Trading FCC's net neutrality smackdown

Published Thu, Feb 26 201512:00 AM EST

The Federal Communications Commission is set to vote on net neutrality regulations Thursday and it is expected to regulate the Internet like a utility. The ruling will ban broadband providers from charging to give some companies and entities a faster superhighway, while also penalizing them if they use the technique of throttling, purposely slowing speeds down for some users. But the picture is looking worse and worse for cable providers heading into Thursday's vote. The New York Times reported Tuesday that Republicans may not respond with legislation to usurp new FCC regulations because they don't have the bipartisan support needed for such a vote. And some investors and analysts are beginning to fear this means the FCC will cave to President Barack Obama 's wishes of using the "strongest rules possible" to protect net neutrality and the Republicans can't do anything about it. "You're going to see a much more obtrusive regulatory regime," said Larry McDonald, head of U.S. strategy, macro group, Societe Generale. "I don't see that being good for the stocks in the space." You wouldn't know it by looking at Comcast , the country's largest Internet service provider, heading into the decision. The shares are up 2 percent this week. Read More Uh-oh: Charging bulls a 'major worry' for stocks But history shows any incremental action in favor of net neutrality has hurt the stocks and with Thursday being the definitive ruling, that negative pattern should continue, said McDonald and others. The FCC's oversight of the Internet will be "radically transformed to a new style of regulations which is going to prompt a whole myriad of questions that are going to await answers and I think that's going to impact investing choices," said Michael Powell, a former chairman of the FCC, to CNBC this week. "I think they're locked and loaded and its too late to turn back." The money play: CNBC.com, using Kensho, looked at the last three big net neutrality events in the last one year, starting with the FCC's announcement last February that it would issue this new set of rules. In the five trading days after pro-net neutrality events, Comcast shares fell, on average, by 1 percent, according to Kensho. Time Warner Cable retreated by 0.6 percent, on average. Companies that stand to benefit from free and open Internet pathways rose. Netflix and Amazon jumped, on average, by 4 percent, according to Kensho. Content providers without cable units rose as well with CBS , Viacom and Discovery Communications gaining 2 percent, on average. Read More Halftime trader: Dump Apple, bet on oil comeback To be sure, there is a possible explanation for the strength in shares of Comcast, which is attempting to purchase Time Warner Cable for $45 billion. "We are bullish on the outcome for potential M & A transactions in the space, with prescriptive broadband regulation providing cover," wrote Edward Mills, policy analyst for FBR & Co., in a note to clients this month. So Mills is implying the strict new rules will increase the chances of the deal going through as it would limit the powers of the Internet monopoly some fear the merger would create. "The wild card remains potential opposition from President Obama," added Mills. Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com. Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.

Federal Communications Commission Chairman Tom Wheeler

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The Federal Communications Commission is set to vote on net neutrality regulations Thursday and it is expected to regulate the Internet like a utility.