Comcast's (NASDAQ: CMCSA) decision to execute on an MVNO deal with Verizon (NYSE: VZ) doesn't necessarily portend an imminent move by the MSO into the wireless business, said Jefferies analyst Mike McCormack in a note to investors.
"In our view, this was a formality, not an indication that the fifth wheel is being aligned," McCormack said. "We believe Comcast was merely preserving its right to offer service through the agreement, and see no imminent move by Comcast."
The note comes three days after Verizon CFO Fran Shammo, during the wireless company's third-quarter earnings report, said Comcast and perhaps Time Warner Cable (NYSE: TWC), Bright House Networks and Cox Communications may be preparing to execute on their MVNO deals with Verizon.
The possibility of a Comcast MVNO relates to a 2012 deal in which a consortium of cable companies, led by Comcast, sold spectrum licenses to Verizon for $3.6 billion. Included in the sale was the option to resell Verizon's wireless services.
Comcast has been quietly noodling with products that take advantage of its more than 10 million public Wi-Fi hotspots. There has been speculation that the MSO will announce a Wi-Fi calling product similar to Freewheel, which was announced by Cablevision (NYSE: CVC) in January. However, the speculation has Comcast adding a cellular MVNO component to the product.
"To date, Comcast has not offered a wireless service, yet on Tuesday, Verizon's CFO indicated that Comcast notified the carrier of its intention to execute the agreement. However, we understand this was merely a formality to preserve the option to use the network, and does not obligate Comcast to act in any way," McCormack said.
For his part, the analyst suspects the wireless business might be too competitive for MSOs to compete in.
"Unlike video and internet services (largely a duopoly), the wireless industry is much more competitive," he said. "The industry is struggling to support its current four national providers, with Sprint (NYSE: S) burning massive cash flow, and T-Mobile (NYSE:TMUS) still not cash generative. It is hard to imagine why Comcast would want to be the fifth player, unless there was a clear path to industry consolidation, which is unthinkable under the current regulatory regime. Frankly, we continue to believe the industry will not recover to healthy returns on capital until consolidation occurs, making an entry by Comcast (or Dish) highly unlikely, particularly without owners economics."
- read this Bloomberg story
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