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Cable/Video

Comcast, VOIP Could Win in Cox Deal

The $7.9 billion bid by Cox Enterprises to buy all the shares of Cox Communications Inc. (NYSE: COX) and take the cable company private may have an unlikely beneficiary: Comcast Corp. (Nasdaq: CMCSA, CMCSK). (See Cox in $7.9B Buyout.)

"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

geof hollingsworth 12/5/2012 | 1:24:09 AM
re: Comcast, VOIP Could Win in Cox Deal they could take the cash flow and use it to pay down the debt they will incur in buying out the public shareholders. And freed from public oversight, they could use any remaining cash to pay bonuses to the managers and "management fees" to the private equity backers. I know which use of funds I would bet on.
pnni-1 12/5/2012 | 1:24:05 AM
re: Comcast, VOIP Could Win in Cox Deal They have been upgrading their infrastructure for quite some years now!
alchemy 12/5/2012 | 1:24:04 AM
re: Comcast, VOIP Could Win in Cox Deal pnni-1 writes:
They have been upgrading their infrastructure for quite some years now!

Cox, like every other MSO, has historically changed out their infrastructure every 6 years. That trend doesn't look likely to change any time in the near future.
fanfare 12/5/2012 | 1:24:04 AM
re: Comcast, VOIP Could Win in Cox Deal LoL, you sound like you may be a bit jaded, geof.

I'd say your understanding of our corporate jungle is well founded.

cheers,

ff
pnni-1 12/5/2012 | 1:24:03 AM
re: Comcast, VOIP Could Win in Cox Deal Oh yeah, I forgot that!! That HFC expires and you have to replace it so it won't go bad. BellSouth replaces their copper every 6 years as well. ;)
alchemy 12/5/2012 | 1:23:55 AM
re: Comcast, VOIP Could Win in Cox Deal pnni-1 writes:
Oh yeah, I forgot that!! That HFC expires and you have to replace it so it won't go bad. BellSouth replaces their copper every 6 years as well. ;)

The typical HFC plant of 6 to 8 years ago was not 2-way. The plant as it exists today won't be able to handle any heavy use of video on demand and much of it isn't clean enough to do voice on the upstream. They may not be rewiring the last 100 meters but there are a lot of truck rolls to replace splitters on phone poles and add fiber nodes as the network is partitioned.

The big MSOs are in the process of kicking off a next generation architecture where video and DOCSIS converge. It might not be real until 2010 but that's 6 years from now... when it's time to rebuild the cable backbone yet again.
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