Verizon Is Not Interested in a Big Cable Merger Right Now
Verizon CEO Lowell McAdam set off a wave of merger mania speculation last year when he mused that possibly acquiring a major cable TV company like Charter Communications would make “industrial sense.”
Despite some possible infrastructure synergies as Verizon builds its next generation 5G wireless network, the CEO currently sounds rather less eager to make a play for Charter or another cable company after looking more deeply into the issues.
“I think our shareholders expect us to look at every option but I would tell you right now we haven’t seen the architectural fit,” McAdam said on Tuesday on an interview on CNBC. “And we haven’t seen a willing seller and a willing buyer that have a meeting of the minds.”
Shares of Charter, up 14% so far this year, were down 1% in midday trading after McAdam spoke. Verizon shares, down 8% this year, were nearly unchanged.
Verizon and its major competitors—AT&T (T), Sprint (S), and T-Mobile (TMUS)—are racing to deploy 5G network equipment capable of handling vastly more traffic at speeds 10 to 40 times faster than current 4G networks. But because the 5G signals don’t travel as far as 4G transmissions, the plans require adding more cell sites and connecting them with fiber optic cable networks. Major cable companies like Charter (CHTR) and Comcast (CMCSA) already have fiber installed more deeply into neighborhoods to deliver TV and Internet service.
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McAdam has so far decided that his company will follow a 5G strategy of adding many thousands of small cell sites in major urban areas, instead of relying just on the big cell towers it used in the past, and then connecting them with fiber optic cables. On Tuesday, Verizon announced a new deal to buy at least $1.05 billion of fiber optic cable and related hardware from Corning over the next three years–enough to cover 12.4 million miles, the companies said.
Verizon (VZ) already has 13,000 small sites deployed, McAdam said, disclosing the total number for the first time, compared to about 60,000 current cell tower sites in its network. But Verizon will be adding in each major city 8,000 to 10,000 more small sites, tiny transmitters that can fit in the palm of a hand and be tacked onto a lamp post or traffic light pole.
Unfortunately, according to McAdam, the fiber networks that cable companies have installed don’t have nearly enough capacity to meet Verizon’s needs to connect all the small cells in big cities. While a typical fiber cable may have contained 144 separate strands of glass wiring in the past, Verizon’s newest installations in Boston have 1,700 separate strands per cable.
“As we’ve looked at companies around the U.S.. there’s nobody building to the architecture that we’re talking about,” he said. “From a fiber perspective, nobody, whether you’re a fiber company or a cable company, you don’t have the architecture that we’re talking about today.”