Why a Cable Deal is Bad for the Phone Industry--Heard on the Street
May 08 2017 - 1:50PM
Dow Jones News
By Miriam Gottfried
The first wireless deal after a government-imposed hiatus is bad
news for the biggest carriers and could scramble the likely
outcomes of other anticipated combinations.
Cable operators Comcast and Charter Communications said Monday
they would form a year-long partnership to expand their wireless
offerings. The deal signals the two companies are serious about
expanding into the industry. It also ensures that the two biggest
cable companies will work together -- and not bid against one
another -- when it comes to wireless deals.
For Comcast and Charter, which are more peers than rivals
because their coverage areas don't overlap, teaming up makes sense.
It will allow them to integrate their networks of Wi-Fi hot spots,
which cover about 80% of the country, according to New Street
Research. This should help them offer better service to subscribers
and considerably lower the cost of running wireless networks on
Verizon Communications' airwaves.
The partnership could also signal a desire for a deeper
relationship between the two cable giants -- even possibly a merger
down the line. The Obama administration rejected Comcast's deal to
buy Time Warner Cable, later allowing Charter to buy it. By
proposing to team up in one business area, Comcast and Charter
could be trying to gauge the reactions of Trump administration
regulators to the idea of further consolidation.
Deal making in the wireless industry has been suspended for more
than a year as companies bid in a government auction of spectrum.
The suspension ended last month. The Comcast-Charter Communications
agreement is the first of what could be a wave of mergers that
could reshape the industry.
The success of the venture would make things much worse for the
industry's two giants, Verizon and AT&T, which are already
losing subscribers to T-Mobile US and Sprint amid a bruising price
war. Given the steep fixed costs of the wireless business,
additional pressures on subscriber growth would hit margins
hard.
The agreement also could reduce the prospects for a bidding war
as two of the biggest players would likely be working together. It
also likely takes one of the most speculated-about deals, a
Verizon-Charter merger, off the table.
For Sprint and T-Mobile, more competition would stifle their
growth. But legitimate wireless competition from cable could also
strengthen their case with regulators for a merger. Many analysts
and investors expect Sprint to try again soon to buy T-Mobile. If a
deal is approved, Comcast and Charter might be interested in
purchasing the combined entity. If it is rejected, they may team up
to buy one company or each purchase one after the end of their
wireless agreement.
Meanwhile, the cable companies may try to strike more
network-sharing deals -- such as the ones between the cable
companies and Verizon -- with other wireless carriers, helping them
improve their chances of going it alone in wireless.
Wireless investors can no longer ignore cable's call.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
(END) Dow Jones Newswires
May 08, 2017 13:35 ET (17:35 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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