Remember Gadfly's media and wireless Merger Wheel? Well, its time to give it another spin because Comcast Corp. and Charter Communications Inc. just switched things up.
The two biggest U.S. cable companies have struck an agreement to work together as they branch into the wireless business and try to take on industry juggernauts Verizon Communications Inc. and AT&T Inc. The wireless companies are building 5G networks that will offer the fastest internet speeds for mobile phones and could be bundled with TV services. AT&T, for example, acquired DirecTV and introduced a live and on-demand TV app called DirecTV Now. It's also in a bidding war for 5G spectrum-license holder Straight Path Communications Inc.
Comcast and Charter are facing that threat by wading into the wireless waters -- now, together. Both have agreements that allow them to re-sell wireless services using Verizon's network in their respective territories. Comcast's service is imminent, while Charter's may launch next year.
Judging by the parties involved -- John Malone, the industry matchmaker whose Liberty empire owns a chunk of Charter -- this could be a precursor to something even bigger. It also moves around some of the puzzle pieces when it comes to possible transactions among their rivals.
The Comcast-Charter agreement stipulates that neither company can negotiate a merger with a wireless player, but they could buy a smaller one together -- say, T-Mobile US Inc., which CEO John Legere has transformed into the industry's most desirable merger candidate.
Or how about a full-on merger between Comcast and Charter? It's no longer unthinkable. If the third- and fourth-largest wireless carriers, T-Mobile and Sprint Corp., were to combine -- the scenario probably deemed most likely -- then Comcast and Charter could conceivably argue to regulators that allowing them to merge as well would keep prices down by introducing a stronger competitor. As Cowen & Co.'s analyst Paul Gallant wrote in a note Monday, Comcast and Charter would have to make the case that after collaborating for a year via a joint venture, their "organic wireless service will only work via full integration."
Remember, Charter bought Time Warner Cable a year ago, so we're talking about a sequel deal of extra mega proportions and one that would involve some of American consumers' most detested brands. Still, President Donald Trump, along with the regulators under him, have given investors and dealmakers the sense that job creation and investment in the country's infrastructure -- something wireless players building 5G networks might take credit for -- could override any concerns about consolidation that will be harmful to end consumers.
The Comcast-Charter joint venture also means a deal-curious Verizon will need to look elsewhere. Last month, Verizon CEO Lowell McAdam floated the idea of a tie-up of Verizon and Comcast (he said he'd entertain calls from Walt Disney Co. and CBS Corp., too). But Monday's agreement effectively takes either company out of play for Verizon and perhaps increases the likelihood that the wireless carrier considers a deal for Dish Network Corp. instead. As I've said, don't count out Dish and its treasure trove of wireless spectrum, even if there's ostensibly been a lack of interest in it as of yet. Verizon could use it.
We'll have to wait to see the ripple effect this could create among the TV-content companies and movie studio owners such as Disney, CBS and Lions Gate Entertainment Corp., another Malone vehicle. It could be that Verizon looks to acquire something in that realm, which would fashion it more like Comcast, owner of NBCUniversal, and AT&T, which is in the process of buying Time Warner Inc.
The floodgates haven't quite opened yet, but it's coming.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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