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The Cloud Hanging Over Cable Stocks


Cablevision, Comcast, and Time Warner Cable are down as the government's heavy hand of regulation moves closer to reality.

As all of this took place, the government did one thing. Courtesy of the Telecommunications Act of 1996, government regulators created two types of services: Title I, a lightly regulated information service where broadband lies today; and Title II, a heavily regulated telecommunications service. Essentially, the government got out of the way and let the markets and demand follow their natural course.

Now, along comes Chairman Genachowski with his government-knows-best mantra and the Great Leap Forward (i.e. 100 million households with 100 Mbps speeds by 2020).

As I suggested earlier, Genachowski's arguments are little more than a straw man because they make no sense. The US is supposedly falling behind in broadband adoption according to the FCC's commentary. How is that possible when 95% of our population has access to it today and about 80% have access to more than one carrier?

Moreover, he asserts that we haven't linked broadband adoption with economic growth. Statements like that make me wonder if Mr. Genachowski is from another planet. Have you heard of Amazon (AMZN) or any other of a million online retailers who, 20 years ago, couldn't have existed?

Fifteen years ago, Cisco was among the leaders in putting its order processing, contract manufacturing, and customer fulfillment operations on the web. Today, you can sit on once of its conference calls and hear CEO John Chambers wax on about the number of telepresence meetings he participated in with customers around the globe during the past week.

I could go on citing examples indefinitely but the point is the Chairman's statements are nonsense. More importantly, changing broadband to a Title II service does nothing to achieve the stated objectives and does everything to obtain the hidden agenda: power and control.

There are very real concerns investors should have relative to service providers and equipment companies should this change occur. It will stifle investment, not stimulate it.

The FCC is attempting to couch its move in language that's carefully chosen to create an innocuous image. Phrases like, "narrow and tailored" and "light-touch role" are the talking points employed by the FCC and its proxies on this issue. However, the critical issue for service providers and that which they fear the most is how the forbearance clause of the 1996 Telecommunications Act will be applied.

Title II (telecommunications) service providers have 48 separate provisions (sets of rules) that are applied to them by the FCC to ensure that they're being good corporate citizens. The forbearance clause allows the FCC to refrain from enforcement of any provisions that may hinder the development of a technology and/or service.

The weight of Genachowski's argument to the service providers is based upon "trust me and future FCC chairmen." He suggests that, in nearly two decades, there's never been an instance in which the heavy hand of the FCC was allowed to come down upon an industry. While that may be factually correct, it's no assurance that the policy won't change at some future point.

What makes Genachowski's logic more suspect is his argument that his motives are to protect access (i.e. net neutrality) for the next Google (GOOG), the next eBay (EBAY), and the next Amazon. "It's about speakers who are speaking lawfully and want to have a chance to reach their audience."

No one who's been speaking lawfully has been silenced, but the Chairman is suggesting that it could happen in the future. If that's the case, then the application of forbearance could change as well.

You can't have it both ways, Mr. Genachowski!
No positions in stocks mentioned.
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