Cox Deal Excites Riverstone

With its Excite@Home customers on the brink of disconnection, Cox Communications (COX) tapped Riverstone (RSTN) Wednesday to help build its own city-to-city broadband network and supplant the loss of its partner's services.

Riverstone says it agreed to provide edge routers for a 28-city upgrade of Cox's cable broadband infrastructure. Terms weren't disclosed, but observers put the value of the deal in the multimillion-dollar range. Both Cisco (CSCO) and ADC Telecommunications (ADCT) also got part of the Cox business.

Some 4.1 million Excite@Home cable modem service subscribers are in jeopardy of losing their high-speed Net connections if the company, which is in Chapter 11 bankruptcy protection, cannot strike new agreements with its cable partners AT&T (T), Cox and Comcast (CMCSK).

Cox's effort to wean itself from an Excite@Home dependency has certainly turned up the heat in the cable gear market, as equipment makers hustle to capture some of the few dollars flying around in what has been a spending-averse climate for several months. For Riverstone, the deal marks one of the first contracts since the acrimonious dissolution of its broadband-gear reseller arrangement with Tellabs (TLAB). Riverstone rose 75 cents to $16.22 in midday trading Wednesday.

Gloria

"This is an incremental win to Riverstone, but significant because they've had some disarray with the Tellabs partnership falling apart," says a Silicon Valley-based hedge fund manager who owns no Riverstone but is long Cisco. "Investors have been waiting to see if Riverstone was going to gain traction." Now it appears that the company is doing just that.

Nationwide, growth in cable modem Net access has greatly outpaced that of the telephone-company alternative, which is known as digital subscriber lines. DSL's problems have been magnified by the telecom spending slowdown, which has slashed budgets across the industry.

Now, just as cable players prepare to run away with the high-speed Internet movement, networking equipment makers are maneuvering for position to cash in on the spending spree. This month Juniper (JNPR) entered the fray by scooping up closely held cable tech shop Pacific Broadband for $200 million.

Unlike competitive local phone companies, which typically must rely on the Baby Bells to provide DSL line, the cable companies have had some success in delivering the Internet over their TV cable lines. That's in part because the cable companies own their lines, so they don't need to bribe uncooperative outfits to play along for the greater good.

Cable Internet access also has another advantage, some observers say, in the simplicity of its infrastructure. The beauty of a cable system, say its fans, is that the cable termination box that corrals all the Net traffic from users also serves as a router that directs the traffic down specific pathways. DSL boxes, on the other hand, collect the traffic for the phone networks but require a separate router to handle the distribution job.

This Is the Edge

Could this be the cable version of the investment bust known as DSL?

Not so fast, says the hedge fund manager.

"Now that the cable companies are focusing on boosting subscriber growth," says the money manager, "investors seem to be willing to wait to see if it's a viable and profitable market before they race in."

Wise decision, if true.

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