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Amazon, Comcast Content Delivery Network Push Could Hurt Akamai

Comcast ( CMCSA ) and Amazon Web Services, part of Amazon.com ( AMZN ), are becoming bigger players in the content delivery network market, posing a challenge to CDN leader Akamai Technologies ( AKAM ), according to Goldman Sachs. CDNs increase the speed of e-commerce transactions, business software downloads and video streaming to mobile devices. “Amazon is growing its Cloudfront CDN to an estimated $1.8 billion in 2016 revenues and shifting its own video delivery from independent CDNs to its own network, and startups like Fastly are growing share,” Goldman Sachs analyst Heather Bellini said in a research report. AWS is part of the e-commerce giant’s fast-growing cloud computing business. Amazon stock surged to an all-time high  on Tuesday, as the Wall Street Journal reported that Salesforce.com ( CRM ) was building a new service that uses AWS. AWS was a big reason Amazon reported its highest sales growth in nearly four years when it posted first-quarter earnings on April 28, sending the stock up nearly 10% the following day. Amazon is an IBD Leaderboard stock, with a strong IBD Composite Rating of 95, where 99 is highest. Akamai has a 59 CR. Bellini, who has a sell rating on Akamai stock, attended the 2016 Content Delivery Summit in New York on Monday, gaining views on market trends. “A key takeaway was that the competitive landscape remains intense, as Comcast looks to triple its CDN capacity next year,” wrote Bellini. Comcast, the No. 1 cable TV company, has been expanding commercial services to businesses. Comcast  moved into CDN services in late 2014, Bellini noted. One market trend could work in Comcast’s favor, said the Goldman Sachs analyst. “Multi-CDN deployments were a key theme of the conference,” she wrote, “with new startups making it easy to route traffic across multiple CDNs.” Cambridge, Mass.-based Akamai is the No. 1 provider of CDN services. Worries that big customers such as  Apple ( AAPL ) and  Facebook ( FB ) are shifting more of their data traffic to their own CDNs have pressured Akamai stock. Aside from AWS and Comcast, Akamai competes with  Level 3 Communications ( LVLT ),  Limelight Networks ( LLNW ), and Verizon Communications ( VZ ), as well as startups Fastly and CloudFlare.

Cogent Stock Buybacks Loom, As Regulatory Outlook Improves

Cogent Communications Group ( CCOI ) might bring back a stock buyback program later this year, analysts say, and regulatory developments could also work in its favor. Cogent late Thursday reported Q1 earnings and revenue that modestly beat views. Cogent stock was up nearly 3% in late-afternoon trading in the stock market today , above 39. The provider of Internet communications services to small and midsize businesses has an IBD Composite Rating of 91 out of a possible 99, and it broke out of a cup-with-handle base at a 36.85 buy point on Feb. 26. Cogent stock has climbed 13% in 2016. Cogent told analysts on its earnings call after the close Thursday that it could bring back a share repurchase program if its debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio improves. “As EBITDA should trend higher in the subsequent quarters, Cogent management intimated that it will re-implement a capital return program to complement the regular dividend,” Jim Breen, an analyst at William Blair, said in a research report. At Cowen & Co., analyst Colby Synesael wrote that “we have updated our model to reflect what we think will be a stock buyback of equal size to its current recurring dividend, starting in Q3.” There might be upside for Cogent from Internet video, also called over-the-top (OTT) services, some analysts say. On the regulatory front, the  Federal Communications Commission has proposed to regulate prices in the $20 billion market for business data services , drawing criticism from  AT&T ( T ) and cable TV rivals. The proposal could help companies such as Level 3 Communications ( LVLT ) and Cogent, which sometimes lease lines from bigger telecom firms to serve their own customers. Cogent reported Q1 profit of 8 cents per share, swinging from a 4-cent per-share loss in the year-earlier period. Revenue rose 11% to $108.3  million. Analysts had modeled profit of 7 cents and revenue of $107.6 million.

FCC Draws Cable Industry Wrath Yet Again With Latest Regulatory Plan

The Federal Communications Commission moved ahead on Thursday with a proposal to regulate prices in the $20 billion market for business data services, drawing criticism from AT&T ( T ) and cable TV rivals. The FCC rules would regulate new entrants in the market — cable TV firms such as Comcast ( CMCSA ), Charter Communications ( CHTR ) and Time Warner Cable ( TWC ) — as well as the biggest providers of  business data services, including AT&T, Verizon Communications ( VZ ) and local phone companies CenturyLink ( CTL ) and Frontier Communications ( FTR ). “The FCC is likely doing this as long-term insurance in case cable does eventually become dominant in any business markets,” said Paul Gallant, analyst at Guggenheim Partners, in a report. The high-speed connections are used for retail outlets, ATM machines and cell towers. Smaller telecom firms such as Level 3 Communications ( LVLT ) and Cogent Communications ( CCOI ) sometimes rent the “special access” lines to serve their customers. Some of these have complained over long-term contracts and termination fees. AT&T has lobbied against the new price regulation, while Verizon has been less opposed. Verizon plans to deploy 5G wireless services and may gain from lower prices for cell tower connections, analysts say. “Never before has the FCC sought to saddle new entrants with such heavy-handed pricing mandates — in any arena, let alone the broadband marketplace, (FCC) Chairman (Tom) Wheeler promised to shield from such regulation,” David Cohen, a Comcast executive VP, said in a blog. Wheeler’s FCC last year approved new “net neutrality” rules opposed by the cable TV industry. Cable TV firms have been been squabbling with the agency over broadband privacy issues, as well as the agency’s plans to open up the set-top box market to more competition. The new rules for business data services could be approved by the end of 2016. “Cable’s entry into the market for business data services over the last few years has resulted in improved services and lower prices for businesses all across America,” said the National Cable & Telecommunications Association in a statement. “It is disappointing that Chairman Wheeler is responding to this unquestionably positive development by asking the commission to consider imposing onerous new rate regulation on these competitive services.”