Verizon (NYSE:VZ) expects to get approval for its deal to buy unused spectrum from cable companies including Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and others. [1] As per the deal, Verizon will get a substantial amount of spectrum that it can use to address the spectrum crunch and co-market its services with the cable companies. As far as Comcast is concerned, this means that the joint-marketing program with Verizon will continue and help it expand its services. The company kicked off the program a few months back when it was offering customers a $200 Visa debit card if they bought both Comcast’s Xfinity TV and Verizon’s wireless service within a 2-week time frame (see How Comcast Benefits From Joint Marketing With Verizon).
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For Comcast, the primary focus is on its cable service, which it currently sells under a common brand with Verizon, namely Xfinity. Given that Verizon competes in pay-TV, broadband and VoIP, there is a conflict of interest due to direct competition. Nevertheless Verizon is going to market its wireless service because almost half of its value is dependent on that. The spectrum purchase will help Verizon’s wireless service, clearly indicating Verizon’s focus on wireless. Given that Verizon has stopped its FiOS expansion in new geographies, and its current FiOS reach covers only a fraction of the U.S. market, the conflict of interest in the joint-marketing program will be limited to only certain areas.
The marketing will help Comcast steady its pay-TV subscriber base which has seen declines for the past few years. Pay-TV business constitutes roughly 30% of Comcast’s value.
Our price estimate for Comcast stands at $37, implying a premium of about 10% to the market price.
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Notes:- Verizon-Cable Agreement Is Said to Win Antitrust Approval Today, BusinessWeek, Aug 16 2012 [↩]
