Cox Throws Itself for a Loss, but Explains BellSouth’s Woes in Process

Well, the cost of taking a company private is, apparently, nothing to be sneezed at! Cox Communications lost a whopping $2.5 Billion during its last quarter of existence (before being consumed by privately held Cox Enterprises). This story says a fair bit of that loss was connected to the cost of taking the company private. This one says it, too.

The second story says that, if you take away the accounting charges, Cox’s cable operations (the third largest in the country) generated over $600 million in profits. Cox says that it has 6.6 million customers nationwide.

The more interesting part of the Cox story (at least for me) is found in the numbers relating to its phone customers.

For starters, 44 percent of Cox customers are bundle customers; that is, they subscribe to more than one Cox service — cable, internet and/or phone service. That seems like an awfully strong number. Using their national customer base figure of 6.6 million, that means that something on the order of 2.6 million or so of those customers are paying Cox in the vicinity of $100 per month. I base that guestimate on the local cost of a digital cable package plus high-speed Internet.

But, the really interesting part of the Cox story is the growth of its digital telephone service — Voice over Internet Protocol (VoIP). Cox reported signing up just under 90,000 new digital phone customers (“the biggest quarterly gain ever,” according to Cable Digital News), due in large measure to the fact that this new service was rolled out in five new markets in the last quarter of 2004 — including Lafayette. Cox has a total of 1.3 million telephone customers, most of whom are not on the new digital network.

What does this have to do with BellSouth?

Well, Cox is not creating new telephone customers; they are, in fact, taking them from someone. In Louisiana, Cox is taking phone customers away from BellSouth.

Cox recently announced its intention to try to sell some of its assets in Louisiana and other places which are not poised for the kind of growth that Cox prefers. Cox wants to hold on to its New Orleans, Baton Rouge and Lafayette area markets.

Cox is signaling that it views those markets as having better than average overall growth rates and that it believes it can grown its market share in those growing markets. Just about all the market share that’s there to be grabbed in those markets will come at the expense of BellSouth.

The ‘Odd Couple’ nature of the Cox/BellSouth alliance against LUS is even odder when viewed in this light. Cox is aggressively moving to take market share away from BellSouth at a time when BellSouth Louisiana execs can’t convince their bosses in Atlanta to upgrade infrastructure investments in those markets to anything above regular maintenance levels. That is, BellSouth Louisiana can’t convince BellSouth HQ to respond to the market challenge presented by Cox. The logic at BellSouth HQ being something like, ‘how can we justify a big infrastructure investment there when we’re going to be losing market share there for the foreseeable future?’

This could rapidly become a self-feeding downward spiral for BellSouth Louisiana. The markets Cox wants to contest BellSouth in are the fastest growing markets in the state. Cox has invested and will likely continue to invest significant dollars in their network infrastructure which will enhance their ability to win still more market share from BellSouth. That will leave BellSouth with slow growth markets here. It would be bad news for those communities, because they would continue to serve primarily as cash cows to fund BellSouth’s more technologically advanced projects in other parts of the company’s nine-state operating footprint.

The question for BellSouth will soon become at what point do we want to stop the bleeding — if at all? There have been rumors circulating within the telecom industry that BellSouth will move to close its BellSouth Louisiana office in New Orleans within the next 18 months. This makes sense from a corporate organizational model because it would help eliminate layers of bureaucracy in the company. But, could it signal a more significant retreat from Louisiana?

With its only rapid growth markets in the state under competitive siege and with no significant infrastructure dollars coming down the pike to facilitate a response to the challenge, BellSouth Louisiana does not currently look like a company with a long-term strategy here.

Yet, they continue to partner with their fiercest adversary in a ham-handed effort to prevent Lafayette from gaining access to the kind of infrastructure that it will not provide here.

The word ‘spiteful’ comes to mind.