Last week, Comcast Corporation (CMCSA) CEO Brian Roberts said he was moving full steam ahead with the pending acquisition of Time Warner Cable Inc (TWC) in spite of growing regulatory uncertainty.
A lot of observers think that President Obama’s recent comment on net neutrality will hurt the prospects of the Comcast deal with Time Warner Cable in gaining regulatory approval, and it could also make the deal a lot less attractive to Comcast.
As part of the deal Comcast had promised to spend more than $20 billion upgrading its cable network to provide faster speeds, but passage of neutrality regulations could diminish Comcast’s enthusiasm for spending cash if broadband is controlled as a utility with limited returns. CEO Brian Roberts commented on President Obama’s remarks last week telling a conference in San Francisco that:
“We are trying to work with the FCC, with the Congress, with the administration to forge an outcome that everyone can live with and doesn’t do harm to the investment cycle and innovation cycle.”
When the deal between Comcast and Time Warner Cable was announced earlier this year, the two companies said that the transaction would benefit both companies by allowing Comcast to add subscribers and increase the pace of its technology upgrades. Time Warner Cable subscribers would gain access to a wider variety of cable offerings and faster internet speeds.
Comcast also said that the merger would allow it to expand its own range of high performance services such as point-to-point and multi-point Ethernet services with the capacity to deliver cloud computing, to small and medium-size businesses, as well as back-haul services to wireless carriers. The combination of Comcast and Time Warner Cable would also be more competitive in the national advertising markets and better positioned to compete with cable networks, satellite providers and online advertising.
While the Comcast insists that its deal with Time Warner Cable will proceed, there are doubts. Other cable companies have pulled back from expanding or updating services until they see the outcome of proposed net neutrality regulations. AT&T (T) just pulled back from its program to deploy high-speed fiber to more than 100 U.S. cities until it sees how the regulatory situation plays out. First, AT&T wants to know what sort of regulatory and pricing changes may be required under new FCC rules. Comcast may eventually decide to put spending on hold as well, which would not bode well for the success of the firm post merger.
Comcast stock is still a “B-rated buy” according to Portfolio Grader, but we will be watching closely if there any changes in the fundamentals of Comcast or a stark reduction in buying pressure as a result of President Obama’s stance on net neutrality and internet pricing.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
