Cable operators blasted the FCC’s 3-0 decision Tuesday to cut cable TV rates another 7% — on top of last year’s 10% cut — saying such action would further slow growth in the industry.
“The commission’s action will undermine future investment in infrastructure and slow job creation,” said
Time Warner chairman Gerald Levin called the new rate regulations “arbitrary, unfair and unacceptable.”
Cable stocks, already down an average of 7% this year compared to a year ago, inched lower on the news with industry analysts and investors saying cable values would be further depressed.
“This will cost on the order of $ 700 million to $ 800 million in revenues,” said Salomon Bros. analyst Frederick Moran.
The rate regulations come as cable operators are trying to acquire capital to build the so-called information superhighway.
“Vice President Gore says, ‘Build the information highway,’ then the democratic-controlled FCC says, ‘Rollback rates,’ ” said Mark Nathanson, president of Falcon Cable TV, which recently pulled an initial public offering because of the pending regulations.
“There will be less capital available to expand,” warned First National Bank of Chicago’s Steve Martin.
An inflationary out
The multisystem operators may get some relief if the FCC implements a potential inflation pass-through that would allow them to charge customers for product and service price increases.
Operators, however, aren’t holding their breath.
“Any enhancements pale compared to the rate regulation sections,” said Bob Thomson, senior vice president of Tele-Communications Inc., the nation’s largest cable operator.
Shares in cable systems weakened with few exceptions. Time Warner was down 38 cents at $ 38.25 per share, while TCI was off 38 cents at $ 24.88.
Class B shares of Viacom, which is also suffering as a result of its merger deal with Paramount, fell $ 1 to $ 24.63. Comcast stock dropped 38 cents to $ 20 per and Jones Intercable eased 50 cents to $ 11.63 per. Adelphia was unchanged at $ 19.
Earnings reports for the third and fourth quarters have shown last September’s cable rate cut significantly eroded cashflow and, in some cases, impaired ability to service debt — a problem for the heavily leveraged industry.
Industry analysts said cable operators will remain the target of the telcos, perhaps more so now that their values — and subsequently their asking price — has been lowered.