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A look at how the FCC's move can affect stocks

Since the stock market went haywire yesterday, it wasn’t the best gauge for how the FCC’s decision to assert its control over broadband will affect shares of broadband providers, analysts said.

But it’s worth looking into the various arguments for how companies like Comcast, AT&T and Verizon will be affected by FCC Chairman Julius Genachowski’s decision.

Even before the big 1,000-point dip in the Dow Jones industrial average Thursday afternoon, shares of cable and telecom stocks were treading 300 to 400 basis points lower than the overall market, said James Ratcliffe, an analyst at Barclays Capital, in a note to investors.

But he said the immediate concerns are “overdone.” The FCC is clear in what it wants to do: create a net neutrality rule and carry out its national broadband policy proposals. Any short-term impact of the FCC’s move to reclassify broadband as a telecommunications service isn’t the main worry for investors. The agency promised to forbear on all but six of the four dozen rules that apply to phone services.

But the risk, Ratcliffe said, is longer term. The FCC could change its mind down the road. And it could face a long legal battle that creates more uncertainty over broadband regulation.

“While the FCC is proposing to explicitly not impose many of the common carrier requirements (such as rate regulation), that decision could be more easily (but not easily) reversed if broadband were made subject to Title II,” Ratcliffe said.

Craig Moffett, an analyst at Sanford & Bernstein, said there are still more questions than answers.

The FCC said Thursday it would explore whether wireless services would be included in its reclassification. Right now, the data portion of wireless services falls under a separate title and the voice portion of wireless services falls under Title II. In a news conference Thursday, FCC senior adviser Bruce Gottleib said the chairman understands the unique economics and technology of mobile broadband technology and is open to exploring how wireless services will fit in its plan.

“Markets abhor uncertainty,” Moffett said in a note late Wednesday. “Today we got uncertainty in spades.”

On Thursday, AT&T, Verizon, and Comcast said they feared the proposal to reclassify broadband would hurt investments in their companies and their ability to expand their networks under more rules. Other carriers like XO Communications and Sprint Nextel weren’t as pessimistic, saying reclassification could provide needed certainty.

In early trading Friday, shares of Comcast ticked slightly higher, up 0.2 percent to $18.55. AT&T’s stock edged up 0.3 percent to $25.19. Verizon’s shares were up 0.3 percent to $28.10.

By Cecilia Kang  |  May 7, 2010; 11:07 AM ET
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