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Monday, November 19, 2007

FCC's regulatory wrecking ball decimating cable stocks?
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Last week, the big news inside the Beltway was how FCC Chairman Kevin Martin was stepping up what many have labeled his "war on cable" by proposing still more regulations for the cable sector. Craig Moffett, a senior analyst with Sanford Bernstein & Co, summarizes the economic regs currently being proposed: "Over the past year, the Chairman has adopted an almost uniformly anti-cable stance on issues ranging from set-top boxes (CableCards), digital must carry requirements, cable ownership caps, video franchising rules, and the abrogation of exclusive service contracts with [apartment owners]." And in a short PFF paper last week, I also outlined the content / speech regulations that the Martin FCC has proposed for cable (as well as satellite and telco) operators.

As Jon Hemingway's cover story in this week's Broadcasting & Cable magazine points out, the FCC's war on cable appears to now be having an impact in the stock market. Investors are turning against cable operators fearing that the regulatory reign of terror at the FCC will limit cable's ability to respond to rising competitive threats. Here's a summary of the bad news from the B&C story:

Industry bellwether Comcast, the largest cable operator in the nation, was down 35% to $19.66 per share from its 52-week high of $30.18 as of Nov. 15. While the stock was trending lower throughout the summer, most of the pain was felt after the company kicked off the cable earnings season by reporting a loss of subscribers.

When Comcast reported its third-quarter results Oct. 25, revealing a loss of 65,000 basic subscribers, its shares dropped 10% and the whole sector followed it lower. As cable operators continued reporting, the subscriber losses kept coming. Mediacom Communications reported that it lost 13,000 subscribers, Time Warner Cable 83,000, Charter Communications 40,200 and Cablevision Systems 16,000.

Meanwhile, cable competitors were adding subscribers. Direct-broadcast satellite providers added 350,000 net new customers in the quarter, while telcos added 277,000 customers.

It was a bloody two weeks. In the period since Comcast reported, its stock sank 17.5%, Time Warner’s 21%, Cablevision’s 16.5% and Mediacom’s 27%. A particularly battered Charter slid 47%.

Those are stunning numbers. Of course, other market factors could be playing into the decline, such as the bad housing market. But it would be wrong to underestimate the impact of the looming specter of FCC regulation as the major factor in cable's declining fortunes. And with cable witnessing rising competition and significant customer losses to those competitors, one wonders why the FCC is proposing all this new regulation in the first place.

posted by Adam Thierer @ 2:37 PM | Cable

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