The Situation
The telecom industry has been making waves in headlines lately with several possible mergers. Verizon Communications Inc. (NYSE, NASDAQ: VZ) and Charter Communications Inc. (NASDAQ: CHTR) are poised to take the first spotlight of 2017. Since the last half of 2016, Verizon has been keen on striking deals, including the ongoing transaction of acquiring Yahoo! Inc. (NASDAQ: YHOO) and completing the purchase of XO Communications' fiber network business. Wall Street Journal reported that Verizon CEO, Lowell McAdam, made the first approach to Charter, yet no public response was issued on both sides. Whether the deal will materialize is still on the table.
What will the merger do for these companies?
Verizon is the nation's largest wireless broadband provider, but the company struggles to increase subscriptions in its wired broadband business. On the opposite side of the spectrum, Charter has a strong presence in their wired broadband services as the company provides for over 49 million households. With the acquisition of Charter, Verizon may be able to expand its distribution business, betting on generating revenue through distribution channels, a completely different approach in comparison to its rival companies. Other big name companies like AT&T Inc. (NYSE: T) and Comcast Corp. (NASDAQ: CMCSA) have started to move into the content territory, a strategic approach to control both content and distribution. With divergent views on the industry trajectory, The Economist reports Verizon and Charter would create a behemoth worth more than 172 billion dollars, including debt, ultimately catapulting Verizon into the same competitive space as AT&T and Comcast.
The Next Hurdle: Challenges with the Department of Justice and Trump Administration
Even if the deal were to materialize, the big hurdle that Verizon faces is one that echoes similar sentiments of the AT&T Time Warner Cable acquisition. There would be a vetting process by the Department of Justice (DOJ) to consider whether or not allowing these conglomerates to merge would break antitrust laws. On top of the likelihood that the merger would create contention in the DOJ, the Trump administration has been loud about the disapproval of media consolidation during the campaign. Yet, within the past few days, Bloomberg reports that the Republican administration may be warming up to deals, especially with the new Federal Communications Chair, Ajit Pai in power. With so many uncertainties regarding the telecom and media space, the questions remain unanswered and only time will reveal what stakes are at hand.
