Interview Date: July 29, 2014
Interviewer: Stewart Schley
Abstract
Ed Holleran discusses his entry into the cable industry as general manager at American Cable Systems at the time when HBO had gone up on the satellite and was adding programming. He talks about his enthusiasm for the job, working for a company that was not undercapitalized, and also cites his communications and interpersonal skills, as well as his credentials in business. He names Steve Dodge as a mentor, the founder of American Cable Systems. He describes Dodge’s move from lending to media, telecomm and entertainment businesses, funding Amos Hostetter and Irv Grosbeck’s systems, and then acquiring his own cable franchises in the Boston area. He recalls his mission to extend ACS into the suburban markets around Boston, where the penetration and subscriber numbers were lagging.
Holleran notes the system offered triple play of HBO, Cinemax and Showtime, and reveals how much the subscriptions cost. He explains franchising, persuading a city’s leaders that you’re the right company to deliver cable services. He explores in detail the competition for the city of Cambridge, the requirements, including putting cable underground, and how they finally won the franchise and what that entailed, especially financially. In response to a question about the company being sold to Continental Cablevision, he remembers the recommendation of Steve Dodge to take care of employees; they will then take care of customers and that will take care of the business as well, advice that Holleran followed later on when he built his own company. He reports on his position as a manager in the rollout of high-speed Internet, focusing on the business plan, installation and other efforts to ensure success of the product. He further discusses issues around pricing.
Holleran goes on to talk about partnerships the company developed, the sale of Continental to US West/MediaOne, discussions about funding and bringing on more subscribers. He responds to a question about how long installs took in the early days of cable modem service. He then explains how he and Dave Keefe created Atlantic Broadband, with help from Bill Daniels and a private equity firm, allowing them to acquire systems from Charter. He talks about the new company’s business model of focusing on broadband and less on video. He reports that the company is currently the thirteenth largest MSO in the United States, with almost 300,000 customers, which includes businesses. He then reveals that a Canadian company bought Atlantic Broadband, keeping all the employees and providing opportunities to grow. He concludes with comments about services and products that work for consumers.
Interview Transcript
STEWART SCHLEY: Hey, guys, it’s Stewart Schley for the Cable Center’s Oral History series. We’re in Kansas City today, July 29, 2014. We’re to talk for the next hour with Ed Holleran, who is the president and CEO of Atlantic Broadband, based in Quincy, Massachusetts. But he wasn’t always the president and CEO of Atlantic Broadband, so an interesting and rich career history to talk about. Ed, thanks for being here with us today.
ED HOLLERAN: Nice to be here, Stewart, thank you.
SCHLEY: I want to talk about your entry into cable and kind of what led to it and the educational background that you brought to the industry. So why don’t you just tell us how you took this path into this business?
HOLLERAN: OK. The first thing I’ll tell you is that I didn’t get into it until I was about to turn thirty-five. I kind of spent my twenties doing a number of miscellaneous things from substitute teaching to city government to working in education, higher administration, and I got a couple of Master’s degrees on the way, both from Harvard—one in the School of Education—and then an MBA from Harvard Business School. I went through that program and learned a lot and I needed it because I didn’t come from any background that gave me any orientation towards business. I grew up in a working class project area of Cambridge and the role models professionally were teachers and cops and firefighters and priests. So I wasn’t going to be any of those and I fortunately went to college and found my way eventually to Harvard Business School. Then I wanted to get into business. I didn’t know what I wanted to do so to cut through, I worked in the admissions office in Harvard Business School for two years after I graduated there. I saw what some of my friends were doing.
Then I very much wanted to get into business. I’d never been in; I was thirty-three years old. I spent one year, jumped into a $4 million importer and distributor of auto parts. I learned a few things from there that really mattered in my next step. So I kind of cut my teeth in business pretty late in life but then we were undercapitalized and ran into trouble and then I really conducted the first real job search of my life and I was in Boston. I wanted to stay in Boston. I discovered cable TV actually through going to the Baker Library for the first time and doing the traditional thinking about it, what kind of industries were around. And then I—what would fit me? I actually came across cable TV, which was pretty new in the Boston area then. It had only been in the suburbs and not very many. Time Warner had some in Somerville and Medford, but the city of Boston didn’t even have cable television then. There were actually three companies that I discovered were headquartered in Boston: Continental Cablevision, American Cablesytems and Adams-Russell, if you remember that name from way back when.
SCHLEY: Adams-Russell, yes.
HOLLERAN: Interestingly enough, in the search of trying to figure out how I would get to them, a telemarketer who worked for me in the auto parts business, his dad was the president of Adams-Russell. I actually never met with him because in the meantime, I saw an ad in the newspaper: American Cable Systems looking for a general manager for the cable system in the town of Arlington, Mass., right next to Cambridge, 6,000 subscriber system. But it did have a general manager position, which, if you go to Harvard Business School, you’re taught to want to be a general manager, a P&L responsibility, line operations. I responded to an ad. I’d done enough research to know that out of all the jobs found, only 4% were found through an ad in a newspaper—
SCHLEY: This was one of them.
HOLLERAN: This was one of them that turned out to be the one that led to getting a job.
SCHLEY: What in your research pre-dating that ad—what intrigued you about cable? Because it was a pretty young industry and there wasn’t that much programming on at the time.
HOLLERAN: What I found was that there were certain dimensions of the cable business when I looked at it. One, again, I was looking for that P&L responsibility and at that time in cable—because it was still relatively new—HBO had just gone on the satellite and it was starting to add programming and grow—it was certainly new around Boston. You could get a job then as a general manager with that P&L responsibility for a very small system. 6,000 subs, it had about $4 million in revenue, but the job was the full breadth of budgets and technology and marketing and service ops and engineering. Believe me, I’m a generalist; I’m not an accountant, I’m not steeped in marketing, but I was actually looking for that kind of generalist role. I saw that the cable industry at that point in that time had these kinds of jobs, that you could actually go in and get that kind of responsibility which I had could learn was the way to build yourself and grow in business, running a business.
SCHLEY: What did they pay a general manager of a 6,000 subscriber system in the day?
HOLLERAN: The salary was $34,000, 15% bonus and a car and very importantly, a financial stake, equity. It was a private company, venture backed and if I can—part of my search, I actually had the—now here’s a guy who by my own understanding of where I was, was about to turn thirty-five. Most people at that age had had—because I knew them, I was with them in business school—by the time they were thirty-five, they had like five to ten years of functional and/or industry experience they were leveraging and building on. I was still expecting someone to buy my futures, buy my generics, hardly proven buy my own sense of leadership. I’m smart, good communication, interpersonal skills and hire me into a job like that. So what I wanted—and I really had for the first time set up criteria that I was looking for and I wanted P&L responsibility, I wanted a growth company because I knew I couldn’t afford to have another short stint career-wise. I might have said, oh, I’ve done two years in city government, a year teaching, a year graduate school, a couple of years admissions but you know, I was getting a little long in the tooth, like I said, for this to be somebody wanting to give you a real job.
The foreign car parts company was undercapitalized so in addition to wanting a company that would have growth (which I looked at cable and they were beginning to really grow), I wanted it to be well-capitalized. I didn’t want the company to fall out from under me. I didn’t want to have to change and be looking again because I’d gotten into a situation that wasn’t capitalized. I also wanted someone I could learn from and you don’t ask somebody to be your mentor, but I wanted to be in a company where I worked for someone that I could, by observing, could really learn a lot. And Steve Dodge was that guy.
SCHLEY: Tell us about the company for those who don’t remember American Cablesystems and about its founder, Steve Dodge.
HOLLERAN: Steve was only a couple of years older than me. He had come out of Yale, been in the Navy, went to work for Bank Boston. As Steve describes it, as I got to know him in interviewing with him, he was going around head of lending for the media, telecomm and entertainment and going around the country telling all these communities how great Amos Hostetter and Irv Grosbeck were and that the bank was backing them. As he says, he looked at the trail to become CEO of the bank and decided, “I don’t want to do that, I should go and do what these guys are doing. I’m giving them money, let me figure this out.” And so Steve started American Cablesystems with some acquisitions in 1978, like in West Virginia and New York, and then decided to start building the company franchise around Boston and it became a darling of the industry, very well-regarded. Broke into the top twenty biggest companies with about a half million customers and like I said, I found an ad in the paper. I would have gone to knock on his door, but before that I found an ad.
Again, you’ve heard my background now. God knows why; he got 200 resumes, he picked ten people to interview and I was one of them. I wouldn’t have guessed that but I was selling my futures.
SCHLEY: Suddenly you’re immersed in this job, you do have P&L responsibility, you’re running marketing, engineering, everything. What was it like? What was the job like?
HOLLERAN: It was great. I’ll tell you this. I told my wife that I’m really working late these nights because it’s budget season and it will ramp down a bit. Thirty-two years later, that’s not the case. It was terrific because just the breadth. If you like the variety of things you could be involved in, and for whatever reasons, do it. My own growing up and background in organizations, I felt I had leadership and I felt I had judgment. Not the smartest guy in the room but I’m really good, I think, at listening and synthesizing and figuring things out with the help of a good team. So this is the kind of job that, you know, you kind of directed and worked withthe department heads in those areas and the corporate group and I’d never done it before. I took to it.
The other thing I was looking for—I never cared about auto parts, couldn’t relate to them so I wanted a product or service that I could—I was going to be working all the time. I didn’t want it to feel like work. I wanted it to be what I wanted to do and I had an interest in so it was pretty simple. TV and ESPN and MTV—what’s better? You know the saying about if you love your work and enjoy it, it doesn’t feel like work. So work has its challenges and the subject matter and the interest and then just the variety of the work was really interesting.
SCHLEY: What was the channel capacity or output of that system at the time?
HOLLERAN: A 450 megaherz system. So 52 channels. Analog.
SCHLEY: And did you fill them all or were you looking for more channels, were you looking for content?
HOLLERAN: We were putting out a lot of programming. I mean, the Weather Channel. You’re putting on stuff that was new. MTV. And of course, what are you going to do with all those channels? But who needs more?
SCHLEY: 52 seems like a lot.
HOLLERAN: It did. Coming out of a world of three or five.
Schley:
HOLLERAN:
Schley:
Holleran:
Schley:
Holleran:
SCHLEY: So you’re delivering 52 channels and you’re adding new programming. What was the rate you guys charged for basic cable service?
HOLLERAN: $7.35.
SCHLEY: Why $7.35?
HOLLERAN: It would have been a buck or two higher, but as part of the franchising effort, it was common to offer a rate freeze for the initial two years. And this system was just about one year in when I came into it and so it was still under that freeze. I just happened to remember it.
SCHLEY: And this was sort of a crown jewel system for the company, right?
HOLLERAN: Yes. For American, it was their first win in Massachusetts. They saw it as a showcase system and also each entity—in this case, a cable system—was funded on its own with no recourse financially to the parent. But at the same time, the bank was very interested, as was Steve Dodge, in this really doing well. What was going on here was that they were missing their numbers in the suburban market by a lot and so Steve hired me to come in and turn it around.
SCHLEY: And you did.
HOLLERAN: I’ll have to tell you though. I remember this, Stewart: I had gotten a sense of the situation. There had been a manager there but it didn’t work out. They had some issues. All right, I understand. I’m coming in to do this, but three weeks after he hired me, I’m in his office in Boston for a meeting and he says, “You’ve got the sorriest-ass system in the company.”
SCHLEY: (Laughter) Oh.
HOLLERAN: And it’s important that we fix it. The banks are really looking at this because we’re missing our numbers. I was like, OK. I understood their problem but I didn’t understand that it was that. It was my first time running something. So the sales manager had been a salesperson, not a manager at all so I quickly changed out that person. I had to make some changes like that to get the right people and they had to finish building out the network of MDUs in the city. There were some things that hadn’t been done right.
SCHLEY: So the penetration was lagging; the subscriber numbers were lagging.
HOLLERAN: The penetration was lagging, the pay to basic was really lagging because in those early days you pretty easily sold the triple play of HBO, Cinemax and Showtime. Plus basic for $29.95 a month. They considered Arlington the crown jewel but they had started building in Quincy, Mass. They were getting like 280% pay to basic. Arlington was at like 100%.
SCHLEY: When you think about the difference between $7.00 and $30.00, the pay TV triple play as you describe was really a huge economic propellant for the cable industry in those days, right?
HOLLERAN: You mean selling the pay services to get up to $30.00. The logic of that this was great value for the money to have uncut movie channels in your home for $30.00 a month, you could entertain the family a lot. So it was a great, great value.
SCHLEY: How long did you run that system and then what did you do next and kind of what lessons did you learn that you carried forth?
HOLLERAN: I ran the system for two years then moved into kind of a holding pattern in the regional office in New England in a marketing role, but primarily I had already started franchising in the city of Cambridge as part of my responsibilities. But we didn’t know if we’d win that and so this was a place to move me along, advance me, give me actually more time to do franchising. I guess the things that I learned—I learned that I really liked the business; I still saw the things that I thought were there when I wanted to get into the industry in terms of you could take this model and replicate it to another community and replicate it to another part of the country. There was a lot of growth here. So I was feeling very good about that aspect.
There’s a lot of serendipity, though, in winning a franchise or not. When I look back, I feel very fortunate that Steve wanted to go for that franchise and that we won it and then I got the job then to go in and build it and run the operation and because of the way it had to be financed with limited partnerships and off the regular balance sheet, I actually had financial and operating responsibility for a bunch of other systems that they put into this limited partnership. Franchises they had already won in Newburyport, Mass., and surrounding communities and had acquired in Marlboro, Mass. They put it into one financial entity. So I got the breadth of experience of building an urban cable system, startup, selling the limited partner units with the bankers, and what I tell my kids, the best thing someone can give you is a job and you’re getting paid to learn.
SCHLEY: It’s like you’re running your own company in many respects. Talk about, for those who don’t know, what was franchising? When you refer to franchising, what are you talking about?
HOLLERAN: I’m talking about a number of cable systems would file applications to bid to get the license to operate in that city. In those days, I mean, it was never an exclusive franchise, but de facto it was, because the economics of just selling TV really and the capital required to build your own network, it simply didn’t permit any other entrant to come in. That changed in time with some overbuilders because now you could sell TV, Internet, phone…
SCHLEY: More revenue sources, right?
HOLLERAN: It goes from $30.00 a month to $100.00 a month and so you can afford to take a piece of the market and share it and succeed. The fundamental economics—it was very important, those were the franchise wars. Cambridge was an exception because it was an urban market, a lot of people didn’t like that, they were getting used to people in suburban communities wanting to pay for TV because they used to get it off-air. But instead of having half a dozen companies bidding, someone like Continental, Adams-Russell and so forth, a bunch of others—in Cambridge, there were a limited number of bidders.
SCHLEY: Who were you competing against in Cambridge?
HOLLERAN: Well, actually Cablevision, Chuck Dolan’s company. Now this was 1984 going into 1985. They had, since I had gotten into the business in 1982, come along and won the franchise for Boston and so they were competing and we were there and then two other smaller companies were competing also.
SCHLEY: And the idea was—I know you had to submit a large physical proposal. You were basically trying to win the favor of this to impress the city leaders that you’re the right company.
HOLLERAN: Correct.
SCHLEY: For the job. How did you guys do that?
HOLLERAN: I give a lot of credit to Steve Dodge. You know, it’s a reputation thing and he had a little bit of success already. There’s a great part of it, Stewart, that I think illustrates for me. And this was a case where the city also was very professionally run. I don’t want to say Boston wasn’t, but believe me, Cambridge was. It had a city manager form of government, so you had a manager running it. He was subject to some politics but he really was responsible for running it. I think in the case of Cambridge, what illustrates it is they put out an RFP, a proposed RFP, with all kind of requirements that you’d expect. You know, 3%, public access, another percent, municipal access. Those kinds of things. It’s the cost of doing business and that’s fine. But one of the things they put in there was just unacceptable to us and to Steve, which was even though there was 90% aerial plant in the city, they wanted us or any bidder to agree to build the entire network underground. So there was a hearing for this and the other companies went in and said, yes, we’ll do that.
SCHLEY: Really.
HOLLERAN: Yes. It made no economic sense. And Steve Dodge, I can still see him standing there and they asked him the question and he said, “No, we won’t do that. In fact, if you keep that as a requirement, we’ll simply withdraw. We won’t bid.”
SCHLEY: Did it seem like a deal breaker at the time, that that was putting you out of the mix?
HOLLERAN: I didn’t think so only because I had worked for the city manager. It wasn’t because I’d worked for him, it was because he was smart and I knew he had good judgment and he understood economics. Because what I said about credibility, he looked at Steve Dodge and I think he saw a guy who was sincere, knew his numbers and told you the truth.
SCHLEY: The city manager didn’t want a distressed company running out of money or running out of capital after two years.
HOLLERAN: Exactly. But you would be surprised how many would just say, yes, because they think they’re getting all these things and make a mistake. So in fact, I honestly never worried. I told Steve, I said, “Not because the city manager told me, but I just know him. He’s not going to keep that in the proposal.”
SCHLEY: How did the city ultimately announce its award? Was it pomp and circumstance or a simple—how did they do it?
HOLLERAN: Yes, it was. It was a big deal in those days so there was a signing, a photo-op, press, the whole thing of signing the license and awarding it and then we had to hurry up and build it. We had to get a waiver from the license required from the state to build before we had the franchise because going back to the financing of this, the limited partnership, you could get accelerated depreciation for that portion of your investment if you spent it before the end of 1985. I mean, it was just a whirlwind of learning and growth. Dealing with the state, getting a waiver, starting construction before you had a franchise, getting enough of that spent so that you could factor that into your returns and get the benefit of that. It’s an education, and to get the opportunity to do that in an industry that turned out to be great was just a wonderful fortunate thing for me.
SCHLEY: So you guys won and you built the cable system. Was it a dual cable system or do you remember the…
HOLLERAN: It actually was because we had a dedicated separate I-Net that Cambridge required. Not the best use of capital but if you wanted to win it and you funded certain access things. It was a very expensive build because even though it was only 10% underground, it was Harvard Square and taking up bricks and marking them and putting them back the same way.
SCHLEY: You’ve got historical issues.
HOLLERAN: Historical stuff and—I wouldn’t do it today in my company but Steve Dodge gave me the checkbook and now we were incented through the limited partnership deal; that if we kept the spending for building the system and the wiring of the MDU under $15 million, we got a percentage of that money and we’d pay overages, not just to the current but to the lenders. So it was a very interesting financial aspect to this thing as well. Again, I had a checkbook. I was writing a quarter million dollar checks to the construction company, one signature.
SCHLEY: Talk about P&L responsibility.
HOLLERAN: Because if you paid them early, you’d get a discount. And the math worked in terms of cash flow, it really worked. At the end of that first six months of building, when you think back to pre-computers virtually or just getting them in those days, I had my admin tracking every vendor and every amount on the green bar spreadsheet manually. At the end of the year closing, a few accountants came down from corporate and said, you’re way over budget, you spent this money that…no, you could ask me, you could call me up at two in the afternoon on a Wednesday and I could tell you to the penny what we had spent. I said, “You guys are wrong. I don’t know where or why but you’re wrong. This is the truth here, these are the facts.” It caused them to have to go back. They had double-paid because a vendor used two different names when they sent the invoice. They had overpaid, double-paid, to the tune of, I don’t know, $600,000-$700,000. And we clarified that because an assistant kept the numbers for me.
SCHLEY: Did you come in under your $15 million?
HOLLERAN: We did, we did.
SCHLEY: Nice. American Cablesystems put together a number of properties, as you said. Ultimately Steve sold the company to…
HOLLERAN: Continental Cablevision.
SCHLEY: I don’t remember the date of that. Do you remember?
HOLLERAN: They closed March 1, 1988.
SCHLEY: So what did that mean for you?
HOLLERAN: There was a lot of sadness in American on that day honestly. We couldn’t have been sold to a better company. I’ll come back to that. But we were really—it’s egotistical a bit but we were really the fair-haired child and well-liked and respected by all the cable community.
SCHLEY: And the finance and banking community too?
HOLLERAN: And the programming and everything else. Steve created a special culture and Dave Keefe and I—we’ll get to that later—really the thing we’re most proud of is how we created that same kind of culture at Atlantic Broadband. You know, Steve said, “Take care of your employees; they’ll take care of customers and that will take care of business.” Every manager has to live that and what I found in those days— you listen, you respect people, it’s a meritocracy of ideas. There were no politics. It was just everybody felt they could contribute to their greatest ability and when you walk in that room for a meeting, titles didn’t matter, you just figured out what to do working together. I can only tell you, Stewart, that these many years later and having then gone and started to build a company myself that frankly it was in that image. The kind of response I get from people in the company and others who have gotten to know us just reinforces that so much. I forget what the question was, but I really learned that at American…
SCHLEY: I liked the quote that you attributed to Steve, which is take care of your employees, they’ll take care of your customers and that will take care of business. Is that how it went?
HOLLERAN: Very true.
SCHLEY: So Continental kept you aboard obviously.
HOLLERAN: Continental, yes, they kept me aboard. It was also great because I’ve lived in Boston my entire life. I didn’t want to move and the other half—that’s pretty rare to do in the cable industry, let alone in Boston. So Continental was there, they hired us. Amos has got a great company. We fit like silk on silk. They were more mature. I end up telling my managers because they would think, “All these rules…” I said, “Look, guys. That’s who we’d be if we were one-and-a-half million customers rather than half a million. You’ve got to mature and grow into this. It’s fine, it’s OK, you need these controls.” We were known for having a great time swinging for the fences, young. Continental was a little more seasoned but the same kind of values—because I think Amos did the same thing. The other part of it was hire good people and let them run things. Steve clearly did that with me. I mean, clearly let me run things.
SCHLEY: It was at Continental, or the Continental-MediaOne succession, I guess, where you were instrumental in rolling out what became a transformational product for the cable industry, which was high speed Internet. We invite you just to talk a little bit about that experience.
HOLLERAN: Again, I would start by saying just like Cambridge, we won that, how fortunate I was. I didn’t even know what the Internet was, honestly. I didn’t know TCP/IP from…thank God engineers need management. I said to my wife that honestly, we had some of the wunderkinds of the Internet on the network side, but you had to make a business out of this. They really needed someone of a general manager nature to set this up as a business unit. So everything from the business plan through installation rollout and build and so forth—there are many people responsible for the success of this. You know the old saying, “Orphan is a failure and success has many fathers.” And it’s true. I couldn’t do it alone, but I can tell you honestly I was the guy with the X on my back for the P&L responsibility for building this organization and getting the product out and so forth. I didn’t know anything about it but I learned quickly. We were in that same wave independently but in 1996, we launched, commercial launch of the residential service in that year. The same kind of window as TCI @Home, Time Warner’s Road Runner, were all around that ’95-96 when this started occurring. It was breathtaking and a great opportunity for me personally because that became sort of the future of the business.
SCHLEY: Where was the first Continental cable modem subscriber?
HOLLERAN: Needham, Mass.
SCHLEY: Needham, Mass. This was ’96, ’95?
HOLLERAN: This was ’96. September, 1996.
SCHLEY: Do you remember what you charged for Internet service?
HOLLERAN: I do. I’ll tell you a little story in a second about that. We charged—now we’re going out to the early adopters—we charged $49.95 if you took it a la carte. If you took it with video, which most did, it was $39.95.
SCHLEY: OK.
HOLLERAN: We did everything in figuring this out. I attended a focus group about the product and service and so then I came out from behind the curtain at the end and talked to the people and they asked questions. One of them said to me, “What are you going to charge for this?” Now these were the early adopters who were willing to pay $100 because they wanted the speed, they knew about it. And we were only going to be skimming that but we knew. The plan was to penetrate this market, but we didn’t have a perfect fully defined release 1.0 if you will. This person asked me, and I looked at him and said, “You’re going to tell me. I mean, I can pick a number but you’re going to decide to buy it or not. In truth you’re going to tell me what this is worth and what I can charge for it.” So we wound up at $39.95, but back to what I was saying earlier about the way Amos ran the company and Steve Dodge, this was a huge new—and in hindsight—tremendous growth of the business. To the point I was the guy with the X on my back. So I had worked for Bill Schleyer when Continental first bought us. He was running New England and I reported in to him. Then he…became EVP and president. So I’m down at the Pilot House and there’s all this stuff going on about this. I see Bill in the corridor and he said, “Hey, how’s it going? What are you going to charge?” I said, “Well, we’re going to charge $39.95.” “OK, great.”
SCHLEY: There’s not a lot riding on this decision, right?
HOLLERAN: No, right. We didn’t have consultants. We did our homework. We weren’t just throwing darts, but in terms of—when you think about it, the decision process and who decides and who’s accountable—the CTO was involved in this, and this guy here. And Bill says to me, “Ed, what are you going to charge?” I said, “Bill, $39.95, and here’s the three reasons why.” And he says, “Great.”
SCHLEY: For context, Ed, do you remember what American Online had charged for Internet service at the time? I don’t.
HOLLERAN: Yes. $9.95.
SCHLEY: So you’re considerably higher than that…
HOLLERAN: And they had content.
SCHLEY: The whole bundled package.
HOLLERAN: We didn’t even to the point of release 1.0, we weren’t going to be AOL. We weren’t going to create a walled garden with content. Our greatest value to the customer was the speed. And the speed was 1.5 megabits. But that was the equivalent of a T1 that the phone company was selling to businesses for anywhere between $800 and $1500 a month, depending on your distance. And here we were providing a T1 into a resident’s home for $39 a month. The people who got it and understood it—it was a no-brainer.
SCHLEY: Were you guys concerned about—once you understood the demand levels—the scalability and the ability to just support this product?
HOLLERAN: We walked before we ran. I mean, we started out in Needham and we actually went to the more affluent suburbs around Boston first because we knew there would be more demand and affordability for this. But we knew AOL was penetrating lower income and this should be a product, but we watched carefully as we went to Woburn, Mass., which doesn’t have the same income and others. We were really data-driven, but we tracked each community by community as we rolled it out and the penetration ramp in each one and saw how that went. And the curve of that, even as we saw the lower income ones come along, it might be a little bit behind but no, the police and firefighters were buying this, too. One of the biggest questions at the time, kind of behind your question, was a lot of people thought the dumb cable guys are never going to do this right. How can they do this? They can’t even do TV. And data has got to be so much harder.
There were a lot of talented engineers and ops people and you have to provide a good service and the network worked and the installation. So we learned how to do it. We partnered with BB&N, Bolt, Beranek and Newman, which was an early pioneer in the Arpanet. They were headquartered in Boston. We actually partnered with them to get started with them being our help desk.
SCHLEY: Interesting.
HOLLERAN: Because we didn’t have that expertise in-house. So then we had to build that in-house and we did. It scaled nicely and we went from zero customers to 2500 in that first, starting in September to the end of the year. And then we hit 40,000 a year later. On that first part, a very interesting story here is that US West MediaOne—we had started planning for this in January of ’96. We went through all that launch of the first customer in September. In November, US West MediaOne bought Continental. By the next summer of ‘97, they were pulling the headquarters back to Denver. But when they came in ’97 at that point in time, we were just starting to launch it. Because we launched a couple months later. They were very concerned then. They didn’t think we were ramping up fast enough because they had seen some softness somewhere. So I found myself doing a pitch to the top five people at Continental: Amos, Bill, Nancy the treasurer, Ron Cooper, and the top four or five people from MediaOne. All in the same room. Chuck Lillis, Doug Holmes, Rick Post. And I essentially pulled a plan together in a couple of weeks and said, “It’s not funded, but you give me…” I’m trying to remember and actually this was ’97 when they just came in. At that point we were trying to do it nationally and I said…it’s hard to remember all the particulars now, but the short of it, Stewart, was: “OK, guys, here’s the plan. You’ve got to give me $5 million and we’re at 2000 subs today. We’ll be at 23,000 at the end of the year.”
SCHLEY: Geez.
HOLLERAN: And they looked around. I was kind of feeling like, oh. And they said, OK.
SCHLEY: Really.
HOLLERAN: Because we started marketing then and we did it. We made the number.
SCHLEY: A little detail question, but in the early days of cable modem service rollouts, as we used to call it, how long did it take an installer to get a customer connected?
HOLLERAN: The very first installs would take half a day or longer because there was all kind of internal wiring and making things work. So you came down the curve, though, and to the point not just only today but pretty quickly you got that down to under two hours and then an hour.
SCHLEY: How did Atlantic Broadband come about?
HOLLERAN: One answer is necessity is the mother of invention. So career-wise, I had stayed with MediaOne just for about two years because as I said, they bought Continental in the fall of ’96. By ’97, they moved the corporate office to Denver. But they kept the high-speed data business in Boston.
SCHLEY: I remember that. That’s great.
HOLLERAN: At that time. For one year they kept it in Boston; it wasn’t because of me. We were in the midst of this rollout and ramp-up and all that. They did it because of a couple things. One is the engineers at that time could say, “I’m going to work wherever I want. I don’t have to go to Denver.” And two, they were just entering this joint venture with Time Warner for Road Runner. In that context, they kept the job there, I kept running it, delivered great. A year later my job went to Denver and I said I’m not going. They said, “Come to Denver.” And I said, “No.”
I knew there wasn’t going to be a “there there” very long. They weren’t interested in staying in the business. Good luck to them, they made a lot of money, flipped it. But it wasn’t for me to move my whole family, wife and five kids to Denver and see how all their lives settle out there. So I stayed in Boston and needed to figure out what I would do in Boston to keep my life there. The very first part of it, I rolled into a rented executive consulting with Road Runner down in Virginia, heading up on a contract basis the commercial high-speed data services but that wasn’t enough. I was getting a salary but I wanted equity so through Dave Keefe—the guy I started Atlantic Broadband with, whom I met my first day interviewing at, after I met Steve Dodge, at American Cablesystems — we had become good friends. He’d traveled all over the world. He introduced me to a private equity firm in Boston and I started an overbuild company. Didn’t get fully funded because the telecomm blackhole for debt in the summer of 2000. A number of overbuilders started in late ’99 and in 2000. So what looked like a real failure if you would in some respect was for me personally a lot of growth. I got to be the CEO, the lead guy raising money, pitching to the investment community, putting a team together. It gave me more confidence and then we had to wind that down and the year after that, Dave was around, we got together and it was the proverbial honest-to-God over breakfast in Bickford’s. “What do you want to do?” “ I don’t know, what do you want to do?”
“I don’t want to work for a big company.”
“Neither do I. Why don’t we try doing this ourselves?”
And the short of it is we then had Daniels represent us. We went around talking to all the equity firms in Boston and New York and Chicago, Madison and Dearborn, and we connected, thinking chemistry with Abry Partners in Boston. They backed us—they wanted to work with us, we chased some deals and very fortunately because there wasn’t much deal flow, we landed a pretty big one. $765 million acquisition of systems from Charter. That formed the basis of Atlantic Broadband.
SCHLEY: Those systems were where?
HOLLERAN: They were in western Pennsylvania, Johnstown, and Altoona, Miami Beach, eastern Maryland, Eastern Shore.
SCHLEY: Were there competitors for those properties that you bid against?
HOLLERAN: Bidding for the acquisition? Yes.
SCHLEY: What was your game plan? What was going to make you be able to do better with these properties than the previous owner?
HOLLERAN: A couple things. One is that the way the whole private equity model works is you can really focus on an under-managed part of a company or a company. In this case—look, it’s hard to run a big company. Charter had acquired a lot, they hadn’t done the integration, they had balance sheet woes. I mean, how do you get the 10-1 debt equity, debt to cash flow in cable. You don’t need to but they got themselves in a bad position so they were trying to sell assets to illustrate the value of these systems.
So the business model really was based on broadband. Between the equity guys and ourselves, we thought there was lot of growth in broadband. We thought video would continue to decline for the operator but a huge opportunity in broadband. And that was the simple thesis and there were other companies bidding and we fortunately won.
SCHLEY: So you bought that whole group of properties in one fell transaction? That put you on the map as a company.
HOLLERAN: Yes, Atlantic Broadband.
SCHLEY: Where are you guys today in terms of size or presence?
HOLLERAN: We’re the thirteenth largest MSO in the U.S. We’ve got close to 300,000 customers including businesses. Close to $400 million in revenue. So we’re big enough to really attract a strong team, but we’re still flat and have this culture I talked about earlier. And we did, coming up on two years this November, we sold and we were bought by Cogeco up in Canada. So a strategic bought us, they kept the management team here. We’re a wholly-owned U.S. subsidiary. They want us to run it. We kind of rolled into this situation with them. It was a good exit on the private equity side but sometimes be careful what you ask for. We thought we’d get bought by another private equity firm and folks were really excited about that. But we look back now and think in many ways, this was the best outcome. Comcast didn’t buy us and get rid of a lot of people, all those 600 employees out in the field and the call centers and all—a Canadian company bought us and we can stay whole, continue to grow, provide that continuing life and opportunity and growth for our employees.
SCHLEY: Speaking of growth, Ed, what are the services or products or implementations that are going to drive your business forward?
HOLLERAN: There’s really three things and a couple of them have been going on but they will continue to be. The first is residential broadband. That has been the backbone of the growth. We continue to take market share and grow that business. Commercial data and phone for all the MSOs. It’s about a third of our EBITDA growth in dollars now and has been for the past few years. That’s growing to 40% and higher just as the years go by. That’s strictly commercial. And then the third is really for us; I mentioned earlier we’ve gone with TiVO and we think TiVO provides us table stakes, parity, the user interface. A great experience for customers to find what they want. So as this future evolves, I think with that kind of gateway in the home and support, that last mile network, user support, allowing people to get all the content they want. It kind of comes in all kinds of different packages and ways, some through the traditional video but people are going to be consuming it from all different sources but we think the future on this network with that kind of interface will also continue to have us grow value in the business side. But the video per se is flat in terms of revenue growth.
SCHLEY: It’s interesting to hear you tell your story in that although the product mix has changed and the technology has changed, it seems like the lessons you learned from Steve Dodge are very much alive. Two companies later, at Atlantic Broadband.
HOLLERAN: You know, it’s a team, it’s people and I can tell you, people choose to come to Atlantic and we’re attracting people now from some of the big operators and programmers and they come because two things. One, they can have an impact here and they have real responsibility to have an impact that can affect the business. It’s flat; they’re part of the senior team. It’s not like things are compartmentalized. They need to be in a bigger company. So we attract people who want to have that impact and we’ve been very fortunate and I couldn’t be prouder when people say, “You’ve got a great team.”
SCHLEY: Ed, thanks. President and CEO of Atlantic Broadband. Thanks so much for spending some time with us and talking about your odyssey in cable. Appreciate it very much. For the Cable Center’s Oral History series, thanks for watching. I’m Stewart Schley.
