Comcast, VOIP Could Win in Cox Deal
"In our view, Comcast is the leading pure-play cable company with strong finances and upgraded cable plant, much like Cox Communications," writes A.G. Edwards analyst Michael Kupinski in a research note published this afternoon. "As such, we believe that Cox investors may turn to the shares of Comcast as a way to play the favorable growth outlook for cable."
Of course, Charter Communications (Nasdaq: CHTR) is a public company, too, and Cox investors may buy also its shares. But Kupinski touts Comcast as the best choice in cableland; he writes that Charter is not nearly as appealing, thanks to "weak current fundamentals and very high debt leverage."
The Cox deal, which gives Cox Enterprises the remaining 38 percent of Cox Communications that it doesn't already own, has other possible beneficiaries: cable equipment providers, especially VOIP gear makers.
Cox is the third largest cable provider in the U.S., with about 6.3 million customers. But its network is enviable because it operates six of the top 25 largest cable systems, meaning its customers are more concentrated and likely to generate more data and video traffic in those large networks.
J.P. Morgan Chase & Co. analyst Ehud Gelblum notes that a private cable company might be able to spend more freely on hot technologies, such as VOIP, because it would be less concerned with the "depreciation expense impact on quarterly earnings."
If that holds true, a boost in VOIP-related spending "could benefit ARRS [Arris Group Inc. (Nasdaq: ARRS)] and MOT [Motorola Inc. (NYSE: MOT)] as Cox could upgrade its existing CMTS plant," Gelblum writes. While Cox's CMTS (cable modem termination system) plant has both Motorola and ADC Telecommunications Inc. (Nasdaq: ADCT) gear, ADC's cable equipment business was recently sold to BigBand Networks Inc., and Arris might be able to win some of that business, the analyst predicts.
— Phil Harvey, News Editor, Light Reading