The deal-making chess pieces are being moved around in the telecom industry, and one financial analyst thinks the next move might be for Comcast (NASDAQ: CMCSA) to make a bid for T-Mobile US (NYSE:TMUS).
According to a research note from UBS analyst John Hodulik, AT&T's (NYSE: T) proposed deal to buy DirecTV (NASDAQ: DTV) for $49 billion, and the implications that has for mobile video delivery, "could be the final straw that draws Comcast into the wireless mix."
Hodulik notes that Comcast's current wireless strategy leverages Wi-Fi deployments and a Verizon Wireless (NYSE: VZ) resale deal. "While this may be a capital-efficient way to put a toe in the water, we believe it is not a long term strategy," he wrote. "In our opinion, this could eventually lead to the acquisition of T-Mobile--if it is still independent. Initial moves to execute on a Wi-Fi-MVNO strategy will inevitably spark the speculation that Comcast will indeed need to go further and put a still-independent T-Mobile back on the M&A target list were the SoftBank deal to be rejected."
A Comcast spokesman declined to comment and T-Mobile representatives did not immediately respond to requests for comment. SoftBank-owned Sprint (NYSE: S) is reportedly eyeing a deal with T-Mobile that it may announce in June or July, though regulators have signaled their opposition to consolidation among the top four U.S. wireless carriers.
Meanwhile, Comcast is also pursuing its own $45 billion deal for Time Warner Cable (NYSE: TWC), so adding another deal into the mix would make things that much more complicated for Comcast.
Hodulik wrote that the idea of Comcast buying T-Mobile creates a third potential buyer for the company, behind Sprint and Dish Network (NASDAQ: DISH), whose chairman, Charlie Ergen, has said that T-Mobile would be of "strategic interest" to Dish if Sprint did not pursue a deal or if such a deal was blocked by regulators.
"While this view may seem far-fetched, we note that Comcast and others in the cable industry have been closely evaluating entry into the wireless market since the industry began, most recently investing $1.05B in Clearwire in 2008 ($1.5B including the TWC contribution), spending $2.4B (including other MSOs) on AWS licenses in 2006, and embarking on ill-fated ventures such as Sprint-based Pivot in 2005," Hodulik wrote. "Cable MSOs undertook these efforts while there appeared to be little value-add from a product-bundle standpoint and while the cable industry was mix of sub-scale, un-clustered assets. Today, we have line of sight to a world where video will be mobilized and Comcast will attain national scale."
Comcast is reportedly contemplating launching its own wireless service that would largely rely on Wi-Fi, according to a report from The Information. According to the report, Comcast officials recently told people outside the company that it was considering a mobile phone service, which would rely on a combination of Wi-Fi and leased capacity on cellular networks.
Comcast's Wi-Fi network currently encompasses 1 million hotspots right now, but that number will skyrocket to 8 million by year's end, with the cable MSO promising to operate hotspots in 19 of the country's 30 largest cities.
Tom Nagel, senior vice president and general manager of wireless services at Comcast, said in April that while the cable companies have built a compelling network of Wi-Fi hotspots, it is not a cellular network. Most cable executives have said they see their Wi-Fi networks as complementary to cellular.
- see this Barron's article
- see this Investor's Business Daily article
Comcast planning 8 million Wi-Fi hotspots in 19 major cities by year-end
AT&T to purchase DirecTV in $49B deal
Dish's Ergen leaves door open for T-Mobile deal if a Sprint/T-Mobile effort fails
Report: T-Mobile wants $1B breakup fee from Sprint if a deal fails
DT open to creating 'super maverick' with T-Mobile US, but is wary of regulatory hurdles
Report: Sprint to push forward with T-Mobile deal in next few months