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Did the Market Overreact?

5:45 PM -- Cable and telecom stocks got hammered today after the Federal Communications Commission (FCC) proposed a "Third Way" compromise in establishing its authority on broadband services that looks to maintain the status quo while applying partial Title II regulations on ISPs. (See FCC Declares War on Broadband and Third Way or Third Rail?)

Although the move injects plenty of uncertainty into the marketplace, some analysts think those concerns, which led to knee-jerk reactions by freaked out investors, are overblown.

Among them is Jessica Reif Cohen of Merrill Lynch & Co. Inc. , whose report on the matter issued today highlighted that the proposal keeps Title I going with a "weak" Title II approach that factors in "significant forbearance" (things that wouldn't be enforced).

On that point, she highlights that the Commission's proposal does not call for rate regulation or unbundling requirements that would cause MSOs to share their networks. She's also of the view that forbearance is difficult to overturn, adding that the FCC hasn't reversed forbearance in more than 20 years. (Sanford C. Bernstein & Co. Inc. 's Craig Moffett, meanwhile, sounded the alarm bells today, warning that there's nothing stopping the FCC from pulling a reversal on forbearance at any time.)

Reif Cohen also held that the FCC's proposal wouldn't disadvantage any of the satellite, telco, or cable players. She also points out that a similar reclassification on wireless hasn't had a negative influence on that industry.

Given the potential range of responses the FCC could have made after losing the Comcast Corp. (Nasdaq: CMCSA, CMCSK) appeal over network management policies, "we view 'Title II Lite' as amongst the more benign," she added. (See Net Neutrality Ruling: FCC Loses, Comcast Wins.)

So, it's all good, right? Well, perhaps to a certain degree… and if you believe cable stocks won't reach even deeper depths before they bump the bottom and start to rise again.

"Clearly, more regulation is worse than less, thus, some overhang for Cable," she writes. "However, we see no transformative change in our Cable theses, creating buying opportunity on market fear over the specter of regulation."

— Jeff Baumgartner, Site Editor, Light Reading Cable

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