Sprint Enters Into Exclusive Talks With Charter, Comcast on Wireless Deal --Update

Sprint Corp. has entered into exclusive talks with Charter Communications Inc. and Comcast Corp. as the cable companies explore a deal that could bolster their plans to offer wireless service, according to people familiar with the matter.

Sprint Chairman Masayoshi Son and the cable firms have entered into a two-month, exclusive agreement for discussions through late July, putting merger talks with T-Mobile US Inc. on hold, the people said.

One arrangement that has been considered is for Charter and Comcast to invest in improving Sprint's network in exchange for favorable terms to offer wireless service using the carrier's network, the people said. Such a deal could involve the companies taking an equity stake in Sprint, some of the people said. The cable companies already have such a network-resale agreement with Verizon Communications Inc., but the Sprint deal could provide much better terms.

While thought to be the much less likely scenario, the talks also include the possibility for the cable companies to jointly acquire Sprint, some of the people said. Sprint has a market value of $32 billion and $32.6 billion of net debt.

A reseller agreement with Charter and Comcast wouldn't preclude a subsequent merger between Sprint and T-Mobile, some of the people said. While Sprint and T-Mobile have remained far apart in their merger talks, people familiar with the discussions said a merger between the two companies isn't off the table and may still be the most likely outcome.

Charter and Comcast, the two largest U.S. cable companies by subscribers, in May agreed to a wireless truce, which barred both companies from doing a wireless deal without the other's blessing or participation for a year.

John Malone, whose Liberty Broadband Corp. is Charter's largest investor, has been trying to convince Comcast Chief Executive Brian Roberts for the past year that the companies should jointly buy a carrier like Sprint, according to people familiar with the matter.

So far, Mr. Roberts has been reluctant. His goal is to secure a better reseller agreement as Comcast jumps into the wireless business, according to a person familiar with his thinking.

Charter Chief Executive Tom Rutledge has said that he sees the logic in buying a wireless operator at the "right price and right owners' economics" but "I don't know that it's necessary."

The talks between Sprint, Charter and Comcast come as the cable and wireless industries are on a collision course that makes consolidation increasingly logical but also complex. As smartphones become increasingly important, consumers rely equally on cable and cellular companies to surf the web and watch videos, as more than half of all smartphone web traffic is carried over Wi-Fi.

Cable titans Charter and Comcast see a chance to retain customers and hold off the threats of cord-cutting and online video providers by adding mobile-phone service to their bundles of TV, phone and broadband internet service. The thinking is that the "quad play" would make their offerings more essential and cost efficient, making customers less likely to cancel contracts.

Meanwhile, wireless companies are engaged in a fierce price war in a saturated market that is quickly eroding revenue. T-Mobile and Sprint, the third- and fourth-largest carriers by subscribers, have cut prices the most. Unlike Verizon and AT&T Inc., Sprint and T-Mobile don't have extensive consumer wired networks, so combining wireless with cable's high-speed wires could help speed the construction of next-generation, or 5G, wireless internet connections.

Mr. Son, a Japanese billionaire whose SoftBank Group Corp. controls Sprint, has been trying to gin up cable companies' interest in acquiring the struggling carrier or buying a big stake.

Mr. Son had recently rekindled talks with Deutsche Telekom AG, the parent company of T-Mobile, to merge the two companies, but a deal has yet to materialize. The two previously discussed combining in 2014 but backed down in the face of regulatory opposition. As recently as last week, Sprint CEO Marcelo Claure publicly spoke about the benefits of a T-Mobile merger.

Comcast recently started offering wireless service to its own high-speed internet customers, using Verizon's network for the connections. Charter is also working on a similar service to be released next year.

Striking a reseller agreement with Sprint instead of Verizon would likely make it easier for the cable companies to expand their wireless offering. With Verizon, for instance, the cable companies can't sell wireless service outside of their cable footprint, and the deal was struck years ago, when wireless prices were much higher.

In discussions with Sprint about a potential new reseller agreement, Mr. Son has shown willingness to give the cable executives unprecedented flexibility, including control over things like customer SIM cards, according to people familiar with the matter. That would give Charter and Comcast more control over their customers and more leverage with Sprint in any future discussions than they have in their current reseller deal with Verizon, in which Verizon maintains broad power over the wholesale connections.

A few weeks ago, Mr. Son met with top Comcast and Charter executives to pitch the idea of investing in Sprint and using Sprint as their primary wholesaler for wireless airwaves, according to people familiar with the matter. That would be a financial boost for the struggling carrier, which hasn't had a profitable year since 2006.

The unfolding game of telecom chess could involve other players, too. Altice NV, the European telecom giant controlled by French billionaire Patrick Drahi, just completed an initial public offering for its U.S. cable arm, Altice USA, the fourth-largest cable company by subscribers through its acquisitions of Cablevision Systems Corp. and Suddenlink Communications completed last year.

With a market value of $26.6 billion, Altice USA could also make a play for Sprint or T-Mobile, analysts say, given its focus on offering quad play bundles in its overseas markets. An Altice spokeswoman declined to comment.

Mr. Malone, a pioneer of the U.S. cable business, has long felt that the cable industry should work closer together to combat threats like Netflix Inc. and the wireless carriers. In January, he said that "maybe the three major cable companies get together and buy T-Mobile" -- including privately held cable company Cox Communications Inc. -- or even "Comcast and Charter could merge" under the more lenient antitrust posture of the Trump administration.

Mr. Malone and Mr. Roberts have a long history together, both as a mentor and pupil and as competitors, and they haven't always seen eye to eye. Mr. Roberts stole away Time Warner Cable from under Mr. Malone's nose in 2014, though regulators eventually threw up obstacles to Comcast completing its deal. Charter ended up acquiring Time Warner Cable last year, but only at a much more expensive price than initially imagined.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com, Ryan Knutson at ryan.knutson@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

June 26, 2017 21:48 ET (01:48 GMT)