Interview Date: August 11, 2003
Interview Location: Denver, CO USA
Interviewer: Craig Kuhl
Collection: Hauser Collection
KUHL: Hello, I’m Craig Kuhl. I’m the contributing editor to CED Magazine, Multichannel News and a number of Reed Business publications. Today we’re going to be interviewing John Egan. John is the former chairman of Arris Group, Inc. and the former President and CEO of Antec and a vital cog in the progress of the cable industry since the early ’70s, I believe. This is part of the Oral History Program for The Cable Center here in Denver, and I want to introduce John Egan, the former chairman of Arris Group. John, talk to me a little bit about early on – where you were born, parents’ names, education and sort of walk me through, if you will, some of those very early days.
EGAN: Okay. I was born in New York City, actually the Bronx, the south Bronx. My parents were John and Nora Egan. My dad is from Mayo in Ireland and met my mom in New York. I lived in New York until I was about ten years old and then moved right across the river to New Jersey. I went all through Catholic grammar school and then went to an Irish Christian Brothers high school, Bergen Catholic, and after graduating from there I went to Boston College – a Jesuit school – and graduated with a Bachelor of Arts degree in economics.
KUHL: Any early passions, John? We know you had a brief stint with the Miami Dolphins back in the late ’60s, but were there any early passions for you? Was there anything that you were really driven to do early on in your education? Did you have visions of being in the cable industry? I suspect not.
EGAN: No, I never really did. Athletics was a big part of my life. Actually, I thought I was a better basketball player than a football player and went to Boston College to play basketball. Bob Coozey was the coach, and I went to BC, besides the fact that it was a Catholic school and a great academic school; I went there because it gave me the opportunity to play both sports. I actually started as a physics major. I always wanted to be an engineer. It was, given the three jobs of physics, basketball and football; I had to start dividing my time. I switched majors in my sophomore year, took a minor in physics, but wanted to get into more of the business side, and played both football and basketball and then one day woke up and weighed 260 pounds and realized that the rim wasn’t getting any further away, it was actually me who couldn’t jump as high, so I decided to play football and then was drafted and spent a couple of years in Miami. But in between the first two seasons at Miami, I came back to New York City and started to look for a job, and at that time, the fellow who was actually in charge of sales for IBM – a guy by the name of Donegan – had left and joined RCA and RCA had a goal of trying to get into the computer business. So they decided to hire a hundred young men and send them to Dartmouth, to Amos Tuck, to learn how to sell computers against IBM and this new world of computing. SO I was able to go up there in the off-season and further my education on their nickel, and then when I quit playing football I took a job with RCA and sold computers. My territory was 42nd Street to 59th Street, east of 6th Avenue, and I quickly realized there were some 150 IBM salesmen in that same territory. So the training that I was able to get with RCA was terrific, both the formal training at Dartmouth, at Tuck, and the technical training that they gave me. So it allowed me to use both the business side and the technical side, and I was successful to a certain extent. I sold a very large computer – at that time, the largest computer we had was 64 K and it sold for 11 million dollars. I was able to sell one to a company called Anaconda, Anaconda Wire and Cable, actually, was a subsidiary of the Anaconda Mining Company, and just as I finished getting the order I was actually about to celebrate what would have been quite a commission check and Walter Cronkite came on the news and said that RCA had had a board meeting and decided to get out of the computer business. They weren’t making money at it. So, it was obvious that I wasn’t going to be able to complete the sale of that order; these were two or three year sales cycles. So I went back to the chief financial officer of Anaconda, a fellow by the name of George Hanley, and told him thanks for the interest, but I wasn’t going to be able to take the order. He had become a good friend and he asked me what I was going to do. I told him I had no particular job; I was going to be out of work in another month or two. He said, “Well, we bought some electronics company out in California, a company called Astro Data. We just changed the name of it to Anaconda Electronics and they make electronics. I don’t understand what it is, but you’re a technical guy. I don’t know any of those people, so if you’d like to join that company I’d be happy to hire you for that.” So I asked him where I’d have to live. He originally said Anaheim, California. I had no intention of moving to California, so we compromised and I agreed to move to Florida. So, Anaconda had two interesting businesses. The electronics business – they had a company called, as I said, Astro Data which was the first company ever to get pair gain devices with the telephone company. They actually were the only company to get a Bell System purchase product division spec number. This was at a time when Western Electric provided everything to AT&T and this was the ability to put up to four phone conversations on a single twisted pair. The other half of their business was the cable television amplifier business. They had worked a deal with Hewlett Packard to build the first micro-circuit amplifier. So, they had a line of equipment called Century. So I got to see both the telephone and the cable capability very early in my career and had a background in computers. I really started to gravitate to the cable side because it was obvious to me when I saw how much science was going in just to put three slow speed telephone conversations on a twisted pair, versus the ability to expand six megahertz channels on cable, it struck me that in a race between the two technologies, cable would ultimately have the biggest pipe. So, I stayed with Anaconda until President Allende of Chile, who provided most of the copper for Anaconda, expropriated all of the Anaconda Chilean mines. Anaconda was unable to recover from that and basically sold out their businesses and decided to get out of the cable television and telephone business. At that time, because it was fundamentally a wire and cable company, this small division was really the only thing that dealt in electronics, many of the executives of the wire and cable company went with a large distributor of wire and cable, quite frankly not communications wire, mostly power cable, in Skokie, Illinois called Anixter Brothers. They acquired a company in Seattle, the Jack Pruzan company, which they thought was a wire and cable distributor. It turns out that it was owed money. When Lew Davenport built the first systems out in Astoria, Oregon – there’s a lot of history about the great first systems, but when you got to the nuts and bolts he didn’t have any money to pay, so the Pruzan company was very involved in the first systems in cable because they were owed most of the money on it and so I got to learn… I was asked to join Anixter as the cable TV guy, and that started a very long career with Anixter where I stayed. Originally I went up to the northeast and ran their cable television business in the northeast and then ultimately east, then I was asked to move to Chicago in the late ’70s, early ’80s, to become president of their communications business, which I think when I joined it was a 200 million dollar wire and cable distribution company and when I left it was a 200 million dollar wire and cable distribution business with an 800 million dollar communications business, and today it’s a 3 ½ billion dollar company. So, we really, in the early days of cable, when the systems were rural – this is the early ’70s – and the systems were typically financed by insurance companies and there was a requirement for benchmarks. You had to build a system, turn over so many subscribers, and when you got that many subscribers you would go back to the bank and take another take-down. Well, in those crazy days, most of the money that was being taken down from the insurance companies was being spent on buying new systems, not on building old ones, and they really were relying on vendor financing in the early days to do most of the short-term gap financing, and I think one of the reasons that we had such a good reputation and got so involved with many of the people in this cable museum who are on the walls – it’s kind of scary coming in here and seeing all my former customers and friends on the walls – the combination of the economics and the technical part started to work in.
KUHL: That was the next question I had, John. I think that’s a really interesting tie-in – as an economics major in college how did you handle going to work for essentially a technology company with an economic background and tying those together. Today that’s obviously a very, very crucial mesh, technology and economics and the business of technology. How did you go about doing that? Were there some challenges for you?
EGAN: Well, I think I did it the same way most of the cable operators did it. Typically the partnerships that formed the great MSOs were guys who climbed poles and understood what local communities wanted in terms of television. If you recall, in the very early days, the whole genesis of cable television was to sell television sets in rural areas where there was no signal. So in order to get the dogs to eat the dog food, you had to have dog food, and the dog food was going up on the top of a hill and putting in an antenna and getting a distant signal. So, those early cable technical pioneers were really technicians more than they were engineers, and the ones who really grew and were highly successful were the ones who partnered with financial people who understood the economics of cable and then later on the marketing people who understood that programming was the key to moving cable from a rural environment into a suburban and ultimately an urban environment as they had enough programming to overcome the fact that in many suburbs and cities it wasn’t about quality of signal, it was about quantity of signal. How many channels could you have? To me it represented a great merger of what I had learned technically from the computer business and then at Anaconda, and I’d love to say that I took the job at Anaconda and decided to get into cable after much thought and much turning down many other offers, but that in fact was not the case. It was the first job that somebody offered me and I took it. So that’s how I got into the cable business. But I stayed in it because I think it provided a technical challenge, an economic challenge and a financial challenge. So I thought it combined all those things, and I thought it had great potential because the whole idea of putting fat pipes into people’s homes in the future seemed to make a great deal of sense.
KUHL: At the time, John, were there any specific people that really inspired you in the cable industry or that you considered maybe a mentor or someone that was helping guide you into this business? Were there some people that you really looked up to at that time in the industry? And at that time there were pioneers, too, I suspect.
EGAN: Sure. In those days, you had two very different groups. You had the eastern group that typically came out of Pennsylvania, and then your western group. Again, it was a rural business at that time. Although I was from the east and a New Yorker, the company that we bought that was the foundation of our cable business was Seattle based company. So I think from the point of view of customers – at that time Bill Bresnan was the president of TelePrompTer, which was the big player in the east and at that time Bob Magness was building in Denver the TCI empire. He then brought John Malone in and J.C. Sparkman, and John was the strategist and had incredible financial capability, and J.C. was the down in the basement operating guy. We did a great deal of work with TelePrompTer in the east and a great deal of work with TCI in the west, and then the other consortiums started to get together and the first real technical on the vendor side relationship I had was a fellow in Seattle by the name of Phil Hamlin, who with Irving Kahn in the east, really invented the converter. The original converters were really required in New York City because in Sterling Manhattan – the first cable system really in the city – there were so many buildings that the signals, when you got an antenna, would bounce off the buildings, so you got lousy pictures, not because you were too far away from the antenna but actually because you were too close. So the original converter concept was to put a device on channel three but not have it really be channel three, have it be another channel that was clearer and then just convert that to channel three. He actually, I can remember him talking to Irving Kahn and saying, “Well, what kind of device should we use?” and he looked at a dial, which most televisions had, and he didn’t like that because it looked too much like a television; and then he looked at a push button like many cars in that era had, and he didn’t like that because it looked too clugey; and then Phil Hamlin, in the back of his desk, had a thing that he kept his telephone numbers on – most people had them and some still do – that you would just slide it to whatever letter it is and then push the button and it pops up. Irving thought that was a really good idea and really the three converters then of the time were Oak, who was the dial; Jerrold, who was the push button; and Hamlin, which was the slide. That’s really how all those converters… the first use for converters, and then they were really never used for channel capacity, they were used just for shifting channels. But they provided a terrific vehicle for as we ran out of the 12 channels that were on a TV dial, cable had a wonderful device that was able to give it easy… It actually was a wired remote, if you remember, and it was kind of the first remote control. The remote control was either a dial or a push button or… So I became fascinated with that and got to know Phil very well and ultimately became the exclusive distributor – because we were just a distributor at that time – the exclusive distributor for the Hamlin product, and ultimately bought Hamlin and became the manufacturer of it. So that was really the first move into… but those three, I think, were the ones who influenced me the most, certainly in the ’70s.
KUHL: As well as many others they’ve influenced too, I’m sure. John, the crucial role of fiber is obviously well documented in the cable industry today and you were a part of the initial roll-out of fiber back in, I believe, 1988. Walk me through that time, if you will, John, and your role in the evolution of fiber and the importance that it’s taken on today.
EGAN: The simple difference – when I was at Anixter, we were a very large distributor, and if you recall in ’84 a fellow by the name of Judge Green decided that the telephone companies needed to be broken up, number one, and the manufacturing needed to be separated. So, we at Anixter – by that time I was president of the communications group – we decided to try and become the first and only distributor of Western Electric products to people outside the Bell system, and we were able to get that, and I got to know many of the executives on the technical side of what is now called Lucent, but at that time was called Western Electric. Fiber optics was the big buzz word – this is the early ’80s – in the telephone business. The problem cable had with it is that the fiber optic business was by definition digital. A light went on and off and you injected that light through an optical cable and at the end of it it detected whether the light was on or off. On was a one and off was a zero, and so it was a binary way of communicating and all the technology was geared around how fast you could turn the light on and off and how fast you could detect the light’s presence. That really had very little application for the cable and analog world. It was clear though that cable was coming up against the wall of the ability of copper to provide its service. At that time – this is the mid-80s – we were going to 40 channels, 60 channels, and on a cable television amplifier, it was like a Christmas tree light, when you ran out of signal or needed to go to another home you would just add a piece of cable. If the signal strength wasn’t enough you would put an amplifier in. At 220 megahertz, even at 300 megahertz, you could put an amplifier every 2,000 feet or so and you could cascade it up to 40. It wasn’t very reliable because like most Christmas tree lights, if you lost one amplifier, the whole string would go out. So you had these things, kind of these Christmas tree lights, sneaking through all these neighborhoods. The higher the frequency went, the shorter the amplifier spacing had to be, so by the time we got to 400 megahertz, we could only space them 1,500 feet apart and because of the nature of the electronics we couldn’t cascade them like we used to be able to. So, cable really had a difficult time taking advantage of the channel capacity, even in the existing networks it had because the signal quality got worse and worse. So the further away you were the worse your signal was, and when you’re trying to deliver consistent service, certainly if you’re trying to deliver telephony quality service, which was the phone – the dial tone ten miles away from the switch is just as good as the dial tone a mile away from the switch – they had a real challenge. So I asked the fellows at Bell Labs whether there was any way to keep the light on, and instead of turning it on and off just modulate the intensity of the light from dim to bright. That’s a very layman’s definition of what happened, but that’s what an analog carrier wave is like and then modulate signals on top of the carrier wave. So, they thought that was, at Bell Labs, an interesting concept. So they looked at 5,000 or 6,000 lasers and they found one that was actually a very poor digital laser because it didn’t have a clean drop-off between turning it on and turning it off. It had a sloppy drop-off, which was exactly what we were looking for. In many regards, the worst digital lasers became very good analog lasers. So we needed a place to try that concept out, so Jim Chiddix was really doing a lot of pioneering work in Hawaii on the optical business and he had now moved back into corporate. In Florida, they had a particularly interesting problem in that every afternoon in Florida it rains, certainly in the summer, and when it rains the broadband microwave, which was really the way to get signals around at that time, a system called AML, was terribly susceptible to rain fade, so we asked if we could have a friendly demonstration and a friendly trial down in Orlando, Florida. So we built a fiber optic link to back up the AML, such that they were having terrible customer complaints in Orlando, so when the signals went out, if it went below a certain threshold, it would switch over to the optical business. This was a remote headend. One of the engineers down in Orlando had built a little switching system that sense the threshold of the microwave and then would switch it over. We put that in with great fare, ‘the first fiber optic link in the United States’, etc, etc, and about two weeks later the switch failed. The fiber didn’t fail, the AML switch failed and it switched everything over to fiber. None of us had any idea that the signal was actually being fed now 100% by the fiber and they started getting phone calls from their customers saying, “I don’t know what you’ve done, but…” This is an odd thing but in Florida when it rains, everybody goes in and turns their TV on, so all of the sudden the pictures got terrific and in trying to find out why we were so good we realized that the optical link had actually been the one that was carrying all the signal. That really gave everybody the charge to say, “Whoa, this might make some sense.” And from them on the architecture of taking those Christmas tree lights and overlaying a fiber that every once in a while would break the cascade of amplifiers and regenerate the signal optically and put it back in for distribution, that really was the genesis of the whole hybrid fiber coax business. You had a massive advantage over the telephony network in that telephony was a roll-up network. A telephone call had the least number of bits and when it went to a central location it was combined with more bits combined to more bits combined to massive pipes of bits. Cable had the advantage of whether it was optical or copper it was the same bandwidth, so the pipe was the exact same width, so all you had to do was go from photons to electrons and you could regenerate the signal very inexpensively. So the whole idea of this pipe now that used to go into a piece of coax and have to serve perhaps 10 or 20 thousand subscribers, we could now break it up and service initially 5,000 subscribers, then as you needed more traffic down to what we have now with 600 subscribers. So the technology – I always called the technology “Fiber to as far as you could afford” because fiber at that time was very expensive. Well, now fiber’s cheaper than copper, so fiber to as far as you can afford, you know, all these telephone companies that talk about fiber to the home and all of that, sooner or later you have to change it into coax so you can get it to analog because as long as you don’t have a digital connection to your ears and your eyes, sooner or later someone’s going to have to convert that so the eyes and the ears can accept it.
KUHL: John, we were discussing the role of fiber and your role in the evolution of fiber optics. You were talking about the next phase of fiber and that is getting it into the hands of cable operators as a much more cost effective way of rolling out digital services and the triple play of services. Why don’t you continue on with that and talk about the economics of it and your role in that.
EGAN: Sure. Well, I think John Malone expressed it best when he said on technology, “On this one we were on the side of the angels.” As I just explained, we really needed fiber optics in cable for quality of service because the further we got away from the headend, the lousier the signal got. We looked at actually paying for cable by adding channel capacity as we built these networks, initially for quality, subsequently for quantity. We found another rather fascinating result of dividing the neighborhoods into smaller and smaller node sizes, and that is that cable is fundamentally a bus. It’s not a point to point service. It basically is a cable that’s strung around and you see who wants to join, who wants to subscribe. There have been, in my career of 30 years, many attempts in the early days to use the reverse capability of cable. Of the thousand megahertz that we can now send in one direction, only 5 to 40 is still available to come back, so it’s very easy to spread signal out to all of these homes, but when you have to come back and get all of these, initially, 20,000 homes back into that pipe and put it in a band that in the analog world is a very noisy band, the low band from 5 to 40, our reverse services really never worked, but as we started getting node sizes smaller and smaller we had the ability then to have fewer and fewer homes using that 5 to 40 megahertz. So the whole idea that maybe the reverse band, maybe we could start to get into some two-way services, started to come up, but that was trouble because the analog world was a big eater of bandwidth and we needed more and more bandwidth with six megahertz, but as the digital revolution started, initially, if you remember, the Japanese MUSE standard was thought to be the only HDTV standard and at the very last minute Don Rumsfeld, when he was running General Instrument, put in an all American, all digital bid to the world community for an HDTV standard, and it involved this enormous compression that would allow you to put digital signals, which would have saturated cable, you could compress them and we got to the point where now we can put in what was an analog signal we can put 15 digital signals, or a couple of high definition signals. So from the video point of view, in my tenure as the CEO of what was Anixter, I said to our management, “There are really three things that are going to happen if cable is going to reach its potential. One, and that has to happen first, is the move from copper to glass. Second is the move from analog to digital. And third is the move from very simple networks to complex networks.” So during this time, 1985-1986, Sam Zell bought Anixter Brothers – he’s a famous Chicago real estate baron and a terrific guy, and he really challenged us to grow the business – and I suggested to him that to take advantage of these three opportunities in the cable television business we really couldn’t be a distributor because we needed to get some very proprietary technology that would be a danger to the embedded base of a lot of our baseline vendors, including at that time Western Electric. So I suggested that we take the distribution business that was cable TV, which represented about 20% of our business, or about 200 million dollars at that time, and that we move away from being just a distributor and start to be a proprietary distributor, and that’s what we did. The first things we did was the optical laser business. Although Western Electric was the manufacturer of that and spent a lot of R&D on it, we owned the name Laserlink and we owned the product and contracted them for the R&D and the manufacturing. So as soon as we started putting our own name on things, the traditional vendors are going to get a little worried. So, I told Sam Zell at the time that we should attempt to separate the cable television business from the rest of our distribution business and we were distributing to telephone companies and private network companies throughout the world, and then start to look at getting into manufacturing, start to look at really getting much more proprietary, much more technical in our business. He agreed to do that, so we separated the business initially under the Anixter public company umbrella, and then in 1990 went out and took it public, and the name Antec really stood for Anixter Technologies, that was the acronym, and we then went out with a vision of what this little company could do. We started by saying most of the embedded manufacturers in cable were in copper, and fiber represented a real problem for them because one fiber optic node would eliminated 25 amplifiers, and if you had no fiber technology, whether you were at Scientific Atlanta or General Instrument, this represented a problem. So we thought we could use that moment in time to really ease our way in and be a major infrastructure provider. Then with the digital world, with video going digital, as soon as you’re able to transmit digital over cable with smaller node sizes, the whole world of telephone and data is open to you. I think it’s noteworthy to say remember in 1980 there were no PCs and no cell phones and no video games, so the applications we were looking for were growing at the same time the technology was growing. Again, for me it was a challenge because the economics of the technology was growing in lockstep with the technology, so again, cable looked like the perfect way to do it because it was easier to fiber an office building and to take advantage and put high speed in the office building, but to put it in the home when there were no computers in the home anyway was a bit of a fool’s game, and at that time the telephone company was growing topsy and so it looked to me that the first non-video application, we didn’t want to compete on the second phase of our growth, which was the move from analog to digital and we didn’t want to compete with Scientific Atlanta or General Instrument, the embedded guys, and they did, I think, a magnificent job of changing the converter from an analog device to a digital device, and it had to first be a hybrid device because it has to handle the analog and the digital signal. We didn’t think we brought any value added to that so we decided – we’d had a lot of telephone experience in the early days of Anaconda and certainly in the Anixter days – so we said, “What if we bundled up a T-1, put that on a fiber optic link and ran that out and let a circuit go to each home. So we went back to Lucent, Western Electric, who was our original supplier, and they thought that was a good idea but they were very scared of ticking off their core companies who were the RBOCs who had just been spun off from them. So they agreed to look at the technology; we called it cable loop carrier and we could provide to 500 homes, a fiber node of 500 homes, we could provide a T-1 and do telephony. They were afraid to do it in the United States. Western Electric, because they had just broken away from the Bell system, wanted to get into international so we decided to go over to England. We had good friends at Telewest so we decided to do a trial of this technology in Telewest and it worked. The concept made some sense, but it became obvious to me that there was no way that Western Electric was going to face the Seven Sisters and say that they were going to put a competing technology in. At the very same time that we were doing that, we had bought a company that was really a collection of famous engineers – Jim Farmer, John Lappington, several other guys – a company called ESP down in Atlanta, an engineering consulting business. They had formed a relationship with Bell Northern Research, which was the Western Electric or the Bell Labs of Bell Canada. All of the sudden, when I saw that 80% of the consulting engineering resources of this company I owned, ESP, were being bought up by Bell Northern Research to research an opportunity for Bell Canada to get into cable TV in the Maritimes up in Canada, I looked at the technology, added the technology from cable loop carrier that we had with Western Electric and I suggested to the fellows at Nortel that we form a joint venture to explore cable telephony. When we got the joint venture we called it Arris. Arris is a Greek word. I know this because they charged me $25,000 at Nortel for the research. It’s a Greek word that means two planes coming together to form a sharp edge. It made a lot of sense to me, a cable TV company with a major telephone supply company forming a new technology, and we came out with a technology called Cornerstone, which to this day probably has 80% world share in the constant bit rate approach to providing telephony. Back in those days there were no standards. There was another company up in Boston called Lan City that at the same time we were getting into the telephone business got into the proprietary… they were using the same kinds of techniques in putting high speed over cable television and at that time the cable industry recognized that if they were going to be a major player that one of the real strengths they might have is a standards based approach because in the analog world there were no standards. So the cable operators formed Cable Labs. Lan City was the major supplier of high speed data, albeit in a proprietary way. There were five or six other proprietary ways. The Cornerstone product was a proprietary constant bit rate system, and two or three other competitors were in that. While all this was happening, Lan City was acquired by the company that was acquired by Nortel. So all of the sudden, Nortel, in addition to having this joint venture with us, had ownership of this company called Lan City. So we decided at that time to put Lan City into the joint venture and to go to Cable Labs and say look, we have an awful lot of resources here and we’d like to be a partner of yours in helping you get… with the background we had in Western Electric, and certainly with the background in Bell Northern Research, our technology was all manufactured and designed in a standards based kind of environment, so we thought we could really help and we worked closely with Cable Labs as Cable Labs developed a DOCIS – a data over cable interface standard – and we became one of the early DOCIS 1.0, DOCIS 1.1, now DOCIS 2.0, so we have a portfolio of product now. As we enter the third phase, which is the simple network to complex network we have a very terrific portfolio of standard based product. We actually built it to reflect our goal to move ahead in that environment. We changed the name; we actually acquired Nortel’s interest in Arris. They owned for awhile 49% of our company and then we’ve taken them out over time and the company now is called Arris to really reflect the idea that we’ve really gone into this third phase, which is really I think the wildest of phases, because there are so many elements now, the networks are becoming so complex, digital is so pervasive in everything we do and the blur between what were very easy things to differentiate, you know, telephone, data and video, my generation can see the difference. My sons start to see that it might merge. My grandsons have no idea that it used to be separate. So the idea now, again, where cable has a great opportunity, they don’t care what’s coming down the pipe – it can be voice, video and data, and at the end of the day it’s going to be a digit that someone has to sort out at some point, so the bigger the pipe the better you’re going to be. Really, I think, this third leg of the stool, this complex network is really in full fruition right now and that’s really where we are. One of the reasons I retired is when you set long term goals for yourself and you hit them, you have to decide either to restart and get some new goals or decide to take a rest. My sons gave me four grandchildren, so I decided to take a rest.
KUHL: Well, I don’t know how much rest that’s going to offer you, but at least it will be fun.
EGAN: It’s a lot more fun-tired.
KUHL: Well, John, you spent 30-some odd years in the cable industry, at least. Give us some of your thoughts on, I guess, the emerging technologies today – interactive, voice-over, IP, and some of those whiz bang technologies that are out there that probably 25 years ago, I suspect when you were just getting into this business, if you’d have heard of this you’d just be shaking your head in amazement. Give us some of your thoughts on those. Are they legitimate? Are there businesses ahead for those types of technologies?
EGAN: First, I think the important thing to understand about cable TV is the formation of cable really caused an environment that I think cable can use to its advantage in taking advantage of these opportunities. By that I mean initially everything was rural and cable operators didn’t compete with each other. One was in rural Idaho, one was in rural Pennsylvania. As channel capacity started to increase – Turner put in seven satellites to move the Braves games around – and all of the sudden there were these franchise wars, initially in the suburbs, and cable operators found themselves competing with each other. I’ve been to so many meetings, city council meetings, where five or six of the cable operators would basically be standing up in front of people who didn’t know a thing about technology and explaining in fifteen minutes why their system was better than the next guy. So for years and years, the only time cable operators got together was to take advantage of a common problem, be it pole attachments, retransmission, so the board of directors of cable television was really an association that was put together to try and figure out a common defense to save this fledgling business from the big guys as it started to sting some of the potential big guys, but internally the only way you could get a franchise was to differentiate yourself with some new idea. If one guy had ten channels, the other guy had twenty. If one guy had local origination on one channel, the other guy would say “I’ll put four channels in.” So you’ve got this craziness and all of the franchising was to attempt – because of the way the franchises were granted, it was rural into suburban into urban, if you didn’t have enough channels you had to go into urban. So if you were in the Chicago area, there might be six or seven cable operators vying for the 50 or 60 cable franchises, and at the end of the day one would get ten, one would get four, one would get two, one would get six, and then the Chicago franchise would go to one person and the people running the five franchises, who they only got because they wanted to ultimately get Chicago said, “What are we doing with these five franchises?” So you went through this period of consolidation, but it wasn’t consolidation by one company buying another. It was consolidation of saying I have a subscriber in Chicago that’s in a suburb, I have the whole city of Detroit; you have a subscriber in a suburb of Detroit and you have the Chicago franchise. Why don’t I swap subscribers with you? So you got this clustering phase. But in the clustering phase, what you were merging was all the ideas that all these different cable operators had because the 30 franchises that were in Chicago had a bunch of different services that they had to provide to the cities that they were in in order to get the franchise. So the differentiation was homogenized so you have enormous innovation that’s been embedded into that whole network. So as we start to get really professional, consolidated, really strong financial companies owning cable operators, the spirit of innovation is still there. So they knew that the only way they could grow was to get more subscribers. Once they built out, the only way they could grow is to get more channels, and then once they got channels and they couldn’t really raise… you get more and more and there’s only so much time in the day, they said, “Let’s add services. Let’s add high speed data, let’s add voice.” And now, I think, the whole genesis of the cable system is looking for what’s coming next. The great thing is they have this pipe, and it’s digital and it’s rich optically, so they have the ability to handle all of these things. The computer business didn’t want video streaming because it mucks up the network terribly because it’s so asymmetrical because so much traffic is going in one direction and not the other direction, and most data backbones are built to be symmetrical and bi-directional. So cable said, boy, that’s nothing but video with a little computer coming back. So I think the idea of the innovation caused by the franchising wars and the technology that quite frankly is cause by the angels because we didn’t get into this because we had this long plan, we got into it because we adopted other technologies and came up with our own unique technology. I think the cable industry, if they can keep their entrepreneurial spirit – and it’s very hard to stay small and get big – they have an enormous opportunity, but laws have been written around the Communications Act of 1934 and they weren’t written around the wireless business and the high speed data business and the video streaming business, but where a lot of this innovation is coming is from the unregulated world, you know, from the consumer electronics world, from the software programming world, and as capacity and memory chips get cheap, the human mind’s ability to program is virtually boundless, so the idea of being able to seamlessly transfer that… and you know, you can pick off technologies for each individual one – satellite’s good for downstream video, wireless is good for rural locations or moving around locations, but if you want to put it all together and do it seamlessly behind the scenes, I think cable has a unique opportunity to do it.
KUHL: You mentioned entrepreneurial spirit, John. I think that’s really good point. When you first started in the cable industry, I suppose there was a continued amount of entrepreneurial spirit. Do you see that alive today, and if so where do you think that spirit is coming from? Now we have Wall Street involved in cable far more than they were years and years ago. Is there still an entrepreneurial spirit in the cable industry, and if so, where is it?
EGAN: Yes and no. I think from the financial point of view, the attraction of cable to an investor was not its earnings but its growth capability. So the very simple concept that every dollar of free cash flow is going to be reinvested in making our systems able to handle more so we can grow faster, so we’re sorry we’re not making any money, but boy, this is a good investment. I think that whole cash flow accounting way of looking at public companies fueled the financing of cable in the ’70s, ’80s and 90’s, well, certainly in the ’80s and ’90s. I think because of what’s happened in the whole telecommunications world, I think there’s a pendulum swing there that basically investors are saying, “Okay, you said if you ever stop spending money you’d start making money. Why don’t you give it a try and see if the model still works.” So, I think we’re in a phase now where there’s a tendency to ooh, boy, let’s tighten things up first, but I think when you realize that when you’ve been running as fast as you can because there was opportunity ahead of you, you never look over your shoulder really and look to see if anybody’s catching up, and I think the cable industry, as they’ve kind of slowed down a little to let this capital absorption and consolidation take place, we’re starting to now lose subscribers to satellite guys on the video side, potentially lose some high speed data to DSL, potentially the wireless people could come in and start to do some things. So I think the innovation and the entrepreneurial spirit is rekindled not so much by what’s ahead of you, but I think the kick start of it will be, wait a second, if we slow down we’re going to get commoditized and we can’t make any money selling a commodity, so if we want to continue to differentiate, we’ve got to continue to innovate. So, I’d like to see cable start running because they can, not because they have to, but the good news is the kick to get them running again is here with competition, and I think that will keep cable and if it has to keep re-testing whether this technology it has makes sense and what cable is good at is adopting other people’s technology. So they’ll adopt to the wireless technology, they’ll adopt to the satellite technology, and they’ll just realize that the uniqueness and the entrepreneurial is the things that is their biggest weapon in this increasingly competitive world environment. I think we’re in a flat spot now, no question, the vendors in this industry have been decimated by the slow down in capital spending, but I think that’s more an absorption issue than anything else and I think the entrepreneurial spirit… quite frankly, if they don’t you shouldn’t invest in cable, but I think they have everything that’s necessary to do that, and I think the story they’re telling to their investors is okay, we’re going to be a profitable company but we’re also going to be an innovative company, and the ones that are more innovative are getting better prices and the ones that are expanding into different services are getting the attraction of investors. I mean, it’s coming from a different place, but I think it’s still there.
KUHL: We were talking about the entrepreneurial spirit of the cable industry and it seems that one of the cornerstones of that spirit seems to be in giving back to the cable industry. A number of cable pioneers and cable people throughout the years have taken it upon themselves to give back to the industry. The Cable Center is a classic example of that. Talk to us a little bit about your feelings on that, and I know you’re involved in a number of organizations. Why don’t you tell us a little bit about those.
EGAN: Well, I think the cable industry as an industry is the most successful construction project in the history of the world, and it’s never gotten any government funds, it never relied on state regulation to protect it or give it an umbrella. The cable operators, in order to get the franchises, and then to get the confidence of the cities and the communities they were in, had to become part of that community. So much more than a big conglomerate, cable is a very localized business. That’s a big differentiator between cable and satellite is this local content, this local relationship, people on the ground, programming on the ground, city council meetings, things like that. So in terms of giving back, I think I’d take a little exception in what you said, “Giving back to cable.” I don’t think it’s about giving back to cable, I think cable operators, cable vendors, cable programmers have taken a lot out of cable and the question is what you take out of cable what do you do with? And by and large, they’ve given it back to the communities in which they serve. I think wherever a cable operator has had its headquarters, has had its roots, wherever a large system has been there it has a great participation in that local community. I think the grassroots part of cable is an important one, and the giving back – this Center really represents a collection of local citizens who are all pillars of their own communities, whether it be in Pennsylvania or on the west coast, not employees of companies, but employers of local people, and this really represents what those employers have done in their local communities and I don’t think it will ever capture what upper New York State thinks of Alan Gerry or things like that. I really think that’s the great part of cable television. There’s no question though that as cable developed, remember a rural to a suburban to an urban environment, it came last to the urban environment and it came with an infrastructure already and that infrastructure was not very diverse, so in the spirit of getting involved in the community I think many people in cable decided that we had to do something to accelerate the diversity inside of the cable industry and there were several foundations set up to do that. Ultimately, it should clearly be and has been the goal of cable that the local cable systems should mirror the cultural and ethnic diversity of the environment that they’re in, and I think clearly that’s the goal and the desire of the cable industry. How do you get there? You get there in a couple of ways. You have local programs; Bill Bresnan is very involved in a program ‘Minorities in Communications’ where he works with high schools and they hire apprentices in the local cable systems and in addition to paying the high school students, who are selected by the principal, not by any political body or any organization that’s outside of the local environment, these are principals of high schools who pick people of color to work in the cable systems and they work at the whim of the cable operator, but the same amount of money that they’re paid goes into a fund that is to be used for that individual’s education, but they have to stay working. If they get fired by the cable operator because they’re not doing their job, they not only lose the revenue stream of their pay but they lose this cache of money. In the long term, if you have four or five years of service working in the summers for a cable system and then you graduate from college and then you come back into that community, the cable operator is not doing you a favor by hiring you, he’s going to want to hire you because you’re experienced and you’re local to the community. So in the long term, grassroots things like that make sense. But the Kaitz Foundation was formed to really at the top level change the attitude of management of cable by going out to other industries and by seeking people of color to come in and serve in mid and upper management roles of the cable systems and to ask the cable operators to make a commitment to see that that happens. That involves a great deal of mentoring and moving things along. I think cable has its heart in the right place. I think people can say they should have done this or they should have done that, but I see no indication that cable operators are not desirous of getting localized in their community and they don’t want to be one big system. They want to be hundreds and hundreds of little systems that has the leverage of a technology base and programming. I think you can see it with the way cable operators are diversifying their programming. You can’t sit in a meeting and say we’ve got to diversify programming to get to the African-American community, the Hispanic community, the Oriental community, the Indian community, and then say, well, by the way, we should develop programming for all these but we’re going to do this without a diverse workforce. It doesn’t work that way. So back to my ‘the dog eats the dog food’, the best way to find out what dogs like to eat is to get to know the dogs and raise a lot of different types. So I think cable is doing a very good job. Some people say it’s not fast enough, but if you do it too fast you do it wrong and I think it’s every year when you go to the Kaitz dinner it’s moved another step further and another step further and it’s less about a bunch of rich guys feeling good about themselves now. There was a certain element of that’s how it started and gee, I want to give back, I don’t know how, so let’s put this organization together. It’s far more sophisticated than that, it’s far more embedded than that, it’s far more diverse than that, and I’m very proud of what has happened in that environment. So from that point of view I think cable is really getting very close to mirroring the communities that it lives in.
KUHL: Great. One last thing, John – you’ve had a long distinguished career in the cable industry with Antec and Arris, etc, just sum up briefly for us, if you will, the upsides to this career of yours so far in the cable industry and now what are you going to do?
EGAN: The biggest single opportunity I had was I never had to work my way up through an organization because there was no organization. I never had a job that somebody had before me, and as I look back now, the thing that was the most thrilling to me through the whole career is I always got to design a new job, I had to understand what it was going to take for that to be a job, had to understand what it was going to take to make money at that job, and then I got to go do that job. I was fortunate in the early days and then with the Anixter organization I got in an organization that liked that. They were growing very, very fast and they liked innovation and then once I broke that away I got to lead the company. Having said that, it’s my company, I ran it, and as you start to realize as it starts to get bigger it’s got to become a company that somebody else runs and you can’t have a company that you founded and you lead that somebody else runs. If the people who are running it are any good they’re going to want to make it their company. So there’s a point at which you have to, I think, move on and just stop doing what you’re doing, and that’s what I did last May. I finished a three year transition out of a job. My last job that I designed for myself was not to have a job, and I worked on that for three years and May 31st of this year, I succeeded in getting the job I wanted, which was to not have a job. So I now have that job, and that’s where I sit right now.
KUHL: That’s great. Now, your future lies, it sounds like it lies with four grandchildren and a couple of children. Is that right? Is that the plan right now?
EGAN: Well, I wanted to take a rest because in the cable industry, like most cable people, you work awfully hard and you travel a lot, and as cable went international. I think that’s very hard on you physically. But it’s been kind of a family business. I think a little of that has changed. So I’m taking what I think is a well deserved rest, and there’s a motto I want to use if I work again. I want to work at my pace at my place. So I’ve had an opportunity to make some investments and look at some entrepreneurial things where I could play a role, but I’m quickly realizing that the longer you’re out of things, the less current you are and the less able you are, so I’m looking at a couple of entrepreneurial opportunities now, but I’m not sure that going back to work full-time is anything that really has much appeal to me yet. We’ll see. I have the luxury of not having to worry about that, so at this point I’m very comfortable with the job I designed for myself, but I’m starting to think about maybe another job I might like to have if I can figure out how to put it together.
KUHL: Well, I’m sure that you’ll bring a lot of entrepreneurial spirit to that job as well. John, thank you so much for spending some valuable time with us. We really appreciate and I know The Cable Center appreciates it, too. Thank you so much.
EGAN: Thank you.