Why Comcast (CMCSA) Could Still Spend Billions on Wireless Spectrum, Despite Its Deal With Verizon (VZ) - TheStreet

Though Comcast (CMCSA) - Get Report plans to launch a wireless service through a partnership with Verizon (VZ) - Get Report next year, the cable and entertainment giant could also spend billions to buy wireless spectrum in a government auction.

Alongside qualified telecoms like Verizon, AT&T (T) - Get Report and T-Mobile USA (TMUS) - Get Report , Comcast has bid for spectrum that TV station owners currently use to broadcast their programming.

Even though Comcast Chairman and CEO Brian Roberts recently said that the company would launch its wireless service with Verizon next year, Macquarie Capital analyst Amy Yong suggested that buying spectrum of its own gives the cable operator more flexibility.

"It gives them optionality to do their own thing or gives them negotiating leverage with Verizon," she suggested. It's not clear whether Comcast's deal with Verizon, which was initially struck years ago, provides any benefit for the cable operator if it provides its own spectrum. Comcast did not respond to a query.

In a recent survey of institutional investors, Macquarie found that more than half expect Comcast to spend $6 billion or more on wireless licenses. The findings are in-line with Yong's forecasts that Comcast could spend $5 billion to $6 billion.

"Wireless has always been on the radar within the cable industry, yet unwillingness to invest in the build-out and commit substantial resources without proven return has been the obstacle," said Jim Cramer and Jack Mohr of the Action Alerts PLUS portfolio, which owns Comcast.

The Verizon deal provides Comcast with entry to the market.

"Rather than building a wireless network from scratch, Comcast will operate as a mobile network virtual operator (MVNO) reselling Verizon's service while building upon it with its 15 million Wi-Fi hotspots," Cramer and Mohr said. "The strategy is tactical and a clear attempt at staying ahead of the growing use of mobile content and shift toward cord-cutting."

As Comcast embarks on the Verizon deal, Yong suggested, an overriding question is whether the company feels an economic need to own its networks, or whether it could get by with the reduced risk and return of a partnership. Another is whether Comcast and, say, Charter Communications (CHTR) - Get Report could create a wireless consortium.

And yet another variable is the regulatory outlook, which could swing widely with the outcome of the election.

The FCC is in the second stage of auctioning off the broadcast licenses.

In the first stage concluding in June, broadcasters agreed to sell licenses for $86 billion in total. Wireless carriers were not willing to pay the sum plus extra fees the government would collect.

The FCC went back to broadcasters for a second round of bidding this month, offering to buy slightly less spectrum. Analyst forecasts generally call for the broadcasters' asking price and the aggregate bids from telecoms and other spectrum buyers to meet somewhere between $30 billion to $40 billion.