Verizon-Charter deal rationale
According to a report from The Wall Street Journal on January 26, 2017, Verizon’s (VZ) CEO, Lowell McAdam, has approached Charter Communications (CHTR) to discuss a possible merger and has formed an advisory team to look into the potential transaction. This news is unsubstantiated, and neither company has commented on it.
A deal between Verizon and Charter would enhance both companies’ economies of scale, strengthening its scale-based cost savings. It would provide Verizon with the ability to sell both video and broadband services nationwide, complementing its nationwide wireless footprint.
Economies of scale
A Verizon and Charter Communications deal would bring Verizon’s 114.2 million wireless subscribers, its 4.7 million FiOS video subscribers, and its 5.7 million FiOS Internet subscribers together with Charter Communications’ 16.9 million video customers and 21.0 million high-speed broadband customers. A merger would offer the companies the ability to cross-sell wireline and wireless bundles, taking a similar approach to AT&T (T).
Verizon and AT&T are facing tough competition from smaller rivals T-Mobile (TMUS) and Sprint (S), which are aggressively using price cuts to gain subscribers. Sprint, for instance, is promising subscribers who defect to its network that they’ll only have to pay half the price of the plan they had with their former providers. On top of that, Sprint is paying up to $650 in switching costs per line for defectors.
Verizon’s postpaid phone net subscriber additions totaled 167,000 in 4Q16, up from a loss of 36,000 subscribers in 3Q16. In comparison, AT&T lost 67,000 postpaid phone subscribers in 4Q16.
In contrast, Sprint and T-Mobile managed net postpaid phone subscriber additions of 368,000 and 933,000, respectively, in the quarter, which came at the expenses of Verizon and AT&T.