Comcast's just-announced $45.2 billion merger with Time Warner Cable could open the door for SoftBank CEO Masayoshi Son to push more forcefully for deal between Sprint (NYSE:S) and T-Mobile US (NYSE:TMUS). The Comcast-TWC merger might also benefit Verizon Wireless (NYSE:VZ), which has been reselling services with each of the cable companies.
Son has made no secret of his desire to push for a deal between Sprint and T-Mobile, despite reported regulatory opposition. The Department of Justice has been vocal about its skepticism while the FCC has been more circumspect.
"We can only guess that the DOJ and FCC would also have sent discouraging messages to Comcast like they have done to Sprint and T-Mobile, if Comcast had approached the regulators before announcing this deal," BTIG analyst Walter Piecyk wrote in a blog post. "Nevertheless Comcast launched the bid anyway, which might not only further embolden Softbank CEO Masa Son to do the same but it also likely expands and strengthens his argument in front of regulators and ultimately a judge that could decide their fate. While we expect little out of DirecTV, which seems content with buying its stock while the industry transforms around it, Charlie Ergen of Dish will undoubtedly look for ways to exploit an FCC and DOJ whose plate is suddenly about to get very full."
The DOJ, as expressed publicly through comments by William Baer, assistant attorney general for the Justice Department's antitrust division, has said further consolidation among the top wireless carriers would face intense scrutiny. The DOJ would need to sue on antitrust grounds to block a merger.
"We believe the current FCC takes a thoughtful approach to their policy and understands the dynamics of how capital investment has a positive impact on the public good," Piecyk wrote. "The DOJ, on the other hand, appears to only care about the near-term impacts on pricing, even if that results in job loss at the companies in question. However, the DOJ does interact with the FCC. More importantly, the DOJ has to make their case in front of a judge and as we have learned over the years, just about anything can happen once you are in a courtroom."
Piecyk noted that T-Mobile has a lot more to lose than Sprint in attempting a deal since it is picking up customers by the millions and likely wants to participate on its own in the upcoming AWS-3 auctions, and a deal could complicate T-Mobile's ability to win spectrum in that auction. He wrote that T-Mobile would need a sizable breakup fee from Sprint, but that ultimately, T-Mobile parent Deutsche Telekom will make the call on whether to proceed as T-Mobile's controlling shareholder with a 67 percent stake.
The Comcast deal could also benefit Verizon. Although the joint innovation venture that Verizon launched with Comcast, Time Warner Cable and Bright House Networks after agreeing to buy spectrum from the major MSOs has been terminated, Verizon and Comcast, TWC, Cox communications and Bright House continue to market each other's' products through commercial agreements.
Since early 2012, Verizon Wireless and the cable MSOs have kicked off promotions in dozens of markets in which they offer prepaid debit cards to subscribers that order new products from Verizon Wireless and the cable MSOs.
A combined Comcast-TWC would give Verizon a larger footprint to sell its services into and also simplify the commercial relationships it has with the MSOs.
- see this BTIG blog post (reg. req.)
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