In a memo sent to investors today, UBS analyst John Hodulik says a number of key elements have coalesced, suggesting major consolidation of cable and wireless providers.
“We have long believed that secular changes in technology and usage would lead to the convergence of the cable and wireless industries,” Hodulik said. “The transformation of the internet into a mobile-first platform combined with the rapid migration of video from proprietary networks to digital and the rise in competitive pressure this entails increases the value of an integrated fixed and wireless service to cable providers. Densification of wireless networks required to meet the needs of video-centric subscribers increases synergies of cable-wireless combinations and provides the springboard for 5G-based services. A roll-back of Title II re-classification could further increase incentives for cable.”
So what will that consolidation look like? In an exercise somewhat resembling the M&A equivalent of speed dating, Hodulik sketched out 10 models, outlining case studies for cable and satellite operators Comcast, Charter Communications and Dish Network merging with wireless companies including Verizon, Sprint and T-Mobile US.
For the long-pondered merger between Dish and T-Mobile US, for example, Hodulik listed “positives” such as “strong spectrum position,” “integrated video product,” “bundling opportunity with Sling” and “some synergies.”
The negatives: “structure of deal likely difficult for stock appreciation given loss of spectrum valuation support” and “deal likely dilutive to financials and leverage.”
Among Hodulik’s other models was a possible union between No. 1 wireless company Verizon and leading cable operator Comcast, which he said would produce “significant synergies” and “integrated product” while being “accretive to revenue and EBITDA growth.”