Speculating About Cox's Spectrum
Cox splashed out about $550 million on its Advanced Wireless Services (AWS) and 700MHz spectrum, and would seemingly have little use for it now. But wireless capacity is a white-hot commodity these days, so it's likely that Cox could demand a premium for what it paid.
The MSO hasn't revealed what it will do next with that spectrum, but it shouldn't have trouble attracting potential buyers, if it takes that route, says Sanford C. Bernstein & Co. Inc. analyst Craig Moffett.
"The market for high-quality spectrum is pretty good right now," Moffett says. Although Cox's wireless spectrum is not a national footprint, he considers MetroPCS Inc. (NYSE: PCS), Leap Wireless International Inc. (Nasdaq: LEAP) and Sprint as possible candidates. [Ed. note: Time Warner Cable Inc. (NYSE: TWC), Bright House Networks and Comcast Corp. (Nasdaq: CMCSA, CMCSK) also own AWS spectrum, but haven't revealed their plans for it, so it's hard to see them being interested in Cox's spectrum at this point.]
Cox might be able to salvage some of the value of its wireless and equipment used for its fledgling buildout, but historically there's not much value in surplus wireless gear, Moffett adds. (See Cox, Huawei Make Wireless Connection .)
If Cox decides to sell its spectrum, it may face a complicated process, but Moffett's not concerned that the Federal Communications Commission (FCC) would frown on it or classify Cox as a spectrum squatter and prevent it from selling the spectrum, since the MSO made a genuine effort to build its network.
But it's now clear that Cox has decided to cut its losses and go in the MVNO direction and draft off of Sprint, which could end up moving to Long Term Evolution (LTE) -- a technology of which Cox is already a fan.
"It [Cox's wireless network strategy] always had the risk of becoming a massive economic sinkhole," he says. "The economics must've been a whole lot worse than they thought."
But he says Cox's surprise decision should give investors some pause when it comes to other companies that are building wireless networks from scratch, namely Clearwire LLC (Nasdaq: CLWR) and LightSquared .
Cox, Moffett points out, has wireline infrastructure, a customer base that's ready-made to sell into and other support elements, like customer service centers, already in place. So if Cox concluded that the economics of its wireless build didn't add up despite the head start it had going in, he wonders why some investors are still bullish on Clearwire and LightSquared. (See LightSquared: Testing in 2011, Launch in 1H '12 and Sprint Gives Clearwire $1B Boost.)
— Jeff Baumgartner, Site Editor, Light Reading Cable