It's the mystery of the morning.
When Tom Wheeler, head of the Federal Communications Commission, announced his proposal Wednesday to regulate Internet providers, such as phone companies, shares of cable companies unexpectedly surged. Here's what happened to the stock prices of Comcast, Time Warner Cable, Charter and Cablevision minutes after the news dropped.
Cable companies weren't the only ones to benefit. Shares of Dish Network and DirecTV were up, too.
Why is this surprising? Well, Wheeler is suggesting that the government impose strict rules on Internet providers to be sure they don't block, slow down or speed up Web sites or content. The draft regulation is far, far more aggressive than anyone could have predicted a year ago, when Wheeler floated a different set of rules that would've regulated companies, such as Comcast and Charter, relatively lightly. So to see investors swoon over greater regulation is a bit of a puzzle, even for seasoned analysts.
When I confessed to MoffettNathanson's Craig Moffett that I couldn't make heads or tails of what we were seeing, Moffett shrugged.
"Nor do I," he said. "I think it just shows you that the market doesn't really understand these issues."
Whether or not they understand net neutrality, investors are apparently relieved that Wheeler's draft rules aren't more restrictive, according to BTIG analyst Rich Greenfield. What shareholders feared the most was the FCC swooping in to tell Internet providers what prices they could and couldn't charge to consumers — and the proposal currently doesn't call for that.
In short, the markets are responding favorably because price regulation is off the table, at least for now.
"I think it is, in the near term, a knee-jerk reaction that it wasn't worse," said Greenfield.
This raises the question about whether investors really had much to worry about during Wheeler's drafting process. It seems unlikely that the price regulation piece would've made it into the proposal considering that even President Obama's call — which many on either side of the debate say moved the FCC to a more aggressive position — recommended excluding it from the draft.
Over the long term, any use of Title II of the Communications Act generally raises the prospect of price regulation, said Moffett.
"The question was not whether the Chairman would forbear, it was instead whether a promise of forbearance is sufficient to deflect the risk of price intervention down the road," Moffett wrote in a research note.
In plain English, that means investors may eventually regret their momentary exuberance on Wednesday. Which brings us back to Moffett's original point: Nobody knows what the heck is going on.