Craig Moffett has a message for cable investors: Be afraid, be very afraid.
The influential media analyst said investors are foolish to believe that the government won't interfere with pricing under proposed rules governing cable companies and other Internet providers.
Moffett cut his outlook for Comcast, Time Warner Cable and Charter to "neutral" on Tuesday, saying cable investors have been downplaying the possibility of price controls and other threats to the business.
"It would be naive to believe that the imposition of a regime that is fundamentally about price regulation, in an industry that the FCC has now repeatedly declared to be non-competitive, wouldn't introduce risk to future pricing power," he wrote in a research report to MoffettNathanson clients.
The report weighed on shares of pay-TV companies. Time Warner Cable fell 1.4 percent to 147.68 on Tuesday. Comcast dropped 1.1 percent to $58.80, while Charter fell $1.43 to $176.45. Cablevision lost the most during the session, dropping 4.1 percent to $19.75.
Cable stocks surged earlier this month when Tom Wheeler, the head of the Federal Communications Commission, said his agency would not seek to control rates charged by Internet providers under new utility-style rules.
What investors feared the most was the FCC telling broadband providers what prices they could charge consumers.
While Wheeler avoided talk of price controls, Moffett said the draft rules are far more complex than most investors understand and that the practical effect is rate regulation.
Moffett said the proposal will weigh on Comcast's proposed mega-merger with Time Warner Cable.
While the deal is under regulatory scrutiny, it will be difficult for companies to jack up broadband pricing or paid-peering agreements with the likes of Netflix to make up for a less profitable video bundle.
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