Interview Date: 1999
Interviewer: Steve Nelson
Abstract
Amos Hostetter describes his early cable career focus on clustering and franchising, and his own switch from the business side to operations. He mentions the critical industry move from reception to programming as well as the advent of satellite and the beginnings of HBO. He discusses his role as industry spokesman through NCTA, and his belief in service to the public, including his support for the creation of C-SPAN. He talks about the results of Continental Cablevision’s merger with US West and concludes with reflections about the future of the industry in the new millennium.
Interview Transcript
STEVE NELSON: Amos, thanks for agreeing to participate in the oral and video history program of The Cable Center. I just want to start the discussion by going back into the very early stages of your career. Tell us how you got started in business.
AMOS HOSTETTER: Well, I graduated from college in ’58 and worked for a year in New York before going to Harvard Business School and I got out of the Business School in ’61 and not unlike a lot of kids that age, decided that I didn’t want to go to work for Proctor & Gamble or General Motors or whatever. I wanted to do something on my own. As a launching pad to do that I went to work for a small business investment company called Cambridge Capital, which is the functional equivalent, in the ’60s, of today’s venture capital firms. And one of the very first deals that came through the door that they asked me to work on was a deal that Bill Daniels was brokering and it was Al Ricci’s cable system in Keene, New Hampshire. It was a $550,000 purchase and Bill had another group that could do $500,000 of it but they had a limit; they couldn’t go beyond $500,000, which was Royal Little’s SBIC in Providence, so they were looking for another $50,000.
NELSON: Scrambling around for $50,000.
HOSTETTER: Scrambling for $50,000. Well, that was a big number in those days.
NELSON: Yeah, very different.
HOSTETTER: And since no one in the group knew anything about the cable business they assigned this new kid who’d come in to do the research on it and I went and visited – it was interesting, it was principally family offices that had invested in it at that point. One of them was the Whitney office in New York, Jock Whitney’s office, and the other was the Starwood office, which is the direct descendents of Julius Rosenwald, who founded Sears Roebuck and both of them had been major owners for quite a period of time. Actually, Starwood was the genesis for TVC, which was Al Stern’s company. He is a Rosenwald descendent. So, after spending a month or so researching this, I recommended to our board that they do this deal and they said, “Fine, you sit on the board.” So I have the opportunity to meet frequently with Bill over the course of the next six months and very quickly I decided I’d been on the wrong side of this deal, that I wanted to be on the operator side, not the financing side. So in association with a guy who was then working at the Harvard Business School, Irv Grousbeck, who had been a college fraternity brother, he and I got a set of topographical maps and drew circles around all the TV stations trying to figure out where the holes were.
NELSON: Without coverage at that time, right?
HOSTETTER: Right. And in our great wisdom we decided that the nearest place to Boston, which is where we then both were that needed a cable system was Mansfield, Ohio and we went out to Mansfield – I’m trying to think, was it…? No, Mansfield was our second choice, our first choice was Lima, Ohio and we got into Lima and found that Cox newspapers, which was a Dayton based company then, in conjunction with the one local broadcaster in Lima were just applying for the franchise and we said we weren’t likely to succeed on that. So we went to Mansfield and in our wisdom decided there was too much free TV in Mansfield. Well, since then there’s been a system built there that is probably 85% penetrated. It’s been a roaring success. So we then went up the road, the third place we went was Findlay where again Cox was active and the guy who was doing franchising for Cox at that point said, “You guys stay out of my way here in Findlay and I won’t bother you up in Tiffin and Fostoria,” which were two towns a little further up the road. So we went up there and got our first franchises essentially unopposed. I think if we’d had any opposition we never would have gotten them because the total balance sheet of the company at that point was $3,000. We had to each put up $1,500 to get the thing started. So that was 1963 when we got those franchises, summer of ’61, and turnkeyed the systems with AMECO, Bruce Merrill’s company then in Phoenix and turned them on after too long a wait, actually, in January of ’65. During the period that we had waited, one of the radio stations, the one in Tiffin, which actually was the original station of Malwright Broadcasting, which you may remember as a contemporary broadcaster, that was Milton Maltz and Bob Wright was Malwright Broadcasting. They had WTTF in Tiffin. They came back from the NAB show in the summer of ’64 having heard a presentation on cable television and decided they ought to do it and in one night at the city council they got a franchise, which was a duplicate for ours, or essentially an overbuild, and they felt we didn’t have the money, which was not a bad assessment on their part. So they started to build and we started to build; it was one of the very first overbuilds.
NELSON: Who’s overbuilding whom at this point?
HOSTETTER: Well, our franchise proceeded theirs but they felt that nothing was going to happen so they came out of the box charging and we ended up having to buy them out, which cost us about a quarter of the capital which we had raised to build the systems and were it not for the fact that the systems were initially very receptive to the service, we would never have had enough money to finish the project. But we got those up and operating by June of ’65 and then went to some of the neighboring towns in Ohio and then in ’67 Irv moved out to Quincy, Illinois, which was the town his wife was from and in conjunction with the broadcaster and newspaper operator out there, we got the Quincy systems and started a cluster there in western Illinois.
NELSON: Speaking of clusters, how big was the Ohio group before you started branching out?
HOSTETTER: Those first two properties were 10,000 homes passed and I remember in the original prospectus, we rather ambitiously said, “If we’re successful here we’d like to grow the company and maybe someday have 20,000 subscribers.” So after the Illinois complex, we then got a franchise with a radio broadcaster in Stockton, California and almost simultaneously with the newspaper in Concord, New Hampshire got the franchise there and then where we were based really didn’t matter because we were going to have to travel a lot. So in 1968 we both came back to Boston and have been here ever since.
NELSON: How did you get the California franchise? That seems like a pretty leap. From Ohio to Illinois is one thing.
HOSTETTER: Through a good friend of mine we were introduced to a guy who owned one of the radio stations in Stockton, who had just done a recall on the mayor and was a very influential guy politically, he was Mr. Clean and he was the right guy at that moment in history to be associated with in Stockton. Mort Loftus was his name. So he was our partner there and Ray Joslin had come to work with us in ’68 and we asked him to go out there and he ran our California operation. Chuck Younger, who was working for the phone company in Quincy, we hired to run the systems in Illinois and Lyle Neiskern, who we had hired from Newhouse ran our Ohio properties and at that point a guy by the name of Peter Kendrick ran the New Hampshire stuff.
NELSON: So you basically had a little New England foothold, Midwest, California.
HOSTETTER: Right.
NELSON: And all those got built up substantially over the years, obviously.
HOSTETTER: Right.
NELSON: How about some of the other places that you got an early foothold in?
HOSTETTER: Well, we were early believers in clustering and also felt we could increase our franchising effectiveness if we focused, so we focused on the Boston market; Richmond, Virginia; Chicago; St. Louis; and Stockton, which actually Stockton, after we acquired American, which was 1984, we got their very large Los Angeles complex and then we bought out a local group that had owned Jacksonville. So that became another one of our markets and then as part of the American acquisition from Steve Dodge, he had that cluster in Pompano Beach, that major south Florida presence.
NELSON: Then that was the basic outline?
HOSTETTER: That was the outline of the company.
NELSON: Right, but let’s just go back to ’68. You come back to Boston and now you’re really getting kind of knee deep in this stuff. The Ohio venture was done and you started picking up a couple systems but now, okay, we’re going to consolidate and we have a national company. How did that effect your operations at that point?
HOSTETTER: Well, we had early on decided that we wanted to cluster not only for the operating effectiveness but also because it meant we could put really good people if we had enough mass in a particular area so we became a very early proponent of decentralized management and tried to hire the very best people to run these essentially as local businesses and what we did from Boston was finance them. The company was basically built on bank borrowing so we managed all the financing and oversaw the franchising and were involved in the franchising in the Boston area, but interestingly the people in the field were doing their own. They didn’t need help from us. I mean, Younger was doing it in Ohio and a guy named Bill Clancy was doing it for us in Chicago. So we were simultaneously… I think at one point I figured out we were working on something like 80 franchises simultaneously and of course the competitor in each market would say, “Look at this list of things that we know, that is public record, they filed. How could they possibly finance this if they get them.” To which we could only say, “We have fulfilled every promise we’ve ever made and there are no disappointed cities out there. We think we have the capacity to do it.”
NELSON: Do you think you lost any because of that argument?
HOSTETTER: I’m sure we lost some but it’s interesting – there are a number of companies that were built not based on franchising. For example, TCI is almost exclusively acquisitions and we were the reverse, largely because we didn’t have enough capital to buy. We were much better off if we could get the permit and build them, which was a cheaper way of getting in and I think we had a record of, I think we got four out of every five we applied for. We did a lot better than even money.
NELSON: How about some of the ones that you were involved with more personally, locally? Any stories about some of those experiences?
HOSTETTER: Well, the dominant one was when we came back in the late ’60s we had an office on the second floor of this building you’ll see out the window here, which is called the Towboat Building on the end of Lewis Wharf and it was a ramshackle site even then. It’s since been condemned and it’s all boarded up but in terms of meeting with the city officials from the Midwest, we’d always volunteer to meet them at the airport. “Oh, we don’t want to inconvenience you. You don’t need to come into town. We’ll get out to the airport and pick you up and take you to some of our systems around the Boston area.” Which was fine, but we couldn’t take them to the home office. So finally, in 1971 or ’72 we said, “Look, this just doesn’t work. We’re going to have to move to a higher rent district.” And as you can see we came 200 feet back and got into an historic building that showed a little better.
NELSON: Although, in those days, knowing Boston, the waterfront wasn’t what it is today. So it may have been an improvement over the previous but…
HOSTETTER: Right, we went from $3 a square foot space to $8 a square foot space. It still was not the high rent district.
NELSON: Yeah, but that was still pretty good money in those days for this area. So you’ve actually, this is an historic building, you’ve actually developed that over the years, but this has been your base then, for… let’s see, what’s my arithmetic here?
HOSTETTER: 25, 28 years, no, more. Darn near 30.
NELSON: So most of the history of the company has just happened within these four walls.
HOSTETTER: Well, we started in this building with half of the third floor; we shared it with another tenant. Over time we expanded to take all of it, then we bought it, and then we built the building that is back there, which tripled the floor space here.
NELSON: So, let’s continue our narrative. You’ve moved in here… how big is the company at that point, roughly?
HOSTETTER: When I came back to Boston it was no more than 40,000 subscribers. We had a lot building and a lot of franchises in process, but I think on the 10th anniversary of the company we were still under 200,000.
NELSON: And what year was that?
HOSTETTER: Well, the 10th anniversary would be mid-’70s.
NELSON: Okay. Because mid-’70s is obviously a very critical point in the whole history of the cable business. This is basically delivering reception up until now. What happened with your business with the advent of satellite delivery at that point?
HOSTETTER: Well, of course, Jerry with HBO was the original service up on the satellite and it changed, I mean, it made these urban markets we were applying in make sense, whereas previously they had been a very questionable proposition. The cable industry became more than a reception service; it became a source of programming, which dramatically changed the economic equation. Pretty exciting times.
NELSON: Did that spur you on to more acquisitions at that point because you could see that you had a very different business than you started out with.
HOSTETTER: Well, again, we did not have the capital base to be doing much buying. We didn’t have a public security, which John did, which was the basis of a lot of his acquisitions, and we didn’t have the cash. So, no, we stuck pretty close to our knitting until probably the mid-’80s when the franchising was virtually all done and I think the only franchise we got after ’82 or ’83 would have been St. Paul, Minnesota and that one only because they’d had two or three unsuccessful franchise processes and it was one of the last ones granted but then it was clear that we weren’t going to be able to grow unless we did it by acquisitions. So we acquired American Cable Systems, Steve Dodge’s company.
NELSON: Talk about that company somewhat.
HOSTETTER: Steve was one of our bankers at The First National Bank of Boston and watched this whole thing develop, probably not unlike the way Bill Daniels sort of opened my eyes about the cable business and Steve was a lender to Marc Nathanson and us and virtually all of the major companies and one day he called up and he said, “You know, I’ve decided I don’t want to be on this side of the table anymore, I want to be on the other side.” And he was our toughest competition here in greater Boston for all the suburban franchises. I mean, he beat us as often as we beat him and then it became quite obvious that to consolidate this market we really should be together and in ’85 he called me up and said, “I want to meet you for lunch.” We went out to a place in Beverly and had lunch and he said, “I don’t know whether you’ll be surprised or not,” Steve was then on the NCTA board and on the executive committee with me, which I had done, I think I first went on the NCTA board in ’68 and had been on it non-stop since then, I hadn’t been off until two years ago, which is later in the story, and he said, “I’m going to sell the company,” and he said, “I will auction it if I don’t get an offer that I think is fair, but I’m going to give you the chance to buy it and pre-empt an auction.” And I said, “Well, what price do you think is fair?” And he said, “$45 a share.” And I said, “Well, give me all your data and give me a couple days.” And I went back and it looked to me like a $35 stock, not a $45 stock and I went back and said to him, “Look, Steve, I can’t get to $45. I want to buy this company. It’s strategically perfect for us, but I’m not going to get to $45.” He said, “Well, to tell you the truth, I didn’t think you would. He said, “Can you get to $41?” I said, “I can get to $41.”
NELSON: You knew going in there that you were prepared to move up from the $35, even if it was a stretch.
HOSTETTER: Right. Strategically it was so important for us. We couldn’t not do it, but it was a very big price for cable at the time. I think we were talking $2,200-$2,300 a subscriber and it grew us about a quarter. I think we were at roughly a million and a half and he was half a million, so that acquisition put us at 2 million, so that grew us a third, really. And then after that the other two major acquisitions we did were McLatchey newspapers, which got us Fresno and a number of properties in California and then the Jacksonville purchase from the Petrie interest down there.
NELSON: What was the time period around those?
HOSTETTER: These are mid to late ’80s and after that we just built out and grew the properties that we had. That got us close to something like three and a half million subscribers before we eventually sold the company to US West.
NELSON: And out of that three and a half million, the Boston area was your major cluster. How big was that?
HOSTETTER: Close to a million.
NELSON: Close to a million. So when you added American Cable, that basically more or less doubled your size in this market.
HOSTETTER: Well, they had a big presence in Los Angeles too and their Florida properties.
NELSON: Right, so that was part of it. Right. You mentioned being involved with NCTA and from a fairly early stage. Can you go back in our narrative and kind of think of your first involvement with NCTA, how you got involved with that and kind of where you went with it?
HOSTETTER: Well, when we built the systems in Ohio, there were 18 cable systems in Ohio and most of them were owned by Tower Antenna Services, a guy named Claude Stevanus, who operated mostly in southeastern Ohio and something came up, there was a legislative issue in Ohio and a number of us began to talk and say we really need some sort of trade association to work on these issues in Columbus. So we had a meeting at a motel in Columbus and Mr. Stevanus was there and he said, “Okay, I think we should organize a state association.” And I said, “I think you’re right.” I think at this point I’m 26 or 27, it’s 1966 and he said, “Fine, let’s organize it and you be the first president.” I said, “No, no, no.” We had then maybe 3,000 subscribers and he had 50,000. He said, “No, I don’t have the time to do this; I want you to do it.” Well, the guy who ran his company was a guy by the name of Claude Squires. Claude? Paul Squires, Claude Squires. And I said, “Well, he’s the logical guy to do this.” And he looked at me and said, “No, young man, you’re going to do this.”
NELSON: He was insistent.
HOSTETTER: So I was drafted into involuntary servitude with the Ohio association and then it was a pretty logical transition, what we were doing in Ohio, there were many parallels going on in other states and I ran for the NCTA board in I guess ’67 or ’68 and was elected and never left. I mean, it was clear that an awful lot of what was going to happen in cable was going to be collective issues.
NELSON: Who was on the board at the time?
HOSTETTER: Well, Fred Ford, as president, who was a former FCC commissioner, and the board was Martin Malarkey and Bill and Bill Adler, I think may have been chairman at that point, George Barco, Irving Kahn, all of the original pioneers, Polly Dunn. It was an interesting crowd and plenty of heated debates. The enemy then, I can remember Ben Conroy giving the keynote address when he was elected chairman, which was probably ’70, was a tirade against Storer Broadcasting and Terry Lee, who, while they also owned cable systems were pushing a lot of broadcaster side of the issues and the friction then was broadcaster/cable. It then became, arguably Valenti became enemy #1 when it became studios/cable and now of course the issues are much more focused on telephone companies.
NELSON: Which it was way, way back with the pole attachment rights in the early days.
HOSTETTER: Right.
NELSON: So it’s kind of come full cycle in a sense. But that’s true, cable always seemed to have some big enemy out there. There was always somebody that was after it.
HOSTETTER: We were always the little guy. There was some big guy beating up on us. But in those days it was clearly the broadcasters and interestingly several of the major owners also had broadcasting interests and how that dynamic played out was never easy.
NELSON: And I assume they were primarily looking after their broadcast interests first.
HOSTETTER: Cable was a very secondary interest for quite awhile with a number of these owners.
NELSON: Now you’re somebody that’s always been, particularly from the standpoint of NCTA industry representation, somebody that’s spent a lot of time on the Hill and has been viewed as somebody who’s been a very good spokesman for the industry. How did you get involved in that political side of it because it seems like in the Ohio case you were sort of pushed kicking and screaming into it, so to speak.
HOSTETTER: Well, the national scene was not much different. It was clearly time away from Tiffin, Ohio or franchising in Boston or things I would rather have been doing but you know, it eventually comes down to if not me then who? And whether it was Bob Schmidt or Tom Wheeler or Jim Mooney, when you get called and they say, “We need you to come down and testify on such and such,” my first response was always why can’t this, this, and this guy do it and frequently they had excuses.
NELSON: Why did they call you the first time out? Do you remember your first episode in going on the Hill?
HOSTETTER: You know, I’m not sure if I remember my first one, but I remember an early one. Torbert McDonald preceded Lionel Van Deerlin who preceded Tim Wirth who preceded Eddie Markey in terms of chairing the House communications sub-committee and Torby McDonald was a Massachusetts congressman, so I think part of it may have been that geography.
NELSON: Talk to the local guy.
HOSTETTER: It may have been that I was a fresh face that occasionally put a period at the end of a sentence.
NELSON: So you went to see Torby…
HOSTETTER: Right.
NELSON: …and do you recollect anything from that meeting?
HOSTETTER: No, it was a hearing. I’m trying to think when Tim entered the Congress. I was in the Army with Tim Wirth and we had totally lost track of each other and I walked into my very early hearings and Tim, when we were in the Army, we were enlisted men, we were PFCs out at Army Intelligence in Fort Devins and we had both come out of – he had come out of Harvard College and I had come out of the Business School at the same time when in this class that probably had a couple million dollars worth of higher education that had been paid for because what you could do was you could look at the calendar when you were joining in those days, this was not wartime America, you were trying to get the shortest term of duty that you could and the Army, if you are scheduled to get out by January 20th, the Army has what they call Operation Santa Claus so they let you out the 20th of December so you can be home for Christmas. So if you backed up from that and figured out what day you needed to volunteer, there was a date in July when Tim coming out of Harvard College, me coming out of Harvard Business School, a whole bunch of guys out of Harvard Law School all went down to their local headquarters and volunteered.
NELSON: Already thinking ahead toward Christmas of the year after.
HOSTETTER: We had exactly five months of active duty and we were assigned to Fort Devins and we were bored to tears, I mean, there wasn’t enough to keep us busy so we finally went to the commanding officer and said, “Look, there are 18 of us. If we pull KP for the entire base for the next…” whatever number of months we had until we were out, “will you let us organize it the way we want to organize it and the people who are not needed can have full-time passes,” which let you go off the base, it’s an A-1 pass. The commander looked at us somewhat skeptically and said, “Okay.” Well, we got it to the point where four guys could do the whole thing. I mean, it was an incredibly long day but that’s all it took. There were 18 of us, we worked one day on three days off and Wirth was part of that. They had automatic potato peelers; you’d put potatoes in and it was sort of an abrasive ring that ran around that would peel off, essentially sand off, the peel. Well, we were all doing so many things that frequently a bag of potatoes would be pored in to be skinned and they’d come out about the size of a marble. So I showed up at this hearing and I hadn’t seen Tim in, I don’t know, ten or twelve years, whatever it had been since we were out of the Army. I sit down at the witness table and I look up and there’s the chairman and someone and I keep going off to the extreme side and there, the most junior Congressman from Colorado, I look up and it’s Tim Wirth. Before the hearing starts he holds up his hand and he says, “Mr. Chairman, I would like to read into the record the outstanding military history of the next witness who is about to speak,” and made up this total fabrication of my wartime record, which of course I never ratted on him or vice a versa.
NELSON: So that sort of set the stage for a triumph in your first appearance on the Hill, given that you came in as a military hero.
HOSTETTER: He became a great ally, principally because of Denver, which was his home area and the strength of cable out there, but at least a little bit because we were old buddies from the service.
NELSON: And that commanding officer let you Harvard guys, oddly enough, do this?
HOSTETTER: Three days off, one day on.
NELSON: So, aside from your involvement with NCTA, one of the other things you’ve always been very involved with has been C-SPAN. Can you talk a little bit about how you became involved with that?
HOSTETTER: Well, Bobby Rosencrans and Rex Bradley, actually, who gets less attention on this than he should, who was then the CEO of Landmark, were guys… Brian was going around, Brian was then with the trades in Washington, writing with Cablevision Magazine, or one of the early trades having come out of the Nixon OTP, which he doesn’t generally publicize. But he was there with Clay Whitehead and Nino Scalia, who was the general counsel in Washington.
NELSON: Yes, we got this in his video history.
HOSTETTER: Oh, did you? Good.
NELSON: So, it’s now on the record. His Republican roots.
HOSTETTER: But he had this concept that I’m not sure many of us really grasped about taking the House feed and putting it out on the satellite and having it available for every cable system on a no charge or modest charge basis. Henry Goldberg and Bob Rosencrans and Rex came to see me about this idea, interestingly, the first time not with Brian. There was enough of a buzz of a public service component to it that although I certainly didn’t grasp it in the scope that it is today, but it seemed like a good idea and it was a way that we could differentiate ourselves in terms of product available on the systems and it seemed that it was a pro-social sort of undertaking. So I guess there were 20 of us that committed $250,000 to this, which was a lot of money at that time.
NELSON: And for something you weren’t expecting a financial return on by any means.
HOSTETTER: Right. And that was the seed capital that got it going and it has blossomed far beyond my wildest imagination. I mean, it is… Brian does everything that he can do to deflect any credit for C-SPAN to other people; there’s no deflecting it. C-SPAN is a product of his vision and his execution. I mean, it’s unusual to find someone with the combination that he’s got. He was the visionary to have thought of it but then they way he has managed and administered it; I mean, others would have required 4 times the budget to accomplish what he has accomplished. He’s just a terrific manager and very, very cost conscious and has created an important national treasure really. This service is something we all should be immensely proud of.
NELSON: Public service, you mentioned that that was something that appealed to you about it, that it was a public service, public spirited kind of activity. Was that something that you were looking for or was that something just in your own kind of personal philosophy that you felt strongly about at the time or did just the involvement with C-SPAN kind of help reinforce that?
HOSTETTER: Well, I think the cable industry had and has, always had, an image problem. There’s some sense that the way you get these franchises at the local level is an ultimately political process and I think the perception is that it frequently gets dirty. Frankly, in my knowledge, and I think I’ve been part of over a thousand applications for municipal franchises, I can count on one hand the ones that I suspect of any sort of foul play. So that’s an aside except to say I think there’s a general perception that there’s a sort of dark side to the business.
NELSON: An under the table component.
HOSTETTER: Right. And I think we have to work to dispel that. We also have got to work to dispel the image of money oriented outside interests coming into the community that are sucking the money out of the community and sending it back to Denver or New York or Boston or whatever, and I think we have issues about answering the phone and the standard of service that we’re delivering. So I think for many it could come from just basic self-interest. I mean, we’ve got to make the extra effort to set a standard for this business that people look up to and here was a terrific opportunity to do it. In my case, I also came from a background of a very tough educational environment with an honor system and an honor code and I was an altar boy as a kid, so I came into this thing with there’s more to business than making money. Nick Johnson, who was an FCC commissioner in the middle ’70s once said to me, “You’ve got an incredible opportunity,” and I said, “Why?” He said, “You’re in one of the few businesses I know of where you can do good and do well at the same time.” And I think it’s absolutely true. I think the companies that have set a standard of service and performance and contribution to their communities have in fact been the companies that have financially done the best. I would certainly argue that that was Continental’s objectives in its years in business and today I would look at Cox and say, here’s a company who really does it right and it doesn’t hurt them financially at all. What goes around comes around and they get dividends on their pro-social investments.
NELSON: Well, I think one of the greatest dividends of cable is pro-social investments and another thing you’re closely associated with, of course, is Cable in the Classroom. Talk about the genesis of that.
HOSTETTER: Well again, the real credit there should go to Robert Sachs and Burt Karp, who were respectively with Continental and with Turner when Widdell came to market with Channel One.
NELSON: Channel One, right.
HOSTETTER: There was a real sense – I mean, Peggy Charron, who was here, and you may know as Action for Children’s Television, was outraged that schools were going – in order to get some satellite reception equipment – were going to, as part of their school day, sit kids down and have them watch commercials and that just offended her every sense. Well, Robert and Burt sort of resonated to that and said, “Well, gee, haven’t we got the same sort of resources in terms of pre-existing programming and a distribution capability. How do we package this into something that’s constructive?” So Robert came to me early on and said, “Burt and I have been talking and CNN would be potentially interested in this. How would you react?” And I said, “It sounds like a homerun to me. Let’s go.” Ted and J.C. Sparkman and Glenn Jones and I all agreed to be in Washington at the National Press Club to make an announcement about launching this and at that point, the decision on with or without advertising hadn’t even been made and Ted’s in the elevator, literally riding up – it was a conference in the National Press Club and I think it’s on the 8th floor – we get in the elevator on the ground floor and Ted said, “Okay, now what is it we’re going to do here? I understand that you’re going to distribute our programming, but what about my ads?” Somebody mentioned Widdell and Ted said, “Well, yeah, I guess we could cut the ads out, couldn’t we? Since it’s after hours.” So he walks out of the elevator and holds a press conference at which he announces this extraordinary thing, that he’s going to do this on an ad free basis, which if you’d asked him when he walked in the building on the ground floor, he had no idea.
NELSON: When it was in on the ground floor, that wasn’t the case.
HOSTETTER: Right.
NELSON: But that’s, I guess in a way, very much Ted, the ability to just kind of roll with it.
HOSTETTER: As I understand his pledge to the UN Foundation, it’s very similar. He was coming up in the elevator and he asked someone, “What’s the largest philanthropic gift that’s ever been given?” And someone said, “Well, it’s less than a billion dollars.”
NELSON: There was the number, right away. And you’ve obviously stayed very closely involved with that through your career with Cable in the Classroom. It’s not merely getting it started, but you’ve been associated with it.
HOSTETTER: Well, we were blessed with the first executive director, Bobby Kamil, who was just a human dynamo and I think badgered and cajoled virtually universal coverage for it. So the ability for the industry to talk about, on a national basis, that they were making thousands of dollars of commercial free programming available in the schools, wiring the schools without charge, I think it had real impact and I think is having, if you read some of the teacher responses today, I think is contributing significantly to the whole educational process.
NELSON: And of course led into beyond providing video in the schools, now the whole issue is the on-line access. But let me pick up back in your corporate narrative and we’d sort of taken you up through your acquisitions and you touched on this before, and that was when the company got sold. Now I sat in this room, literally, 3 ½ years ago, interviewing you on this subject and we had a remote hook-up with – you may remember this – with Chuck Lillis at US West, talking about what your expectations were for this merger. It obviously didn’t quite work out that way.
HOSTETTER: Well, it still will. It just is requiring some change of personalities.
NELSON: What happened at that point? Obviously there were nos about the move of the people from the Pilot House here, which was your nerve center and we know long-term operations headquarters. Any comment on that?
HOSTETTER: I think it was a tragedy, both for the people and also for the company’s ability to execute. I mean, they just gutted the real talent; of the 140 people here, fewer than 10 were willing to move and most of those, once they got out there decided they didn’t like the environment and went elsewhere. So, what had been a very vital, effective management team and set of relationships among people just was vaporized. It was a great loss, but they owned the company at that point and had every right to make whatever mistakes they wanted to make.
NELSON: But I know you’ve been quoted as, I guess I could characterize it as being angry about it. It sounds like part of it was because of what it did to the people that you felt responsible for, your colleagues.
HOSTETTER: Well, I was never quoted. I’ve done a very good job of staying off the record on it. I think others may have speculated that I was angry and upset but I’ve never confirmed that. It’s a reasonable supposition but…
NELSON: But not denying? Have we skirted around this?
HOSTETTER: I think they made a very bad mistake and I think it was a bad mistake in terms of human resource management. These were the best – the reason they had bought the company was it was the best management group in the business and I think they totally miscalculated whether these people would move, but I think to that extent trying to understand it as I have, hundreds of nights lying awake, how they could have made such a miscalculation, I think there’s a different mindset in the telephone industry. I mean, if you go to work, or went to work, say 15 years ago, for US West, you would expect, if you were progressing, that you would be transferred from Seattle to another job in Phoenix and a year and a half later to somewhere else and this was how your career would advance, was through a lot of moves. I think if you think about the senior level people who were making this decision, almost all of them had had five or six locations that they had lived and the in the cable business it wasn’t that way and certainly for the Continental group, I never, ever asked anyone – I mean, I might describe an opportunity to someone and say, “We need such and such a position filled in Jacksonville and if you went there, here’s the outline of the deal,” but never said, “Go.” I think particularly the group here, many of them had become very involved in their community, that was sort of the culture of the company, that not only do you have a job and a profession, but you have a community that you should be actively engaged with. People like Robert Sachs, who now is NCTA president and I think is the best government relations guy in the business, had his own personal health scare with cancer, had gone on the board of the Dana Farber and what he was doing at the Dana Farber was every bit as important to him as his career development and when they say, “You’re going to move to Denver, Robert,” he says, “Oh, no I’m not, guess again.”
NELSON: And people should know, Dana Farber is a major hospital, cancer research facility.
HOSTETTER: It is probably the premier, cutting edge facility working on cancer. So Robert was very involved there. David Fellows, probably the best technology guy in the business, had just built a house; one of his kids was very sick and was dependent on the care he was getting at Children’s Hospital here and there was no way David was going to go. Bill Schleyer had three kids who were day students at Exeter Academy in New Hampshire and he is commuting to Boston from there, but there is no comparable school for those kids in Denver. I mean, it just was – they could have gone through name by name these incredibly talented people who would respond negatively to a decision to move.
NELSON: I think also, just as another Boston person, although adopted, not by birth, is that there also is just a lot of people here want to be here, they want to stay here. I think it is sort of part of the local culture.
HOSTETTER: Well, I don’t mean to speak ill of Denver, I think a lot of people who are there want to be there and the skiing is important to them and lots of other things in Denver, but I think the mindset of “in our business you move to succeed” was a telephone company mindset that was not present in this group of Continental people and they just, they got it wrong. I said to Lillis at the last moment, I said, “Do you realize how many people you’re going to lose?” And he said, “Well, I hope you’re wrong.” No one’s ever quick enough to have that second line in these little dialogues, but as I thought about it after the fact, the right answer was, one something like this you don’t hope. You ought to find out before you decide.
NELSON: Well, let’s kind of come up to sort of the present time, speaking of telephone companies. Your position currently at AT&T Broadband and Internet Services is non-executive chairman. I think out in the industry some people are a little confused as to exactly what that is and what it means. So here’s an opportunity to kind of describe what it is and your role.
HOSTETTER: The way it was presented to me is a little different than it has turned out, but I think there are some reasons for that and I don’t think that will continue. The concept of a non-executive chairman is a very European concept and it is a director who takes a little additional responsibility for the operations of the company, acts as a sounding board to the CEO, tries to be an ally and handmaiden for the CEO and help them, particularly with their board relations and that felt very comfortable to me vis-à-vis Leo, who was at that point the CEO of the cable operation. As a result of his departure, I’m a little more involved than that and probably a little more involved than I would like to be but I’m hoping that by late winter or early spring, as the succession has been worked out there that I can get back to being a supercharged director.
NELSON: And is it just that in terms of actually being more involved in day to day operations kind of like been there, done that and you were kind of on the other side of it personally?
HOSTETTER: The company really now should stay in Denver and I think will stay in Denver and there also is a Basking Ridge component to it, so it’s more travel than I want to do and I mean I guess I have moments of frustration with if I’m going to spend this much time why am I not running this company, but then I control that instinct and realize that it’s a little more important to me at this point to get to all the soccer games than it is to be a CEO again.
NELSON: And how about in terms of the people now involved with that, personnel issues, that’s always something to be concerned about. Just in, say, looking at the old TCI people, the old Media One people are all going to be part of one company. Are they going to get merged, married together, how is that going to work out?
HOSTETTER: It’s even more complicated than that in that that company is going to be an AT&T company.
NELSON: My next question.
HOSTETTER: So it’s a three-way assimilation and I think we need to take what’s best of each of them and try and build on that but it definitely is not… the resultant company will not be AT&T, it won’t be TCI, and it won’t be Media One and it definitely won’t be Continental, but I think we’re in the process of trying to put in place a new persona for this combined entity and there’s some incredibly talented people that are there and we’ve just got to find a way to organize that and realize their capability.
NELSON: Is there any kind of timetable for the TCI/Media One operations? They’re just kind of down the street from each other almost and yet in separate worlds.
HOSTETTER: Well, with Leo moving it’s still – who knows when someone’s looking at this 30 years from now if they’ve got the timetable right. We’re a month now, or six weeks post Leo’s resignation, which was a terribly destabilizing thing, but I think Dan Somers is the right guy to be the CEO going forward. I think that no longer is a temporary assignment, that’s a permanent assignment and should be thought of that way. He’s Mike Armstrong’s closest ally and I think that bodes extremely well for them getting the attention and the resources they need to execute. But the execution now, in a company that passes 30 or 35% of the U.S. households is gigantic. The resources that it will take to turn these distribution systems and the service capability into a multi-line product is immense and we just have got to commit ourselves to do it.
NELSON: Do you think that part of Somers’ strength is just his whole financial background because of the scale of pulling this off and allocating resources to it?
HOSTETTER: Yeah, I mean, there’s no question that without AT&T’s balance sheet and without his financial training, this job can’t get done but I think the capabilities are there to do it but we’ve got to get on with doing it and I’m eager to get the Media One thing closed so we can start calling the shots in there.
NELSON: And does he have some issues in terms of dealing with the cable culture, which as you pointed out, is different from the AT&T culture?
HOSTETTER: Well, I think there’s a learning thing to go on on both sides and I’m optimistic that that will work out. The AT&T people sort of look at me and shake their heads and say, “This is a cabal; what’s going on here?” And I look at them and say, “These are all important companies and important people and you’d better spend the face time with them to work out some relationships.” But I’m convinced it’s a learning thing and as soon as they spend enough time together, all this friction will go away.
NELSON: Well, let’s just turn a little bit to the world in which cable’s operating now, which is about to take a change from a competitive standpoint because the local to local issue on behalf of the satellite people seems to have been resolved so that cable will now face a multi-channel provider who’s going to be able to deliver local TV signals. How does that change the burden on cable in this competitive environment?
HOSTETTER: Well, I think, a number of us have been saying for five years that we’ve got to ramp up the service capability and marketing know-how in this industry because it is going to be a competitive world and it has been and certainly the local adds another arrow on the quiver but a number of our systems in the Midwest have been facing Ameritech, a number of them here in the Northeast have been facing RCN. The satellite, even without local service, has been a real competitor. I mean, the multi-channel universe is changed. It’s no longer a monopoly or even a duopoly service. There are a lot of people out there who can do it. Many of the apartment buildings in areas like our Florida complex have faced serious master antenna television competition, so we’ve got to get very good at anticipating and responding to customer needs. We’ve got to package and price in ways that are responsive to their interests. There is, I think, a potential silver bullet in this telephone packaging, all distance voice, video and data, I think can be a killer, but we’ve got to complete the plant, we’ve got to get the service capability in place, we’ve got to get the – in many cases we are crippled by insufficient billing service capability. We yet don’t have a product that will handle three and four lines of service, so that software has got to be developed and to get any efficiencies out of these operations a lot of the next generation solutions have got to be software. You can’t do it with a CSR manually trying to manage all of this information.
NELSON: But you really see the bundling of these services being a critical factor in the market place – the voice, video and data?
HOSTETTER: Absolutely. I think Armstrong has been absolutely right strategically. From the day he started at AT&T he looked ahead and said, “Long distance is going to be a commodity. Lots of people are going to offer it, it’s going to be very price competitive, and this is not a business that I can get very excited about. What do I do, what’s the alternate franchise that I’ve built?” And I think he decided, what I want to build is the ability to offer the consumer or businesses a full-service solution to all of their communications needs – voice, video, data – and I think that strategically is the answer for AT&T going forward and they’re committed to it.
NELSON: Looking at that voice side of it, does that tend to stay more Basking Ridge-centric as opposed to Englewood-centric?
HOSTETTER: No, I think this new company that is developed is not going to be any of the old ones, it’s going to be some new amalgam and what they are fabulous at – I mean, frankly, since the separation, they’ve run a virtual business. They don’t deliver on any of these services; they don’t have real customer interface, they’re not rolling trucks, but they’re pros at coming up with packages like digital one rate and at marketing them, at preparing the advertising copy and knowing what sub-segments of the market are reached by what messages. So if you can graft the scale of that marketing capability onto each of these local markets that we’re operating in and the capacity now to roll the trucks and make the connects and go around the Arbucks, who have been AT&T’s biggest bane. Their ability to execute on a direction from AT&T, they will do everything they can to mess up the order. So I think now the capability is there to put all off these components together and really build a very powerful franchise.
NELSON: How about the high-speed access side of it? Obviously, this whole quote unquote open-access issue is bedeviling the industry. Even one of your long time franchises, Cambridge, Mass, they’ve denied the franchise transfer. How do you see that playing out?
HOSTETTER: The United Socialist Republic of Cambridge?
(Laughter)
NELSON: Well, that’s Cambridge. Anybody who knows Cambridge could actually almost divorce that from the cable industry except you have Portland, you have a whole bunch of places that have kind of come down the same side of that issue.
HOSTETTER: Well, just for the record, I think four or five of them out of a thousand have come down there, so it’s not… They’re the outliers, not the center on this. And I have every confidence that reason will come back to this process. You cannot have the sort of cacophony of local voices, each having a different scheme of how cable ought to provide access or be regulated or what reasonable rates are. The prospect of each municipality, county, and township deciding what is fair and reasonable terms is preposterous. The reason we have a federal structure at all – this goes back to Marbury vs. Madison – in terms of some coherence on national policy. So, I have no doubt we will get there. I got so excited about that I forgot your question.
NELSON: The point is, just looking at open-access. Even assuming we get to a national policy, is there some scenario that you see that the cable plant does perhaps gradually get opened up?
HOSTETTER: Absolutely. I think Armstrong… there’s no equivocation on this. He has said in the post-2002, when these agreements that I didn’t make, but I acquired when I acquired TCI, when those expire I am going to be available to all carriers, I mean all portals, as a distribution platform and I view the role of this company as in the distribution business, not in the content business. So I think if today he could free himself of those exclusive contracts he’d do it.
NELSON: So what that says is that there really is a strong economic model, aside from existing contracts, but there’s an economic model where the cable broadband platform becomes a carrier for a whole bunch of folks.
HOSTETTER: I’d like your opening screen to come up with an AT&T logo on it and twelve buttons, which are direct access to AOL or Yahoo or Excite or whoever’s content you want to go after. That’s my formulation for the right way for this to work.
NELSON: Actually, I think that really kind of wraps it up. Let me ask you one last question. In this environment, cable is no longer the little guy; they’re a big guy and how do you see cable’s role today as a public citizen?
HOSTETTER: Well, I hope we not only continue to carry the banners we’ve been carrying, but build some more. I think we are uniquely positioned as we were to further C-SPAN and public understanding of the way its government works. C-SPAN 2 and some of the product that they develop, which is more commentary than simply observation, I think it’s been a wonderful service. I think Cable in the Classroom is something that has to be nurtured and continued, particularly in this era of high-speed data. I think we as distributors have got to identify those areas where it just is not only good business but good corporate citizenship to make these facilities available at a cost or no cost basis because they’re too important not to be there and if we leave it to schools on their own to pay for these services, they won’t happen. I think if for no other reason than better equipping our future workforce – as I start to think about what are the human resource requirements of this AT&T going forward, I mean we can’t find enough technology empowered people to do the job we’ve got to do, so let’s go right back to the beginning and start kids moving the mouse around the screen at 8 years old so they’re comfortable with this as adults.
NELSON: One just last little thing: what is it you’ve done in this business that you kind of would like most to be remembered by, thought of, characterized by?
HOSTETTER: I think Continental Cablevision and its culture were very, very special things and I take real pride in having assembled the people who made that work. I didn’t create it. I may have empowered it, but it was hundreds and hundreds of very, very competent, committed people who said, “Hey, it’s important for us to get satisfaction from our job that’s more than our paycheck. That we feel good about what we’re doing and we feel that we’re contributing something.” And that was the company’s culture and that I’m proud to have been part of.
