Comcast, Charter ‘in the wireless catbird seat’: Moody's

A partnership between Comcast, Charter and Sprint could benefit all three stakeholders, Moody's said

Comcast and Charter are well positioned to join the wireless fray in advance of 5G, Moody’s said. And they help Sprint regain its financial footing.

The two cable companies already have MVNO deals in place with Verizon, and Comcast earlier this year launched Xfinity Mobile to offer wireless services to customers in its existing footprint. The cable operators have joined forces as they expand into wireless and are reportedly in exclusive talks with Sprint about potential partnership arrangements.

And they have the broad customer base, the fixed-line infrastructure and the deep pockets to have an impact in a competitive market where four major players have long dominated, according to Neil Begley, a senior vice president at Moody’s.

“The names in the (M&A) circle include active wireless players and spectrum holders such as AT&T Inc., Verizon Communications Inc., T-Mobile, Sprint and Dish Network Corporation,” Begley wrote in a note to investors. “But they also include Comcast and Charter, which are both well positioned to expand and capitalize in wireless, if not just to share in the future opportunities from the Internet of Things (IoT), but also to bundle the all-important wireless in consumers’ eyes with their broadband and pay-TV bundles to improve retention and grow revenue and cash flows. They are uniquely positioned in the catbird-seat given their broadband scale, which we believe will be essential to support the 5th generation of wireless; and because they continue to grow, they have strong cash flows and big balance sheets.”

And while a deal with Sprint is far from a certainty—Comcast and Charter don’t necessarily need another wireless partner—that scenario could help Sprint achieve financial stability even as it upgrades a network that continues to lag behind its bigger rivals. The nation’s fourth-largest carrier owes billions of dollars that must be repaid over the next few years, and it posted a net loss of $283 million in the first quarter of 2017.

“In our view, the discussions are unlikely to lead to a material or transformative transaction,” Begley wrote. “Sprint is still in turnaround mode and has high debt and leverage levels and negative free cash flow. Sprint has underinvested in its network and we believe it needs to dramatically ramp capital spending to remain competitive. In our opinion, neither of these make Sprint a likely acquisition target for Comcast and Charter in our view. An acquisition of Sprint is not necessary for an agreement that benefits all sides. Sprint would benefit from a reduction in investment if it can access the cable companies’ infrastructure.”