Comcast Corp. and Charter Communications Inc. have struck a wireless partnership as the cable giants look to get a piece of the cutthroat business.
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As part of the deal, which The Wall Street Journal first reported Sunday, Comcast and Charter have agreed not to make a material merger or acquisition in wireless without the other's consent for one year.
That agreement could stoke Wall Street speculation among investors and analysts that the two largest U.S. cable companies together could decide to make a play for a carrier like T-Mobile US Inc. or Sprint Corp. Neither company as a single entity could buy another wireless carrier for that time period as a result of that agreement without the other's blessing or involvement.
Wireless carriers are fighting it out in a fierce price war, while cable companies like Comcast and Charter are dealing with a saturated pay-TV business under assault from threats like cord-cutting and cheaper online video services.
The cable companies view wireless phone service as an opportunity to create a new product to make their bundles more appealing and better retain existing customers. They hope that by offering a "quad play" of cable TV, home internet, landline phone and wireless service, customers will be less likely to drop their service and jump to a rival.
Comcast recently released plans to offer a wireless service to its customers and purchased airwaves that could be used to help offer it in a government spectrum auction.
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Charter has said it would offer wireless service as soon as next year. Both plan to rely on a five-year-old agreement with Verizon Communications Inc. that allows them to resell Verizon's airwaves to offer cellphone service to their cable customers. Comcast plans to start offering its mobile service to customers as soon as later this month.
Comcast and Charter say that their wireless partnership was motivated in part by the possibility of "further consolidation among national wireless competitors." Types of deals covered by their truce include "any acquisition, merger or other transaction" where a deal would result in the acquisition of at least 50% of the voting power or assets of either company, according to a regulatory filing.
That means that if Charter were to want to sell to Verizon, it would need Comcast's blessing or involvement to do so. The Journal had reported earlier this year that Verizon was exploring such a combination. Charter shares fell 2.9% in midmorning trading Monday.
The new operational partnership will allow Charter and Comcast to share technology and work together to use their combined scale in vendor negotiations with the likes of Samsung for handsets, for instance, one of the people said. However, the two companies will keep their customer-facing wireless storefronts and mobile plans separate.
The idea is that the partnership will allow the companies to share what they learn about what works and what doesn't in service plans and back-office billing operations, as well as achieve potential cost efficiencies. It could also help the two advance development on how to take advantage of their network of millions of Wi-Fi hotspots to bolster their wireless service. Today, handing off a voice call between a W-Fi hotspot and cellular remains clunky.
"By working with the team at Comcast, we can not only speed Charter's entry into the marketplace, it will also enable us to provide more competition and drive costs down for consumers at a similar national scale as current wireless operators," Charter Chairman and Chief Executive Tom Rutledge said in a statement.
The companies also agreed that they would only work together with respect to other commercial arrangements with the national wireless carriers, such as in wireless airwave reseller deals like the one they already have with Verizon.
The cable companies will also likely explore working closer together to gain scale in wireless and digital advertising as a result of the partnership, a person familiar with the matter said. Rivals AT&T and Verizon have openly discussed their interest in making a bigger play there, as juggernauts Google Inc. and Facebook Inc. are sucking up the majority of digital ad dollars. Comcast and Charter already collaborate in local cable ad sales.
Comcast and Charter will each still only offer wireless service to customers within their respective cable footprints -- not nationwide, the person said. However, their mobile plans' coverage will be nationwide.
The M&A truce between the two companies covers any "material transaction" in the area of cooperation, which includes "investments, acquisitions, mergers, partnerships, joint ventures or similar transactions" with a value over $50 million with any carrier. It also covers spectrum purchases with a value of more than $200 million.
Charter and Comcast have also agreed to a potential "out" from their one-year truce. If the two parties can't come to terms on a joint deal with a national carrier, they can engage in discussions on their own with a carrier even within the one-year time frame, if they've offered their partner cable company similar terms and the cable company doesn't accept, according to a regulatory filing.
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(END) Dow Jones Newswires
May 08, 2017 11:14 ET (15:14 GMT)