Sprint Corp’s (S.N) talks with Charter Communications Inc (CHTR.O) and Comcast Corp (CMCSA.O) about a wireless partnership added another layer of uncertainty to the outlook for potential deals in the cable and telecommunications sector.
Sprint, controlled by Japan’s SoftBank Group Corp (9984.T), has entered into a two-month period of exclusive negotiations with Charter and Comcast, while putting merger talks with T-Mobile US Inc (TMUS.O) on hold until the end of July, sources told Reuters late on Monday.
Sprint shares were up nearly 6 percent to $8.46 in late Tuesday morning New York Stock Exchange trading.
There has been widespread speculation that the end of the U.S. Federal Communication Commission’s latest spectrum auction would trigger a wave of consolidation in the telecommunications and cable sectors. Executives have openly talked about potential tie-ups, but no mergers have been struck.
Craig Moffett, an analyst at MoffettNathanson, described Sprint’s talks to provide the backbone for a wireless network for Comcast and Charter as a “three-way hedge” for the companies.
“From a game theory perspective, this is a fascinating move,” Moffett wrote in an email.
The two cable companies are hedging for a possible tie-up between Sprint and T-Mobile that could reduce their negotiating leverage, and the wireless deal also allows Sprint to hedge against the risk that a merger with T-Mobile never happens, the analyst said.
A wireless deal with Comcast and Charter would also give Sprint somewhat more negotiating leverage if it does secure a tie-up with T-Mobile, he added.
New Street Research analyst Jonathan Chaplin characterized Sprint’s move as a clear negative for T-Mobile, Verizon Communications Inc (VZ.N) and AT&T Inc (T.N).
T-Mobile’s shares fell 1.6 percent to $62.12, while those of Comcast fell less than 1 percent to $39.30. Charter’s shares were little changed at $331.26.
JPMorgan analysts said if the talks with Charter and Comcast failed, Sprint’s negotiating position could weaken if it were to restart merger talks with T-Mobile, which is controlled by Germany’s Deutsche Telekom AG (DTEGn.DE).
And if Sprint and T-Mobile merger talks fall apart, that could strengthen the case for a tie-up between T-Mobile and Dish Network Corp (DISH.O), Jefferies analysts said in a note.
Dish shares were up 1.5 percent at $64.80 on Tuesday.
Analysts have speculated that Dish, a satellite TV provider that has also been buying up spectrum, could be an attractive acquisition target for both Verizon and T-Mobile.
Comcast and Charter announced a wireless partnership in May in a bid to offset customer attrition as younger viewers shun high-priced subscriptions in favor of cheaper online options.
Both cable companies already have network-resale or mobile virtual network operator (MVNO) agreements with Verizon (VZ.N).
MVNOs do not own networks, and instead rent capacity from established operators to sell on to their customers, usually at low prices due to their small overheads, with cheap distribution through the internet or convenience stores.
The cable companies’ agreement with Verizon restricts them to offer wireless within their own service areas, while a deal with Sprint could allow them to offer the service nationally, the analysts said.
The Wall Street Journal, which first reported the negotiations between the companies on Monday, said Charter and Comcast were in preliminary talks to take an equity stake in Sprint as part of an agreement.
A minority equity investment was being discussed but that it may not be part of any deal, sources told Reuters.
Charter and Comcast could also look at jointly acquiring Sprint, but that is unlikely, the sources said.
AT&T shares tumbled 1 percent to $37.75 and Verizon shares were down 1.6 percent at $45.
(Reporting by Narottam Medhora and Anya George Tharakan in Bengaluru; Editing by Anna Driver and Meredith Mazzilli)