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Verizon to Snap Up OnCue

Zacks Equity Research

Verizon Communications Inc. (VZ) is on the verge of acquiring OnCue – the Internet TV (IPTV) venture of computer chip maker Intel Corp. (INTC). The purchase deal is expected to be completed next week.

Verizon started pursuing OnCue in Oct 2013, and could end up clinching the online start-up for less than $200 million. Verizon expects OnCue to boost its exiting IPTV offering FiOS, which delivered a solid performance in the third quarter of 2013. Verizon exited the quarter with 5.9 million FiOS Internet subscribers.

Intel disclosed details about its IPTV plan in February and had plans to launch the service by the end of this year. The company developed a set top box, a farm of software systems and an on-screen interface software to offer content over the Internet. The services over the high-speed Internet could have become a potential threat to traditional cable and satellite TV providers.

However, the launch was stalled as the chip maker struggled to procure programming license. The problem aggravated as the new management continued to focus on selling chips to mobile phone companies. Intel then decided to divest the unit and was reported to have been looking for as much as $500 million.

The proliferation of smartphones and other related devices has led to an unprecedented growth in data traffic. This has forced the legacy telecom operators to diversify their offerings to meet customer demand and Verizon is no exception.

Last month, the company acquired uploading and streaming service provider UpLynk and is currently eyeing EdgeCast, a content delivery company based in California. Verizon already has a joint venture with Outerwall Inc. (OUTR), which allows online video steaming.

To support this huge data surge, carriers need to strengthen their bandwidth and Verizon is not lagging in this respect. The company is ramping up its spectrum base either through swap deals or by purchasing bandwidth from smaller counterparts. Recently, the New York based carrier completed the acquisition of U.S. Cellular Corporation’s (USM) wireless spectrum in Missouri, thus fortifying its network in the region. We believe deals like OnCue coupled with spectrum acquisition will enable the company to meet the demands of its data hungry subscribers.

Verizon currently holds a Zacks Rank #3 (Hold).

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