Telecom & Wireless

Strong White House Net Neutrality Rules Hard on Cable Companies

One topic has been front and center for years when it comes to regulating and policing priorities on Internet traffic: Net Neutrality. Now the White House has released the start of President Obama’s plan for what is being called a free and open Internet. The aim is to get the Federal Communications Commission (FCC) to consider the strongest rules possible to protect Net Neutrality. Needless to say, this has caused a carnage reaction for cable stocks due to the verbiage sounding harsh.

The White House is asking the FCC to regulate Internet traffic and Net Neutrality just like a regulated utility or like the phone companies, by considering new rules for how to safeguard competition and user choice.

The president’s discussion on the matter was posted on the White House site:

Ensuring a free and open Internet is the only way we can preserve the Internet’s power to connect our world. That’s why the President has laid out a plan to do it, and is asking the FCC to implement it. … More than any other invention of our time, the Internet has unlocked possibilities we could just barely imagine a generation ago. And here’s a big reason we’ve seen such incredible growth and innovation: Most Internet providers have treated Internet traffic equally. That’s a principle known as “net neutrality” — and it says that an entrepreneur’s fledgling company should have the same chance to succeed as established corporations, and that access to a high school student’s blog shouldn’t be unfairly slowed down to make way for advertisers with more money.

The news is being reflected harshly on the cable providers. It goes without saying that this will drive up the operating costs for cable companies, if they are not charging certain content providers premiums for their traffic.

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Comcast Corp. (NASDAQ: CMCSA) was down 4% at $53.01 in Monday morning’s reaction. The stock has a consensus analyst price target of $64.43 and a 52-week range of $46.58 to $57.49. Time Warner Cable Inc. (NYSE: TWC) has seen its shares fall by 5% to $136.43, and it has a consensus price target of $168.30 and a 52-week trading range of $116.98 to $155.32. As a reminder, Comcast and Time Warner Cable are trying to merge. The “together is better” site notes:

Together, Comcast and Time Warner Cable will make life online better for more people by bringing faster Internet speeds, a more reliable and more secure network, net neutrality protection, low-cost Internet access, and programming diversity to millions of new customers across the country.

What is interesting is how Comcast addressed Net Neutrality as follows:

Comcast is the only Internet service provider in America bound by full Net Neutrality rules, ensuring an open Internet and protecting customers. Comcast’s transaction with Time Warner Cable will bring Net Neutrality protection to millions of new customers across the country.

Charter Communications Inc. (NASDAQ: CHTR) saw its shares fall almost 4% to $150.34 after the news broke. Its consensus price target is $175, and it has a 52-week range of $116.78 to $167.30.

Cablevision Systems Corp. (NYSE: CVC) saw only a 2% drop on the news, down to $18.53. Cablevision’s consensus target is $19.28, and it has a 52-week trading range of $14.66 to $20.42.

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