Broadband Stocks Drop as Obama Urges Tougher Web Rules

Comcast Corp. and Time Warner Cable Inc. tumbled after President Barack Obama called for stricter rules to protect the open Internet, raising concerns that Web-access providers will face tougher regulations for how they set prices and deliver service.

Time Warner Cable shares fell as much as 7.2 percent, the biggest intraday decline since August 2013. They were down 3.4 percent at 10:35 a.m. New York time. Comcast dropped as much as 6.1 percent for the largest intraday fall since August 2011, before recovering to a 3.4 percent decline.

Obama called for the “strongest possible rules,” including no blocking of websites, no slowing down of Internet content and no deals for “fast lanes” that would allow for companies to pay for speedier delivery of content. Telecommunications companies, which are increasingly dependent on broadband service for growth, have opposed utility-style regulations, which they say could hamper investment.

Other pay-TV, phone and Internet companies -- including AT&T Inc., Verizon Communications Inc. and DirecTV -- also fell initially on concern about stricter oversight and that they won’t be able to collect extra fees for faster delivery of content.

Verizon, in a statement today in response to the White House, said that greater regulation of the Internet “would be a radical reversal of course that would in and of itself threaten great harm to an open Internet, competition and innovation.”

“Verizon supports the open Internet, and we continue to believe that the light-touch regulatory approach in place for the past two decades has been central to the Internet’s success,” the company said in the statement. Verizon also said that the FCC already has sufficient authority to adopt rules to protect consumer and competition, including the ability to prohibit “paid prioritization.”

Deal Concern

AT&T fell 0.7 percent before bouncing back to a 0.1 percent gain as of 10:38 a.m. Verizon, which earlier fell as much as 1.4 percent, is up 0.1 percent.

Obama’s comments likely added to investors’ concerns that there will be more concessions demanded around net neutrality for Comcast’s $45.2 billion acquisition of Time Warner Cable to win regulatory approval, said Roy Behren, who owns shares of Time Warner Cable at Westchester Capital Funds. The consolidation of the two largest U.S. cable companies raises the possibility that consumers will have fewer choices for key services like broadband access.

Coin Flip

“From what we can tell, the market is now pricing the likelihood of the deal closing as a coin flip,” said Behren, who co-manages the $6.1 billion Merger Fund at Westchester Capital in Valhalla, New York. He said he still expects the takeover to be completed.

“People are concerned that this deal will create a behemoth,” he said. “But you also want the best cable infrastructure you can get, and that requires heavy investment. It cuts both ways.”

Representatives for Time Warner Cable and Comcast didn’t return phone calls and e-mails seeking comment.

Charter Communications Inc., which offers broadband service and is planning to add customers through Comcast’s deal for Time Warner Cable, fell as much as 5.4 percent. The stock recovered some and is now down about 2.9 percent.

Federal Communications Commission Chairman Tom Wheeler has been considering plans that mix the utility-style regulation Obama advocates with weaker regulatory powers. Wheeler’s tentative plans have left open the possibility companies could pay for faster delivery of their content by Web services.