Interview Date: March 16, 2000
Interviewer: Jim Keller
Collection: Hauser Collection
KELLER: This is the oral history of Frank M. Drendel, president and CEO of CommScope, the cable television industry’s leading manufacturer and distributor of coaxial and fiber optic cable. Frank is a 32-year veteran of the cable industry and currently is on the board of C-SPAN. He is vice-chairman of The Cable Center and he has been a member of the board of the National Cable Television Association. This oral history, dated March 16, 2000, is funded by a grant from The Gustave Hauser Foundation and is part of the oral history program of The National Cable Center and Museum. The interviewer is Jim Keller. Frank, tell us a little bit about your background, where you were raised, where you went to school, what did you do before you got into the industry?
DRENDEL: Well, Jim, I was born in Paxton, Illinois in 1945, so that makes me 55 years old this year. Normal background, I grew up on a farm. We were reasonably poor, as I always remember and tell everybody. I got a football scholarship to Northern Illinois University in De Kalb, Illinois and that was my first cable TV experience. I didn’t have enough money to go to college other than my scholarships, so I needed a job. I went to the dean of men’s office and I was looking through part-time job opportunities. One of them said, “Needed: Cable TV Installers” and I thought, what could be to this? So I went down and interviewed. At the time it was Continental Telephone, a subsidiary called De Kalb Vogel Telephone. I interviewed with a guy by the name of Charles Milspol, I’ll never forget it, and he was a big Northern Illinois University football fan. So he really loved the idea that I was playing football. I had no experience at being a cable TV installer, but he hired me anyway at the sum of something just south of $2.30 an hour. Charlie took me out and I went through training. In those days — as you recall, because you’ve been in the business a long time — you could do installs almost anytime you wanted. So I would go to class, come out and he’d hand me a schedule of installs. I’d go do the installs and then I could go to class, then come back and finish up the installs. That was my first experience with cable TV, and the system at that time had 12 channels. It was really a state of the art system, a SKL 222 system. I did that for four or five years, worked my way up from being a De Kalb Vogel cable installer, while I was going to school, to helping them run the system that they had built. Actually, they turn-keyed their own system and I ended up as an assistant manager for the Allied Video system while I was still in school.
KELLER: Do you remember how many subscribers you had at that time?
DRENDEL: Oh, I think it was 12,000-13,000. It was a pretty good-sized system because it was a university town. It encompassed both De Kalb, Illinois and Sycamore, Illinois, so it was two systems. That was in the ’66-’67 range and, of course, it was the peak of the Vietnam buildup. Having not carried enough hours because I was working, I got the famous letter from the government that “you are invited to serve”. So I had to suspend my cable TV career for approximately a year and a half while I went into the special reserves. I always love to tell this story: I got the draft notice, went in, and took all the tests. I’m certainly not a high IQ guy, but something happened on the testing that I had the right profile. Out of the 500 young men that were testing that day, they picked two of us for special assignment. I knew enough about the service that you never volunteer for anything. So I sat down with this recruiting sergeant and he said, “You gentlemen, we would like you to consider going to a special branch of the service that’s highly classified and top secret, but I assure you that it will be beneficial for you because it will allow you to have an opportunity to go through this process in a special function. You won’t have to face possibly dying in combat.” Well, at that point, you thought, this might be all right. We agreed to it; we got off an additional four weeks because they had to do a security clearance on us, which we both passed. We were assigned to the chemical school and were going to be the first to mix Agent Orange. We didn’t know what it was, had no idea what this material was supposed to do. We went to basic like everybody else, went to jump school and then we went to Fort McClellan, Alabama.
KELLER: You had to go to jump school?
DRENDEL: We had to be jump qualified. You had to do all of this because — we didn’t realize it at the time — you would be attached to the special services.
KELLER: One of those nuts that jumps out of a perfectly good airplane.
DRENDEL: Oh, perfectly good — stupid. I only had to jump once.
KELLER: Only once.
DRENDEL: Only once and that’s the last time I wanted to do it.
KELLER: The second time, to me, would be more difficult than the first.
DRENDEL: That’s right, absolutely, and that’s a whole other story because I actually damaged my back doing that. Anyway, we showed up at Fort McClellan, which was nicknamed “the bug farm”. All the rest of my friends that I went through basic with were going to infantry school – rifle training school, machine gun training school. Fort McClellan, Alabama had two great things going for it. 1) It was WAC Basic, WACO CS, all WACS; so you had this fort that had 14,000 women…
KELLER: It was Anniston, wasn’t it?
DRENDEL: Anniston, Alabama. You are a very sharp guy! Anniston, Alabama, and you had this secret division, which was the chemical school that probably had 2,000 men in it. We went to school for 16 weeks and trained in chemical, biological, radiological warfare, but a high concentration on chemical. At the time, they taught us the whole area of Agent Orange and everything else. They put us back into the high ready reserve National Guard and Army Reserve, qualified services, because they weren’t sure of what was going to happen with the process of Agent Orange. So, I was able to come back in a year. The training took that long; I was out the normal six months with an additional six months of schooling and came back into the workforce. I was able to go back to my former job and during that process we were kept up-to-date with what was going on with Agent Orange. At that time they had decided this was really bad stuff and they decided to suspend it. They had all these people trained with Agent Orange, so they decided they would cross-train us for doing teargas. Now ’68 comes and we have the Chicago riots. They mobilize all across the United States for the riots all of us that had this specialized training for spraying Agent Orange. So now we have to spray teargas. I went from not being shot at in Vietnam to the front line of the Chicago riots, being shot at by Americans. It was one of those most confusing times in the ’60s as a young man; here’s America, they’re burning down the streets of Chicago. The Chicago police and fire department are risking their lives trying to put out fires for Americans and they’re shooting the fire trucks. In those riots, which were just incredible, we were out front using teargas to calm the riots. That was kind of the full circle of the Agent Orange experience. I mixed it and we still have stuff that’s classified from way back then. But I came back and went back into the cable TV industry. At this time, I was still working for DeKalb Vogel and I got an opportunity to go with Anaconda Electronics when they were just forming — the old Anaconda Wire and Cable Group — so I accepted the job. I still had a year to go in college, but I could be a travel salesman and also take classes. So I did that and worked for Anaconda for a year and a half. I never will forget, it took me seven years to get out of college between the army and everything else, but going into sales for Anaconda I got to meet all of the emerging MSO young entrepreneurs. I mean, you go back — Bob Brooks was my mentor. Bob had started Anaconda Electronics and he was there and Burt Harris and all of those. By doing that I got an opportunity to come back into the operational side. So I’ve been on both sides of the industry, in sales and support services. But I got very close to the Continental Telephone people and they offered me a job as an assistant vice-president of operations for Continental Transmission, which at the time was about the third or fourth largest MSO in the United States, located in St. Louis. I had an opportunity to go to St. Louis; got that job — I’d been married by now and brought my wife — this was 1968. I took my wife to St. Louis and I was vice-president of Continental Transmission. All of your old friends. That’s where I first met Bob Brooks and that whole group that were in the St. Louis cable club. I was there for a year and a half.
KELLER: Bob had already left SKL by that time, right?
DRENDEL: Right, he’d left SKL, and he was doing his own kind of startups and stuff and Brooks Telecomm. Remember he had his own business, and we went on to become very good friends and that, as you remember Jim, was when you were beginning your career, you’d been there quite a while, doing the ATC… all the franchising had started. At the same time, that’s when the telephone companies were forced to have to divest their properties. You had some experience with United, right?
KELLER: United Telephone, yes.
DRENDEL: Same thing happened with them.
KELLER: I was director of operations for them.
DRENDEL: Okay, well you and I both got caught in being sold because we did a good job.
DRENDEL: What happened, for the audience and history, is at the time Jim and I were working, the phone companies could own, in their same town, the cable system. The government, in its great wisdom, decided that that wasn’t a good idea and they actually forced the telephone companies to divest of any co-located properties.
KELLER: It was one of the industry’s first big victories.
DRENDEL: Bad for us, but great for them.
KELLER: For the industry, yes.
DRENDEL: For the industry it was a great victory. For Jim and me, it was kind of a career crunching point of view. I was running this MSO at the time. I think you guys were a little bit bigger but we were like 130,000 or 140,000 subs. You were probably about the same size.
KELLER: I didn’t join ATC until ’71. They didn’t form ATC until ’68, but United Transmission wasn’t that big.
DRENDEL: Anyway, it was fortunate, I’d moved up to vice-president and chief operating officer for this MSO and so Continental Telephone, which was a huge independent telephone company back then, said, “Look, Frank, we can’t keep these properties.” I said, “Well, can I buy them?” Charles Wolstetter was the chairman of Continental Telephone at the time and he said, “Sure, you make us a reasonable deal, we’ll run it through and you can have it.”
KELLER: How did you figure you were going to finance it?
DRENDEL: Well, I was so young; if you get a deal you can probably find the financing. I knew enough of the industry guys, I thought, well, maybe Burt Harris would help me and he had Irvin Harris, who was with the banks. I knew that you could probably do the deal, either joint ventured with… I talked to Gene Schneider about being a joint venture partner, and Monty Rifkin I talked to about being a joint venture partner. So I had the thing reasonably purchased at about a thousand dollars a sub. As I recall, it was $1,400, just sub thousand-dollar range, in the good old days, 800-1,000 depending on the mix. We got a call from Steve Ross, God bless his soul, who at the time was chairman of National Kinney, which had just bought Warner Brothers. But he got his start, if you recall, from the funeral service. He had a funeral service in New York. Steve Ross was one of these flamboyant, just incredible businessmen. He calls me up, this was ’68 and I was born in ’45, so that means I was in my mid-20s, and I go up. I’d been to New York, but I’d never been to New York like really wealthy New Yorkers go to New York. So I go in and I get this address and it was on Park Avenue somewhere, I’ll never forget that, and I go up and this penthouse is like three stories at the top of this building. It’s just an incredible place in New York and I said to myself, “God, how does anybody live like this?” And you have this situation where here comes this brilliant, striking, tall, lean executive and we’re having lunch in his apartment. As long as I live I’ll never forget; I sit down, I’m nervous, I know he wants to talk about buying the properties that I just have on my list and all of the sudden we sit down to lunch and he’s got these cups, crystal glasses, and they’ve got the silk napkins standing in them. He pulls the napkin out, shakes out the napkin, takes a felt pen out of his pocket, and starts writing on the napkin! I thought, “Whoa, what’s going on here?” He writes down — Charles Wolstetter at the time was chairman of Continental Telephone — and it says “Charles” at the top. He says, “This is my offer for the Continental properties.” Now, bear in mind, I had them bought for 14 million, so he writes 22 million, or 21, I can’t remember exactly — it was something in that range — and he hands it to me and I look at it. I had just lost, in paper at least…
KELLER: He’d just picked your pocket.
DRENDEL: He’d just picked my pocket of 7 million dollars. So I had this face, this look, like God! Now, my daddy taught me, way back when, the only way you survive in business is to always tell the truth. If you can’t tell the truth, don’t go there. And you always do what, he said, were the three “P’s”: never promise what you can’t deliver, never panic because it’s going to change, and never piss anybody off. So I’m sitting in there and I say, “Well, Mr. Wolstetter, that’s not what we expected.” Well, obviously it was more than we expected, but I didn’t lie.
KELLER: You mean Mr. Ross.
DRENDEL: Mr. Ross, right. “Mr. Ross, that’s not what we expected.” This story is critical because it was the pinnacle of telling the truth, losing a deal and getting a deal. He immediately said, “Well, tell Charles I can probably do a little better.” So here I was not trying to lie and the deal improves. I went back, met with Charles and Jim Napier, who later became my all-time best friend and mentor for years and years. Jim was president and Charles was the head of Continental. They said, “Frank, if you meet the price and beat it by a buck, we’ll keep our word and sell it to you.” I said, “There’s no way I can do that, guys. I appreciate it, but there’s no way you can finance that price.” That was the highest price ever paid in the industry until that time.
KELLER: So it had to be 1,500 a sub, right?
DRENDEL: Yes, something like that. It was huge at the time, as you recall.
KELLER: Do you remember what a multiple of cash flow it was at that time?
DRENDEL: It was big. I really don’t remember, but it was… If you think back at what the revenue base was, it had to be in the 15+ types, so it was big. But he saw a vision. You’ve got to give it to Steve Ross. He saw a vision of movies somehow getting into cable. You and I didn’t see that back then, but he did. So anyway, they bought it and here I was, I’d just sold my business and I thought, “Well, that’s great.” I had a job in the telephone industry and I didn’t want to be in the telephone industry. But Napier and Wolstetter said, “You’ve always got a career here with us in the telephones.” So I thought, “Well, gee, this is great.” And then, all of the sudden, I got a call from Burt Harris and Burt said, “Frank, we’ve been following your career and Jerry Green and I would like to have you come out.” God bless his soul, Jerry was a great guy.
KELLER: Yes, he was.
DRENDEL: “We’d love to have you come out and talk to us about coming to work for Cypress.” So I thought, well, this is 1968…
KELLER: Cypress was one of the major multiple system operators at that time.
DRENDEL: That was one of the major ones. Located in Los Angeles, it was Burt Harris, Irving Harris, Marc Nathanson — all still great. Jerry Green, bless his soul; John Cavetti, bless his soul. Both of them have passed away. But just a solid bunch of young, entrepreneurial runners and we went out there and we made a deal. So I packed my wife up and we moved to Los Angeles. Now, you know, I’d been from country boy on a farm, 30 miles north of Champaign — you and I met there and competed on that franchise back in the same period of the Cypress days coming up — and gone to St. Louis, which was big enough. Now my wife and I are living on Mulholland Drive in Los Angeles. So we’re going through this cultural shock of being the country people. Business is great, we’re building the company, and that’s when I first met Jim, the incredible interviewer here and a long-time friend and great businessman. Jim was a competitor, quote unquote, for ATC and doing the Champaign-Urbana franchise.
KELLER: That’s correct.
DRENDEL: Now, I was born 30 miles north of Champaign-Urbana, so I knew the Illinois culture, the farm culture. They thought I’d be a great representation of going down there for Cypress and trying to get that franchise. It was Marc Nathanson, who went on to build a huge cable operation. I went to Champaign and here are the ATC guys backed by this man and all the work he did on his promotional material. And I think there was a local group, as I recall.
KELLER: We had a very good local group.
DRENDEL: Both of us did, but there was a local, local independent group. It was the TV station at the time, wasn’t it?
KELLER: That’s right, Augie Myer’s, I think.
DRENDEL: Augie Myer, that’s right. So it was the three, basically.
KELLER: No, GE was also there.
DRENDEL: GE was in there. And Jim got up and it was the first time I’d ever seen a presentation. It was the best presentation I ever saw and Marc Nathanson and I sat in that room and said, “We’re in trouble.” That was so good. I remember Jim was taking these things on the desk and moving them around and saying how things would be like this and that and we said, “Whoever’s putting this together has the depth and intellect to sell a university town.” What we had made the mistake on; we hadn’t played to the power of the university. We had played to the power of the farmer and the banks. Our local club, and you always had local partners, were basically the old line Champaign money people. They were involved politically but they didn’t have the university float and, as it will be said to Jim’s credit, they beat us, they won the franchise.
KELLER: Go ahead and let’s talk about the use of local people to acquire franchises.
DRENDEL: As Jim knows, and I know, in the early days, cable TV was a totally local business and the only way you could ever get a franchise was to come to a community and bring in a partnership of very sophisticated and very powerful people along with your money and your technology to get the franchise, because you had to have a city vote. This was not a federal license, it was nothing like that. In the early days, part of winning these franchises was understanding the community — understanding the locals — because you had plenty of people who said, this guy can get it and this guy can get it. The truth of the matter, only one guy was going to do it but you never knew who it was and generally speaking in those days, you would end up with 3-4 competing, maybe sometimes as high as 5 or 6. In the later years, it even got higher than that and then you had to start – the cities got very smart — you had to start promising the cities a bunch of stuff. Back then it wasn’t too bad — a city channel, a community channel. And Jim and his team — and he helped build ATC into one of the greatest and biggest ones ever — were very, very, very beneficial in doing that for them and that lesson I learned from you carried me through on the Hickory franchise.
KELLER: The tabloid press and some of the broadcasting magazines used to refer to that as “rent a citizen.”
DRENDEL: “Rent a citizen,” and it was. It’s true; it was “rent a citizen.” The fact of the matter, watching you, Jim, helped me to get the Hickory franchise. I ended up getting this franchise when I moved here. So, after the Cypress franchising period — I was at Cypress and we’d gotten a few big franchises, but nothing the way you guys were going — all of the sudden, I remember, I had sold the company that I’d lost buying to Steve Ross, then I had to go find a new career. We get this emergency meeting; Burt Harris wants us all in the building. So we all go in there; big news. I’m sitting there at the conference room table and Burt comes in and he says, “Gentlemen, we have sold the company to Steve Ross.” I thought, “Boy!”
KELLER: How many times is this guy going to be in my pocket, huh?
DRENDEL: But this time, at least, I had enough stock options that I thought I’d have a little bit of money. So we were all excited. Everybody made enough money that you could almost retire back then and it wasn’t anything like the mega-bucks now, but in those days if you had half a million dollars or a million dollars, it was a lot of money. And so we all had stock options and Steve Ross was trading National Kinney stock (now Time Warner stock) for the Cypress stock. Our stock options had maybe a twenty dollar spread, something like that, so we were all excited and I went home and told my wife I could be a consultant and do things – she was working – and she said, “I’d better keep working. You don’t have that in the bank yet.” This was my first really solid business lesson that I tell my son and I tell all the new employees that we have — never ever count stock options until they’re converted into cash. Here I was unemployed, had these stock options, but you had to borrow money to exercise the options.
KELLER: You have to have the collateral to be able to…
DRENDEL: Exactly. So I go down to the Wilshire Bank Group — I never will forget it, these high loan guys, and the Security Pacific Bank — I go in and of course, National Kinney, it’s Warner Bros., it’s the premier operation on Wilshire Boulevard, in that part of Los Angeles. I put up my stock option; I borrow the money to exercise them. Unfortunately, the deal was that the stock was lettered, as you recall, so we had to wait 90 days before we could sell it, but what could happen to Warner stock in 90 days? Well, about 30 days into the 90 days, I’m sitting at home, I get the LA Times, I open it up and the front headline is “Warner Indicted on Fixing Record Business.” I thought, “Huh?” In this thing, the stock cratered. It said that Warner Bros. had been indicted because they were paying off disc jockeys to promote the records. Well, the stock went right through the option price. Not only did I not have any money, I owed the bank money I didn’t have. So I thought, “Whoa, now I’m in trouble.” So I go home and my wife now has really laid into me. She said, “How could you have done that?” I said, “Well, honey, I don’t know. It looked like it was going to work.” So here we’re deeply in debt, I don’t have a job, I’m in Los Angeles and, you well know, it’s expensive living in Los Angeles. My wife’s income won’t keep it up. Then — in life there’s always that truth and faith, if you believe in an industry and everything — I get an unexpected call from Jim Napier, the president of Continental, who said, “Frank, look, you did us a great deal on getting us all that money for the cable properties and I understand you’re not doing anything now.” He didn’t know about my personal financial trauma, but he said, “We’ve got this operation in Hickory, North Carolina we don’t know what to do with.” He said, “We’ve got this piece of business that’s in the cable TV industry and we’ve got this big operation called Superior Wire and Cable that we would like somebody to take a look at. We thought we’d like you to come to St. Louis and see if you’d like to go there and be a consultant for us.”
KELLER: Were they buying Superior Cable for…
DRENDEL: They owned it.
KELLER: They owned it, but were they buying their cable to build their cable systems?
DRENDEL: Yes. At the time they wanted to be a little Western Electric; this was in 1972. I thought, “Well, I’m unemployed. I haven’t got any money.” My wife now, we really like Los Angeles and she says, “You mean to tell me we’re going to pull up from Wilshire Boulevard and drive to Hickory, North Carolina?”
KELLER: Where’s Hickory? (Laughter)
DRENDEL: Where’s Hickory? She said, “I can’t believe we’re going to do this.” She does some research, way before the Internet time, so she writes, etc… Well, they don’t even serve liquor in this town. In the old days — you traveled down there — you used to have to go down, buy the bottle, put it in a brown bag, take it to the restaurant, buy a coke for $4 and pour the booze into the coke. Now, this was supposed to keep people from getting drunk!
KELLER: Once they pulled the cork, they drank it all.
DRENDEL: That’s right! It didn’t make any sense to us people from Los Angeles, so that was our first kind of experience at it. We agreed because it’s all we had, this was all we had. So we came here…
KELLER: Reduced the cost of living, too.
DRENDEL: Absolutely, it went way down. We came here and you could buy the town for what a house cost in Los Angeles. The cost of living was incredibly low. We pulled up stakes and moved here and Hickory was in a boom. You couldn’t find a house to buy, so we actually lived in a double wide trailer for about six months while we built a house. We started reviewing the Superior Cable opportunity. Superior Cable was a $150 million business; it had divisions in electronics and twisted pair and outdoor enclosures and early, early, early exposure to fiber optics. I mean, we’re talking ’70s. And so we started working on selling the different pieces and we sold the electronics group…
KELLER: You were working for the overall company?
DRENDEL: Overall, overall, overall. But I was kind of keeping an eye on a little piece of CommScope because that was cable TV and I knew everybody, but CommScope was the smallest division in Superior Cable, maybe 10 million in sales. We were looking at all of these things and we came together with an idea to start an individual liquidation of each business. We presented that to the Superior board and then the Continental Telephone board. The first one we sold was the electronics business to TRW – three times for what we thought we’d get for it! So, we’re off the charts! The second one was the enclosure business called CAK and we sold that to Reliable and some other people, which actually ended up being part of Siemens and Corning. And then, the twisted pair group, which was the biggest group, was bought in an LBO by the management, one of the first LBO’s ever done. So, at the end of the day, the only thing left was CommScope. We had completed all of our operations and CommScope was there and no one had bought it. Nobody in the telephone industry liked the cable industry so…
KELLER: Well, they couldn’t. They virtually couldn’t because they wanted to be in their own markets.
DRENDEL: Absolutely! Wanted to be in their own markets. So you had six months of hard work to close all these deals, but CommScope was out there on the edge. I thought if nobody wants to buy it, what I would like to do is see if I could buy it. Again, I didn’t have any money. I was a working stiff at this point. I’d lost all my money in the Time Warner deal. By now it’s ’74 so it had taken us 2 ½ years to do all of this liquidation — late ’74, early ’75. We were closing all these deals and the cable industry was really struggling, if you recall.
KELLER: Oh, yeah! We couldn’t bring any signals in anywhere, non-duplication, everything.
DRENDEL: Before this interview, I was trying to think about the things that were going wrong in the ’70s for cable. You had all the lawsuits going on on pole attachments, wouldn’t let us hook onto the poles; we had non-dup, distant signal…
KELLER: We couldn’t begin to build the top 100 markets.
DRENDEL: Couldn’t build the top 100 markets. What else was wrong; this was ’75? It was so bad that you’d have to be an idiot…
KELLER: To get into the business. No question about it.
DRENDEL: To get into the business. This was 1975 and anybody with an ounce of intelligence would say this is a bad industry. You wouldn’t want to be in it. The opportunity came up, so we were in the process of looking at what would you do with this situation. It was so bad at the time we considered selling those assets and liquidating the business because the powers that be at Continental Telephone said, “There is no chance that cable TV will survive.” And at that point, we looked at selling the whole process and going on into an environment that would say, we got everything done at a great profit, let’s just liquidate it and sell the machinery, sell the patents, just get out of the business because it’s losing money. CommScope was doing 10 million dollars a year and was probably losing half a million dollars.
KELLER: And no one was building.
DRENDEL: And no one was building. So that was kind of the beginning of the end, or the end of the beginning, for my new career, that was happening at that time.
KELLER: Frank, on the second tape let’s pick it up with how you got CommScope.
BREAK IN VIDEO
KELLER: Frank, we were starting just about the time that you were in the process of buying CommScope from Superior Cable and the Continental Telephone Company.
DRENDEL: Now I’m in Hickory, North Carolina. We have done this fabulous job of liquidating all the assets except this little product line. CommScope was not even a company, it was a product line. I guess it had an incorporation around the edges, but it was about a 10 million dollar business and it was losing half a million dollars a year. But it was the same owners that I got the two deals for on cable TV — when I’d sold those cable properties I’d lost at, those were the same two owners.
KELLER: Pretty much of a hero back there, weren’t you?
DRENDEL: Yeah, at least I was respected as having gotten this money. So I thought, why not buy this thing?
KELLER: But, why, though? As you said, you would be crazy to get into the business at that time. Nothing was being built, you couldn’t sell cable, Times had virtually a lock on the market.
DRENDEL: I guess I was so young and so believed that you couldn’t keep cable down. I loved cable so much — I’d never gotten out of cable TV. Even when I was doing this consulting I kind of ran CommScope for them. I believed in the people. The people in this industry are what made it. You had to bet on the integrity, the ethics, the Bill Daniels, the people that you started with, and the people you compete with. You and I were laughing about the fact, it’s the only industry in the world that you can compete all week and then you go to a show and everybody’s drinking together.
KELLER: Or even, you meet them after…
DRENDEL: Sure. And the industry had these people and I also, to be honest with you, thought that it was probably the only thing I could ever buy that was a reasonable buy because nobody else would want it. But I didn’t have any money, so I had to go through this process of going to my partner, Jearld Leonhardt, who helped me start, and is still with me — Jearld’s my chief financial officer. He said, “Frank, you’re crazy. Even if we buy it, how are we going to pay for payroll?” I said, “We’ll worry about payroll when we get the company.” So, we went around and we said…
KELLER: How many employees did it have at the time?
DRENDEL: It had 123 employees.
KELLER: How many do you have now?
DRENDEL: 3,000 plus. So it had 123 employees and we went around and said, “Look, it’ll cost 5 million dollars to buy this company. We probably could borrow 4 million on the assets,” so we needed 1 million dollars worth of equity. I ginned up my personal balance sheet and lied about how much money I had so I could borrow $25,000 to put into the deal. He did the same thing and we went around to the local Hickory guys…
KELLER: I was wondering, because you were a major industry here at that time.
DRENDEL: Right, a major industry. We went down to the local Hickory guys. Now, I have to stop here for a moment and back up to the second thing that happened to me when I came to Hickory. So freeze this, it’s 1975. In ’72 I came here and I went to the local country club and this was the South. These guys all looked like they had just walked out of… They all had silver gray hair, they had…
KELLER: Right off the plantation?
DRENDEL: Right off the plantation. They owned the town. It was the textile guys, it was the furniture guys. You had to be invited to join this club and I’m this thing from Los Angeles that didn’t speak Southern, didn’t have any of those Southern roots. I walked up to the bar and this very distinguished black gentleman was the bartender. Elijah was his name, I’ll never forget it, and he had been there forever. I said, “Elijah, I can not believe it. I can’t believe a town as progressive as Hickory doesn’t have cable TV.” Elijah said, “Well, sir, you see that man standing down there at the end of the bar? He can get the cable TV, he can get anything done in this town.” So, typical salesman, I walked up, introduced myself to him and I said, “My name’s Frank DRENDEL:.” He said, “My name’s George Hutton.” I said, “George, I understand that you can get cable TV.” He said, “I can have that franchise by the end of the month. You just show me somebody that’s got the money to build it.” Obviously, cable had been proposed in this town, but nobody had been prepared to finance it. The local party group was strong here, like you’ve never seen. I said, “Well, I think I can get the money.” He said, “Oh, really? You think you can get the money.” So we sat there and bent elbows for two or three hours and he said, “How do you think you can get the money?” I said, “Well, I have some friends in Chicago.” He said, “I’ll tell you what. I’ll meet you at the Hickory airport tomorrow at 8:00 and we’ll fly to Chicago.” He had his own airplane. It was the first time I’d ever seen a corporate airplane. I thought, “Oops.” So I got home, called Burt Harris, and said, “Burt, I’ve got these guys that think they can get the Hickory franchise. I think it’s a great franchise because it’s far enough from Charlotte that you don’t get cable and it’s got the mountains.” But the density in those days, the homes per mile, was a little on the narrow end. So I thought, this guy’s never going to show up at 8:00 and fly me to Chicago. He’s not going to believe some wimpy kid like this. By God, there he was, standing at this little airport here in Hickory, behind a little fence. He had his plane parked on a ramp and he was the pilot. It was a twin engine Cessna. So we flew to Chicago and walked into the Harris Bank. There’s Burt Harris and Irving Harris — I don’t know if it was the Harris Bank, but I guess I called it the Harris Bank — and we sat down and shook hands right there. We cut a deal that they would give us 15 or 20% of the carried interest of the deal, we would get the franchise, and they’d give us $10,000, which was a huge amount of money back then, a retainer for each individual to support us. And we said, “But we need a world class consultant to help us on this deal.” So we got Bob Brooks and gave Bob some of the equity. He came in, put this deal together, and then all of the sudden, the guys down here in Winston-Salem woke up that the franchise was coming, so they ran over and tried to put the franchise together.
KELLER: Would that be the television station?
DRENDEL: That was the television station. So we came and we had the local lawyer — the right lawyer, the right businessmen, George Hutton and all these guys — and we got to the city council meeting the night they were supposed to vote on the franchise, and we brought Burt Harris in. It was the first time Burt had ever been to Hickory, I think, and he probably only came once or twice after that.
KELLER: He’s such a great gentleman. His presence just engulfs the whole room.
DRENDEL: His presence was everything, but it’s one of the times that Burt was even smoked, and I look forward to Burt watching this because he’ll remember it distinctly. Everybody was sitting there in the front rows, and the room was packed with our group and their group. You remember the story; you brought in everybody so that the councilmen had to look out and see who was on your side. Burt got up and started to make the presentation why we should win it. The mayor said, “Well, Mr. Harris, we appreciate this, but I don’t think you understand what just happened. We just voted and you won.” And he was, “Huh? How did I miss that?” Burt said, “Well, thank you. I was just here to answer any questions you had.” So we had a celebration that night.
KELLER: You and the local people had the carried interest. How many local people did you have?
DRENDEL: I think there were five or six.
KELLER: But they didn’t put any money into it.
DRENDEL: No, none of us had to put any money into it. That was kind of the equity I used on my balance sheet to get the CommScope loan, so it wasn’t completely wrong.
KELLER: How many subscribers does Hickory have now?
DRENDEL: Let’s see. 50,000? 45,000-50,000.
KELLER: I would think that would be pretty close. Who owns it now?
DRENDEL: Now it’s Paul Allen — Charter. So anyway, we had the franchise, we had the money and we were building it with CommScope cables, obviously. It’s going along, the system’s doing well and everybody’s happy. So I decided I’d go to this local group that I got the cable franchise for to help me finance CommScope. Now I had a local group who understood cable TV and I owned a teeny piece of the franchise, with Burt. Burt owned 80% of it and I had this group that said, “Well, the kid’s done us all right here. Let’s see if we can back him.” I took the same guys that were in the franchise with me and said, “Look, I’ve got to raise a million bucks.” Now the last time they got it for free, so you kind of got this Southern look — “Say what? How much?” A million dollars in 1975 was a lot of money. I think people forget how much — and a million dollars is still a lot of money — I think people forget how much a million dollars was. But, a long story short, George Hutton, the guy I had met at the bar and gotten the cable franchise with and split the equity — we both had the largest piece of carried interest in the franchise — said, “I’ll put up a $150,000.” They call them now “angel investors”, the halo effect. He put up a $150,000 and the rest of the money came in. So we got the equity.
KELLER: Did the local banks get in too?
DRENDEL: Yep, local banks. We did a financing right up here in North Wilkesboro, Great Northwestern Bank — turned down by the big boys. First Union flat turned us down, NCNB, but it had to be one of those moonshine banks up there across the…
KELLER: Burt didn’t want it?
DRENDEL: No, no. He would have been an equity partner with me, but his point was that the operation guys had to be separate from manufacturing and I do believe that.
KELLER: I agree, too.
DRENDEL: Because everybody would think he was getting a better deal. So, we got the money, went down, made the offer to Continental and the same thing happened again. Somebody came in and overbid me on CommScope. I don’t know if it was…
KELLER: It wasn’t Steve Ross again this time? (Laughter)
DRENDEL: No, fortunately it wasn’t Steve Ross, but the guys that bought Superior Cable thought they’d be better off liquidating that plant and using it for twisted pair, just get out of the coax business. So they’d made not a substantially greater offer — a $600,000 better offer.
KELLER: They wanted the physical plant.
DRENDEL: The plant. They didn’t give a damn about the product line; they just wanted the plant. I thought, “Oh, that’s it. I can’t raise any more money. I’m at the absolute limit, I don’t think the pro forma make any sense at that level.” So I was down there with Charles and Jim and I said, “Look, you’ve got to take the best deal. You’re a public company, you’ve got to do it for your shareholders.” Jim and Charles looked at me and said, “Look, Frank, you’ve made us a lot of money; we’ll give you a note for 600,000 and a dollar. We’ll let you buy this business because you’ve always been straight with us.” They carried me on the note so I could bid over the other guys and the other guys quit because they figured, why fight the guy that’s carrying their note. There was more to it. It was like, well, this is dumb. So anyway, we got the company. We had a great celebration and then we woke up August 16, 1976…
KELLER: So now you’re in very strong with the local people.
DRENDEL: Oh yeah, I got their money and we’re this teeny little company in Hickory. The biggest employer in Hickory at the time was General Electric. Unfortunately, they were making transformers, power transformers with PCBs and stuff, but they were the town at that time and the rest of the town was furniture and textiles and cottage type industries, but very powerful families. You had a couple of the Shufords and Boyd Lee George and the MDI people, who were all now involved directly or indirectly with CommScope. And so we got to…
KELLER: Were those part of your investors also?
DRENDEL: Oh, yeah.
KELLER: So you had the country club set.
DRENDEL: I had the country club set and the doctor set, and they called every day to find out how we were doing.
KELLER: I’m surprised that their financial advisors would have let the doctors in at that point, or didn’t they have any?
DRENDEL: Lucky, just lucky. Either they figured they got enough in carried interest in the cable deal they’d cover their loss on the other deal. It would never have come together if it hadn’t been for that. And so, now you have our first month. We knew when we bought the company that we couldn’t carry payroll. We were fighting a company, Times Wire and Cable, now called Times Fiber — who you know well — who owned the industry at the time. At the time there was Vikoa, and all the Beldens, who are still in the business.
KELLER: Times had to have 70-80% of it at that time.
DRENDEL: Oh, absolutely. And there were 15 other people making this product, so we needed an “angel” customer. We needed a God-sent customer. We figured the South sticks with the South, so we went down to Atlanta and Cox Communications gave us virtually 90% of their business.
KELLER: You also had a good product.
DRENDEL: We did have a good product, we really did, and the company was a good product and that got us going. So we made the first payroll; we made the second payroll, but the third payroll was a little shaky. Jearld and I had to borrow some money on our personal Master Charges, I think it was, or somehow we had to come up with some money to make payroll. Jim, in all your years, you know, it’s that payroll momentum. I never worried about being a powerful businessman or being wealthy; I always worried about meeting payroll. Business is so simple when you get it down to the basics: tell the truth, meet payroll, take care of your employees, take care of your customers, and you’ll get it. But Jearld and I did something that was very unusual for its time.
DRENDEL: Jearld Leonhardt, not the Jerrold Electronics, but Jearld Leonhardt. We decided to give all our employees stock in the company. It’s not an uncommon practice now, but it was very uncommon back then. I mean, down to the plant employees, because we figured if you gave people equity in the company, they wouldn’t steal from you, or they wouldn’t steal as much. So we gave people equity in the company.
KELLER: What did they steal? Walk off with a roll of cable?
DRENDEL: Well, yeah. Interestingly enough, though, it was the raw materials much more than the finished product. Finished coax can only go to a coax guy, but copper! You carry 20 pounds a day out in those days — you could put it in your pocket — and it’s 20 bucks. It was a dollar a pound and some of the materials we used were even more exotic. Not that that was going on, but you just figure, make them owners and then all the owners watch each other. That was 1976. We’d gone from barely making payroll — losing a half million dollars in ’75 — to 13 million in sales, and making a million dollars. Well, our investors loved us.
KELLER: Rightly so.
DRENDEL: And the banks loved us.
KELLER: And that was after you’d paid off the note or after you’d paid the interest into the equity?
DRENDEL: Good point. We’d paid all of the high leverage, we were factoring our receivables, we were factoring our inventory, but we hadn’t paid off the Continental note. We had enough cash and I said, “If we don’t pay that note off the moment we have enough cash, we’re making a mistake.” So we went down to Atlanta, paid the note off early, and Charles and Jim Napier took us out to lunch. They said, “We honestly never thought you guys would get this thing to work. We’re proud of you.” By then the cable industry was just starting to come out of it. The hardest thing I worked on in my whole career was in 1978 to save the cable industry. I’d grown up in the telecommunications business and I was vice-chairman with Bud — Amos now — Hostetter on the pole attachment committee.
KELLER: I’m glad you remember that. It was Bud then.
DRENDEL: It was Bud then, but it’s Amos now.
KELLER: Before he had millions, or billions.
DRENDEL: Billions. Amos and I and Bob Brooks and Harold Farrow, from out in California, were on the pole attachment committee of the NCTA board. I believe that was my first year of being elected to the California board — CCTA board — but we got that pole attachment deal.
KELLER: I remember very well.
DRENDEL: I’ve got in my home a wooden pole, cut in a three-inch section, hanging in my room with a little plaque of the first legislation the cable industry ever got — the pole attachment bill. That broke the cable industry open.
KELLER: It really did.
DRENDEL: That allowed the cable industry to start growing, and by being on that committee and on those two boards, and everybody getting a chance to see my understanding of the telephone industry — the big bad telephone industry — because I’d grown up there, they all respected the fact that CommScope couldn’t afford to do what it did. But we put so much time and effort in it, my business started improving. You always accuse me of this, but I decided the best role I could play as CEO was to be the best salesman for the company.
KELLER: I never accused you of that, I complimented you of it.
DRENDEL: Well, thank you. So, I decided the best thing I could do for CommScope was to help grow the company by being its chief salesman. In 1978 — late ’78, early ’79 — we were growing so fast, because we were taking market share from all our competitors, we were running out of money. We didn’t have enough working capital; we didn’t have enough bank lines to keep up with growth, and the competitors would have gotten on their sticks and caught us. We decided we needed to get more capital and looked at going public — we were private — and we said, “That won’t work because nobody will pay us a multiplier times our earnings in sales.” We bought a public company called Valtech, the very early leading company in fiber optics. So we got into fiber optics in 1978, way ahead of the fiber optic revolution. It was so successful that we were able, literally, to sell stock and increase our earnings by putting the money in the bank, and the interest from the bank was earning so much the stock increased. It was one of those… about like it is now.
KELLER: Did you have the technical people in the plant who were able to – oh, you bought Valtech…
DRENDEL: Right, we bought Valtech up in Massachusetts, so it was kind of that high-tech Massachusetts spin on it. Valtech had some really leading technology, especially in optics, in the sense of the lasers. We owned a company called Laserdial Labs underneath that. So from 1978 ’til 1980, we did two stock offerings, had enough money to grow the company, and the company went from 14 million to 32 million in sales.
KELLER: Yes, but right now you’re also paying 20% interest during that time too.
DRENDEL: Oh, absolutely, and if we hadn’t had the equity and hadn’t had no bank debt, we’d be dead because the interest was 20%. Now that was slowing down the cable industry because capital costs — interest rates — were very high. But the competitors other than Time — there were 15 competitors when we started — were flailing. They were dropping out. It was just Time and us, because I was taking all the business they had. Time wasn’t giving up much and the industry was also growing. So we were not growing up against their market share, we were taking the other 15 competitors out.
KELLER: The major companies in the early ’80s, let’s go through those. TCI was just starting to get moving.
DRENDEL: Just starting.
KELLER: I want to go from there on. It was ATC…
DRENDEL: ATC, TCI, Cypress was Time Warner and there was that whole Warner grouping.
KELLER: In the ’80s, ATC had already sold to Time.
KELLER: That was in ’77.
DRENDEL: Cox was still independent.
KELLER: Cox was still in big.
DRENDEL: You had — not Cypress, that was ours — but what was the one Jack Crosby and those guys all had?
KELLER: Oh, well, that’s Gene Schneider’s group, United, by that time.
DRENDEL: Gene Schneider, right. That was United, that was big, and then of course you had all kinds of independents.
KELLER: At that time, though, was Time still selling all of its stuff to Jerrold and Jerrold in turn turnkeying for TCI?
KELLER: And so you weren’t getting much TCI stuff.
DRENDEL: We didn’t have any of TCI because Jerrold was financing it and turnkeying it, and we didn’t have much of Gene Schneider’s business because of the same Jerrold relationship. The next thing that happened was that the fiber optics business took off and we were doing a lot of business in fiber optics and growing that particular area. As fate would have it, here comes along the company that wants to buy us. Now, this is 1980, so we’ve owned the company from ’76 to 1980 and they’re willing to pay us — bear in mind, we bought this thing for 10 million – 250 million dollars for the company. That’ll take your breath away.
KELLER: Yes, it will.
DRENDEL: That’ll make you stand up and say, hmm, we’d better consider this.
KELLER: Your board is still mainly the local guys?
DRENDEL: Right, the local guys.
KELLER: Were they also the board of Valtech?
DRENDEL: Yes, because we’d taken over Valtech. Now, you’ve got to remember the company was three times our size. We were probably 60-70 million and they had brilliant technologists. The company was called Maycom and it had Irving Jacobs, who started Qualcom and was on their board and everything. We agreed to do that on one condition. We didn’t want to sell out because of taxes, so we had the option of taking stock for our stock. People always tease me that I’ve bought and sold this company eight times, or whatever it is, but that’s not quite correct. It is correct in the sense that it’s changed hands, but I never quite ever got out of the equity piece. I always stayed in the equity.
KELLER: Well, you haven’t done any more than Jack Crosby did or Lieberman did or any of these guys.
DRENDEL: Lieberman… any of those guys.
KELLER: Gene Schneider himself. How many times did they resell their company?
DRENDEL: That 250 million included – they were doing two acquisitions. They were doing Linkabit, which was Irving Jacobs’ Qualcom, so putting all four of those together we had a wonderful hit. We kept the stock and then it became Maycom.
KELLER: So you must have gotten along with the Maycom people.
DRENDEL: Oh yeah, we did real well. Of course, at the time Larry Gould — Dr. Gould — was chairman, so we kept building CommScope and then they took the fiber optic piece out of CommScope and put it into the DCCP, so CommScope came back down now to just a pure coax cable company. But that’s when scrambling was about to start, and everybody was running around trying to get the scrambling contract. Irving Jacobs headed the military encryption business. We had so much top-secret stuff at Linkabit because we did all the space encryption — talking satellites and dumping cans of pictures down so you could tape bombsites and everything. It was incredible, the stuff we had. We were able to clearly move their encryption piece in. We bid and we won the encryption piece and that became the digital part of cable TV and Maycom. That’s why GI was worth 17 billion dollars to Motorola — digital TV came out of Linkabit, came out of scrambling video cipher. GI bought CommScope and the video cipher division for 250 million, just for those two, so the Linkabit piece stayed. Now that piece had grown to be worth 250 million, and I went to General Instrument. That was kind of the GI period. GI took that video compression technology and created the scrambling and the video compression. That’s the first time we broke open with Malone. Malone was so impressed with the capacity of video compression and scrambling that he started backing GI heavily to build the compression engine to save the absolution of cable.
KELLER: But he was going home again though, too, to GI, because he had been president of Jerrold and had that connection.
KELLER: He’s a very loyal guy.
DRENDEL: Yes, just tremendous. That was the first breakthrough for CommScope to get into TCI. We coat-tailed on the back of Jerrold, and John and I became closer and better friends and grew in friendship. Now they’re 90% us. We turned that all around. That’s where we broke with Time. Once we had TCI, our lead went past Time and we were really lucky. Larry DeGeorge was a brilliant competitor but Larry wasn’t willing to bet on expansion. I did, and it was just catching it at the right time. Now we have 65% of the world’s market and they have about 25%, so it really switched.
KELLER: The world’s market, not just the US market — the world market?
DRENDEL: World market, because now we have a plant in Belgium. We bought out everybody in the world that made coax.
KELLER: And you’re not doing fiber at all right now?
DRENDEL: Yeah, we are.
KELLER: You are doing fiber.
DRENDEL: We’ve got a 100 million-dollar business in fiber, so we’re in fiber, local area network, coax. We are the concrete for the superhighway. CommScope’s the simplest decision to make in the Internet because we’re the biggest.
KELLER: Qwest — are you selling to all these people?
DRENDEL: Basically in the last mile. We don’t do the long haul fiber, but if you put a blanket over the last mile of technology, all of the money will be made in the last mile. All the connectivity’s in the last mile; all the revenue comes from the last mile. Without the cash registers, you won’t have the business. We were successful in doing that and of course, then, we got bought again. Now this is 1990. So here we are at GI; GI’s a billion dollars in sales total. It has Jerrold, CommScope, General Semi-Conductor, a whole bunch of business.
KELLER: By this time, the industry is coming out of the ’89-’90 depression that they were in at this point. Let’s pick that up on the next tape.
KELLER: You had just sold the company a third time.
DRENDEL: Right, sold the company a third time, but this time I really sold it and really kept a lot of equity. We were a subsidiary of General Instrument and Ted Forstmann — Forstmann-Little, one of the famous leverage buyout firms — came into a board meeting of ours and said, “Gentlemen, I own 15% of your company.”
DRENDEL: Everybody went, “Oops!” He said, “It’s not negative. I’m just here to help you get shareholder value.”
KELLER: And you weren’t aware of it up until he told you?
DRENDEL: I think we were aware that someone was accumulating stock. I think he had to report the 5% but he kept accumulating. So Frank Hickey and I began extensive negotiations – and Frank’s a great person we should interview because he has all that early history.
KELLER: Frank — who’s that?
DRENDEL: Frank Hickey — he used to be chairman and CEO of General Instrument — we have to add to the list. He has all that early history of financing all these guys. So at the time, Frank and I said, “Look, what he’s offering for this company is so substantially greater than what it’s trading for we should probably go ahead and accept the offer.” And it was a wonderful deal. It was like a billion and a half, two billion dollars, which was an unheard of price for any of these companies in 1990, which nine years later will make that number sound extensively small. But at the time it was a huge number.
KELLER: I want to put this in perspective just a little bit.
KELLER: That time, ’89-’90, was really the second lowest time of the cable television industry. We couldn’t really build anything, the economy was in the dumps again, after the ’80s, and no one knew what to do at that time. Even some of the people that were in limited partnerships weren’t quite aware of what to do, where John Malone and some of the others did. That’s when they decided to buy them, when they were at the lowest edge and you knew right then that it was going to pick up and it was at the bottom.
DRENDEL: That was the low, and you’re absolutely correct. We couldn’t get financing, you had these HLT regulations — highly leveraged transactions — working their way through, banks were afraid and obviously construction was down. People weren’t spending as much on capital, but FL saw that that might be a downturn…
KELLER: FL, again?
DRENDEL: Forstmann-Little. But they didn’t know how bad it was going to be. So, Frank and I looked at it, we saw just like you did, we said, “Things don’t look real rosy for the cable industry in the next few years.” So we sold to Forstmann-Little for a billion and a half dollars. It wasn’t four months later, six months later, halfway through ’90, first part of ’91, where I’m at a board meeting with Ted Forstmann and he says, “Frank, when we bought you guys you had an 80 million dollar backlog, now you have zero.” I said, “Well, the customers cancelled the orders.” He said, “Can they do that?” I said, “This is the cable industry, what do you mean can they do that? Of course they can do that. They did that.” He said, “What are we going to do?” I said, “Well, we’re going to scale this thing back and let people go and get out payroll in line first and get our sales done.” Our sales, throughout GI, were just doing this and it looked like there was no bottom. They had put a modest amount of equity into buying GI and a whole bunch of debt and they had gotten a very famous, very bright businessman, Don Rumsfeld, who was…
KELLER: Secretary of…
DRENDEL: Secretary of Defense, wasn’t it?
KELLER: Defense, yes.
DRENDEL: A very brilliant guy who was our chairman at the time. If it hadn’t been for Don we probably couldn’t have saved the company. We scaled it back but we came very close to defaulting on the notes. Then the cable industry kind of hit bottom and started working its way up.
KELLER: Well, at that time, as you remember, Frank, there was another impending cable act before Congress. The Vice-President, then Senator, Al Gore, got into it after the Tennessee fiasco.
DRENDEL: Oh, yeah. Our buddy.
KELLER: He wanted to re-regulate cable television after we had been de-regulated and everybody was afraid of what that act was going to do. Many people within the industry, John Malone being one of them, recognized at that time that it wasn’t going to be that bad and as it turned out, it wasn’t. But everyone was deathly afraid of it, especially the financial markets.
DRENDEL: The financial markets and the stocks were at an all-time low. Compared to where they’re trading now you could have made a fortune just betting at that period. At the same time, as you recall, there was high definition television and GI was the only one bold enough to propose digital television. Everybody else had fallen into the Japanese trap of analog HDTV and people thought we were crazy. They said, “You cannot take on the Japanese consumer electronics group at teeny little General Instrument, a billion and a half, two billion dollars in sales, taking on Japan Inc., who said, in their collective wisdom, we need all this bandwidth to do HDTV.” Now what Malone and Irwin Jacobs — Dr. Irwin Jacobs — realized was the cable industry would die on HDTV because the bandwidth it required would suck up all the bandwidth. They said, “There has to be a more elegant solution.” We proposed it and we challenged the quality of analog versus digital and lo and behold…
KELLER: “We” being GI?
DRENDEL: GI. GI was the only one to propose digital but we had Don Rumsfeld, who knew his way around Washington — knew his way around the administration — so we got a run-off.
KELLER: This is still the Reagan administration at that time?
DRENDEL: Yes. We got a run-off between analog and digital and basically, what Don Rumsfeld did and what the cable industry did, is we wrapped this beautiful American flag around digital technology and HDTV the American way.
KELLER: Versus the Japanese?
DRENDEL: The Japanese analog, and as you know, that process went on for, I’ll bet, five years.
KELLER: It just ended not too long ago.
DRENDEL: Just recently. And so many different proposals were made, 10/20I and this and this, but lo and behold, it turned out to be digital and multiply formatted digital. So the cable industry were the pioneers of digital but the real pioneer of digital was trying to protect the signals from the HBO thieves. You remember the big C-band dishes that were coming up in the late ’80s and ’90s in everybody’s back yard because you would steal the signal? There were hundreds of channels up there for free. So HBO approached CommScope, and through us, approached GI, in early Maycom days, to produce a scrambling system that would not allow individual subscribers to get it without paying for it. All of that technology, the addressable technology, came out of the combination of GI, Linkabit, Dr. Irwin Jacobs, and my connections in the industry. We created video cipher, which is now the standard for scrambling, and that was the big breakthrough.
KELLER: That’s a new story for me. I hadn’t heard that.
DRENDEL: Yes, we actually invented video cipher and the amazing part was that we could turn off your satellite from 22,000 miles in space and leave your neighbor’s on. When you think about what’s happening, all of that’s being directed – downfed — into the satellite. We created this system; we thought it was bulletproof. We thought there was no way — this was the state of the art, military DES encryption. I mean, the highest state of DES encryption. The hackers had it broken in six months — absolutely destroyed the system. Boxes were coming back, people were screaming about the system being broken, and the greatest folly of that thing was that Dr. Malone knew it would probably be broken. HBO knew it would probably be broken, but it was broken just enough, and having video cipher broken just enough gave the cable industry enough time to build out cable plant before DBS could ever get its legs. Because unless somebody could figure out a secure encryption system, these small dishes weren’t coming. The technology already existed for KU-band to do small dishes. What technology didn’t exist was how to protect it: the cash register. So the folly of C-band being broken was probably the greatest thing that ever happened to the cable industry because the cable industry added 15 million subs in that period before DBS came. So now you’re into the mid-90’s, you’ve got DBS coming, you’ve got C-band up there, you’ve got scrambling, you’ve got HDTV, you’ve got cable getting better regulatory relief, you’ve got this whole process of addressability, you’ve got multi-tiering channels. Cable systems were building out to 750 megahertz, the gigahertz of bandwidth, and the industry is just really starting to take off.
KELLER: That’s how we were able to obviate what was potentially burdensome about the ’94 Cable Act.
DRENDEL: Exactly. So, here’s Ted Forstmann, who almost went under, saying, “Well, it’s time to take GI public.” So we were taken out of the public market, and we came back with a public offering in 1996, I think. Very successful, paid off a lot of the debt, did two more equity offerings and then in 1997, we decided to split GI into three companies. We would spin off to our shareholders; we’d changed our name to Next Level, which was a big mistake in hindsight, because we had a whole bunch of digital technology. So CommScope would spin out, General Semi-Conductor would spin out to be an independent company, and GI would be a residual, independent company. We did that in 1997 and CommScope became independent. I finally got CommScope all the way back, my little baby, all wrapped up — got my own company back and we’re public.
KELLER: After selling it three times you got it back.
DRENDEL: I got it back. So now we’re trading at like $11 a share and GI’s like $30, $25-$30, and General Semi-Conductor’s at $10. This is 1997. Total market cap of those three companies is probably three and a half billion.
DRENDEL: Billion. Bam! Fortuitous. The cable industry gets totally collected into the Internet phase. So right now you’ve got cable coming like this, and you’ve got Internet doing this and people were beginning to figure out — I hadn’t quite seen it in ’97, actually ’96 — that the Internet was cable TV, but nobody had put it together.
KELLER: Separate system, though.
DRENDEL: Well, separate system. And the cable industry — and again, total luck — shows up with HFC. Now, no one had ever heard of hybrid fiber coax networks, but you could build a telecommunications network by bringing fiber into cable using the cable network for the bandwidth. Plus, the thing that saves HFC and wins it hands down — why HFC will win — is what’s called Lifeline Telephone Service, because you have to have power. So coax was the only product that carried power, because it’s two conductors, it has 90 volt…
KELLER: Always has, well, since the mid-’70s.
DRENDEL: Always has, but everybody took it for granted, that it has analog and digital capacity. The cable doesn’t care; coax doesn’t care if it’s all digital, all analog or what piece it is. Fiber does; it’s always digital. And glass doesn’t carry electricity. So the smart engineers said, “We’ll just bring fiber in, turn the amplifiers around, upgrade the coax, turn it into two-way, which we’d been doing for years, and now we’ve got the Internet IP play.” So everybody’s sitting around in boardrooms in the cable industry saying, “This is so-so.” All of the sudden, AT&T flies out of the sky and buys the cable industry. Just buys it! And it all started when Bill Gates put that billion dollars in Comcast.
KELLER: In Comcast, right.
DRENDEL: All my friends said, “Well, what do you think that means?” I said, “I’m putting my money in cable. I don’t know what it means for him.”
KELLER: And into Comcast.
DRENDEL: And into Comcast. So all you had to do was trace that move. People forget that this little piece of product that we have 60% of the world’s market share of is the enabling technology for the Internet. Now, I never dreamed that!
KELLER: Well, no one did.
DRENDEL: I never dreamed we’d be an enabling technology for AT&T and the Internet. So this little technology that we own the world’s patents to — we own all the processes — is enabling technology for the Internet. AT&T buys in, Paul Allen buys in, Microsoft buys in, all the big money — this huge consolidation of the cable industry with all the money they need to rebuild the plant to create an IP based telephony-video Internet service. So when you’re all done, this HFC plant’s going to give the average subscriber, for a reasonable amount of money, 24-hour Internet, four lines in your home numbered. One Lifeline, powered in a storm, 500 analog channels, 500 digital channels, pay-per-view. Nobody can touch that product. Plus, in AT&T’s case, you’re going to have AT&T One Touch cellular with Friends & Family, so all your friends and family have got the same phone system and network. Now you’ve got this period from ’97 to present time where everybody wants to be in this technology. I mean, nobody cared whether CommScope existed or not. Now you’ve got all these guys stumbling around — you know, the big guys — wanting to buy into the industry. The first one to go down is General Instrument, January 5th. In fact, that Loving Cup sitting right there, that crystal cup, is a 17-billion dollar cup. Now, bear in mind, when Ted let this thing go, he let it go for maybe 5 or 6 billion. In two years, just the GI piece — not CommScope and General Semi — in two years we sell GI to Motorola for 17 billion bucks. Now that’s how powerful the technology our industry has, but for the past 30 years, Jim, nobody believed in us. Nobody.
KELLER: I never believed in the technology going to where it is today.
DRENDEL: No, neither did I. So everybody says, “Boy, weren’t you smart.” No, I was lucky. I wasn’t smart. I was lucky. Who knew that what would save the Internet in capacity would be a product that had the following properties: it’s analog/digital, it carries power, and it works great with fiber. When people ask me, what do you do, I say, “Well, do you believe in the superhighway?” The information superhighway, the Al Gore information superhighway. Everybody says, “Absolutely, I believe in the information superhighway.” I say, “Well, we make concrete.” I mean, that’s as simple as it gets. We make the off-ramps, we make the concrete because you can’t have this future without first doing the basics. As you’ve known for years, we were what I’d respectfully call the “greasy fingernail” level because the craftsmen that have to build this network are our best customers. The guys out there twisting the connectors and putting it on the poles…
KELLER: Henry Ford said that back at the turn of the century.
DRENDEL: That’s right, exactly. But I also have to say… I wish I could say that this was my perspective, but it was one of the most intelligent answers I have ever heard to why the cable industry is so valuable. I could give you all the reasons. I could give you the reasons that it’s 700 channels, it’s digital, it’s IP, it’s all that. This person shook his head and said, “No, no, that’s not right. It’s one foot of wood.” I said, “Pardon me?” He said, “Yeah, think about it for a moment. One foot of wood, it happens to be around, but one foot of wood.” I said, “Okay.” He says, “The cable industry has a federally mandated right of way, granted to you in 1978 for one foot of wood. That’s a right of way into every home and business in the United States.” I don’t care what the technology is — a wired technology or a fiber technology — you cannot put a value on what that right of way is worth.
KELLER: The telephone companies realized that at one time.
KELLER: But they didn’t want to let it go for a couple of bucks a year.
DRENDEL: It’s irreplaceable as a value point and so at the end of the day, I have a company that makes 60% of the world’s product that’s attached to that most valuable asset, that one foot of wood. I ended up at the pinnacle of my career with the biggest-in-the-world company doing a billion dollars in sales, with 3,000 employees, plants all over, selling to everybody.
KELLER: How many plants do you have?
DRENDEL: Oh, gee. One, two, three, four, five — six.
KELLER: How many in this country and how many overseas?
DRENDEL: Most of them here. Just one overseas. We’re building one in South America and one in Belgium. We used to have one in Australia, but we built Australia out and pulled the plant out and brought it here. So we own 100% of the cable in Australia.
KELLER: What did you say… this was a decision that you had to make, that cable itself would be obviated by laser, by the fiber optics. What was your reaction to that, that fiber would go all the way into the home?
DRENDEL: Oh, it absolutely scared me to death and that’s, quite frankly, why we went into fiber optics. It was a defensive move and as it turned out, it was a great move for the wrong reasons, which all great business stories usually are. It got us into the field and we’re a major player in fiber optics. But as it turned out, we forgot one basic thing. Glass is a non-conductor and as long as you have to have a powered network, if you think about it…
KELLER: Well, you have to tap it also.
DRENDEL: Absolutely, you have to tap it and power the network. But in doing the trials on IP telephony, 40 and younger people have no problem when you say, “I’m going to give you all of these services, but in case there’s a storm, you’ve got to depend on your battery backed cell phone, or the battery pack that’s in the basement.” They say, “Fine. That’s okay, I can handle that.” You tell somebody 50 years or older that and they say, “No way. I don’t believe in those batteries. Well, how long do the batteries last?” “24 hours.” “Well, I’ve been in ice storms in Atlanta for four days, two weeks, that’s not going to cut it.” If you take the question deep enough, you have to have a physical network because batteries will not do it. So when AT&T decided this year that it was going to power the network — the IP network — with physical electrical power, it solidified forever — or for the foreseeable future, unless physics change — that the HFC network is the only network that allows you to do that. It’s the only one that’ll carry electricity into the house.
KELLER: Except for the power company, power cable.
DRENDEL: Right, power cable, but I meant independent of the power company — what’s called Lifeline Telephone Service. In a storm of four weeks, three weeks you’re out of power — like Hugo, we were out of power here for two and three weeks — you can still pick up your phone and get a dial tone because it’s got emergency generators running. If you’ve got that kind of power, then the IP networks up. Once they decided that, the physical characteristics of a coax cable being two conductors, analog/digital transport and a gigahertz of bandwidth — one gigahertz of bandwidth – it made the product really robust.
KELLER: Well, that gigahertz also, with signal compression, can…
DRENDEL: Ten gigahertz.
KELLER: Whatever. Anybody’s guess.
DRENDEL: Who knows what you need. So you see how lucky we were at CommScope, how lucky you and I both were to be in this industry.
KELLER: Well, you had to have more than luck, because there were times when major decisions had to be made to go one way or the other and you made them at the right time.
DRENDEL: Well, you make those decisions based on all the available data but the bottom line is, it’s your gut. What made us the biggest and the best was that every time the industry was on its knees, we would still expand because we still believed that the fundamentals of the business would be there, and that took big guts. You can’t build one of these plants overnight. If I decided today to add 50 million dollars of capacity, it would take 18 months. It takes Times the same amount, so you had to be 12 to 18 months ahead of how bad cable looked to be building bricks and mortar. Right now, we’re sold out. We cannot make enough for the world. Our backlogs are going out 18-20 weeks. We make 15 million feet a day, 7 days a week. We go to the moon every three weeks and back. And I don’t know where it goes.
KELLER: But everybody’s building these new networks, though.
DRENDEL: That’s right. Everybody’s overbuilding everybody. That’s exactly what’s happening and everybody’s building a network. The Internet is an incredible asset hog. It takes tons and tons of bandwidth. But I can’t imagine where all the bandwidth goes and people need it.
KELLER: Well, they’ll compress that too, I’m sure. Frank, you’ve gone from the very early days of the cable television business in small towns to the cable communications business — and I guess you can still use that term with your explanation of what cable is — to the year 2000. What are, say two or three, of the most memorable moments in your career? I know that’s a difficult question.
DRENDEL: It is a difficult question, but the most memorable first would be, as it applies to cable TV, August 16, 1976, when I finally got a deal closed to somebody who didn’t overbid us. Buying CommScope was without question the most memorable. The second most memorable deal in my life was being a party to the creation of the video cipher, winning the video cipher standard against Scientific-Atlanta and General Instrument for MayComm, and bringing the genesis of digital television to the world.
KELLER: And you credit that to Rumsfeld, right?
DRENDEL: Oh, Rumsfeld, and also Irwin Jacobs. Irwin went on to start QualCom and what a great success story that was. So those two guys. And I think that the last memorable moment was the closure January 5th of this year of the GI-Motorola merger. I am so impressed with where Motorola is going to try to take the cable industry, especially as it applies to the final retail availability of a digital box.
KELLER: They tried to get in earlier on, back in, I think, the ’70s.
DRENDEL: Yes they did, in the ’70s. They have the largest modem position for cable and those three are probably the most memorable of major foundations for the cable industry. The thought that the cable industry can show up at the table with a company with the stature of Motorola, puts us in the same league as fighting the telephone industry with Lucent. The cable industry now has all the pieces of the stool. For so long we built this industry, we didn’t have anything. Now we’ve got money, now we’ve got technology, now we’ve got vendors that are strong.
KELLER: And believers.
DRENDEL: And believers and Wall Street. Now you have an industry that can go head to head with the LECs — the local exchange carriers. Those are probably the most memorable periods of my career.
KELLER: You can look back on the days when we couldn’t get financing and if you did get financing it was three years, 7-8% add on, whatever it was. Thanks to the man that we just buried yesterday…
DRENDEL: Bill Daniels. What a great man.
KELLER: Bill Daniels. The plow work he did with the New York bankers.
DRENDEL: Bill was a one-man band when we didn’t even have instruments. He has meant so much to my career personally. To all of us, Bill was such a guiding light. In the troubled periods when nobody believed in the industry he would say, “Keep going forward.” What an incredible leader, what a loss and yet in all of that, the guidance Bill gave was so correct and so far ahead. My vision was probably 18 months — his was years. He saw it so far ahead and was so correct. I know he was very important to your career and very important to mine. When I was scared and didn’t know what to do, Bill would always give that encouragement, “What’s the worst that could happen?” You miss. Go forward. Going backwards is no fun. It’s part of the military, aggressive fighter pilot…
KELLER: Fighter pilot syndrome.
DRENDEL: That’s right.
KELLER: Who else? We mentioned Bill today. Who else would you put up in that overall category?
DRENDEL: My mentor group is Burt Harris — clearly he was there for me in the beginning — Bob Brooks, Bill Daniels, John Malone. All of those people were so important to helping me guide my career and to helping me see the value of the industry. So the higher part of the industry, you’ve got to go with that top – Irving Kahn, you’ve got to go back and …
KELLER: He was a real visionary.
DRENDEL: Oh, tremendously! Early in fiber optics, he owned a big piece of Times, my big competitor, but you have to give him credit for vision. You have to give Amos and those people, the Boston…
KELLER: Amos Hostetter, that is, at Continental Cable.
DRENDEL: Amos Hostetter. You have to give those people the intellectual clout that fought through the regulatory piece. The regulatory piece in this industry was so complex, as you well know, that you had to have that real guidance. So you had that entire group. The depth and breadth of the intelligence that came to this industry is reflected in its building. There are very few industries that have gone in one generation — in thirty years to the scale and scope of the cable industry. From nothing! It was from nothing.
KELLER: I want to make a reference, just a little bit of an aside – you mentioned the regulatory aspect of this thing. We have in the can right now an interview with Newton Minow and how he viewed…
DRENDEL: Plant a flower in the vast wasteland, right? Wasn’t that his thing?
KELLER: No, that wasn’t Minow, but he was chairman of the FCC, not when these major things were done, but when cable was in their development. He’s seen how the political climate came together and the difference between the Democratic administrations, the Republican administrations, and it’s an interesting type. We’ve been involved in… we didn’t want to be involved in politics. In fact, we almost killed ourselves back in the ’60s when we reneged, as you remember.
DRENDEL: Yes, we did. Reneged is a kind word for that.
KELLER: Frank, we’ve been going for almost an hour and a half right now. I think it’s about time we wrapped this thing up. Is there anything you want to add?
DRENDEL: I want to add how much I enjoyed being the vice-chairman of The Center. Bill Bresnan and Bill Daniels — putting up that first million dollars — their great leadership. And now Marvin Jones and the work that you’re doing, and I want to thank all the members. I want to thank especially Gus — Gus Hauser — what he’s doing with this video now and oral program. When that Center is done, it will be the most technically sophisticated museum — I don’t like that word, but learning center I do like — place in the world. You’ll be able to go ahead and get this off the Internet. You’ll be able to get streaming video. It’s a fitting tribute to all of us that we probably couldn’t pay for the gravel for the beds thirty years ago and we’re leading this Center for education, for communications, and for growth. I think that will be the crowning accomplishment of all of us.
KELLER: I’m glad you feel that way and everybody appreciates the fact that you’ve played a major part in this whole thing. This has been an oral history of Frank M. Drendel and again, it was provided through a grant of The Gustave Hauser Foundation as part of the Oral History Program of The National Cable Television Center and Museum. Your interviewer was Jim Keller. Thanks very much, Frank.
DRENDEL: Thank you. I enjoyed it very much.