Citing the looming issues of over-the-top competition and Title II regulation of broadband services, top cable analyst Craig Moffett has downgraded the stocks of Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC) and Charter Communications (NASDAQ: CHTR) to neutral.
In a Tuesday morning note to investors, the analyst dismissed Federal Communications Commission Chairman Tom Wheeler's assertion that the agency's pending net neutrality rules will not include price regulation.
"It would be naive to believe that the imposition of a regime that is fundamentally about price regulation, in an industry that the FCC has now repeatedly declared to be non-competitive, wouldn't introduce risk to future pricing power," Moffett writes. "Terminal growth rate assumptions need to be lowered."
The inability going forward to sustain upward price arcs for broadband services will render cable companies unable to offset the declines in their video businesses, he adds.
"There are also those pesky clouds gathering around the health of pay-TV ecosystem. Worsening viewership and advertising trends are driving programmers to break ranks both with each other and with their legacy distributors. In the past, changes to broadband pricing would have been the natural remedy. That avenue is no longer open."
Moffett also downgraded his odds for regulatory approval of the proposed Comcast-TWC merger.
"To be sure, we still believe the deal is more likely than not to be approved," he writes. "But we are cutting our probability of approval (again) to 60/40 from 70/30, to reflect these stiffening political headwinds."
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