What will be the next big deal in telecom after AT&T and Time Warner?

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AT&T’s giant $85.4 billion deal for Time Warner likely will satiate AT&T in the M&A space, at least for a time. After all, AT&T failed to acquire T-Mobile in 2011, but was successful in purchasing DirecTV last year for around $49 billion. And AT&T executives have argued that the carrier’s purchase of Time Warner will be successful since it’s a “vertical” acquisition rather than a “horizontal” transaction involving two players in the same industry.

So if AT&T is busy buying Time Warner, what will happen next?

First, it’s clear the stage is set for further M&A. The FCC’s ongoing incentive auction of TV broadcasters’ unwanted 600 MHz spectrum is likely to end later this year or early next year. And the presidential election will be over Nov. 8, paving the way for some kind of stability at the FCC and the Department of Justice.

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“I believe there will be consolidation involving Sprint-TMO-DISH in 2017,” wrote longtime industry analyst (and FierceWireless contributor) Mark Lowenstein this morning. “The world has changed and deals such as AT&T-DTV and AT&T-TW make it likelier that regulators will allow some additional consolidation.”

Comcast, Charter, Altice and cable

Many expect Comcast, Charter or Altice to make a play for either T-Mobile or Sprint. “While starting as an MVNO, we expect the cable industry to pursue the sub-scale wireless carriers – T-Mobile (Buy) and Sprint (Neutral) – to create an integrated wireless video offering and lock in existing subscribers,” wrote the analysts at UBS in a note to investors following the announcement of AT&T’s proposed purchase of Time Warner.

Cable’s interest in wireless is no secret; already both Comcast and Charter have activated MVNO agreements with Verizon, and Comcast is a bidder in the FCC’s auction. Moreover, Comcast is likely still hungry for scale following its failure to acquire Time Warner Cable. But cable’s interest in wireless stretches back to the Pivot joint venture Comcast and other cable companies inked with Sprint, a venture that collapsed in 2008.

Nonetheless, there remains clear interest among cable companies for a role in the future of the wireless industry, judging from cable’s ongoing interest in 5G, Wi-Fi and IoT networks (already Comcast said it will test LoRa while Altice said it will resell Sigfox’s IoT network in the U.S. and globally).

“In order to compete more effectively with AT&T and other new entrants going forward, Comcast may have to rethink its cautious approach to rolling out wireless and follow an inorganic path sooner than it was planning,” noted the analysts with Barclays in a note to investors issued this morning.

Another potential player from the cable side of the business is John Malone’s Liberty Global. Indeed, just last week Liberty Global agreed to buy the cable business of Multimedia Polska in Poland for $763.5 million.

If a cable operator were to make a play into wireless, the analysts at Barclays pointed to T-Mobile as a likely target. “We consider T-Mobile an ideal candidate in order for any wireline operator to accelerate its entrance into wireless given its 1) rising share positioning in the market, 2) increasingly enhanced network quality and 3) improving financial position,” the analysts wrote. “Valuation is of course a consideration, however given the potential size and scope of any synergies we would expect strategic rationale to outweigh price concerns.”

T-Mobile and Sprint

Another distinct possibility in the M&A game is a merger between T-Mobile and Sprint. The companies already floated this pairing to regulators in 2014, and were roundly rebuffed, but a new president could change that balance at the FCC and the DoJ.

Dish

A remaining outlier in the M&A field is Dish Network, which continues to sit on a trove of mid-band spectrum. Indeed, Dish owns roughly 75 MHz of spectrum nationwide, holdings that include AWS-3, PCS H Block and AWS-4 licenses. The company is also among the bidders signed up to participate in the FCC's upcoming incentive auction of TV broadcasters' unwanted 600 MHz airwaves. Dish executives have said the company is open to selling its spectrum or partnering with a wireless carrier to build out a network using its spectrum licenses; analysts have said AT&T or Verizon may ultimately ink an agreement with Dish to purchase its mid-band spectrum holdings.

If AT&T’s purchase of Time Warner knocks it out of the running to acquire Dish’s spectrum, that leaves Verizon as the most likely possible Dish partner. Though relations between the two companies are frosty at best.

Further, Dish faces a range of its own problems: “While Dish has focused its attention on using its balance sheet to hoard spectrum, its organic OTT effort, Sling, has failed to gain despite almost no comparable competition as of now,” the analysts from Barclays noted. “Going forward, with new entrants like Hulu, Google, DIRECTV Now, etc., competitive offerings combined with better technology capabilities could put further pressure on Dish’s competitive position in the emerging landscape. Given the allocation of its resources towards its spectrum, Dish seems more keen to position itself as an infrastructure service provider than a provider of services. The problem for Dish, in our view, is that it does not have the balance sheet to build a network and therefore will have to be willing to transact on its spectrum to gain access to a network. This in turn will need Dish to recognize that there are potentially only a few buyers of its assets in the market, which, as highlighted earlier, may have other priorities to contend with given AT&T’s recent move with TWX.”

Verizon

A remaining outstanding question of course is how Verizon might navigate this shifting space. The company retains a relatively solid financial position, but has so far resisted engaging in the kind of major M&A play that Sprint, SoftBank, AT&T, Comcast, T-Mobile and others have either consummated or attempted.

“While many investors think VZ now ‘has to do something’ we don't really agree,” noted Jennifer Fritzsche at Wells Fargo. “If VZ buys anything, we believe it will buy more of the infrastructure to support this initiative. Recent checks have shown VZ is more focused on fiber than many realize. And this may not all be in fiber agreements with others - we think they are building some of their own fiber. This stands to reason as it is often about network control.”

Of course, hanging over this whole area is the potential for outside action. Already CBS and Viacom are reportedly nearing a merger agreement, and that pairing could lead other content companies like Disney to take a more active role in the rapidly converging intersection between media and telecom.

It’s unclear which pairings will ultimately emerge from future M&A, but I’m pretty confident the AT&T deal for Time Warner is just one of several mega deals we’ll see in the space in the next six to 12 months. I suspect Sprint, with its improving momentum and finances, will be the next wireless carrier to enter into a transaction. – Mike | @mikeddano

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