Comcast (CMCSA) and Charter Communications (CHTR), the two leading U.S. cable companies, are poised to make a huge bet on wireless. They're considering a partnership with Sprint (S) as their core video business comes under increasing pressure from the , among other reasons.
According to The Wall Street Journal, Sprint has entered into exclusive talks for two months with Philadelphia-based Comcast and with Charter, which is controlled by media tycoon John Malone, that may lead to them investing in improvements to Sprint's network. A Sprint acquisition by Comcast and Charter also is a possibility, but that outcome is less likely, the newspaper said.
Although Sprint has reportedly shelved merger discussions with rival T-Mobile (TMUS), an agreement with Comcast and Charter wouldn't necessarily preclude that deal, according to the Journal. Comcast and Sprint didn't immediately respond to a CBS MoneyWatch request for comment, and a Sprint spokeswoman declined to comment.
Earlier this year, Comcast began offering wireless service that allows most home broadband customers to get unlimited data for $65 per month for each phone (or for $45 with a promotion). Charter has said it will offer wireless services next year. The cable companies currently have an agreement with Verizon Wireless (VZ) to resell its services. That deal allowed them to reenter a market they had failed to crack several years ago, according to telecommunications analyst Jeff Kagan.
"We all thought that this was the path that they would be taking," Kagan said, adding that a deal with Sprint would give them "more control over the services that they get."
The cable companies are also trying to not lose their competitive edge to AT&T (T). The second-largest wireless provider has expanded into digital content in recent years through its acquisition of DirecTV, which made AT&T the largest provider of pay TV. AT&T customers can now stream TV over their wireless devices. The New York-based company also is waiting for regulatory approvals for its $85 billion acquisition of Time Warner (TWX).
"Cable TV has to make a move," Kagan said. "They have to get into wireless. They have to compete with AT&T. Otherwise, they're going to continue to lose market share."
According to a note from Wells Fargo analyst Marcy Ryvicker, Comcast may be the "ultimate decision maker here" because it has the strongest product, thanks to its X1 cable box that users can control through voice commands. She rates the shares as "outperform."
Shares of Sprint rose on the Journal story, closing on Tuesday at $8.18, up 17 cents, or 2 percent. T-Mobile fell $2.14, or 3.4 percent, ending at $61.01. Comcast traded down 34 cents, or less than 1 percent, to close at $39.25.
Overland Park, Kansas-based Sprint has struggled for years, though its performance has improved under CEO Marcelo Claure. He told CNBC in a recent interview that combining Sprint and T-Mobile would pose a "powerful" threat to AT&T.
Fierce Telecom Editor Mike Dano argued that a Sprint deal with Comcast and Charter wouldn't change the "market momentum" in wireless over the next year or two. For one thing, he said, T-Mobile has gained market share at the expense of its rivals in the cutthroat U.S. wireless market.
The tie-up among Sprint, Comcast and Charter "isn't as transformational as a merger between Sprint and T-Mobile would be," Dano said. "It makes a lot of sense for the two of them because it gives them the opportunity to really challenge Verizon and AT&T."