by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Alexander Eule of Barron’s reports on the response to President Obama’s recent remarks on “net neutrality.”
Investors don’t like surprises, but that’s exactly what they got last week when President Obama announced his desire to regulate consumer broadband like a utility.
Shares of cable and broadband providers sold off on the news, with industry giant Comcast (ticker: CMCSA) down as much as 7% in the two days following Monday’s announcement.
“We cannot allow Internet service providers to restrict the best access or to pick winners and losers in the online marketplace for services and ideas,” Obama said in his statement. “That is why today, I am asking the Federal Communications Commission to…implement the strongest possible rules to protect net neutrality.”
Wall Street analysts were uncharacteristically flummoxed by the president’s proposal, which involves a section of the Telecommunications Act known as Title II. “This is way out of all of our pay grades,” Marci Ryvicker, Wells Fargo media analyst, told Barron’s on Tuesday. “It’s unprecedented to have the president weigh in on such a granular issue. I don’t think anyone knows how to navigate this right now.”
Analysts stepped out of their traditional roles, lobbying Washington to take a more measured approach. In a note to clients, Raymond James analyst Frank Louthan issued the following warning in bolded text: “We believe the full imposition of Title II regulations would be a disaster for the industry, and it would remove much of the incentive for the carriers to expand broadband and to invest in it.”
Louthan even volunteered to serve as a watchdog: “If a carrier we cover blocks traffic, we would welcome the opportunity to downgrade them and let our opinion and that of investors help a significant loss of market cap influence their decision.”
For an industry that has grown unfettered, Obama’s entry was particularly unwelcome. Opponents of Title II argue that it would lead to price controls for broadband, even though the president says that isn’t necessary.
It’s as the government has adopted the motto: “Look, there’s innovation! Let’s regulate it!“