24/7 Wall St.

The largest cable company in the US, Comcast (CMCSA), hit $30.18 last January. Mark that down. The shares may well never get that high again. Time Warner Cable (TWC) hit $44 in January. It is the last times it will see that price. Charter (CHTR) hit $4.93 in July. The company could be bankrupt next year.

Shares in Comcast and Time Warner Cable are down well over 20% in the last three months. Charter is down closer to 60%. The stocks in their biggest competitors, the big telecom firms AT&T (T) and Verizon (VZ) are flat over that period. Shares in the two satellite TV companies, DirecTV (DTV) and Echostar (DISH) are up over 20%.

Cable was on top of the world coming into 2007. Wall St. assumed that it had a multi-year lead over telecom companies for providing voice, broadband, and TV to American homes. The large cable companies had pricing leverage with many channels that provided programming. If video content firms wanted carriage to the home, they had to talk with the cable guys.

But, there is early evidence that the fiber-to-the-home initiatives from the telecom companies are stealing customers from cable. The satellite TV companies offer more high definition channels, which has become attractive to many consumers.

It turns out that cables biggest enemy is not the competition. It is the industry’s own size and the fact that Washington has grown to view that size as something akin to a monopoly.

The FCC recently approved "a rule that would ban exclusive agreements that cable television operators have with apartment building," according to MSNBC. That gives the telecom companies a shot at about 25 million homes that "belonged" to cable.

That is not the worst of it  According to The New York Times "the FCC is preparing to impose significant new regulations to open the cable television market to independent programmers and rival video services after determining that cable companies have become too dominant in the industry, senior commission officials said." Part of the new rules that the commission may force on the cable companies would make them offer small content channels more access to channels that reach tens of millions of homes.

And, the government may put a cap on any more acquisitions of new cable systems by Comcast and perhaps some of the industry’s other large firms.

All of this adds up to one ugly sum. Cable now has competition from a a very well-funded source in the telecom operators. And, the FCC is opening up what was once a closed system which kept cable with high cash flow and little competition.

The multi-year-high stock prices that cable companies hit earlier this year were a peak.

Douglas A. McIntyre

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