Cox's UPN deal spells fiber, business services opportunities, but how will they leverage the assets?

Sean Buckley, FierceTelecom

Cox Communications made a bet on its fiber-based future by acquiring a large stake in Unite Private Networks (UPN), giving it access to a pool of assets and capabilities to fulfill wholesale and business service opportunities.

While much of the cable industry's M&A activity has centered on how Charter Communications (NASDAQ: CHTR) Time Warner Cable/Bright House Networks and Altice's Cablevision deals will control more of the consumer broadband and video markets, the UPN acquisition reflects how important fiber assets to cable MSOs in serving business and wholesale customers.

Through the UPN acquisition, Cox gains access to a 6,200 route mile fiber network that connects to 3,750 on-net buildings across 20 states, primarily in the central United States. UPN has also won a number of deals with schools, government, carriers, data centers, hospitals and enterprise business customers.

While not making large acquisitions, Cox isn't shy about making investments or acquiring a stake or buying companies outright, particularly if they add complementary value.

Besides the UPN deal, Cox purchased EasyTel in 2013, and it has made investments in data center providers (EdgeConnex, ViaWest), and wireless tower companies like Insite Wireless Group.

"Cox believes there is tremendous value in telecom infrastructure, beyond our existing network assets, particularly given the rise of cloud services and growing bandwidth demands," said Todd Smith, a Cox spokesman in an e-mail to FierceTelecom

Cox isn't the only cable MSO that's interested in bolstering its fiber asset portfolio to address growing business and wholesale opportunities.

Prior to being purchased by Charter, Time Warner Cable purchased DukeNet, a competitive fiber-based provider in 2013. Comcast and RCN have also been active on this front. RCN acquired NEON and Con Ed, while Comcast purchased Contingent Network Services, Chicago-based CLEC Cimco Communications, and NGT Telecom. These acquisitions gave these cable operators additional fiber and business services scale.

"There is precedent for this sort of thing, such as Time Warner Cable acquiring DukeNet, which was mostly in the Carolinas, and that was one of TWC's largest contiguous service areas," said Brian Washburn, service director of global business network and IT services for Current Analysis, in an interview with FierceTelecom. "Or if you want to stretch this class of mergers, there's cable overbuilder RCN that acquired northeast regional provider NEON Communications and Con Ed Communications -- again, there was metro synergy and fiber connectivity between RCN markets to drive deal synergy."

Scaling enterprise needs
The UPN acquisition could help Cox scale its fiber assets to address business services growth. Cox Business addresses four sectors: small business, mid-sized businesses, enterprises and wireless operators and other traditional carriers.

Having established itself as one of the early cable MSOs to take a stake a in the business market, a recent FierceCable interview with Steve Rowley, senior vice president of Cox Business, revealed that Cox's business services revenues grew from zero in 1998 to about $1 billion in 2010. By the end of 2016, the cable MSO said it would "cross over $2 billion" in business services revenue.

Cox has also maintained a top spot on Vertical Systems Group's Ethernet Leaderboard for over 9 years, reflecting the MSO's leadership in the Ethernet services market.  

Washburn said that while the UPN fiber network does not have a lot of overlap with Cox, the MSO could gain access into new markets or new customers. 

"UPN's metro footprint, while being in the same general areas as Cox's major cable markets, is not in the same locations," Washburn said. "It's not a tight metro synergy, which leads me to believe there are other drivers to this acquisition. That could be inter-market infrastructure and connectivity, or expertise, and/or relationships enjoyed by UPN that Cox wanted for its own purposes."

Turnkey small cell service, dark fiber opportunities
UPN could also help Cox could gain a deeper foothold turnkey small services and dark fiber.

Over the past decade, UPN has won a number dark and lit fiber service deals in Colorado, Dallas Texas, Iowa, Kansas City and Omaha. UPN service provider has been also enhancing its wireless backhaul skills, lighting over 100 cell sites with fiber in 2015. Additionally, UPN has been growing its turnkey small cell capabilities, a skill that could complement Cox's backhaul capabilities.

Traditionally, Cox has shied away from dark fiber deals, preferring to provide lit managed services to wholesale and business customers. At the same time, Cox could potentially tap into UPN's dark fiber assets to fulfill backhaul and expand its Ethernet footprint.

There may be a number of potential scenarios where Cox could use UPN, but questions remain.

By not disclosing how much of a stake it purchased in UPN, it's unclear how important the assets are to Cox. It's also unclear how or if Cox will leverage or integrate UPN's fiber assets into its own fold.

Regardless of the issues, it's clear that Cox needs to bolster its fiber portfolio to scale its business and wholesale arms and UPN may be the answer.--Sean

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