05/06 01:59 PM
NEW YORK (Dow Jones)--Cable stocks dropped sharply Thursday after the U.S. government announced plans to claim new authority to regulate the Internet in an effort to enforce net neutrality rules, which require network operators to treat all content on their system equally.
Federal Communications Commission Chairman Julius Genachowski has vowed to adopt net neutrality rules, which are opposed by the cable and telecommunications industry. However, a recent decision by a federal appeals court challenged the FCC's authority to regulate the Internet. The court ruled the FCC couldn't bar Comcast Corp. (CMCSA:$18.7027,$-1.0373,-5.25%) from slowing some customers' Internet traffic under the current regulatory framework.
In response, Genachowski said Thursday he will reclassify the regulatory status of broadband lines and apply parts of a set of decades-old rules originally designed for traditional phone network monopolies. He said existing law allows the agency to apply a "narrowly tailored broadband framework" to regulate Internet traffic without applying the more stringent rules that have been applied to phone companies.
Comcast (CMCSA:$18.7027,$-1.0373,-5.25%) , the nation's largest cable provider, said it's disappointed by the decision, adding that it believes regulators already have sufficient authority to pursue the commission's goals without the reclassification, which raises concerns about "investment and innovation risks."
Comcast (CMCSA:$18.7027,$-1.0373,-5.25%) spokeswoman Sena Fitzmaurice said in an emailed statement the company is "prepared to work constructively with the Commission to determine whether there is a 'third way' approach that allows the Commission to take limited but effective measures to preserve an open Internet and implement critical features of the National Broadband Plan, but does not cast the kind of regulatory cloud that would chill investment and innovation by Internet service providers."
Class A shares of Comcast (CMCSA:$18.7027,$-1.0373,-5.25%) were recently down 5.5% to $18.66, shares of Time Warner Cable Inc. (TWC:$50.005001,$-4.985001,-9.07%) were down 9.4% to $49.79 and shares of Cablevision Systems Corp. (CVC:$24.629999,$-2.180000,-8.13%) were down 7.7% to $24.75.
The specter of more federal regulation of the Internet could dim the cable industry's growth prospects, which are already challenged by the rise of competition from telecommunications giants including AT&T Inc. (T:$25.36,00$-0.41,00-1.59%) and Verizon Communications Inc. (VZ:$28.48,00$-0.20,00-0.70%) , as well as satellite television providers such as DirecTV (DTV:$35.62,00$0.39,001.11%) .
Furthermore, the exploding popularity of online video threatens the pay-TV business.
Cable operators are the sole providers of broadband Internet service in many areas of the country, and some Internet companies have argued that cable companies could stifle innovation by slowing some Internet traffic on their networks that could threaten their business interests.
Under questioning from an analyst on a conference call following its first- quarter earnings release Thursday, Cablevision (CVC:$24.629999,$-2.180000,-8.13%) Chief Operating Officer Tom Rutledge said a move to reclassify broadband lines under "1930s laws, utility- type regulation" would be disappointing.
"We operate in a highly competitive environment," said Rutledge. "We've built fantastic products as a result of the competitive situation that has been created in the existing law."
Rutledge added that he doesn't see a "real problem" under the existing regulatory framework, but he also has sympathy for the objectives the FCC is pursuing.
"It's a difficult situation for them," said Rutledge. "I think even harder than operating under those rules is trying to be a regulator under those rules. So we do have some sympathy for [Genachowski's] position."
Time Warner Cable spokesman Alex Dudley said in an emailed statement that the company is encouraged that the FCC's proposal doesn't go beyond its previously articulated principles for regulating the Internet.
"However, we remain concerned about the view that there is something unique about last-mile broadband access providers that requires different regulation from other Internet participants," said Dudley. "We will work with the Commission to achieve an outcome that will advance the FCC's goal of preserving an open Internet while allowing us to continue to innovate, invest in our network and provide the best Internet experience available."
David Grabert, a spokesman for Cox Communications Inc., declined to comment.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
(-REDACTED-) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/nae/al?rnd=ldug4OAPVJn2zqIn0sR%2Bzg%3D%3D. You can use this link on the day this article is published and the following day.
