Sprint's shares rose 3% on Tuesday after reports the fourth-largest U.S. wireless service provider was in talks with Charter Communications and Comcast about a wireless partnership.
Sprint, controlled by Japan's SoftBank Group, has entered into a two-month period of exclusive negotiations with Charter and Comcast, while putting its merger talks with T-Mobile US on hold until the end of July, sources told Reuters.
New Street Research analyst Jonathan Chaplin estimated $35-$40 billion in hard cost synergies from a potential deal between the companies. "However, there are strategic and economic benefits that may be far greater for all parties than just the direct cost savings."
T-Mobile's shares were down 4.5% at $60.30, while those of Comcast fell 1.2%. Charter's shares were little changed.
JPMorgan analysts said if the talks failed, Sprint's negotiating position could weaken if it were to restart merger talks with T-Mobile.
Comcast and Charter announced a wireless partnership in May in a bid to offset customer attrition as younger viewers shun high-priced subscriptions in favor of cheaper online options.
Both cable companies have network-resale or mobile virtual network operator (MVNO) agreements with Verizon.
MVNOs do not own networks. They rent capacity from established operators to sell on to their customers, usually at low prices due to their small overheads, with cheap distribution through the internet or convenience stores.
"Talks of an MVNO agreement with Sprint are not surprising," Jefferies analysts wrote in a client note.
The cable companies' current agreement with Verizon restricts them to their own footprints, while a deal with Sprint could allow them to offer the service nationally, the analysts said.
The Wall Street Journal, which first reported the negotiations between the companies on Monday, said Charter and Comcast were in preliminary talks to take an equity stake in Sprint as part of an agreement.
A minority equity investment was being discussed but that it may not be part of any deal, sources told Reuters.
Charter and Comcast could also look at jointly acquiring Sprint, but that is unlikely, the sources said.
Verizon's shares were down 1.1% at $45.23, while those of AT&T were down 0.7% at $37.90.