License to Bill

02/01/2011 2:15 pm EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Comcast’s acquisition of NBC Universal was approved by the FCC with surprisingly few strings attached, writes Roger Conrad, editor of Utility Forecaster.

President Obama is launching a comprehensive review of federal regulations, with the promise that anything deemed unnecessary will be discarded. That’s a step every good business takes regularly, and it’s a move long needed by Uncle Sam.

Only time will tell just how aggressive the administration will get in its efforts, and how much of the president’s pledge is just paying lip service to the public’s desire to see Washington streamline. But one bit of recent news is quite promising for those hoping for less regulation the next two years: the Federal Communications Commission’s (FCC) approval of Comcast’s (Nasdaq: CMCSA) bid for NBC Universal, with far fewer conditions than expected.

Under Chairman Julius Genachowski and the 3-to-2 Democratic majority, the FCC has been quite aggressive in its regulatory language the past two years. Conventional wisdom was they’d apply tough measures in their ruling on the controversial Comcast deal, forcing concessions on broadband regulation that had been denied them in the courts.

In contrast, the only conditions placed this week on Comcast’s acquisition of the major network and associated content were perfectly acceptable to the cable giant.

These include an agreement to provide broadband content to rivals, but only to the extent that CBS (NYSE: CBS) and Walt Disney (NYSE: DIS) do. Comcast also agreed to not discriminate in terms of network speed. That, however, only applies to arrangements that include usage caps. As a result, its flexibility in running its network is largely unimpaired, a major plus for profitability.

Why Wall Street Doesn’t Get It
Dominant network owners like Comcast, Verizon (NYSE: VZ) and AT&T (NYSE: T) in general get much less respect than deserved. They’re major household names. But Wall Street doesn’t really how to categorize them. For pure growth, big money prefers the pure plays like Apple (Nasdaq: AAPL). For pure income, the 8%-plus yields of rural wireline companies better fill the need than the 5% to 6% paid by AT&T and Verizon, less by Comcast.

That doesn’t mean, however, that the value isn’t there. The real impact of Comcast’s takeover of NBC will only be felt in the second half of 2011 and beyond. But make no mistake. This is a good deal for the company and puts it in prime position to continue leveraging its network for big cash flows.

That means more growth, higher dividends and more stock buybacks, all of which will push the stock higher over time. And if the Obama administration is really serious about cutting regulations, their road to growth will be that much smoother.

[Joseph Hargett wrote about option traders’ skepticism of Verizon six weeks ago, and despite the subsequent announcement that Verizon Wireless will offer the iPhone, the stock has since gained all of 2%. Howard Gold wrote about the NBC Universal deal in May. Comcast shares have risen 24% during the ensuing eight months—Editor.]

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