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Comcast Arris deal threatens cable eco-system

By PETER WHITE

Published: 18 January, 2013

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Comcast moved this week to help out Arris, the vendor that bought Motorola Home from Google last week for around $2.35 billion. Comcast only had to pay $150 million for a 10% stake, and yet a 10% stake in Motorola Home at the price that Arris had to pay, would have been $235 million. This is because Arris is valued by the stock market at less than the cash it paid for Motorola.

It will likely be a good investment, because Comcast can ensure that the Arris Motorola combination continues to get good product orders from itself, and if Arris remains more or less that same size as it is today, its value will slowly ease up to $3 billion to $4 billion over the course of the next year, more than doubling its price today. Investors just need to see Arris stem the tide of Motorola deal losses.

However there are other things that Comcast can get for its money. It can get control over the architecture of its set tops and DOCSIS terminals and home gateways, and it can almost match the voting power that Google will have, as it continues to hold a 16% of Arris, after the deal is done. Comcast was reportedly seriously unhappy in the past about having a potential rival owning the largest US cable set top provider.

But vertical integration of this sort is rarely successful in the long run and there will be many instances when Arris and Comcast interests will run contra to one another and this is why we see this deal as a temporary one, offering some influence over technological designs in the near term, and giving Arris a little more financial stability.

Arris rivals will see Comcast privilege in every deal it does with Arris, and will cry foul as soon as any unfairness creeps in - not a long term arrangement we suspect.

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