Jerald Kent

Jerald Kent

Interview Date: Wednesday August 06, 2003
Interview Location: St. Louis, MO
Interviewer: Paul Maxwell
Collection: Hauser Collection

MAXWELL: Hi, I’m Paul Maxwell with The Cable Center in Denver and this is part of the Gus Hauser Oral History Project of major cable television figures. Today we’ve got Jerry Kent of Cequel III, but we’re going to start by asking Jerry when he got into the business. I think it was with Cencom?

KENT: Cencom Cable. I was at Arthur Andersen public accounting and one of my clients was Bob Brooks, a long time cable entrepreneur. He founded Cencom Cable and I was helping get the company organized and he made me an offer to come out and head up the acquisition effort. In fact, it was a tough decision to leave public accounting to go to an upstart cable company, but Bob was very persuasive and I was young, stupid and single and decided to make the plunge, and glad I did and never looked back.

MAXWELL: You say you never looked back, but tell me again a little bit of how you got to Arthur Andersen where Brooks came and asked you to join him.

KENT: My long time partner and friend, Howard Wood, who was a co-founder with me and actually worked with me at Cencom, co-founder of Charter Communications and Cequel III. He hired me out of college. I went to Washington University, graduate school. He had also attended Wash U. He hired me and we worked there together for four years and worked on a number of accounts and I specialized in communications. Again, Bob was one of my clients, Bob Brooks, just about to where I went over to Cencom and the funny thing is Howard advised me, “Why do you want to leave to go to some start-up company? You’ve got a great career here in public accounting,” and then a few years later Howard left and came out to Cencom too.

MAXWELL: Did he run the office at Arthur Andersen?

KENT: He actually was in the tax department that was in charge of twelve central U.S. offices, the tax department.

MAXWELL: That’s a pretty good sized job in a major accounting firm.

KENT: He was highly respected and carried a lot of weight there at Arthur Andersen.

MAXWELL: So, where did you grow up?

KENT: I grew up in a steel town, right across the river from St. Louis in Granite City, Illinois.

MAXWELL: And went to schools here, and Washington’s here, right?

KENT: Right. I went through high school in Granite City, went over to Washington University for both undergrad and graduate school.

MAXWELL: And at Cencom, when you joined Brooks, it was just when it was starting?

KENT: Yeah, we just were closing our first tiny little acquisition when I came on board.

MAXWELL: Do you remember what system that was?

KENT: It was Cencom of Kentucky. I think we had about 1,100 subs, or something like that.

MAXWELL: That’s a small system these days.

KENT: It seemed pretty big at the time.

MAXWELL: Yeah, well, actually it did. That was about what? Early ’80s?

KENT: That was 1983.

MAXWELL: ’83. And how fast did Cencom grow?

KENT: We grew pretty rapidly. We started from scratch and we did a number of acquisitions we referred to as bootstrap financing, which is a fancy term for we raised the money any way we could – tax sheltered partnerships, we did public income funds, and we did our first high yield bond offering in 1987. We actually were going out in October to raise our high yield fund and the market crashed. We watched it crash and we were the first media high yield bond to get done post-October 19th, but it took us until February of ’88 to get it done. So, it was tough but it was well worth it. We grew to about 550,000 customers by 1991.

MAXWELL: And Cencom sold out to whom?

KENT: In 1991, we were at a seminal point in Cencom’s history. We had roughly four equal shareholder groups; we had Centennial Fund out of Denver, Steve Halstadt; Charterhouse Group International has backed us now for 20 years; Management; and we had TCI as an investor. TCI was a great partner, but part of the contract was at any time during the calendar year 1992 was a shotgun buy/sell. One party could put a price on the table, and the other side could either buy it or sell it. So we searched about for another strategic partner to offset the 2000 pound gorilla of John Malone and came across Hallmark Cards. Hallmark was trying to make a foray into the cable business. They’d hired Jim Hoak to head up their effort. We met with them and to make a long story short, Hallmark ended up buying us out, including TCI, and taking control of Cencom.

MAXWELL: They moved it where? To Dallas, if I remember?

KENT: Dallas. About ten minutes into the acquisition, they hired a consultant to see how you could put Dallas and St. Louis together and they came to the conclusion that they had to move the offices to Dallas.

MAXWELL: So you left.

KENT: They made me an offer, but frankly there were a lot of other things that happened that it was clear that it was not a good cultural fit with Cencom management and Hallmark. We were frustrated with some strategic opportunities that we thought were lost, and so Howard Wood, Barry Babcock and I, who were the three key officers running Cencom at the time, decided to leave, and figured out what are we going to do next, and ended up starting Charter Communications in January of ’93.

MAXWELL: You’re out of Cencom… well, Cencom becomes Hallmark in ’92.

KENT: We stayed until about November, December when they wanted to move the office and that’s when we decided to leave and started Charter in January of ’93. It was a tough time to start a cable company.

MAXWELL: Yeah, right then it was.

KENT: The industry had just been harshly re-regulated in 1992. There was a threat of satellite competition around the corner, and telephone companies, in particular Ray Smith at Bell Atlantic was pounding the table that he was going to bury the cable industry with overbuild competition.

MAXWELL: Well, that was because the ’92 Act essentially broke up Bell Atlantic’s acquisition of TCI at that time, too.

KENT: Right, absolutely. So, it was a tough time, but we held on to one belief that held us through and made us decide to still go forward, and that is we were smart enough to learn how ubiquitous the Internet had become, how fated, how important it was to the industry.

MAXWELL: No one did then.

KENT: Well, we did know that cable had the only broadband pipe into the home and no matter what went into that home cable was uniquely situated to benefit from any application that went into the home. It had a strategic advantage and best delivery system, and on that basis we decided to start Charter.

MAXWELL: So what was the first Charter acquisition?

KENT: Our first Charter acquisition was 100,000 subscribers.

MAXWELL: That’s a bigger reach than the first Cencom one.

KENT: That was a little bigger first deal, but it wasn’t that easy. We bought it from the McDonald brothers, Alan and Bill, but right as we were getting ready to close, the FCC in their infinite wisdom came out with a new round of rate regulation in which they were cutting the rates significantly of what we were able to charge our customers. So we had to scramble around to hold our financing in place. We met with the McDonald brothers, and as you probably well know, they’re not pushovers.

MAXWELL: No, not at all. Who was the broker on the deal?

KENT: The broker was CEA, and we were able to hold it together and we were able to have Bill and Alan in a weak moment make some concessions to help get the deal done, and we were able to close that transaction. Again, our backer – as they invested in 1983 with Cencom and stayed ’til the end – our backer there was Charterhouse Group International who financed that transaction.

MAXWELL: They’re still one of your partners, right? One of the main figures there is a Cequel III partner.

KENT: Charterhouse is a significant backer of Cequel III and they invested in our cable company and they have a major investment in our tower company.

MAXWELL: Back to Charter – so the first group of systems was where?

KENT: 100,000 customers in the Southeast, and with Charterhouse we had a very strategic strategy of buying properties clustered in the Southeast that were in second tier or suburban markets, not metro markets, and that strategy was really shaped from a consulting arrangement we had with Pactel. Our first real income was as consultants to Pactel when they were doing a project in California. They spent over 15 billion dollars rebuilding four core markets to overbuild the cable industry. Those four markets were in San Francisco, LA, Orange County, and San Diego. We found out some very interesting facts from that consulting engagement. Number one was the sheer dollars involved to rebuild just four core markets – 15 billion dollars just to overbuild four markets. Secondly, the timeframe was a 15 year timeframe. It wasn’t money that was the limiting factor, that’s how long it would take to rip out the streets and replace all their copper wire with a fiber coax arrangement. The other thing that struck us is they were building a cable system to do this; that’s what they were doing, and the other main fact was that they weren’t focused on smaller markets. Like Sacramento, you know, a million people, it was too small. It was outside their radar screen. A light bulb went off and we thought if we invest in suburban and second tier markets we’re going to be safe from telco competition for the foreseeable future.

MAXWELL: Of course, they never built out what they said they were going to, the way they said, either.

KENT: In the end, they didn’t. The funny thing is Howard and I – I’ll never forget – in the middle of this consulting arrangement we said, “If you were the president of Pactel, what would you do?”

MAXWELL: Buy a cable system.

KENT: No, we decided based on the competition that was coming and the problems they had, we said we’d sell the company. And you know what? Not too long after that they sold the company.

MAXWELL: That’s true. That’s exactly what they did. So the first systems then, you started with a nice chunk – 100,000. And that is when? This was in ’93?

KENT: We closed in April of 1994.

MAXWELL: Oh, ’94, okay. But then Charter kind of grew pretty quickly.

KENT: Yes, shortly after we closed that acquisition, Hallmark Cards decided they didn’t want to be in the cable business anymore, so three old guys in St. Louis raised their hand and said, “We would sure like to re-acquire our old company. We really want to be helpful.” As you can imagine, we weren’t exactly met with open arms.

MAXWELL: No, I know the people in Kansas City and I can imagine.

KENT: The thought of selling back to three old guys in St. Louis was not too appetizing to them. But we persisted and because of the environment, because of potential satellite competition and the fact that we were still in the throes of harsh regulation, we became the buyer of last resort. We were the only company left standing willing to buy it. We teamed with Jeff Marcus. Jeff bought a piece of the systems from Hallmark; we bought the rest, and it really put us back on the map. With partnerships and with the old properties we were approaching 700,000 subscribers and were well on our way. We brought another partner in. We focused in the metro markets and at that time we found we were of big enough size that we could then go in the metro markets and Kelso Company backed us in that transaction. The Southeast properties we put with Charterhouse and off we went.

MAXWELL: And it grew. Another couple bumps that you…

KENT: We were very acquisitive and we thought cable was a great value at the time. We were able to buy really good properties at valuations that you would dream of today. We did a number of acquisitions, we had great financial backing. In addition to Kelso and Charterhouse, Gaylord Entertainment and Gaylord, actually the prior company, Oklahoma Publishing Company, was a big backer of us. We’d done a partnership with them at Cencom in the late ’80s.

MAXWELL: Oh, really. I know they had dabbled in that side of it from the personal side because the old man, if you can say it, Gaylord owned Oklahoma Publishing all by himself, I think.

KENT: They actually, in the beginning, provided seed capital and owned about a third of Charter Communications on day one. They backed us in a few acquisitions, and so with that backing and with our main bank at the time, Toronto Dominion who continued to really support us – Steve McDonald, in fact, really helped start Charter. We were concerned about regulation, competition and all, and we were asking him what he thought and he said, “You’re going to be more successful than you were the first time because you have a track record, so I want to back you.” And he did and Toronto Dominion was a terrific supporter, and with all that we were able to grow to about 1.3 million customers by 1998.

MAXWELL: So you’ve got 1.3 million customers. That’s a decent sized… so how did you rank then? Do you remember? In the top ten?

KENT: We were a top ten cable operator. About number nine, or so.

MAXWELL: So in that period, satellite competition did arrive in ’93-’94. What effect did that have?

KENT: Well, satellite competition made us better. Actually, the first real competition we had was from an MMDS operator out in Riverside, California, and they came after us in I think it was around 1990 or so. In any event, we were caught flat-footed. We weren’t ready for them and we weren’t doing as good a job as we could of taking care of the customer. It taught me a valuable lesson, and my mantra ever since has been guard your customers as jealously as you guard your children, and we try to instill that in every employee so you go out of the way, go the extra mile to take care of your customer, and with that attitude and from that first experience, by the time satellite competition came around we were armed, and we had learned our lesson. We took care of the customer, but they certainly cut into our growth rate. I mean, satellite competition is healthy and viable, but we were also continuing to gain market share, and we were able to lead the industry year-in and year-out in internal subscriber growth. So, satellite competition was intense, but actually, I think, it makes us all better.

MAXWELL: The MMDS competition back in Riverside, how badly did it hurt you when you first recognized it was there?

KENT: We lost about 5% of our subscriber base initially.

MAXWELL: That gets your attention!

KENT: It got my attention, but you know, within about… we re-acquired our old company and within about three years we were significantly higher, in terms of subscriber count, than when they launched. We learned a lot.

MAXWELL: Are they still in business?

KENT: I don’t think they are, no.

MAXWELL: They all kind of blew away. Cross country did go away. I’m sure they did in the long run. So you’re up until ’98 with Charter, and that was a seminal year.

KENT: It was a critical year. We had investors who were patient, but it was time to get liquidity for our private equity investors. We were actually considering doing an IPO. Funny how things change, but from the launch of Charter in ’93 when the financial markets didn’t want to touch cable, fast forward to 1998 when we had very robust valuation being placed upon cable…

MAXWELL: Big time, in that era.

KENT: It really was, and so we were ripe for an IPO. It was a great way to retain control of our company and yet get liquidity for our investors. So we were in the midst of discussions with some investment bankers when – I’ll never forget – I sat down in a hotel room with Paul Allen and his right-hand man Bill Savoy, in a hotel room in Atlanta in the summer of 1998 and he had just bought Marcus Cable. Jeff was leaving to run Chancellor Media, so he needed a CEO and he also had a goal of getting at least 5 million subscribers. He really wanted to have a seat at the table for any major industry initiative and he felt he needed to bulk up in order to help craft the future of the cable industry from a technology perspective with the way he saw things in his wired world strategy. So we went back to our investors and the long story short is we crafted a deal that was very acceptable to our investors, and in fact, I think, we’re in both Kelso and Charterhouse’s hall of fame as their most successful investment and all is happy. He gained another 1.3 million subscribers and a good management team. We combined the companies and we embarked upon a plan to fulfill his goal of getting at least 5 million subs. So in the next 18 months we did about 12 major acquisitions, grew to 7 million customers. Along the way we financed it with, he put in over 6 billion dollars of his own capital, and let me tell you, somebody does that you feel like you owe them something. In addition, we did what was then the third highest high yield offering ever in the history of the world, and we did what was for one day, anyway, the third largest IPO in U.S. history. We raised 3.7 billion dollars in an IPO and we continued to finance the company. We had healthy growth, the markets were accommodating and we did grow, as I said, to 7 million customers and everything seemed like it was going great. Just one little problem, and it was well-documented. Paul and I did not see eye to eye – Paul Allen – across a wide swath of items including personnel, including vision of the business, how it should be run, where his investment and Charter fit with the rest of his investments and portfolio. So I had signed a three-year contract, originally, and mine was coming up for expiration of that contract and I decided not to renew the contract. It was tough, you know, it was my baby. It was my career. I had over 15,000 employees, we had a terrific management team, the company was doing exceedingly well, and it’s tough to leave when it’s your baby, but it’s like your kids – in the end you know they’re going to leave you. There’s always that time when they’re going to leave you. As you know now. So I decided to leave. I was pretty burned out. We had gone through a lot. I didn’t have any gray hair when we sold to Paul and I have a lot of gray hair now. But we had a lot of acquisitions, a lot of financing, there was a lot of activity, a lot of growth. So I decided to take some time off. Howard Wood, my partner, left shortly after. He was still on the board, and he left shortly after me. I took some time off and drove carpool. In fact, the local paper reported when I left and said, “What are you going to do next?” I said, “I’m going to drive carpool.” So next Monday I’m driving carpool and the principal sees me and runs over – “What are you doing? You were serious! You are driving carpool!” So I took four months off. I got together with Howard and we decided to do it a third time. So we started Cequel III.

MAXWELL: I assume you didn’t have any non-poaching regulations because you’d pretty much assembled the best of your team.

KENT: I actually did agree as part of my exit not to hire anybody for about three months. So I took four months. I wanted to take time off anyway, and we started the company. We brought in Dan Bergstein as our third partner. He was head of the telecommunications department at Paul Hastings Janofsky & Walker, been our attorney for 20 years. He’s actually been very valuable to our growth of Cequel. We were trying to come up with a name and the one thing about Howard and I is we are superstitious, so it had to start with a “C” like the first two companies. We’re trying to figure out a way and I was talking to Maggie Wilderotter and I said, “You know, we’re trying to come up with this name and we want to show we’ve done it before,” and she said, “It’s too bad you can’t use ‘sequel’, it starts with an ‘s’.” I said, “We don’t know how to spell in the Mid-west.” That’s how we came up with the name, and we started off. Charterhouse Group International agreed to back us again. They brought a small investment that they had at a tower company. They asked us to get involved, we took a look at it, loved the business. It’s an industry like cable in the early ’90s, ripe for consolidation, and we’ve been amassing a portfolio of towers and it’s been a lot of fun. In addition, we became the king of rural cable with apologies to Rocco Commisso.


MAXWELL: You do have to apologize there.

KENT: We were really rural. We weren’t looking through rose-colored glasses. It’s a tough management challenge. Two years ago when I left Charter if you’d said I’d be the king of rural cable I would have said you were nuts, but some things have really changed. With pending acquisitions we’re about up to 500,000 customers from when we got into this business in January. But some things have really changed that made rural cable exciting for us. Certainly on the downside, satellite competition is even worse than it used to be and there is very intense competition, very price competitive, and it makes it difficult. But first of all, the multiples for rural cable have come down. Three years ago people were paying 9, 10, 11 times cash flow multiples for rural cable. Today it’s 6 to 7, so we find that much more economically attractive. Secondly, and probably more important, or just as important, the technology costs have come into fruition for rural cable. So, headend costs for high-speed data, which I think is the savior of the cable industry, have decreased from about $50,000 down to $15,000. With DOCSIS technology I don’t have to rebuild my plant to have a pristine signal and provide high-speed data. I can actually provide high-speed data two-way over old 330 megahertz plant just by using one six megahertz channel.

MAXWELL: Which makes a big difference in the cost of rollout for that.

KENT: Absolutely. And the modem costs have gone down from where, at one point, was $200 to about $50. So data has become a real product that we can deploy into the small rural systems economically, and in addition on digital the headend costs have come down from the start from over $100,000 to about $20,000. The digital box prices keep declining, so I can now provide a full menu of service even to small 800 subscriber systems and make money at it, and that’s what’s attracted us to rural cable.

MAXWELL: What’s your smallest system?

KENT: We have one that’s seven subscribers.

MAXWELL: Where is that?

KENT: It is in Texas.

MAXWELL: West Texas?

KENT: It is in west Texas.

MAXWELL: And what’s the biggest now?

KENT: Our biggest is, we had 27,000 subs that we just acquired from Shaw Communications in Houston. It’s actually in the city limits of Houston, Texas. It’s actually three headends, but they’ll be tied together.

MAXWELL: What is the neighborhood?

KENT: It’s Kingwood.

MAXWELL: Oh, it’s Kingwood? That’s not so bad. I grew up there.

KENT: Oh, did you really?

MAXWELL: Yeah, my folks still live there. Strange laws about the zoning/non-zoning, little pockets of places, and what’s in the city limits, what’s in the county limits. It’s different from anywhere except Louisiana maybe, where it’s really different. So you’ve got almost half a million now. You remind me of Classic, one of the ones that have tried to do what you’re talking about a little too early, perhaps.

KENT: Too early, paid too much for the systems. I mentioned the multiples were out of whack. People weren’t distinguishing much from a per subscriber cash flow multiple from urban systems versus rural. There really wasn’t that much of a discount and there should be given the prospects, the competition, the capital dollars that it takes. So they’re paying too much, they became over-leveraged – you know, the bane of the cable industry is to become…

MAXWELL: Yes, historically the problem.

KENT: It’s always been the problem. It’s always the classic – no pun intended – good business/bad balance sheet and they had a number of acquisitions, they didn’t integrate them, they really didn’t focus on the customer, at least in my opinion, and they were ahead of the curve in terms of trying to provide digital and data. It was uneconomical at the time. The technology costs that I mentioned have come down so much that you can now economically deploy those services profitably to your customers and that’s a big difference.

MAXWELL: You’ve become, in the cable trade press, a bit of a – what’s the right word – an advocate for different pricing structures from programmers for smaller systems.

KENT: That’s a very diplomatic way of putting it.

MAXWELL: Yes, I was trying my best. I’m not very good at the diplomacy part, either. In addressing that issue, we were just at the NCTC thing – Patty was there – and Sean Bratches of ESPN, to put it in perspective, came and listened to the National TV Co-op and the American Cable Association’s complaints about the pricing of his services, but he of course spent the entire time talking about value and the value he delivers. Can you explain why you think some differences should come about in the way in which programming is priced for smaller versus larger operators?

KENT: Well, I don’t understand why there should be significant discounts for larger operators versus small except for the clout that they have, but there is no economic advantage to the programmer. It’s the same cost to deliver to a 3 million subscriber MSO, or a 200,000 subscriber headend as it is to my 500 subscriber headend.

MAXWELL: So, Jerry, we were talking about programming costs and the industry practice of some substantial discounts for much larger multiple system operators than those in your category of smaller systems at the moment, but Brian Roberts who runs Comcast would say in answer to that a two-word answer – “Size matters.” How do you argue with the programmers faced with that kind of a question?

KENT: Size matters in negotiating and getting leverage, absolutely, but I’m looking at it from a standpoint of fairness. Should somebody who lives in a small little town and is served by a smaller operator, should they be forced to pay higher costs than somebody who lives in New York City?

MAXWELL: Of course, before Wal-mart they always did, and that was a simple fact. It takes more to deliver goods to smaller communities.

KENT: That was my point earlier. There is no cost differential; there is no bigger cost to get to the smaller town. The only reason the programmers are doing it is because they can, and I just think there ought to be a level playing field so that there isn’t a digital divide. We’re trying to bring data, high-speed data, to rural markets that no one else will provide. We’re trying to bring technological innovation to these rural markets. It makes it a lot harder if I have to pay higher costs than others in metropolitan markets, and I think in order to level the playing field and to make sure… if it’s good public policy and good for the cable industry to bring these innovative services to the rural market, which I believe it is, than I need to have a level playing field and I can’t do all that if I’m forced to pay significantly higher costs.

MAXWELL: Can you pose this argument – instead of vis-à-vis the larger cable operators – post it vis-à-vis your satellite competitors because they pay a rate that is discounted by size that’s substantial, and the difference there, of course, is the homes passed differential between the satellite footprint and your footprint.

KENT: Yeah, that’s an issue too, and it makes it tougher for me to compete, but I also think that again, if you want to bridge the digital divide, satellite can’t bring effective, real two-way high-speed data. It can’t.

MAXWELL: It can’t at a price point that can match yours.

KENT: They’re unwilling to do it at this point. They actually physically can’t provide true video-on-demand and other services. I could go on and on, but the point is I can provide those services, but only if I’m provided a level playing field, and that’s all I’m asking for. I’m not asking for some special advantage.

MAXWELL: Are you making any headway with the programmers?

KENT: We are negotiating with the programmers. It’s not easy. We’ve got Patty McCaskill, who I think is probably the best in the business. She’s certainly ruffled enough feathers, so I guess that makes you successful. We’ve made some inroads, but this is going to be a long process. What I’m afraid of is there’s a train wreck waiting to happen. I’ve beat up on certain programmers really for the last three or four years, and that’s because I see the continued double digit increases year-in, year-out for our programming costs, yet I can’t pass along double digit rate increases. First of all, I’d lose customers; second of all I would probably end up with a re-regulated industry again. What you’ve seen over the last three to four years, every company has basically had erosion in their margins. The only thing that’s been the savior has really been data, and that’s great but that can’t continue. It’s not a healthy industry if you have continued erosion in your core business margins. Something’s got to give, and I understand ESPN has to pay higher and higher programming costs. I see what’s happening to the sports costs; I see what’s happening with ticket prices to sports venues. I understand all that, and to a certain point I’m sympathetic, but I can’t continue to have sports programmers raise my rates 15-20% or more a year and continue to operate a healthy business. Something’s got to give or there’s a train wreck, and I see the programmers and independent operators as really in a fight and we don’t like to have sour issues, but I’m not Comcast. I don’t have 20 million customers. I have maybe half a million customers, and if I can’t get to negotiations, some way to at least stabilize my business, my risk is I go to Washington and live with the consequences – or as Mike Wilner said “unintended consequences” – or I live with a known commodity which is continued erosion and problems in my core video business. At some point maybe I have to roll the dice with Washington.

MAXWELL: Another way to look at it is to roll the dice with the programming you deliver, to perhaps change that mix.

KENT: Yeah, there’s some tough decisions to be made. We’ve made them, but frankly Classic Cable*, which will soon be renamed – we haven’t picked the final name, but let’s use Classic for now – if I dropped a major service and cost them close to 500,000 customers doesn’t quite have the same impact as if Jim Robbins of Cox, to pick a name, should drop a service. If you’re talking millions of customers I think you have better negotiating leverage. For me to drop ESPN, they would probably take the gamble and make an example. If somebody with 7 million subs did that, that’s a different equation.

*now called Cebridge Connections.

MAXWELL: I think somebody’s going to.

KENT: Somebody is going to have to. As I said, it’s a matter of stabilizing your business. You can’t continue to have eroding margins in your business and remain healthy.

MAXWELL: So that’s where Cequel’s grown to today. So let’s take a look at some of the things that The Cable Center likes to ask. One of the questions to think about – what would you call the most rewarding moment of your career?

KENT: It’s been an interesting career. As one of the songs from The Grateful Dead says, “What a long, strange trip it’s been.” There’s been a lot of ups and downs in the business. But I’d have to say doing what was then the third largest IPO in U.S. history is certainly up there with all of them. To go out, raise that kind of money, get the confidence of the market, have your stock go up, that first day of trading, and be able to do something like that, it’s rarified air. It’s not one person doing it, it was a management team that went out and operated. We had gone through a number of major acquisitions; we had tripled our size, and we were delivering results, and delivering results and getting the IPO done was really gratifying.

MAXWELL: It was rewarding, it sounds like it might have been the most challenging as well.

KENT: Definitely challenging. That was very challenging.

MAXWELL: And that is another of their questions – what was the most challenging aspect of your career so far?

KENT: I could say getting along with Paul Allen, and I failed at that, which I will take some responsibility for. The most challenging is probably where I am today. Rural cable, as I said, we don’t take this challenge on with rose-colored glasses. We know it is a very tough management challenge. Fortunately, I was able to bring in a real world class management team to follow me over from Charter and I think we can make a difference, and I think the technology costs and the value that we’re bringing in, if we can, again, make sure we take care of the customer, time will tell but I think we can be successful, but it’s a challenge.

MAXWELL: Well, you already answered this question in fact, but if this is the most difficult challenge, the interesting thing is who do you have collected around you again to do it? The guys from Charterhouse, a 20 year partner and attorney, and the same management team. That is a somewhat remarkable thing to be able to do.

KENT: You take a lot of satisfaction when people leave a company, one of the largest in the business, and come over to you when you really don’t have anything, and we’ve had a number of people who have been loyal, who have been dedicated, and have this great accord, and I think that’s what makes us successful. It always boils down to the people – how you take care of them; if you take care of them, they’ll take care of you, and people are what make the difference.

MAXWELL: Who have been your mentors in this business?

KENT: My mentor since I got out of college is Howard Wood, and he’s as honest and has as much integrity as anybody, but also he’s the best at caring for people and coaching people and helping them get along to different levels and continue to progress. He’s as good as anybody I’ve ever seen, and I’m not just saying that. He is terrific, and really takes a keen interest in people’s careers, and he’s been my mentor since I got out of college. Everything I’ve done I owe to him. He’s done a lot for me.

MAXWELL: What do you think is going to happen in cable in the next five years?

KENT: I hope there’s not a train wreck between the programmers and the operators. In the next five years I think the platform – again, the reason we started Charter was true then and is true today, we have the only broadband pipe into the home.

MAXWELL: You know, you have another telephone company actually talking about doing what Pactel talked about and didn’t do, and that’s Verizon with its 20 billion dollar program to put fiber to every home.

KENT: They’re not the only ones, by the way.

MAXWELL: No, I know that. Do you think they’ll do it?

KENT: They just never learn, do they?

MAXWELL: Do you really think they’ll do it?

KENT: You know, telephone companies have a history of talking big and not always following through. I certainly believe them that they’re spending significant dollars, they’re putting fiber in. The fiber to the home still hasn’t been totally perfected and I think it’s not the most cost effective way. So I wouldn’t say they’re not going to do it, but I’m not sure the economics are going to work out.

MAXWELL: The guy who says he’s going to do it is Seidenberg, who runs Verizon. He’s on the Viacom board. I find that fascinating, actually.

KENT: He’s obviously had at least one eye on the cable business, but I’m not sure he’s doing this just for the video side of the business. He is facing intense competition from high-speed cable modems.

MAXWELL: Right. Cell phones.

KENT: Let’s face it, DSL is an inferior product and there’s a reason why cable is winning in the residential wars. For the next five years, if you ask me that question, I’ll still hold true – cable will win out over DSL. That’s number one. Number two, their cellular business is an issue. It’s highly competitive. They have a quality of service issue coming up in November. A lot of this affects my tower business, one of the reasons I love it so much, and the portability that’s going through cellular phones. So they’re going to have to compete solely on quality of service because people can interchange services. They’re going to see continued erosion on landline. They’re losing a number of landline connections, and that’s to competition. As much as anything, I think it’s a defensive measure to make sure that they don’t take their eye off the ball, that they don’t have continued erosion of their customer base as much as the video business. I don’t think he’s looking at this – I don’t know for sure – but I can’t imagine they’re going to say this is just for the video business.

MAXWELL: No, I would imagine not, but two of the phone companies are trying to team up with EchoStar to co-distribute SBC, in particular, which has a large investment in EchoStar. What kind of competition do you see coming from efforts like that?

KENT: The competition’s already there. They already co-market and maybe it’ll slightly intensify, but they’ve already been marketing against us, so I don’t really see much change. I think it’s just more of the same.

MAXWELL: What about churn in the smaller markets that you have? Echo Star with its serious low cost entry, has that impacted seriously, and what kind of competition do you see from the two different satellite providers?

KENT: Churn, from my experience, is higher in the rural markets, so far, but I think part of that is being able to make sure you’re taking care of the customer. We’re making some changes operationally. Also, getting data out there. Data’s a glue; it will hold your customers and we will get to over 70% of our customers being able to get data. We’re not even close to that today. So, ask me again once we hit data to each of our markets and I think that will have dramatic impact on churn because it really gives us a competitive edge. So SBC can team with EchoStar, Direct TV and Echo Star are viable competitors, but they can’t provide internet service, and in this day and age that’s critical and we plan on using that to continue to give us a competitive edge and once we have it rolled out in each market I think that’s going to be the savior of cable.

MAXWELL: With News Corps shortly taking over Direct TV, do you expect a difference in the competition from Murdoch and company?

KENT: Never take Rupert Murdoch lightly. It worries me. Someone with his programming interests; someone who certainly has retransmission consent, this can be used as a tool. I think it’s something that should worry the cable industry. I think he has a number of means with a satellite delivery system that could have a significant impact on cable. So, yes, it does worry me.

MAXWELL: We’ve been talking a little bit about five years out. What about ten years out? Or can anybody look that far in this business?

KENT: The crystal ball gets a little foggy then.

MAXWELL: If you weren’t in cable television, what would you be doing?

KENT: Well, I’d like to be a professional golfer, but I don’t have the…

MAXWELL: What’s your handicap?

KENT: My handicap is 12.

MAXWELL: So it’s double Brian’s. That’s too bad. What other profession would you like to have been involved in? Well, you were an accountant, so that was going to be what you were going to be.

KENT: I was in accounting, and probably if I hadn’t gone into the cable business I probably would have continued on in public accounting.

MAXWELL: And what profession would you have liked the least?

KENT: I’d be a terrible engineer.

MAXWELL: How do you get along with the engineers here?

KENT: I get along with the engineers great, but I don’t fool around in their business.

MAXWELL: Good. I appreciate your time and effort and good luck on Cequel III.

KENT: Thanks. I appreciate it. I enjoyed it.

Cable Maverick Lecture 2011

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