By Shalini Ramachandran, Ryan Knutson and Dana Mattioli
Sprint Corp. has entered into exclusive talks with Charter
Communications Inc. and Comcast Corp. as the cable companies
explore a deal that could bolster their plans to offer wireless
service, according to people familiar with the matter.
Sprint Chairman Masayoshi Son and the cable firms have entered
into a two-month, exclusive agreement for discussions through late
July, putting merger talks with T-Mobile US Inc. on hold, the
people said.
One arrangement that has been considered is for Charter and
Comcast to invest in improving Sprint's network in exchange for
favorable terms to offer wireless service using the carrier's
network, the people said. Such a deal could involve the companies
taking an equity stake in Sprint, some of the people said. The
cable companies already have such a network-resale agreement with
Verizon Communications Inc., but the Sprint deal could provide much
better terms.
While thought to be the much less likely scenario, the talks
also include the possibility for the cable companies to jointly
acquire Sprint, some of the people said. Sprint has a market value
of $32 billion and $32.6 billion of net debt.
A reseller agreement with Charter and Comcast wouldn't preclude
a subsequent merger between Sprint and T-Mobile, some of the people
said. While Sprint and T-Mobile have remained far apart in their
merger talks, people familiar with the discussions said a merger
between the two companies isn't off the table and may still be the
most likely outcome.
Charter and Comcast, the two largest U.S. cable companies by
subscribers, in May agreed to a wireless truce, which barred both
companies from doing a wireless deal without the other's blessing
or participation for a year.
John Malone, whose Liberty Broadband Corp. is Charter's largest
investor, has been trying to convince Comcast Chief Executive Brian
Roberts for the past year that the companies should jointly buy a
carrier like Sprint, according to people familiar with the
matter.
So far, Mr. Roberts has been reluctant. His goal is to secure a
better reseller agreement as Comcast jumps into the wireless
business, according to a person familiar with his thinking.
Charter Chief Executive Tom Rutledge has said that he sees the
logic in buying a wireless operator at the "right price and right
owners' economics" but "I don't know that it's necessary."
The talks between Sprint, Charter and Comcast come as the cable
and wireless industries are on a collision course that makes
consolidation increasingly logical but also complex. As smartphones
become increasingly important, consumers rely equally on cable and
cellular companies to surf the web and watch videos, as more than
half of all smartphone web traffic is carried over Wi-Fi.
Cable titans Charter and Comcast see a chance to retain
customers and hold off the threats of cord-cutting and online video
providers by adding mobile-phone service to their bundles of TV,
phone and broadband internet service. The thinking is that the
"quad play" would make their offerings more essential and cost
efficient, making customers less likely to cancel contracts.
Meanwhile, wireless companies are engaged in a fierce price war
in a saturated market that is quickly eroding revenue. T-Mobile and
Sprint, the third- and fourth-largest carriers by subscribers, have
cut prices the most. Unlike Verizon and AT&T Inc., Sprint and
T-Mobile don't have extensive consumer wired networks, so combining
wireless with cable's high-speed wires could help speed the
construction of next-generation, or 5G, wireless internet
connections.
Mr. Son, a Japanese billionaire whose SoftBank Group Corp.
controls Sprint, has been trying to gin up cable companies'
interest in acquiring the struggling carrier or buying a big
stake.
Mr. Son had recently rekindled talks with Deutsche Telekom AG,
the parent company of T-Mobile, to merge the two companies, but a
deal has yet to materialize. The two previously discussed combining
in 2014 but backed down in the face of regulatory opposition. As
recently as last week, Sprint CEO Marcelo Claure publicly spoke
about the benefits of a T-Mobile merger.
Comcast recently started offering wireless service to its own
high-speed internet customers, using Verizon's network for the
connections. Charter is also working on a similar service to be
released next year.
Striking a reseller agreement with Sprint instead of Verizon
would likely make it easier for the cable companies to expand their
wireless offering. With Verizon, for instance, the cable companies
can't sell wireless service outside of their cable footprint, and
the deal was struck years ago, when wireless prices were much
higher.
In discussions with Sprint about a potential new reseller
agreement, Mr. Son has shown willingness to give the cable
executives unprecedented flexibility, including control over things
like customer SIM cards, according to people familiar with the
matter. That would give Charter and Comcast more control over their
customers and more leverage with Sprint in any future discussions
than they have in their current reseller deal with Verizon, in
which Verizon maintains broad power over the wholesale
connections.
A few weeks ago, Mr. Son met with top Comcast and Charter
executives to pitch the idea of investing in Sprint and using
Sprint as their primary wholesaler for wireless airwaves, according
to people familiar with the matter. That would be a financial boost
for the struggling carrier, which hasn't had a profitable year
since 2006.
The unfolding game of telecom chess could involve other players,
too. Altice NV, the European telecom giant controlled by French
billionaire Patrick Drahi, just completed an initial public
offering for its U.S. cable arm, Altice USA, the fourth-largest
cable company by subscribers through its acquisitions of
Cablevision Systems Corp. and Suddenlink Communications completed
last year.
With a market value of $26.6 billion, Altice USA could also make
a play for Sprint or T-Mobile, analysts say, given its focus on
offering quad play bundles in its overseas markets. An Altice
spokeswoman declined to comment.
Mr. Malone, a pioneer of the U.S. cable business, has long felt
that the cable industry should work closer together to combat
threats like Netflix Inc. and the wireless carriers. In January, he
said that "maybe the three major cable companies get together and
buy T-Mobile" -- including privately held cable company Cox
Communications Inc. -- or even "Comcast and Charter could merge"
under the more lenient antitrust posture of the Trump
administration.
Mr. Malone and Mr. Roberts have a long history together, both as
a mentor and pupil and as competitors, and they haven't always seen
eye to eye. Mr. Roberts stole away Time Warner Cable from under Mr.
Malone's nose in 2014, though regulators eventually threw up
obstacles to Comcast completing its deal. Charter ended up
acquiring Time Warner Cable last year, but only at a much more
expensive price than initially imagined.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com,
Ryan Knutson at ryan.knutson@wsj.com and Dana Mattioli at
dana.mattioli@wsj.com
(END) Dow Jones Newswires
June 26, 2017 21:48 ET (01:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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