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Verizon Could Leverage from OnCue

Zacks Equity Research

Leading telecom carrier Verizon Communications Inc. (VZ) is currently negotiating with computer chip maker Intel Corp. (INTC) to buy OnCue – the Internet TV (:IPTV) venture of the latter. Given the continuous growth of video services, the acquisition could prove fruitful over the long term.   

OnCue includes a set top box, a farm of software systems and an on-screen interface software to offer content over the Internet, which allows users to navigate a list of networks and select TV programs of their choice. They can even watch programs aired three days back.

But the launch was stalled as Intel struggled to procure the programming license. This high-speed Internet service could have given traditional cable and satellite TV providers a run for their money. The chip maker now wants to divest the unit as it wants to focus on selling chips to mobile phone companies. Intel is looking for as much as $500 million from the sale.

Verizon wants to grab this opportunity to further expand its video services and meet consumers’ appetite as higher proliferation of smartphones has led to the proliferation of smartphones and other related devices.

Verizon expects OnCue to boost its exiting IPTV offering FiOS, which delivered solid performance in the third quarter of 2013.The New York-based carrier can also sell the Internet-based service to its 101.2 million mobile customers. Verizon exited the quarter with 5.9 million FiOS Internet subscribers.

Verizon has been looking to develop its IPTV services and recently acquired uploading and streaming service provider UpLynk. The company already has a joint venture with Outerwall Inc. (OUTR), which allows online movie service under the brand Redbox Instant.

Integrating OnCue with Redbox Instant will only strengthen Verizon’s video offering as the latter will be able to offer both movie and TV entertainment package under the same roof. However, it remains to be seen how far the company can push itself to clinch the deal.  

Verizon currently holds a Zacks Rank #2 (Buy). Another stock worth mentioning within this sector is Hawaiian Telcom Holdco Inc. (HCOM), which carries a Zacks Rank #1 (Strong Buy).

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