Apparently, Comcast (CMCSA) is ready to jump head first into the U.S. wireless space, using Verizon’s (VZ) cellular and WiFi hotspots according to Bloomberg. If the rumors prove true, Comcast could pose quite a threat to existing U.S. wireless companies, offering cable, broadband internet and wireless services.
Not to mention, CMCSA would make good on speculation that the lines between cable companies and mobile will blur in the years ahead, kickstarting mergers, acquisitions, and partnerships.
The only problem is that Comcast has no presence in the wireless space, no contracts or obligations to hardware providers, no retail footprint whatsoever. Those advantages make T-Mobile (TMUS), even Sprint (S) very appealing acquisition targets.
CMCSA Might Finally Go After Wireless Companies
T-Mobile has been at the epicenter of merger and acquisition rumors for the better part of five years. One of the more recent ones was that Comcast would acquire TMUS. When discussing the potential of CMCSA entering the wireless space, T-Mobile CEO John Legere said the following at Goldman Sachs Communacopia:
“You really believe that the Comcast future in wireless is to be an MVNO with Verizon? I mean, give me a break…The timing of when the cable players come into the wireless phase — it’s purely determined by who blinks first.”
With that said, there’s no question that Comcast has deep enough pockets to buy TMUS, and that T-Mobile has the retail footprint and partnerships to make the acquisition lucrative for both companies. After all, T-Mobile lacks broadband or TV services, something it could gain with CMCSA.
While TMUS makes sense, if Comcast is serious about getting in the wireless space, and doesn’t want to start from scratch, Sprint would be a far better option.
Back in August, The Wall Street Journal cited Softbank CEO Masayoshi Son, whose company owns the majority of Sprint stock, as saying that misjudging U.S. regulators was “one of the biggest mistakes of [his] life.” That same article went on to say that Son tried to divest Softbank’s stake … to Comcast. Reportedly, the talks stopped there.
However, the mere existence of those talks is enough to prove some interest by both parties. And just because talks fell apart three to four months ago doesn’t mean the companies won’t revisit them.
CMCSA Is Better Off With Sprint
If CMCSA is exploring an acquisition or partnership in the wireless space, Sprint would be materially better than TMUS.
For one, Sprint and T-Mobile have nearly the same number of subscribers with a similar retail presence, and both sell the same phones/tablets. However, T-Mobile would cost Comcast north of $33 billion, whereas Softbank’s stake in Sprint is worth well less than half that figure.
Furthermore, per John Legere’s own acknowledgement, TMUS is seriously lacking in its ownership of low-band spectrum holdings. Based on Legere’s chart, Sprint is much better positioned with spectrum.
With that said, having a strong spectrum portfolio is crucial for success in the wireless space. It ensures that network speeds stay fast, especially in those low band areas with dense populations. While Sprint lacks its larger competitors by a long shot in spectrum coverage, it still has good balance relative to the number of subscribers who use its network.
This strong coverage, along with investments in Sprint’s overall network is why the carrier shot to No. 3 on RootMetrics’s latest survey for performance. With an 87.5 overall rating, it leads TMUS by a significant margin.
Therefore, if Comcast is entering the mobile space, and plans to become a legitimate contender, chances are that it will pursue Sprint or TMUS.
But in doing so, it would be entering an industry where Verizon (VZ) and AT&T (T) spend upwards of $15 to $20 billion a year in capital expenditures, just to stay current with how fast the industry changes, and to ensure that services remain active and network speeds get faster.
Thus, there is no telling how large of an investment Comcast would have to make if it entered the wireless arena with nothing more than WiFi hotspots and Verizon’s airwaves to its credit. It still needs the expertise, customer and business relationships, along with base stations, small cells, routers, optical equipment, and all the equipment that goes hand-in-hand with providing wireless service.
Rather than going through this headache, and making these large investments with no assurance that it can succeed, buying Sprint or even TMUS would be a far superior option.
While investors have grown somewhat immune to all the M&A chatter surrounding these two service providers, this is one instance where Comcast might actually make a move.
As of this writing, Brian Nichols was long T.
