NEW YORK (TheStreet) -- President Obama jumped into the debate over so-called net neutrality on Monday, and in the process sent stocks of the company's largest cable-TV operators tumbling.
Shares of Comcast (CMCSA) , Time Warner Cable (TWC) and Charter Communications (CHTR) fell after the White House issued a statement calling on the Federal Communications Commission to issue rules to guarantee a "free and open Internet." Obama said that the Internet should be regulated in a manner similar to the way in which the FCC oversees telephone service.
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Comcast, the country's largest cable-TV operator, was falling 3.3% to $53.34 while Time Warner Cable was dropping 3.9% to $138.07. Comcast and Time Warner Cable are awaiting a ruling from the FCC over their all-stock merger proposal that is valued at $45 billion. The FCC is likely to issue a decision early next year. Charter, based in St. Louis, was losing 4.1% to $150.01.
Obama urged the FCC to issue the "strongest possible rules" to ensure that Internet providers cannot sell "fast lanes" to providers able to pay higher fees. Comcast and other pay-TV providers have said the government shouldn't be allowed to regulate the fees they charge corporate or individual users to access their broadband networks.
Consumer advocates argue that smaller companies and competitors to dominate Web service providers would unfairly benefit if Internet service providers are allowed to establish tiered-plans that prioritize their traffic.
"Simply put: No service should be stuck in a 'slow lane' because it does not pay a fee," Obama said. "That kind of gatekeeping would undermine the level playing field essential to the Internet's growth. So, as I have before, I am asking for an explicit ban on paid prioritization and any other restriction that has a similar effect."
Although FCC Chairman Tom Wheeler said he agreed with Obama that the Internet access should be "free and open," he stopped well short of agreeing that Internet should be regulated along the lines of electricity, water and telephone service.
"Like the President, I believe that the Internet must remain an open platform for free expression, innovation, and economic growth," Wheeler said in an FCC statement. "We both oppose Internet fast lanes. The Internet must not advantage some to the detriment of others."
Verizon also weighed in on the discussion, declaring that the "light-touch regulatory approach" had been beneficial to the Internet's growth, and that expanded government regulation would be detrimental. Verizon, which sells Internet access, said in a statement that regulating the Internet similar to electricity would "threaten great harm to an open Internet." The New York-based telephone provider warned that if the FCC were to classify the Internet as a utility, it would face "strong legal challenges."
Comcast's David Cohen has argued that current U.S. law does not prevent broadband providers from charging different amounts of money for different levels of Internet connectivity.
"Whatever it is, a fast lane, paid prioritization, whatever you want to call it, it has been completely legal for 15 or 20 years," Cohen, Comcast's executive vice president, said in May at the MoffettNathanson Media & Communications Summit in New York. "Whatever it is, we are allowed to do it."
Cohen used that event to lash out at net neutrality advocates for fomenting a "hysterical reaction" to FCC rulings that have allowed broadband operators such as Comcast to sign deals with content providers like Netflix (NFLX) . In February, Netflix, which can account for as much as 30% of all Internet traffic during the average evening in the U.S., signed a deal with Comcast that guarantees faster and more reliable service. The FCC later said that the contract didn't violate current FCC rules over net neutrality.
"It's been an almost hysterical reaction to an attempt by the chairman of the FCC to put in place legally enforceable open Internet protections," Cohen said. "It's been the specter that's been stirred up by the Netroots and the opponents to what Tom Wheeler is doing because it sounds bad. I think 'fast lane' sounds bad, but since we don't know what it is or what definitions of it are, it's a little bit hard to be able to react to it."
-- Written by Leon Lazaroff in New York