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Comcast Moves Closer to Offering Cell Service, Activates Deal With Verizon

Comcast is getting closer to entering the cellphone business.

In recent months, the cable giant notified Verizon it intends to exercise its option to resell cellular service using the carrier's network, according to a source familiar with the company's plans. Comcast* and several other cable operators got the option several years back as part of a spectrum deal with Verizon.

Verizon confirmed on Wednesday's earnings conference call that at least one of the cable companies was exercising its option to tap Verizon's network for a cellular service.

A Comcast service van in Miami.
Getty Images
A Comcast service van in Miami.

"We have an existing [cellular service] agreement and we were informed that they are going to execute on that agreement," Verizon CFO Fran Shammo said on the call.

One of the key questions is whether the companies are going to revise the years-old deal, which was crafted before data became the central part of cellphone service rather than voice minutes or texts.

"I am not going to get into whether we are discussing revising the agreement or the terms and conditions of that since it's under NDA and we will see how this plays out," Shammo said. "Obviously, the industry is moving. Cable is going to do what they are going to do and we're going to do what we're going to do."

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He reiterated Verizon's perspective that Wi-Fi is not a replacement for high-speed cellular networks.

A Comcast representative declined to detail the company's plans, while Verizon declined to comment beyond Shammo's remarks.

New Street Research analyst Jonathan Chaplin said Comcast's entry is a "near certainty."

"We don't know exactly when and how (because they don't know exactly when and how), but they will launch a wireless offering in due course," Chaplin told Re/code in an e-mail interview. Chaplin said that he expects a Comcast wireless service could begin six months after the company notified Verizon, with a commercial service potentially in place with in a year.

If it indeed enters the cellphone business, Comcast is expected to rely first on its large Wi-Fi network and use cellular networks only where Wi-Fi is unavailable. Verizon isn't Comcast's only avenue, either. The company also has an option to resell service from Sprint's network, according to the source.

Smaller rival Cablevision earlier this year launched a more limited Wi-Fi-only cellular service.

Getting into the mobile phone game would allow Comcast to offer the so-called "quad play" of Internet, TV, home phone and cell service, an option which AT&T is already doing nationwide thanks to its DirecTV acquisition. However, such a move would also involve setting up a range of operations and relationships, including deals with phone makers.

Chaplin said Comcast's entry will be bad for existing carriers, with the possible exception of T-Mobile US, which he said could be a potential takeover target.

"We would guess that Comcast will test a Wi-Fi first offering first using Verizon and see how it performs," Chaplin said. "Before rolling it out commercially I would assume they will see if they can get a better deal out of T-Mobile and Sprint, similar toGoogle's (Fi service). At the same time, we wouldn't be surprised if they take a hard look at buying T-Mobile."

Industry consultant Chetan Sharma said a Wi-Fi-first network with cellular fallback is a viable option, "but it will only gain national traction if prices are significantly lower and device choice is not compromised."

Chaplin said that the main key is being able to offer the most wanted devices, such as Apple's iPhone and Samsung's Galaxy.

Another interesting question is whether Comcast or others might aim to get even further into cellular, perhaps by bidding in next year's auction of airwaves previously held by television broadcasters. Chaplin said that Comcast should consider buying spectrum "opportunistically" in the auction if prices stay low.

"Spectrum is nice to have but it is not at all necessary," he said. "They are better off buying (T-Mobile) than buying just low band spectrum."

Bloomberg reported earlier Wednesday on Comcast's cellular ambitions.

* Comcast owns NBCUniversal and CNBC, an investor in Re/code parent company Vox Media.

By Ina Fried, Re/code.net.

Disclosure: NBCUniversal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.