With the current wireless spectrum auction nearing a close and a new, purportedly business-friendly administration in the White House, an analyst at JPMorgan re-evaluated takeover possibilities for the major telecom and cable operators, saying that the chances of a T-Mobile (TMUS) and Sprint (S) merger has "increased dramatically" since the election. The deal speculation comes as Wells Fargo cuts telecom peer Verizon (VZ) to a neutral-equivalent rating and as Sprint takes a sizable stake in music streaming service Tidal.

JPMORGAN TAKE ON TELECOM M&A POTENTIAL: JPMorgan's Philip Cusick re-evaluates M&A potential within the telecom and cable sectors, arguing that key names in play could include T-Mobile, Sprint and Dish (DISH). The analyst explains that "a combination of any of those could happen as well as them being targeted by others, including larger wireless players, domestic cable companies, Internet/tech powerhouses, and foreign buyers." Cusick's focus, however, is increasingly on a potential T-Mobile-Sprint combination, as the analyst believes a tie-up is "still the preferred route" for SoftBank (SFTBF) CEO and Sprint chairman Masayoshi Son. The likelihood of a deal has "increased dramatically" since September to over 35%, with a 50%-plus chance that the two would try to merge and a 70% chance of approval if such a deal were to be announced, Cusick says. If a Sprint merger doesn't coalesce, a cable merger becomes "the next most likely event" for T-Mobile, the analyst argues, adding that he believes Comcast (CMCSA) is "very serious" about stepping into wireless and that Charter (CHTR) could explore a consortium bid alongside other cable companies. Meanwhile, Cusick believes SoftBank itself "has become more flexible" on Sprint and appears more willing to consider a sale or merger with cable.

SPRINT BUYS INTO MUSIC SERVICE: Today's M&A musings from JPMorgan come as Sprint announced it will take a 33% stake in Tidal under a partnership that will give the carrier's 45M customers access to the music streaming service. Sprint CEO Marcelo Claure will also join Tidal's board, the companies said. Though financial terms were not officially disclosed, sources quoted by Music Business Worldwide said Sprint paid roughly $200M for the stake.

WELLS FARGO DOWNGRADES VERIZON: Wells Fargo's Jennifer Fritzsche downgrades Verizon to Market Perform while lowering her valuation range to $53-$55 from $56-$58. Cautioning that the cut is not a call on the company's January 24 earnings report, the analyst argues that Verizon's post-election run-up isn't "sustainable" given its 2017 growth headwinds, including increased competition from T-Mobile and Sprint, which Fritzsche says has been affirmed by Verizon's recent pricing moves; service revenue pressure from customer migration to installment plans; a growth-limiting lack of scale in its emerging businesses such as digital media and Internet of Things; and a perception, though arguably not a fact, that the company needs to purchase additional wireless spectrum. On potential corporate tax reform under President Trump, Fritzsche believes Verizon will eventually benefit, but says the impact and timing remain "unclear."

PRICE ACTION: Shares of T-Mobile are up 1.3% to $60.41 in afternoon trading, while Sprint and Dish are up 3% and 2.3%, respectively. Comcast and Charter, meanwhile, are down fractionally and Verizon has slipped about 0.5%.