Landscape Change for the Cable and Telecom Industries
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At the beginning of this month, there was a major landscape change in the telecom and cable industries.
The change came as a result of the announcement from the subsidiary of Verizon Communications (NYSE: VZ), Verizon Wireless, which said it agreed to buy $3.6 billion of spectrum owned by SpectrumCo.
This company is a joint venture of cable companies Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC) and Bright House Networks.
The transaction came as quite a surprise since Verizon has been pushing aggressively into the cable companies' territory by offering high-speed internet service along with television through its FiOS package.
The deal will allow Verizon to bolster its wireless services through the newly acquired spectrum. This will enable the company to expand the roll-out of its 4G network quickly and give it the room it needs to accommodate the rapidly increasing number of users of data-hungry smartphones.
The Verizon deal for additional spectrum is similar in that regard to the proposed acquisition by AT&T (NYSE: T) of T-Mobile, which is owned by Germany's Deutsche Telecom (NYSE: DT).
But the important point here for Verizon shareholders is that it accomplishes the goal of avoiding a future spectrum crunch at a fraction of the cost of the AT&T's deal. Now Verizon can continue to position itself as offering a top-quality experience to smartphone and tablet PC users and get a leg up on its closest rival, AT&T.
The deal also brought into play the spectrum held by companies such as Dish Network (NASDAQ: DISH) and Clearwire (NASDAQ: CLWR). Some analysts, for example, are now valuing the spectrum held by Dish at $8.6 billion.
But the Verizon transaction is much more than a mere spectrum license deal.
The companies involved also announced wide reselling arrangements that would allow Comcast and Time Warner Cable to offer their customers Verizon Wireless service.
Another benefit for Verizon is that in markets where the company does not offers its FiOS TV service, it will now be able to offer cable service from Comcast and Time Warner Cable.
Comcast and Time Warner are also benefiting by having the country's largest wireless provider as a partner. After four years, in fact, the cable companies can begin marketing Verizon's wireless service under their own brands.
It helps the cable companies' bottom line because it means that neither Comcast nor Time Warner Cable will have to go out and acquire a wireless company or build their own network.
The deal is truly a transformative one in this space. It appears on the surface as if lifelong enemies have become 'frenemies' at the least.
But it remains doubtful whether Verizon, Comcast and Time Warner Cable can truly become friends. Their long-term interests do not seem to align.
The author owns no shares of the companies mentioned above.
