Interview Date: July 28, 2014
Interviewer: Stewart Schley
Abstract
Steve Friedman describes his entry into an expanding cable business in California, working as a general manager in charge of bringing in contractors, doing the accounting and helping to build systems. He mentions that his company was the first to carry superstation WGN from Chicago on the West Coast. Friedman explains the process of building a system: obtaining pole permits, capital, bringing in contractors, and marketing to potential subscribers.. He goes on to describe the hiring of technicians, installers, and administrative personnel. He talks about the sale of his company and moving on to other markets, at a time when there were many independent cable companies. He explains his philosophy about running a cable company that can stand on its own, generate value and continue to re-invest and that does the right thing for the customer. Friedman recounts his role in founding the Small Cable Business Association (eventually the American Cable Association) after re-regulation of the cable business was passed by Congress, focused on the larger companies, but leading to onerous consequences for the small operators. He states that the issue was price controls, how the small-town systems were community assets, and their survival was at stake. He explores the issues facing the association, including retransmission, programming problems, and taxing, as well as the attitudes of the large companies. He comments that he was a board member from the time of the founding, and continues to serve in that capacity.
He goes on to talk about his partnership with Steve Weed, adapting to the new technology of broadband, and understanding customer needs. He explains that with broadband services, there were no programming costs since the cable programming model didn’t work with data. And how speed and delivery of service is of paramount importance to the customer. He describes the way his company has viewed broadband as the driver in growth of the business over time, subscribers’ desires for satisfaction, and the philosophy of adopting new technologies. He also discusses adopting the Roku platform, comments on Netflix and over the top providers. He recalls starting as a small cable company delivering TV channels and how that mission has radically changed. He discusses the practice of usage-based billing and Wave Broadband’s philosophy of choice and control for customers.
Friedman then addresses the difficult problems between programmers and cable operators, subscribers’ awareness of that issue, but also their perception that rates are going up all the time. He talks about critical issues with the large operators, fighting to prevent Comcast, for example, from using a new market power at the expense of small cable operators. But he also explains what he enjoys about working in the industry, the importance of working in teams, and good management techniques. He concludes with thoughts about the future of cable.
Interview Transcript
STEWART SCHLEY: Thanks for hanging out with us at the Cable Center’s oral history series. I’m Stewart Schley and we’re in Kansas City at the Independent Show presented by the American Cable Association in the summer of 2014. One of the companies that’s very emblematic of the Independent Cable breed is Wave Broadband and we have the fortune to be with its president and COO—Chief Operating Officer—Steve Friedman. Steve, thanks for spending a little time with us today.
STEVE FRIEDMAN: Thank you for having me.
SCHLEY: We’re going to talk about your views of cable, the history of the industry a little bit as you’ve seen it and kind of your role and contribution in it. You were a mild-mannered accountant when somehow you—maybe you weren’t mild-mannered, but I know you were an accountant. And somehow you stumbled into this crazy business called cable TV. I wonder if you could just tell us about your introduction to the industry.
FRIEDMAN: You know, I had the good fortune of marrying into the business. My wife’s father, I would say he’s kind of a cable pioneer. He built his first cable system in the community of King City, California, in 1967. He built that little system up—he was a radio station owner. A lot of radio station owners wanted to be able to watch TV and said, boy, if I string cable wires around and not only will I get my television, but I’ll make money by selling it to other people. So he imported into this little community—King City is in the Salinas Valley of California, kind of south of Salinas near Monterey, so he could import a station from San Jose and a station from Salinas and a station from like San Luis Obispo. So they got three stations back then.
He built that cable system up, sold it sometime in the late Seventies and then turned around and built a cable system in the city of Coalinga, California, which is about sixty miles from there, famous for an earthquake, and then hired me to run his company as we built some cable systems in Central Valley California.
SCHLEY: What was your job, what did he hire you to do?
FRIEDMAN: I was the general manager then. I was in charge of bringing in the contractors, helping build the cable system, contracting it, paying the bills. We had a small technical and operational staff. We ended up with about ten little communities we served in and around the Fresno, California area. They were small towns. You might have 400-500 homes in each. It was kind of in the “new-build” area.
SCHLEY: This was when, Steve?
FRIEDMAN: This was in the early Eighties. I came down there about 1982, when I got in the cable business.
SCHLEY: So that was the time when we were starting to see some original program channels develop and percolate.
FRIEDMAN: Yes, and in fact, my father-in-law, Bob McVay, was the first cable operator on the West Coast to carry WGN.
SCHLEY: Superstation from Chicago.
FRIEDMAN: And the reason he carried it was because he grew up a lifelong Chicago Cubs fan in Los Angeles. He wanted to watch the Cubs games, so he brought it in and charged his customers fifty cents more.
SCHLEY: Was there ever a point, family relations not withstanding, that you thought, oh, boy, what have I gotten myself into or was it a blast or what was it like?
FRIEDMAN: It was a challenge because I really didn’t know the business and I had to figure it out on my own. He was semi-retired and living 3-4 hours away and the other business partner was away, so we were trying to take this little cable company and built it into at the time an area that had no cable but also had good off-air reception. Back then it was kind of a hard area to market to. We kept the systems till 1985, when we sold them.
SCHLEY: You were offering about how many channels?
FRIEDMAN: Twelve.
SCHLEY: One-way system, obviously.
FRIEDMAN: A one-way system, twelve channels, one system had pretty fancy—actually I think we went into the midband back then. We had maybe twenty-one channels at some point. I remember we launched—the premium channels we had were HBO, Cinemax and Playboy. They all grew, they all had subscription bases that started growing as we launched it. Disney launched as a premium channel back then. I think it was about 1984. We launched Disney, turned it on and the Playboy subscriptions went from here down to here and were replaced by the Disney ones.
SCHLEY: I don’t know what to make of that.
FRIEDMAN: It was capitalism at work. I still remember that.
SCHLEY: What did you learn from that that was influential or informative as your career went on?
FRIEDMAN: What I learned about probably was execution and implementation. Because you were dealing with construction of projects that—new-builds—that you had to build within a specific timeframe because you’re borrowing money and can you deploy the money in time to start getting the revenue to go pay it back? Talk about a great learning experience at the time because building those systems allowed us to market up the subscriber number and then we sold the system and I moved on in my career. But I’ll tell you, there’s nothing more important at Wave than what happened back then which was implementation and all the acquisitions we did at Wave over the years once we started. It was all about upgrading systems and doing it on a timely basis so we could build value in the company.
SCHLEY: You got this financial pressure and timing pressure? Was it unnerving to do, was it high stress?
FRIEDMAN: At times. And you kind of wondered, you kind of sometimes say, oh, my God, now that we’ve built the system, we have to start to sell it. Every time there’s another little roadblock you have to kind of—maybe it’s a better way to talk about it, as a step, a stairway you’re climbing. So you get the design, you get the pole permits, you have your money. Now you’ve got to go bring your contractors. Then you got to build it. Now you’ve got to market it and sell it. And you do all that and you’ve got to figure out how to bill them and then you do all that and then you’ve got to make sure they pay their bill.
SCHLEY: I never ask this, but in that era, you had to hire people. You had to hire customer service people, installers, technicians, whatever. Were people available, and willing and interested in it? Had they ever heard of cable television when you guys were out looking in the market for skilled people, intelligent people?
FRIEDMAN: Office-wise, administrative and billing, it was just a job and they were all interested in doing it. Actually I had one technician who had been in the cable business and the other guys, a couple of installers, we just trained. And it wasn’t hard to find them back then.
SCHLEY: Yes, but the technology was new. There wasn’t this pool of people who were career card-carrying cable installers.
FRIEDMAN: No, they were not cable people. But you know, we still have those today. We get people out of areas and we train them in and they work their way up and when I look at the industry today and the people we have, we have a mix of technical, I’ll call them technical experts, technicians, who have grown up in the business, are probably in their thirties now and these are the people who are going to deliver my service to me when I’m retired.
SCHLEY: That company was SanVal Cablevision?
FRIEDMAN: They were known as SanVal. San Joaquin Valley was the…
SCHLEY: Then that company was sold…
FRIEDMAN: Sold that to Northland Communications in 1985 and I moved to Seattle.
SCHLEY: What was Northland about? A bigger stage on which to ply your trade?
FRIEDMAN: A bigger stage. It was an opportunity and the opportunity for me was really that they bought my company and liked me enough that we brought me on to run more cable systems for them. I was still pretty inexperienced and I made lots of mistakes and I was still learning the pieces of the business. So I came in in 1985 as they were in the midst of growing and they were probably during the time I was there, from 150,000 subscribers or so, if I recall. A mix of cable systems, more rural, similar to what I was selling to them. Kind of unserved rural markets, more classic markets is what they like to be in. And they had some cable systems around where we were and they had systems a little bit in Washington and then a lot in Texas south starting in and they were growing from there.
SCHLEY: There was a time when there were lots of independent cable companies in the market. I remember being a reporter and you could call a hundred different companies to get information or whatever. So very different.
FRIEDMAN: So different, so different back then. Your big companies. Who were they? TCI—I don’t even know if they were big back then.
SCHLEY: I think they were but it wasn’t the consolidated industry it is today obviously.
FRIEDMAN: Not at all.
SCHLEY: Take us, kind of the progression from there. From Northland—did you start Somerset?
FRIEDMAN: From Northland, I was there for five years. Learned a lot, I think I was able to take my accounting experience and apply that to the financial drivers of that company. That’s been important to creating value in the future and it continues that way. And I learned how to operate and I really developed a lot of confidence in the ability to understand that it doesn’t matter if I’m at the system, it’s more a matter of the metric, it’s a matter of being the person who really delivers on behalf of the people who work for me actually. That’s how I kind of look at my philosophy.
So in 1980 I left Northland and I was very entrepreneurial and I wanted to go my own way. I actually did two things at the same time. I started my little company called Somerset and I went down and found some cable systems to buy or to build in California. Then I also worked with another individual and we built up a little SMATV company, serving MDUs along the West Coast. Simultaneously I did them both.
SCHLEY: Satellite or small? Satellite Master Antenna Television?
FRIEDMAN: Apartments, condos, we did that in Seattle and Portland and some other in the Bay Area, San Francisco Bay Area.
SCHLEY: You alluded to the metrics and the finances. For people who didn’t know or don’t know, maybe I’m one of them, what was sort of the financial structure of the cable industry at the time or your companies? Were these high-debt entities and did they produce profit? Or was it a matter of sort of operating cash flow foundation?
FRIEDMAN: It’s a cash flow foundation, not really any different today. The Northland structure back then was limited partnerships raising equity money and then borrowing on top of it, leveraging the cash flow from the company you’re buying and continuing to re-leverage the cash flow. And that’s pretty typical. You leverage the cash flow at some level of multiple. What I learned was if you’re not careful you can overleverage. And when you do that, that stymies growth because you can’t reinvest. And that puts you in a position where you don’t have that financial flexibility to do what you need to do to grow the business. That was something I really learned a lot about there. From a good side and occasionally on a tough side—a tough acquisition, expensive acquisition could really hurt the company you could kind of turn that cash flow around so that you could de-leverage in that way.
SCHLEY: That was the game, if you will, to buy, develop and ultimately sell the properties? Was that the appeal of being an owner, an independent owner of a cable company?
FRIEDMAN: As an entrepreneur in a sense it was. It really depended. To me you have to build a company that stands on its own, that generates its value, and continues to re-invest and does the right thing for the customer. As the same thing, as you create the value, you have the flexibility to decide when you want to sell, or not. As an entrepreneur on my own, I didn’t have anybody telling me when I had to sell. And I didn’t want anyone to tell me when to sell. I wanted to decide when it was time. And so I built a little company, three, four, five thousand subscribers that we had at Somerset. Got help from my wife on that. Bought some little communities very close to the town and brought in families to be my technical people and my office people and it was really nice memories from them. I remember serving little communities there. The mayor would call me at times. Things like that.
SCHLEY: Where did you get the name Somerset?
FRIEDMAN: I lived in Seattle, in the suburb of Bellevue. We lived in a subdivision called Somerset.
SCHLEY: Fair enough.
FRIEDMAN: I don’t want to name a company after me.
SCHLEY: I want to talk about the environment you just described and then in the early 90s, you were a founder of what we used to call the Small Cable Association.
FRIEDMAN: Small Cable Business Association.
SCHLEY: Small Cable Business Association. What was the organization about and why was there a need for it, from your vantage point?
FRIEDMAN: Oh, boy. 1992, I believe, I got a letter (I got some letters, no emails, of course) from some local cable operators—Colorado, Midwest type stuff, type of operators who called an emergency meeting. The re-regulation of the cable business had just passed, had just passed the Congress and as usual, the unintended consequences—while they were trying to regulate the big guys, they really hurt the small guys. And we were the ones who had regulations enforced on us for family businesses that we really, really couldn’t afford…we had some who worried they wouldn’t be able to survive.
SCHLEY: What was an example of a very costly or onerous provision in that?
FRIEDMAN: Price controls.
SCHLEY: OK. Because you needed the flexibility to raise rates.
FRIEDMAN: Demanding of us to launch instead of a single-tier service, you had to launch a limited plus expanded back then when you really didn’t wish to do that because it would squeeze your margins at the time. The regulations were enforced upon the big companies who drove the problem when we weren’t the problem. We were a community resource and in many cases, a community asset in these little towns in America that needed to watch television. And now you were regulating the industry in a way that forced small operators to make decisions that were not community-friendly and that our customers didn’t need.
SCHLEY: So an emergency meeting was called.
FRIEDMAN: An emergency meeting was called to say, we didn’t take care of our own area. We allowed the big companies to work with Congress and look what it did to us. We need to be responsible for our own activities and out of that, the Small Cable Business Association was formed.
SCHLEY: Then you had a voice on the Hill…
FRIEDMAN: We started to have a voice on the Hill and I was involved, I think, I don’t know if I was on the board immediately but I was on the board real fast and I basically was a board member almost my entire career from then on until now.
SCHLEY: Did the formation of that organization cause at all any splintering or friction within the cable industry or was it accepted by the big guys as I understand what they’re doing and what these companies need to…
FRIEDMAN: I assumed at the beginning they laughed at us, like what do these guys know what they’re doing? But in a very short time, our interests were not the same as the big companies. They really weren’t. From the beginning, we attacked retrans. We attacked programming problems, retrans came, I think, in 1996. But programming issues were prevalent back then. And they still are today, as you know. So we were out fighting the programming discrepancies, the taxing issues, a lot of the types of things that the big companies could overcome on their own. So they kind of pooh-poohed us in a sense. They didn’t think that we were serious at the time.
SCHLEY: Who did you hire to run the DC office?
FRIEDMAN: The first president was Dave Kinley.
SCHLEY: From Viacom originally?
FRIEDMAN: Originally Viacom and he went off on his own. At the time he owned Sun Country Cable.
SCHLEY: That’s right.
FRIEDMAN: And I worked with David at Northland for a very short time. But he was leaving Northland as I was coming in coincidentally.
SCHLEY: Later the association changed the name to the American Cable Association.
FRIEDMAN: About four years later, it became—we didn’t need to be Small Cable. We really were everybody but the top six or seven companies at the time. Affiliated with NCTC we were really kind of one and the same, at least in terms of our membership. Obviously we needed to have a more national type name.
SCHLEY: Steve—Steve Weed, the founder of Wave Broadband, without you in the room credits you a lot for the success of that company, or he did in an earlier interview. How did you guys meet and what was the circumstance around your ultimate partnership?
FRIEDMAN: I credit him in the same way. We had been friends for a long time, both living in Seattle. He was at Summit and I was doing my Somerset and my other SMATV things back then. He was a friend of mine; we’d see each other a little bit in Seattle. We would really see each other doing ACA business in DC. “How come I always have to see you here when we…”
As I was selling Somerset, selling my businesses, I was going to take a little bit of time off and in fact, I had scheduled a vacation in Bend, Oregon, coincidentally. And Steve called me a week or two before and said, “I’m looking for someone to help me finish up an upgrade in Seattle and launch high-speed data,” about 1998. “Interested? I hear you’re available.” And I said, “Yes.” So we worked a deal out and I went to work for him and we’ve been working ever since. Back then they were Summit about ready to sell to the Millennium Broadstripe team. So he and I worked and quickly became partners and he’s the leader and I would help him operationally and he would be the one that would kind of set direction and point us along the way to make sure we were doing the right thing.
SCHLEY: It’s interesting, the timing, because like you said, the industry is on the cusp of this transformational product, which would be broadband or high-speed Internet. Could you see or envision what was going to happen, or what did that moment or era feel like?
FRIEDMAN: Back then, I probably didn’t see it as well as Steve did. From the moment he and I worked together, everything was about broadband. And Steve has always been so strategic and so focused on the direction where the business is going. Not that I’m not; I can see that, too. But I get much more bogged down on the execution piece…
SCHLEY: As a COO should, I suspect.
FRIEDMAN: Yes, yes, so sometimes I’m too busy trying to execute on the piece to see the direction as well as he does. But what my role was and the way I viewed my role was not only execute but make sure it really worked. If you asked me about the real driver in our company, it’s all about the customer. It’s supporting the customer so that you can grow the business and create value. And I like to come to work everyday and create value everyday. What did I do to make this company more valuable? And it’s all about making the customer happy. And when you do that, you get more business. Broadband was a product that you could see the demand. You could see the vehicle that we were building, if you built it right, was the way to continue to grow and value the business. So what we started building was networks that were scalable and upgradable and the networks we upgraded to are the ones we’re still using today except we just keep figuring out a better…we increase the capacity through digital reclamations or channel bonding and all the things, you know, grooming your channels and the technology is really driving how we’re able to do that today.
SCHLEY: Did you launch Internet before the DOCSIS specification was out there?
FRIEDMAN: Yes.
SCHLEY: So you were sort of plowing new ground in a way. What was hard about it? What made it challenging to roll out this new product?
FRIEDMAN: I don’t think we really understood the capacity issues of what really drove customers. I know of them now. If you look at a network, if you go by a cable company and we bought some that were really challenged in their ability to offer service, you’ll go to the company and they’ll have speed issues. You go to the home and you’ll fix the home. So now the home works. And it goes out into the network and suddenly it stops because the network needs to be upgraded. So you work your way through there and then you get to the headend and then there’s equipment there and you need to upgrade that equipment and then you go oh, my God, I don’t have any—I don’t have enough capacity to get into the Internet so then you’ve got to make sure—you’ve got all these pieces all along the way that you have to do. It’s like knocking down dominoes. So if you build your network so that you can always make sure that those dominoes are down, you can scale to it. And I felt it back then—the technical knowledge of the technology and the capacity to deliver was still in its infancy.
Today, my technicians, I think, understand—not only do they understand the technology and the capacity issues that affect service, but in fact data is what drives quality service on video. The best thing ever happened to video was data was because if you keep that clean, the video works better.
SCHLEY: And you can do some analytics…
FRIEDMAN: You can do so many more things. You can…
SCHLEY: Sniffing, monitoring.
FRIEDMAN: You could tell outages based upon your cable modem service. You can use it for channel monitoring, for status monitoring.
SCHLEY: Drawing on your accounting background, what was it economically about the broadband opportunity that was exciting or good for the health of a cable company?
FRIEDMAN: Oh, my God. That’s where Steve and I really work well together. What we did was we tried to invest in the network all the way to the Internet so all those dominoes I was talking about, we had ways to make sure that they were always down all the way into the Internet. And by doing that, we owned our network to the Internet. And because there’s no programming costs, you don’t have the cable programming model visited on data. We had excellent margins, good rates, quality service, and customers were happy. If you really work at speed and delivery of the service the customers expect in the way we do—I mean, I believe in if we tell a customer they’re getting 50 Mbps of cable service, I want them to be able to test and get 50 Mbps. I don’t believe in saying, well…
SCHLEY: Because you guys have staked your reputation on having the fastest Internet service wherever you operate.
FRIEDMAN: Fastest and whatever the customer buys, I want them to know they’re getting it. At any speed, 100 Mbps or below.
SCHLEY: So the growth opportunity and the cash flow margin and the cash that that business…
FRIEDMAN: So the margins were outstanding. The second thing is when we first launched it, we drove data growth. This is as the DOCSIS 1 was out, just coming out and we were delivering CMTSs. We drove data growth based upon selling. How many video customers are buying data? So that’s how we looked at it early on. We would say, data selling is 55% which meant that eventually you were going to have 55% of your customers with high-speed data as well as video.
SCHLEY: I was going to say just to clarify. At the time, a video customer was a customer. You really didn’t have any other kinds of customers.
FRIEDMAN: We were in more rural markets so you might have 67% penetration…
SCHLEY: Video.
FRIEDMAN: …80%. So we were trying to sell—we were either selling to existing customers or selling to people who were moving in. And how many of those customers were taking data? Our analytic back then was selling ratio; how many were taking data? It’s not that way anymore. It’s really the other way around. Back then, it was all about, gee, I hope we can get enough data penetration…
SCHLEY: What were you looking for, what was a home run?
FRIEDMAN: Back then, if I’m right, I’m thinking 55, 60%.
SCHLEY: OK. And it seemed achievable at the time?
FRIEDMAN: And we were doing that, we were doing that. We had, oh, boy, I think we got up to 3 Mbps of speed back then.
SCHLEY: It was enormous compared to what AOL and others had taught us.
FRIEDMAN: It was something else. On one end, back to the news, one channel. That was it.
SCHLEY: 1.6 megahertz video channel to carry the Internet. What have you—we talked about the Wave philosophy of broadband first a little bit. I think the company’s been perceived as a forerunner of some of the things that maybe are going to happen in the broader cable industry, maybe broadband being an example.
FRIEDMAN: I think so. That’s possible.
SCHLEY: Is that a planned or a staged philosophy? Has it been an accident of history that you guys seemed to be maybe on the leading edge of various curves?
FRIEDMAN: Interesting way to phrase that question. I don’t think it’s an accident. I think we’ve always viewed broadband as the driver in the growth of the business over time. We started Wave and it’s proven to be true. But I think it’s an evolution how we make these decisions. We might strategically be a little bit of a leader, but it’s not like we’re the first to do things. I’m not that aggressive on technology that I’m not sure works yet. Again, implementation is important and you only get a few opportunities with a customer to make them happy.
SCHLEY: That’s why I’m curious about—you weren’t the only company to adopt a platform like a Roku for instance. But you were one of a handful…
FRIEDMAN: We were one of the first. Right.
SCHLEY: …at the time. So I’m just curious: what was the thinking about breaking that divide, if you will, between the OTT world and the traditional cable world?
FRIEDMAN: Two paths. Path number one: if you go to the economics. It’s programming. Programming costs are high, customers don’t wish to pay so much for programming. They are starting to look for alternatives. Let’s offer an alternative. Maybe we’re not going to make the video revenue at the level we want, but the programmers are taking most of the money anyway so we really want to drive satisfaction on the broadband side and on the data side. So you go to the other side; what makes a customer happy? Well, they’re buying Rokus. They want to buy the program. They’re watching Netflix. I have my Roku, I watch MLB regularly to watch baseball. They’re starting to watch all this over the top content. Customers: we want not only to prove to the customer that we have the best vehicle to reliably deliver the content they’re watching on the Roku, which we did and we knew we did. But if a customer wants to do that, we’re about choice and control. If that’s what they wish we want to make them happy. That’s how they get satisfied. Because when a customer can do what they wish to do, they’re happier.
SCHLEY: To me, that’s like the angels singing. So I applaud you guys for that. But what you didn’t have was like the fear, right, or did you?
FRIEDMAN: No, we didn’t. Because the last part was we’ve been learning over time that customers like the service. They want somebody to take care of their service. So they’re willing to pay. They can go to Best Buy and buy a Roku player for $99…
SCHLEY: And do it all on your own.
FRIEDMAN: …and they can have it forever like I did in my own house or they can rent one from us and they know that if there’s a problem, we’ll come out and service it, we’ll replace it, we’ll take care of it and they’re happy to do that.
SCHLEY: Do they like you enough that they’ll pay you to do that?
FRIEDMAN: Yes.
SCHLEY: So you can actually have a revenue line associate with taking care of my home Internet video platform.
FRIEDMAN: We have that and that was a direction toward more of a home use anyway. We do the same with that. I mean if you talk to other cable operators, the number of wireless routers that are being rented and cable modems that are rented today, it’s 70, 80, 90% of the customers take one. But they can go buy one tomorrow. But they like knowing that it’s maintained. It’s part of the service. They view it that way; it makes them happy. So it satisfies them. They’re paying us to be a provider. They pick up the phone, they call us, we send somebody out and take care of it. So it really works.
SCHLEY: Do you ever look back and appreciate the irony of that? You started with a cable TV company and I’m not sure you’re going to be a cable TV company at some point, you know.
FRIEDMAN: Right. I know.
SCHLEY: Is it all just moving too fast you never think about that, or does that ever cross your mind? It’s an interesting departure.
FRIEDMAN: It is an interesting departure but you just think about back in the days when it was all video…
SCHLEY: Twelve channels…
FRIEDMAN: Twelve channels, twenty-one channels. A Jerrold set-top, Hamlin dials, it’s amazing what the technology’s done. Now it’s about satisfying—back then it was about delivering entertainment. Today it’s not about delivering entertainment in the same way. It’s about delivering things that allow customers to have entertainment. So if I’ve acceptably made the distinction, that’s to me the difference. Now they want choice, they want to watch what they want, they want to have access to the Internet so they can do what they want on the Internet so they can—they want access to the equipment that allows us to have a whole home entertainment system servicing all rooms if that’s what they wish. Recording TV shows to watch at another time. The things that we that we do today—it’s about delivering a service that allows a customer to do the things they’re trying to do today.
SCHLEY: And enabling that.
FRIEDMAN: Right.
SCHLEY: Making it easy.
FRIEDMAN: And it’s enabling. So it’s different because there are so many choices out there to watch and to do. Hundreds of channels on the cable; you’ve got your video on demand, you’ve got Netflix, you’ve got your other over-the-top providers. You’ve got the Internet itself.
SCHLEY: If the day comes when you do not deliver what we’ve known as a traditional linear video bundle and you leave it to the over-the-top world to make those products available, what does that do for a bandwidth perspective for your network? Does it create lots of additional space if you will?
FRIEDMAN: Yes, I think it would. We have digital service available to every single customer. Everything’s in digital. But we have kept a large analog service over the years.
SCHLEY: You still have.
FRIEDMAN: We still have. And we’ve been reclaiming the channels a little bit at a time and we’ll probably move completely off the analog level I would expect by next year. And we do that, we suddenly have all this capacity available. We will deploy it. Strategically we’ve, you know, you just create kind of a roadmap: how do you want to use your channel capacity? How much for your DOCSIS service? How much do you need for your video channels? How much for your HD? How much for your VOD? You know, every operator does that. And we will take our DOCSIS, our channel bonding and we’ll probably immediately double the capacity and then set aside some more for the future.
SCHLEY: Will people see inevitably a move toward a usage-based pricing scheme?
FRIEDMAN: We do that now.
SCHLEY: How do you do it? What are the steps or the choices?
FRIEDMAN: We started by—you’re asking two unique questions. What we do with the customer but really how do you deploy? The way you deploy it is very carefully. The first thing you do when you announce usage-based billing is the customer is going to say, oh, my God, how much am I using? So you have to have a tool immediately available for the customer to start understanding and monitoring those who care. Then you allow them to monitor as you communicate it before you really roll it out officially. Then once you roll it out then you work with the customer for a month or two until they get going. It takes six to eight months to do it and it’s worked for us. We’ve had minimal issues. What we did was we deployed—our base usage was 100 GBs of capacity in a month. And we have a tool, kind of a standard tool the vendor uses…
SCHLEY: To know how much I’m using.
FRIEDMAN: To know. You can go onto your individual website, on the website, you can log in under your user name. You can see how much you’re using for the month and it’ll tell you. We have a tool on there that if you get in the month up to a certain percentage of the capacity, it will notify you: you’re at 75% now, just want you to know. Kind of like you get on your cell phone billing. And so we started at a base of 100 GBs of capacity and then we had another tool for 300 GBs. The main service was 100. And we really didn’t use it to bill the customers. In fact, we billed very few because we made sure the base of customers was below…
SCHLEY: It’s pretty ample, right? 100 GBs.
FRIEDMAN: It’s pretty ample and we allowed customers to grow into it. So we really didn’t have anybody at that level. Very few, except for enormous users. But they would start to use it a few months into use, and usage has been growing in the industry over the years and data usage. They kind of grew past it. So then when they grew, they got billed. We might waive the first bill; we would work with them. We would up-sell them to a higher level speed which gave them more capacity and it was a great tool for upgrades. So we didn’t really want to overbill the customers.
SCHLEY: So you sort of got a reward as a customer. It wasn’t just “you’re now paying more for more data.” You have a better performing speed…
FRIEDMAN: Yes. So back then, we’d say, they would call and say, “I have a bill for so much.” And we’d say, “We’ll waive the bill and bump you up to the next package of 15 Mbps it would be back then, or 18 or some other level if that’s where we were at. And the revenue of course would go up and they would get some assurance that there’s more capacity and they got better speed and better service and they were happy. And it worked.
SCHLEY: We talked off-camera about different companies having different philosophies that are guided by different desires. I think that’s such a great example of how you deployed that service. What was the philosophy that led you to do that and not something else with regard to usage?
FRIEDMAN: The philosophy was very much choice and control. That’s one of the Wave philosophies. We want customers to be able to buy what they want, use what they want and be able to control what they want. Boy, I wish I could do that on the video side. Programmers don’t let us. But if they did, we would do it. On the data side, we could do that. Choose your price, choose your speed. And now your bandwidth usage played into that. We felt that a customer who used lots of capacity, a lot of data in a month, and it could be 500 GBs back then—there were some who would do that. They ought to be paying for what somebody else isn’t paying for, doesn’t need to pay for because they’re using 20 GBS or they’re using it for email. Or they’re not heavy users of the Internet.
SCHLEY: The theme you just brought up, that there is a challenge in terms of dealing with the video situation today. When a customer is unhappy about buying bundled video services are they unhappy with you, with Wave Broadband, or are they unhappy with the programming community that’s over here? How does that play out?
FRIEDMAN: I think from an industry standpoint, they tend to be unhappy with us. If they call and complain and we explain, they generally understand. I think today it’s much more prevalent that it is a programmer problem because there’s so much press on it. The sports pages talk about the sports rights fees and the issues that come up. They’re seeing some of the fights between the programmers and the cable operators.
SCHLEY: In a way they haven’t maybe before.
FRIEDMAN: I think that there’s a lot more knowledge of that. So that’s different. The biggest problem we have when it comes to rates is that customers think rates are going up all the time. And they’ll come to you and say, “Aw, my rates go up every month.” You keep raising my rate, you keep raising my rate.” And we do because the programmers keep raising ours and we pass it through. We don’t raise our data rates. We don’t raise our phone. Because we can control those costs. We might introduce new packages and new speeds and that could come at a higher rate, but that’s a customer choice.
SCHLEY: What has been the impact of the ACA, formerly the SBCA? What have you see in terms of—did the organization do what you wanted it to do originally?
FRIEDMAN: I think they did.
SCHLEY: I say this because you were chairman through 2011, you were just most recently the ex-officio chairman, so you know.
FRIEDMAN: I guess I’m smirking a little bit because what happens in there is the issues are not always the same but they’re comparable. And they all are about what the big conglomerates can do at the expense of the smaller companies. And we have been fighting that battle forever. Programming is the poster child for that problem. So we’re constantly fighting those issues in order to make sure that—I’ll say Congress or the FCC or even the public realizes there’s a difference between what the big guys can do and what the small guys can do. Intellectually most get it, including Congress. So when we started going on to the Hill and started lobbying, we would lobby ourselves. I mean, I’d bring my son with me.
SCHLEY: Interesting.
FRIEDMAN: He was in middle school and I’d go meet with a Congressman and I’d talk about the issues and he’d sit there. Congressmen loved it; it was really fun. And he had a great time. He always looked forward to going back.
So I’m not sure I really got through your question effectively but over time we continued to push the issues and every year there would just be a little bit of movement and a little bit more movement and we’re seeing even more. When I was chairman, I went through the Comcast-NBC/U merger. And that was what I really fought for which were conditions to prevent Comcast from using that new market power at the expense of small cable operators. I think we did pretty well and I’m pretty proud of what we accomplished there with Matt and the rest of the team. We battled back and forth and we really had to find some champions, mostly at the FCC, but we got there and we got some conditions and now the next set of mergers we’ll go back and start doing the same thing.
SCHLEY: That was exactly what I was asking. I think that’s a good example. What is fun about working in the cable industry today?
FRIEDMAN: What is fun? I was recently asked a similar question. What I look most about working in the industry and working that way, is seeing the development of people, of staff, of our employees and kind of coincidentally, working in a team. I like working in management teams, I like a group to make decisions, I don’t like to work in a vacuum. I like to banter around. I like to hire people who do a better job than I do. I enjoy that. I have no problem with that.
SCHLEY: People say that’s a hallmark of a great manager, though.
FRIEDMAN: Thank you.
SCHLEY: You want somebody who could eventually take your job, who would do it better than you could do it.
FRIEDMAN: And we’ve been hiring people recently to do that and in a sense to replace me. But what we’ve really tried to do is hire people to take roles at a little deeper level and spread out instead of me doing everything for a smaller company. As you start getting larger, you have to divide and conquer. So we bring in these really smart, capable people who take on those roles and I get to work with them. And I get the pleasure of watching them develop and then we get the pleasure of working on issues and deciding what’s right and wrong and I really enjoy that, always enjoyed that.
SCHLEY: Are there skill sets that you look for today that didn’t exist ten years ago, maybe relating either to the engineering side or the move from RF to digital to IP. What’s a good conduit or path for somebody who wants to be in cable? What skills do you want them to have?
FRIEDMAN: I don’t necessarily look for technical capabilities. It’s people. It’s management. I’m not a technician, never was. One time I had somebody call me who used to work for me and he was working for another cable operator and he said, “They’re asking me to go run this region.” I said, “You’d be great.” And he said to me, “Well, you know, I don’t understand the technical side.”
SCHLEY: How to splice a fiber?
FRIEDMAN: “I don’t understand the technical side.” I said, “You think I do?” I said, “That’s why you have technicians.” So to me the answer to this is management and direction. You have to have an ability to hire the experts but it’s a complicated business. It is more complicated than it ever was. The tech support reps we hired just to take phone calls? Oh, my God, you try to talk about them; how do they talk to a customer who has a triple play service and a whole home DVR. It is really complicated. How do you make sure the boxes work, the modems work, the phone is working, all the pieces. You understand where the problems are if there are any. It’s really complicated.
SCHLEY: I think it’s a great example of how much that job has changed from the days when you were selling a one-way video service with maybe a pay TV wrinkle, right? Or a pay-per-view wrinkle…?
FRIEDMAN: So the only issue back then was how many amplifiers and cascades did you go so that the problems didn’t multiply. Now you build networks that don’t have the cascade, but they have the use of the bandwidth is what’s so complicated. So you maintain your network and unless everything works plus some piece of equipment along the way is impacting service.
SCHLEY: Steve, you mentioned obviously your father-in-law and then I know Steve Weed has been an influential person in your cable career. Are there other people that loom large in your mind who sort of played a big role in your cable life?
FRIEDMAN: My father-in-law gave me the opportunity and I know he knows what I’ve accomplished and I really appreciate that. Steve has been just a wonderful partner and so visionary and such a good leader and allows me the flexibility to do the right thing. And he knows I will. The trust between us is very special. When I sold my first cable systems at SanVal to Northland and I went up and worked for five years there. I probably learned more then on how to really operate a cable company and to build a business there. It’s interesting. John Wetzel ran that company. He was very cash flow-oriented and really all about taking as much money out as he could to go send back to his limited partners, limiting the capital investments and things like that. But I really learned a lot about how to manage, using my capabilities to manage a financial statement, how to run a cable system and how to build it. And I was young, I was in my twenties, I barely knew what I was doing at times and I had a big region, travel from coast-to-coast, and that probably is what got me going…
SCHLEY: That was a formative…
FRIEDMAN: That was really what gave me the capability and experience. And I appreciate that. I appreciate that a lot.
SCHLEY: I wanted to end with kind of a forward-looking question, which is: do you see any competitive threat or assault that the cable industry should be worried about? I’m trying to get your opinion on how the industry is positioned. The cliché is, the world changes now more in two years than it used to in a decade, so are there worry lines out there? What do you see on the horizon?
FRIEDMAN: I’m always worried. In my capacity what worries me is that we have to adapt to the changing customer expectations quickly and promptly. They expect more from us today than they did two or three years from now. And they’re pickier about it. I don’t think that’s necessarily a bad thing. They’re entitled to be that way. We have a responsibility to deliver a quality service. So that worries me because the changes are so hard to implement and require time. We’re working towards a whole home gateway for the customer. We launched a product we weren’t satisfied with and now we’re moving to TiVO. So suddenly there’s a big jump shift and in April we started it and we’ll launch in September. We’re pretty fast. We can turn the aircraft carrier around pretty quickly. But it’s still really hard to do. So I worry that implementation and competition is really the competitive driver that can affect the business. That if you don’t do it right, you’re going to impact your business. And there’s no room for error. There’s competition in every part of the business. I think the industry has proven that we have the best, most scalable network to deliver the services the customer wants. We’re outdoing phone companies. Fiber to the Home is a great service if we’re the ones doing it, but if another company just wants to go in and build it—I don’t care if it’s Google or otherwise, it’s a lot of money and it’s hard to get everywhere you need to be. You’ve got to already be there to really do it effectively. You can do it an MDU way; we do that already.
So I think the Fiber to the Home, while it can be competitive and deliver great reliable cable speed or data speeds, I think it doesn’t scale to the regional impact. So I think I’d go back to the other part which is we have all this opportunity, we need to be able to meet the customer’s needs quickly and promptly and expand our networks to meet what the customer wants, and I think we’ll be good.
SCHLEY: Fair enough. So a lot of conversation about empowering the empowered consumer. Steve Friedman of Wave Broadband, thanks a lot for being with us for the Cable Center’s Oral History Series. I’m Stewart Schley from Kansas City.
That was a great last answer; I like that.
FRIEDMAN: Thank you.
