The 5G era will initially feature massive capital expenditure by wireless companies. Verizon and AT&T will have to spend tens of billions of dollars laying fiber across the U.S. to provide the 1 gigabit speeds promised by both companies. T-Mobile and Sprint's 5G plan won't be as costly, but the combined company will be dependent on cable providers to connect their lowband and midband spectrum with small-cell technology to generate high speeds.
The necessity of having a huge balance sheet to afford 5G infrastructure combined with the reliance on cable for small-cell technology may prompt U.S. wireless companies to merge assets or acquire cable assets, a phenomenon that's already happened in Europe. If it happens, the result could test U.S. regulators and possibly lead to some of the largest mergers ever attempted.
"Things are changing so fast in this industry that it's hard to know the market boundaries," said Scott Wagner, a partner at Bilzin Sumberg who specializes in antitrust regulation. "This was one of the reasons the T-Mobile/Sprint deal was approved. It's so hard to predict where the market is headed [and] whether cable and cell service will one day be the same. Are we going to end up in a place where people are using 5G service for home broadband? That's the question."
The last six years have brought waves of media and telecom M&A. First there was cable and satellite TV consolidation, with Charter buying Time Warner Cable (after Comcast's attempt was denied by regulators), Altice acquiring Cablevision and Suddenlink, and AT&T buying DirecTV.
Stage three could logically be tie-ups between cable and wireless — one potentially foreshadowed by Verizon and SoftBank's interest in acquiring Charter in 2017. It's possible the cost of 5G infrastructure will push together wireless providers Verizon, AT&T, T-Mobile and Dish with regional cable companies, said Walt Piecyk, a telecommunications analyst at LightShed Partners.
"The cable industry has fiber assets that are close to the end users and therefore can be the critical backbone for a dense 5G network build," Piecyk said.
Charter, the second-largest U.S. cable company with an enterprise value of about $200 billion, could be the catalyst for consolidation. The cable company is partially owned by billionaire dealmaker John Malone's Liberty Broadband (a subset of GCI Liberty) and is run by CEO Tom Rutledge.
When Charter briefly toyed with the idea of selling in 2017, it drew interest not only from Verizon and SoftBank, which owns a majority stake in Sprint, but also fellow cable company Altice USA. The European Altice, based in the Netherlands and also controlled by billionaire Patrick Drahi, owns cable and wireless assets. While Altice USA's enterprise value is just $42 billion, a combination of Charter and Altice USA could be the first step to an eventual run at combining wireless and cable in the U.S.
Other European telecommunications companies, including Malone's Liberty Global and Vodafone, also already own wireless and cable assets and could be the model for where the U.S. is headed.
The catch to the consolidation narrative is the effectiveness of 5G, and the jury is still out. While executives at AT&T, Verizon and T-Mobile have all publicly said they believe 5G will one day be a replacement product for home broadband, cable executives are more skeptical, that the signals can't penetrate walls and the total cost of building 5G in enough areas to make a significant dent in cable's regional monopolies.
Cable companies will likely want to defend their territory before agreeing to deals that may not be necessary if 5G doesn't actually pose a threat to the broadband business.
Still, if one cable company sells to a wireless company, it's possible others may follow suit. Some of the plausible deals could be breathtaking in size. Comcast has an enterprise value of more than $300 billion. Verizon's enterprise value is approaching $400 billion and AT&T's enterprise value is nearly $500 billion.
A deal between giants could lead to a situation where a Comcast or AT&T could be forced to divest their media business — NBCUniversal and WarnerMedia, respectively — to get past regulators, Wagner said.
"They wouldn't do that unless they're forced to because the goal right now is to be everything to everyone," Wagner said. "But if 5G does one day become a capable replacement product for home broadband, cable companies would be at risk of losing their entire business — not just internet but streaming video, too."
While the size of a theoretical Comcast-Verizon merger or T-Mobile-Charter deal may seem like a nonstarter, the more important issue is consumer benefit, said Michael Sipe, founder and president of CrossPointe Capital, a middle-market investment-banking firm.
If 5G technology isn't living up to consumer expectations and a wireless-cable transaction could demonstrably help people get faster and more reliable broadband connections, regulators shouldn't move to block a deal even if the deals would be some of the largest in total value ever attempted.
"The key question shouldn't be the size of the deal, it should be 'did my life get better?'" Sipe said. "Cellphone service is a necessity for functioning in the world. If the merger will enhance utility, that's more important."
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.