Why the Charter-TWC merger could be a big deal for wireless and mobile, too by Kevin Fitchard @FortuneMagazine May 26, 2015, 5:21 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons The three-way deal between Charter Communications, Time Warner Cable and Bright House Networks would create a paid TV and broadband giant—rivaled only by Comcast—but the deal has implications beyond the cable market. If the acquisition gets past regulatory obstacles, it could lay the groundwork for a wireless network that Charter could use to challenge major mobile carriers. The complex deal would see Time Warner Cable TWC folded into its smaller rival Charter in a half cash, half stock deal valued at $78.7 billion. Charter CHTR will also purchase Bright House Networks, a cable company operating primarily in the southeast U.S., from its parent Advance/Newhouse for $10.4 billion. The resulting company will be called New Charter and have 23.9 million cable subscribers in 41 states. It will be owned by TWC and Charter shareholders with Liberty Broadband and Advance/Newhouse holding minority stakes. And it will be led by current Charter CEO Tom Rutledge, who has a history of pushing wireless services in the cable industry. Rutledge was COO of Cablevision until 2012, and among his major accomplishments was the launch of Optimum Wi-Fi, a network of wireless access points throughout the tri-state New York City region. As early as 2010, Rutledge talked up the potential of using Wi-Fi as the backbone for a wireless network that could challenge traditional cellular service providers. And though Rutledge already had departed for Charter, Cablevision in January unveiled Freewheel, a $10-a-month smartphone service for cable customers that eschewed cellular networks, instead relying solely on Cablevision’s 1 million-hotspot network for voice calls and data connections. Charter doesn’t have an extensive hotspot network of its own, but TWC and Bright House do. They’re both part of the CableWiFi consortium, which pools outdoor and indoor hotspots built by five of the biggest cable companies throughout the country. The network already has 400,000 hotspots and it’s growing. Though Charter didn’t say specifically whether the new company planned to join the CableWiFi group, in its announcement of the deal, the company made a point of saying it would build on TWC and Bright House’s Wi-Fi efforts. “We will expand the broadband offerings for consumers and invest significantly in out of home Wi-Fi,” Justin Venech, Charter vice president of communications, told Fortune. It remains to be seen if New Charter follows Cablevision in offering mobile service, but according to independent telecom analyst Chetan Sharma, it’s a good bet that it will. All of the big cable companies are looking for ways to add mobile voice and data to their portfolios, and most have identified Wi-Fi as a key means of reaching that goal, Sharma says. In addition to its network of outdoor hotspots, Comcast CMCSA has begun turning its home and business broadband customers’ connections into public access points, essentially hosting two separate networks on every router: a secure one for the customer’s own use and a public one any Comcast customer can access. Time Warner Cable has begun using a new technology called Hotspot 2.0 to automatically connect its broadband customers’ smartphones to any available TWC Wi-Fi node, eliminating the need to search out and login into networks. None of the big cable operators have launched a full-scale mobile service like Cablevision yet, but that’s likely because they’re being cautious and making sure they have a truly a competitive mobile offering before they move, Sharma says. “All of the cable operators are exploring a Wi-Fi first mobile strategy, but the problem is achieving scale,” Sharma says. “Without scale there’s no point.” Few people are interested in a mobile service that works only within a cable provider’s own territory, leaving users stranded without a signal whenever they travel outside the service area. By merging, cable companies achieve some scale, but not enough to cover the entire country. That’s why they’re partnering up with the CableWiFi consortium and other Wi-Fi providers, filling in the gaping holes in their wireless footprints. Ultimately, though, cable companies might wind up partnering with the same mobile carriers they aim to compete against. By buying wholesale access to cellular networks from a nationwide carrier, cable operators can not only fill in the missing cities in their wireless footprints but also the sizable gaps in coverage between their hotspots. Partnering with a potential competitor might sound counterintuitive if you’re a mobile carrier, but there’s plenty of precedence. Google’s new mobile service Project Fi is leaning heavily on Wi-Fi, but it’s also signed mobile virtual network operator (MVNO) deals with Sprint S and T-Mobile to augment its coverage. According to Sharma’s research, the average smartphone in the U.S. consumes 2.5 GBs a month on cellular networks, but it generates three times that traffic on Wi-Fi, mainly on home and office networks. By moving customers onto a managed Wi-Fi network, cable operators can eat into cellular’s share even further, but there will always be a chunk of wireless traffic that needs a cellular signal. Otherwise the cable companies will be offering “portable” wireless services, not true mobility. No matter what, mobile carriers will need to be in the mix, and the country’s No. 3 and 4 carriers T-Mobile TMUS and Sprint will be the most likely partners for cable companies. From their point of view, any partnership they form with a cable company is a connection that likely otherwise would have gone to AT&T T or Verizon VZ . “T-Mobile and Sprint are hungrier,” Sharma says. “They’ll do what it takes to make these deals happen.” Cable operators may go even further than just partnering with mobile carriers. Now that Comcast has given up its bid for Time Warner Cable—which opened the door for Charter’s offer—Comcast may be setting its sights on either T-Mobile or Sprint, Sharma says. If becoming a bigger cable company is no longer an option for a cable operator, maybe the next best thing is becoming a bigger communications company.