Cable Stocks Gain Ground—For Now
FCC delay on 70/70 threshold buoys investor outlook
By Jonathan Hemingway -- Broadcasting & Cable, 12/2/2007 7:00:00 PM
Investors in battered cable stocks finally had something to cheer about last week as shares rose in the wake of abating regulatory risk, also helped by an upsurge in broader markets.
Discord at the FCC over determining whether the cable industry breached the 70/70 penetration threshold, which would open the door for new regulation, at least delayed resolution of the matter. The FCC has asked cable companies to supply subscriber data to conclude whether they own 70% of the nation's pay-television subscribers.
But news of the reprieve appeared to give cable stocks some support throughout the week, despite other regulatory moves by the agency.
Shares of Comcast were up 6.3% between Monday's and Thursday's closes. Time Warner Cable, the second largest operator in the country behind Comcast, was up 5.9% in the same period, while Charter Communications rose 4.8%, Cablevision was up 1.5%, Mediacom gained 7.6% and RCN advanced 4.2%. Results for cable stocks were mixed in Friday trading as of mid-day.
At least some of those increases seemed attributable to the wider upswing in stocks, as the Dow Jones Industrial Average rose 4.5%—more than 500 points—between Monday and Thursday, capping a volatile month for investors.
“This week was clearly a victory for the cable operators, but they are not out of the regulatory woods just yet,” says Oppenheimer analyst Tom Eagan.
Cable also shrugged off news that a 30% subscriber cap was approved by the FCC. Formal adoption of the rule could most immediately impact expansion plans of Comcast Corp., which, based on the FCC's methodology of counting subscribers, has a 27% penetration of the pay-television market.
Comcast Executive VP David Cohen says he is perplexed as to why the FCC would consider a cap for cable after approving “mega-mergers” of competing telecom companies over the past three years.
“In an era of increased and intensifying competition among telephone, satellite and cable companies, the case for a cap is even weaker than when the courts rejected it six years ago,” Cohen said in a statement.
It remains to be seen whether cable can build on the positive tone this week. Most stocks are still trading near their 52-week lows and may present an enticing option for bargain hunters.
“We think Q4 results will be better than Q3 but still not as good as it could be,” says Eagan, who believes it's a good time to nibble at the sector but would hold off on bigger investments until a clearer picture is formed.
The cable sector was knocked down in the last earnings season, largely because reported basic subscriber losses worried investors about increasing competition from satellite and telecom companies. But while the headline numbers may fray some nerves, Eagan says that the reaction was overblown.
According to Oppenheimer, by the end of the year cable will have lost 2% of its basic video market share and 1% of its data share, but will have gained 6% in phone share. As Eagan points out: “Those [phone] subscribers are more likely to be triple-play customers and less likely to churn.”
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