Japan’s Softbank, and its maverick chairman Masayoshi Son, has been interested in adding a US cableco to its growing wireless empire for some time, either to combine with its existing US subsidiary, Sprint, or to replace it. There have been various reports over the past year, of talks with major cable operators as well as T-Mobile USA and Dish Network. Now, the reports are concentrated on a possible $100 billion bid for the second largest cableco, Charter. The issue here is that the only way a merger between Charter and Sprint can prosper, is if current Charter CEO Tom Rutledge is put in charge.
The aim, it seems, would be to create a fixed/mobile giant to compete with Verizon and AT&T. Sprint’s years of problems have been alleviated somewhat by Softbank’s financing of its ambitious densification and 5G plans, which should finally see it turning its much-vaunted 2.5 GHz spectrum mountain into market advantage. However, even if it finally delivers the advanced network and strong services it has promised for so long, it will still lack a wireline network or partner, limiting its ability to compete in the all-important growth area for US consumer telecoms, the quad play.
Charter would fill that gap, at least in the areas of its wireline coverage, which have expanded since it acquired Time Warner Cable and BrightHouse Networks. For its part, it would secure an advanced mobile network to support its own quad play. Charter has so far been the most aggressive cable operator in pursuing its own cellular path, testing LTE in the shared CBRS spectrum. It also has an alliance with the largest cableco, Comcast, to cooperate on launching services enabled by their MVNO deals with Verizon, and to develop future offerings together.
On paper, this may look like a marriage made in heaven, but Sprint has had repeated alliances with the major cablecos, including the Pivot and SpectrumCo joint ventures and a WiMAX-focused cooperative. But these have never delivered the results they promised in theory, because of a failure to find sufficient common interest to justify full commitment and investment on either side.
And last summer, Charter rejected a Softbank offer of $540 a share, even though its stock was valued, at the time, around $400, and its largest shareholder, Liberty Media chairman John Malone, was said to favor the idea (as was the Newhouse family, former owners of Bright House).
Jonathan Chaplin, an analyst with New Street Research, thinks the Charter management should be more open to a deal. He told Bloomberg: “Whether this turns into a bid for the whole company, or it is just a passive investment in a great and undervalued asset, we are just delighted that someone else sees the value in Charter we see. We think Sprint is uninvestable on its own (short on fundamentals; long if Masa buys out minorities at $12). A Charter deal could be transformative to the company’s prospects, but we would expect most of the value to go to Charter shareholders.”
Charter is certainly interested in wireless. As well as its MVNO deal, its Comcast alliance, and its participation in the huge CableWiFi network of hotspots and homespots, it is testing 5G and what CEO Tom Rutledge dared to call “6G” on a recent earnings call. In fact, 6G is the firm’s “pre-spec definition of the integration of small cell architecture using unlicensed and licensed spectrum working together interchangeably with our advanced DOCSIS roadmap to create high capacity, low latency product offerings.” Rutledge said: “We expect that over time our existing infrastructure will put us in a unique position to economically deploy new powerful products that benefit from small cell connectivity.”
Integrating dense, localized mobile networks with advanced cable is at the heart of many 5G visions, and even some forward looking 4G projects. Cellular in shared spectrum will support better manageability and quality of service than WiFi in unlicensed, the argument goes, and since most of these shared bands are relatively high frequency, they will be best suited – especially indoors, where the power limits are strict – to small cells. The mixture of these low cost small cell networks and advanced wireline connectivity will enable enterprises or specialized vertical market providers to create optimized ‘sub-nets’ for a city, corporation or industrial zone, while leaving the wide area mobility in the hands of the MNO and its licensed airwaves.
This is an opportunity the US cablecos are watching closely. In particular, Charter will leverage the CBRS spectrum to support its own wireless services (expanding on those it plans to launch this year via its MVNO agreement with Verizon) and to expand these into vertical and business markets.
“Charter is in the process of transitioning its wireless network from a nomadic WiFi network to one that supports full mobility by combining its existing WiFi assets with multiple 4G and 5G access technologies,” Charter said in comments on an FCC notice of proposed rulemaking about CBRS. “In navigating this technological transition, Charter is concentrating on an ‘Inside-Out’ strategy, initially focusing on advanced wireless solutions inside the home and office, and eventually expanding outdoors.”