Market Overview

What The Comcast/Charter Deal Means For Wireless, Spectrum Companies

What The Comcast/Charter Deal Means For Wireless, Spectrum Companies

Following media reports of Comcast Corporation (NASDAQ: CMCSA) and Charter Communications, Inc. (NASDAQ: CHTR) striking a one-year partnership relating to wireless mergers, Height Securities weighed in the M&A options before the companies in the wireless and spectrum spaces.

The deal, according to reports, precludes either companies from entering a material transaction for a year without the other's consent. This essentially shuts the door on a tie-up between Charter and Verizon Communications Inc. (NYSE: VZ), the reports said.

Potential M&A In Wireless/Spectrum Spaces

Height Securities thinks the partnership between Comcast and Charter limits both companies' joint acquisitions of wireless companies. This could put Sprint Corp (NYSE: S) and T-Mobile US Inc (NASDAQ: TMUS) into play as M&A targets. Additionally, spectrum-related names such as and Globalstar, Inc. (NYSE: GSAT) and Ligado Networks could also attract interest, the firm said.

Regulatory Approval For Deal More Likely

Height Securities noted any joint acquisition would face regulatory scrutiny from the Federal Communications Commission as well as the Department of Justice. That said, since Charter and Comcast do not operate in the wireless telecommunications markets, the firm feels any potential acquisition would qualify as a vertical merger for anti-trust purposes.

The firm believes the FCC could pose a risk to any potential transactions because the agency has the authority to block deals on the basis of protecting the public interest.

"This standard is much more open to interpretation, but enforcement would be dependent on the merger review policies of the current FCC Chairman Ajit Pai," the firm said.

"To date, Chairman Pai has taken a pro-consolidation merger policy stance."

Broadcaster Consolidation In The Offing

Height Securities referred to Pai's suggestion at a recent event that he would be revisiting broadcast ownership rules in a move to modernize the rules to accommodate new technologies such as streaming services.

Under the current broadcast ownership rules a single company is barred from owning more than 39 percent of the national television market. The firm interpreted Pai's statements as suggesting that the FCC could expand the definition of the national television market.

This, according to the firm, would be a very strong move toward enabling broadcaster consolidation among major players.

"We believe that this has positive read-throughs for all FCC-regulated mergers, especially a potential Tribune Media Co (NYSE: TRCO) and Sinclair Broadcast Group Inc (NASDAQ: SBGI) deal," the firm added.

Although both companies are at the limits of the current broadcast ownership thresholds, the firm said the FCC could enable further consolidation under new national television market definitions.

Telecom Industry Ripe For Consolidation

Overall, Height Securities said the telecommunications industry is ripe for M&A activity, given the recent end of the FCC incentive auction quiet period and an accommodative regulatory regime.

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Latest Ratings for CHTR

Nov 2019MaintainsBuy
Oct 2019MaintainsBuy
Oct 2019MaintainsOverweight

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