Comcast and Charter will join forces as they take on the four major carriers in an extremely competitive U.S. wireless market.
The regionally distinct cable companies said they will partner as they leverage separate MVNO deals with Verizon, sharing technology and information on best practices regarding marketing, pricing, back-office infrastructure and other items. They’ll also work together to negotiate deals with handset manufacturers and other vendors.
“By working with the team at Comcast, we can not only speed Charter’s entry into the marketplace, it will also enable us to provide more competition and drive costs down for consumers at a similar national scale as current wireless operators,” Charter CEO Tom Rutledge said in a press release. “We look forward to working with Comcast through this innovative arrangement and bringing our focus on superior products and services, craftsmanship and quality customer care to the wireless space.”
The announcement, which comes just days after the end of the FCC’s so-called quiet period following the incentive auction of 600 MHz spectrum, also precludes both Charter and Comcast from making a major wireless acquisition without the other’s consent. And the partnership marks a significant threat to established carriers in a cutthroat market where smartphone growth has slowed to a crawl.
“A new entrant with deep pockets and with a near-national fiber footprint is obviously not good for wireless carriers in an already competitive market,” Jonathan Chaplin of New Street Research wrote in a note to investors. “We think that cable companies could easily capture close to 20% of their addressable market over the course of the next five years. This would exacerbate sub losses for AT&T and Verizon, who still control roughly 60% of the retail market and an even greater share of the subs that Cable will be targeting.”
The partnership could improve the odds of a tie-up between T-Mobile and Sprint, however, Chaplin noted. Federal regulators essentially killed an effort by Sprint parent SoftBank to acquire T-Mobile and merge the two U.S. operators a few years ago, but shares of both companies have risen in recent months due partly to speculation that such a marriage will be more likely under a Donald Trump administration than it was under President Obama.
It’s unclear whether the alliance increases the odds of a major wireless tie-up in the next year, however. Comcast and Charter could conceivably elbow their way into a merger of T-Mobile and Sprint, Walter Piecyk of BTIG Research wrote, or they could strike a deal to deploy services on Dish Network’s spectrum. But the move may dampen the M&A buzz that has grown significantly louder in wireless in recent months.
“The question people are asking this morning is … why would Charter agree to a deal that precludes it being sold? The short answer is … because there was no realistic chance that either company was going to be sold in the first place. Charter has given away the sleeves from their vest,” Craig Moffett of MoffettNathanson wrote in a research note. “Neither company wants a future where they are adjacent in wireline but overlapping and competing in wireless. Either company acquiring T-Mobile or Sprint would have been an untenable situation. So where does this leave us? Well, with a lot fewer speculative deals to speculate about in the speculative game of deal speculation.”