kent said in a statement. "In fact, this light regulatory approach was considered in our recent decision to invest nearly a quarter of a billion dollars in Operation GigaSpeed, which will bring 1 Gigabit service to households across our footprint. If the government changes course now, abandoning its light regulatory approach, it will threaten not only our planned investments, but the investments planned by many others.  Now is not the time – with an economic recovery that is tentative, at best – to discourage private sector companies from making new investments and creating jobs."