Cable investors ran for the exits after President Obama dropped the bombshell that Title II network-neutrality regulation could be back on the table, but soon after returned to the fold, signaling to analysts a less-onerous federal scrutiny than expected.
Shares in the four top distributors took a dive on Nov. 10 after the president said he would prefer the Federal Communications Commission adopt Title II common-carrier style regulations to ensure a more open Internet (see Cover Story). Distributors, which have long opposed Title II, said reclassifying the broadband industry as a telecommunications service would open a Pandora’s box of regulations that would stifle investment and innovation.
LIBERTY DEBUT WRECKED
Cable stocks followed suit, dropping between 2% and 6% on Nov. 10 and spoiling the first full week of trading for cable legend and Liberty Media chairman John Malone’s latest tracking stock — Liberty Broadband — which includes Liberty Media’s 26% interest in Charter Communications.
Liberty Broadband, which officially debuted on the NASDAQ Exchange on Nov. 4, fell as much as 6% ($3.05 per share) to $46.57 each last Monday (Nov. 10), but has since clawed back to close at $48.52 last Thursday (Nov. 13). Charter also took a big hit on Nov. 10 — it was down as much as 6.8% ($10.69 each) at one point during that day — but has since inched back to $152.73 per share, about 2% off its Nov. 7 close.
The biggest impact was felt by Time Warner Cable, the second-largest U.S. MSO, which is currently going through the regulatory review process for its pending merger with Comcast. TWC stock plunged as much as 7.2% ($10.34 each) to $133.26 on Nov. 10 (and continued to fall on Nov. 11 to $131.00 per share), as investors feared more regulation would scrap the merger.
Comcast, the other half of the $69 billion union, saw its shares dip as much as 6.1% on Nov. 10. Shares in the No. 1 U.S. MSO rallied later in the day to finish at $52.95, down 4%. The stock continued to rise in subsequent trading, closing at $54.30 each on Nov. 13, off just 1.5% from its Nov. 7 close.
That the four stocks most closely connected to the Comcast-TWC merger felt the most pain is no coincidence — Charter stands to nearly double its cable footprint in a series of deals that are scheduled to take place after the Comcast merger is closed. Cablevision Systems, which has virtually no skin in the Comcast-TWC game, dipped about 4% at its lowest during the trading frenzy, finishing at $18.28 on Nov. 13, down about 3% from Nov. 7.
Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said two factors helped lift the stocks: Comcast CEO Brian Roberts’s reiteration that the TWC merger would move ahead as planned, and a series of Washington moves that showed Wall Street that even if Title II does rear its ugly head, it will have little bite.
Wlodarczak said the initial concern was that FCC chairman Tom Wheeler, who had been a voice of moderation on the Title II issue, wouldn’t be able to go against the president who appointed him. But subsequent reports that Wheeler had met with Internet companies prior to the president’s statement and his later public comments on the issue — in which he seemed to suggest he would go in a different direction — eased at least some of the panic.
GOP OPPOSITION SOOTHES
Comments by Republican members of Congress against Title II regulation cast doubt on the likelihood of a full-blown regulatory overhaul. Moreover, the FCC won’t formally address the issue until sometime next year. And AT&T and others said they would sue to block Title II implementation, which could drag the issue out for several years.
Wlodarczak added that although the firestorm around the net-neutrality issue is expected to continue, the things Obama is trying to protect — the blocking of content and paid prioritization — are already covered under current regulation.
“I think you could see this die on the vine or force the FCC to go to a Title I approach (which the industry favors and will likely cause/lead to no lawsuits),” Wlodarczak wrote in an email message. “I would actually be surprised if the FCC goes with a Title II modified approach as it seems like you can drive a truck through the legal issues with that move.”
