Interview Date: November 26, 2018
Interview Location: Cable Center Studio, Denver, CO USA
Interviewer: Stewart Schley
Collection: Cable Center Oral History Project
STEWART SCHLEY: Ahoy there, and welcome to The Cable Center’s Hauser Oral History Series. Look who has dropped into our studio in November 2018. Balan Nair, one of the best-known and esteemed senior technology leaders in the cable industry – in and around the cable industry – currently the CEO of Liberty Latin America, one of the companies in the Malone Liberty orbit, and the longtime CTO of Liberty Global, the world’s largest international cable company. Prior to that, Qwest Communications. Balan, thank you so much for coming in.
BALAN NAIR: Well, it’s good. Thank you. Thanks for having me.
SCHLEY: It’s a treat to have you. I want to start by asking you a question that has nothing to do with the cable industry. Tell me who you were as a kid. You have an engineering background. Were you the kid that tinkered with toasters and radios? Were you a bookish kid? What was your life like?
NAIR: Like, I’m guessing, not any different than most kids. Probably, if you ask my mom, she’d say I was probably rambunctious, ill-mannered, lazy, didn’t do my homework.
SCHLEY: Hard to raise.
NAIR: Yes. Absolutely. Ate too much. But, I grew up in Malaysia, and I came to the United States in 1985. My high school in Malaysia, I was very lucky to have a bunch of friends that were similar, like-minded, and we bought and shared a computer. Back then, ran on CPM. It’s an operating system that no longer exists, and we programmed a lot, played a lot. Wrote a lot of stuff on it. Yeah. I had a very good high school.
SCHLEY: The CPM was a predecessor to MS-DOS? Or a rival to MS-DOS?
NAIR: It was, at one point, the big brother to MS-DOS. There’s a long history there. This is a tragic story. I mean, CPM could have dominated, if they had only figured out how to cooperate with IBM.
SCHLEY: Right. Instead, the other guy did.
NAIR: Instead the other guy did. Yes.
SCHLEY: But, you did have an aptitude for technology, and software, and computers.
NAIR: Yes. Math was my favorite subject, and I did enjoy that.
SCHLEY: You then became a Cyclone, here in Iowa State.
NAIR: Absolutely. Four of the best years, yes.
SCHLEY: Why Iowa State?
NAIR: Oh, wow. How much battery do we have in that camera?
SCHLEY: Enough.
NAIR: (Laughs) I left Malaysia in ’85. I was going to go to a university down in Texas, Texas Austin. This was during the oil crisis – the beginning of the oil crisis – and they changed the tuition rates for foreign students. I quickly realized I couldn’t afford to go there. My buddy and I, we then started looking at different colleges, and we applied to a few, and Iowa State was one where we got this amazing catalogue. You open up this catalogue, and you go, wow, this is an amazing place. It’s got a picture of this downtown Des Moines with the skyscraper, and you’re thinking, wow. Yeah. I could live there. Then I flew into Des Moines, Iowa, and I’m like, “Oh my god.” That’s only one building, taken from a certain angle, and made it look like – but, you know, life is like luck, and I was so lucky to go to Iowa State. I met my best friends there, learned a lot, and most importantly, I met my wife there.
SCHLEY: You studied electrical engineering?
NAIR: I did. I studied electrical engineering. I started as an architecture major, and that’s what I wanted to do. But, for whatever reason, somewhere along the line I said, I’m probably better off being an electrical engineer.
SCHLEY: Well, I mean, you ended up designing and building things, just in a different motif. If I fast-forward, and I take you to the beginning of your executive career with Qwest Communications – this is an interesting preamble – there was a television spot your company ran in 1999, 2000. You probably remember it. And, it was this wind-swept desert motel.
NAIR: Yes. I do remember that ad.
SCHLEY: This wayward traveler comes up –
NAIR: Amazing. (Laughs) Not many people would know that.
SCHLEY: So, I’ll just describe it briefly for you guys. Wayward traveler comes up. There’s this very disinterested clerk at the hotel, and he says, “Do you have maid service?” “Yes.” “Do you have room service?” “Donuts and coffee.” And he says, “Do you have in-room entertainment?” And she says, “Every movie, in every language, ever made, day or night, whenever you want it.” And he’s sort of blown away by this. The expression you guys used was, “Ride the light.”
NAIR: Yes.
SCHLEY: I say that, Balan, to set up the question about — we’ve sort of gotten there, right?
NAIR: Yes.
SCHLEY: Were you early with that argument for Qwest?
NAIR: Well, I have to fully disclose that I had nothing to do with that ad.
SCHLEY: I understand.
NAIR: Even though I thought it was brilliant back then. But, yeah. We have arrived. You know, when Qwest as a company was built, they acquired the company I used to work at, US West. It was predicated on building a backbone that transported gazillion amounts of data, and on a transit rate of about $75 to $100 bucks per meg. And so, lots of money flowed into that business model. As it turns out, two or three years after it was built, transit rates dropped from $75 to $100 to about $10. And so, you saw lots of companies – Qwest included – that ran into huge financial difficulties. But, the premise was, there was going to be lots of data, and video was going to be a big part of it. Except that nobody wanted to pay for it.
SCHLEY: In context, Qwest and its predecessor you just named US West, were ultimately progeny of the Ma Bell spin-off, and it was at heart a regional telecom company, but it had national aspirations.
NAIR: US West certainly did, and Qwest was a startup by Phil Andrews. And, great valuations, and they used that equity to purchase US West, to generate a lot of cash.
SCHLEY: What was your role there, and what did you get out of that?
NAIR: Well, I eventually came the chief technology officer and chief information officer at Qwest, but prior to that, I did a variety of different jobs. Some of my best jobs were there. I mean, I ran the Arizona operations with a field job. I learned a lot working the field, working with the unions, working with customers directly. I had a variety of jobs there. But, one of the persons I met there, in 2000, the chief technology officer for Qwest, was a gentleman that you probably know, Tony Werner.
SCHLEY: Oh my gosh. He was Qwest?
NAIR: He came to Qwest in 2000, and left in 2000, I think. He was there for probably not more than six months. He and I became fast friends. I worked for Tony, and that was transformational for me, for sure. And that is how I ended up in the cable industry five, six years later.
SCHLEY: Tony, today, the chief technology officer for Comcast.
NAIR: For Comcast. A true gentleman. One of the smartest persons I know, and certainly someone I have tremendous admiration for.
SCHLEY: Well, you sort of answered my next question, but what was captivating about the cable industry opportunity, and what did Tony show you about the possibilities there?
NAIR: Well, I left Qwest in 2006 to join AOL Time Warner. And, as the chief technology officer there, and I ran that and some of the products, and it was fascinating. It was in a fascinating time. The beginning of social networks, the beginning of a lot of what we call Web 2.0. And, during that period, Tony worked at Liberty Global, and he decided to take on the job of CTO for Comcast. He called me up and said, “I think you should really come in and join this company called Liberty Global.” And, long story short, I ended up doing that, but it was thanks to Tony.
SCHLEY: Did you know of Liberty Global prior, much?
NAIR: Very little. I actually thought it was an insurance company.
SCHLEY: (Laughs) Kind of sounds like that. Liberty Mutual, Liberty Global.
NAIR: Liberty Global. But, Tony introduced me to Mike Fries. Of course, I know John, and his history, and that’s another interaction with John, as well. But, Mike Fries contacted me and we had met at CES 2007, in Los Vegas, and we had a good conversation. Subsequent to that, I met with John, and then eventually joined Liberty Global.
SCHLEY: John being John Malone, patriarch of the US –
NAIR: John Malone. Yeah. Another amazing person. My life is like 95 percent luck, and a big part of that luck is meeting amazing people.
SCHLEY: Balan, I don’t want to lose sight before we go to the Liberty Global experience, about something you said earlier, which was your experience in the field in Arizona. How it informed and influenced your view of everything, really.
NAIR: You know, my experience in the field was just very invaluable. I mean, I learned a lot about people. I learned a lot about working with unions. I learned a lot about working with customers. I learned about technology; things that work in the lab, and how it doesn’t work in the field at 120 degrees temperature. Working troubleshooting in the central offices. You did everything when you were in the field. There was no question you couldn’t find an answer to.
SCHLEY: Were you literally in the field?
NAIR: Yes. I ran crews. I had all the crews reporting to me. I’m kind of a hands-on guy. So, I really got involved. I was out in the central offices, I’d visit with customers. When there’s an outage, I’d be out there in the field, whether a fiber cut, or a power-outage, or an electronics doesn’t work. Anything that happened in Phoenix, I was kind of involved.
SCHLEY: You get an appreciation for the intensity of customer expectation.
NAIR: Absolutely.
SCHLEY: Is that fair to say?
NAIR: Yes. This was the year 1999, 2000. It was the beginning of a lot of startups running with lots of bandwidth. At that time, the only place to get it from was the phone company. And so, we were just busy as heck.
SCHLEY: Producing the requisite –
NAIR: Just custom orders, day in and day out. It was the Golden Age for phone companies.
SCHLEY: Was government relations part of what you did in that era? Were you mostly a tech ops kind of guy?
NAIR: No. By government, mostly city, not state and federal. But, city, yeah. Absolutely.
SCHLEY: So, you talked about meeting Mike Fries at CES. You were drawn to the Liberty Global, but it was so different. It was obviously an international company with markets you may have been unfamiliar with. What was the draw? What was the appeal?
NAIR: Well, remember early on, I said my life is like 95 percent luck? One thing I also forgot to mention was that almost all of my best decisions I made, were made by someone else. Mostly my wife.
SCHLEY: Really?
NAIR: Yes. I did not want to move back to Denver from McLean, Virginia, the center of cosmopolitan lifestyle. Working for one of the largest companies in the world, being a CTO there. And, I’m like, what? Moving back to Denver, and working for this company I just barely know? But, my wife really wanted to move back to Denver, because her brother lived here. Her family lived here, and she’s like, we’ve got to move back. And so, I said, “OK. Against all my better judgment, I’ll do this.” And, it turned out, it was the best thing that I ever did. One of the many best things.
SCHLEY: When you took the job, moved back to Denver, first day on the job at Liberty Global, what confronted you? What did you realized had to be done? And, how did you start?
NAIR: You know, when I first joined Liberty Global, it was a much different company. A very small company. It was just the beginning. I think it was formed maybe a year, year and a half, before that. A combination of two companies, UGC [UnitedGlobalCom] and Liberty Media International. Mike Fries was the CEO. He’s just a dynamic guy, and wicked smart, and certainly had amazing aspirations. So, I came in right at the ground floor, and we started rolling up cable companies in Europe. That was quite fascinating. I knew very little about cable, per se, and I spent the first maybe three to six months with a lot of cable industry veterans, learning. I would go to tutorials with companies that no longer exists.
SCHLEY: Vender companies?
NAIR: Vender companies. Yes. They would be very helpful. Everybody was so helpful. There were a few things I learned about the cable industry when I first joined. After six months, it became clear to me. One, everybody is out to help each other. Second, it’s quite entrepreneurial. And, third, it is full of people that just take risks. But, what I mean by that is that, it’s not blind risk. They’re just not afraid of failing, and that was just so different than AOL Time Warner. Even more different than coming from a telco. It was just magical for me.
SCHLEY: It’s interesting you say that, because I always try to ask people that question. Is this industry appreciably different from other industries you’ve taken part in? And obviously for those reasons, cable is.
NAIR: Yes, yes. Absolutely.
SCHLEY: Was the domestic cable scene, the maturation of the industry, appreciably different from what you saw in Eastern Europe, or central Europe, and elsewhere?
NAIR: Yes. I don’t know how to say this, but my job was a lot easier in ways, because it’s almost like I don’t have to predict the future. All I have to look at is what’s going on here.
SCHLEY: As a model.
NAIR: Yeah. Because everything’s time-shifted maybe about three years. So, whatever works here in the United States, it’s going to work there three years from now.
SCHLEY: OK. So, even DOCSIS, for instance, would have been something you could export, if you will?
NAIR: Except for DOCSIS. I don’t know how to say this without sounding arrogant, because I’m not trying to be arrogant. When I first came to the cable industry, the one thing I never figured out when I was in the telco world was how much superior the cable plant was. How much faster their product could be, but yet the cable guys never did take advantage of that. So, when I joined Liberty Global, this is 2007. DOCSIS 3.0 was just coming out. One of the first things we did was, just massively roll out DOCSIS 3.0 across the Earth. By 2009 – that would seem like a long time ago, it doesn’t seem that different – but by 2009, we were pretty much all DOCSIS 3.0.
SCHLEY: Before the domestic –
NAIR: Even the United States wasn’t getting there, yet. Well, the United States – I mean, they were getting broadband subscribers so easily, that they didn’t have to worry about speed, because the telco’s here were – DSL was just not catching up.
SCHLEY: Cable was better.
NAIR: Yep. However, in Europe, Europe was a DSL market. DSL dominated in Europe. So, we had to find something that was just different, and DOCSIS 3.0 provided that for Liberty Global.
SCHLEY: And, DOCSIS 3.0 got you to what, in terms of performance?
NAIR: We immediately went to 100 megabits. In Japan, one of the first countries, in 2008, we launched 160 megabits in Japan. Forty percent – I remember – 40 percent of all our new customers just bought that product. And, we didn’t even have the DOCSIS 3.0 modem. So, what we worked on with ours was to take four DOCSIS 2.0 modems, put it into one chassis – one plastic enclosure – and then just combined it.
SCHLEY: Like putting a big engine in the car, right?
NAIR: And we had four channels, which theoretically, we shouldn’t be selling 160 megabits on four channels of DOCSIS, because that’s just the maximum of the maximum, if nobody else is using it. But, we did it anyways.
SCHLEY: What was eye opening about the experience, from either the standpoint of customer reception, or what you ushered in, in terms of kind of a revolution of media? What mattered about that?
NAIR: Well, I learned two things. There’s only two levers you can play to get broadband customers; speed and price. You don’t want to play the price game too much, so you play the speed game. And, we used that for maybe a six, seven-year run, and it was great. The other thing I learned as well is, never ask the question, what somebody’s going to use with all that capacity and speed.
SCHLEY: Really? Just let it happen? Let it flower?
NAIR: Yes. It’s a false question, because you’re limited by what you don’t know. And so, when we launched 160-megabit, I can tell you, almost everybody thought that was insane. Why would you do that? What was the usage? And, who cares? Why do you need 500-horsepower in a car? Why do you need anything more than what you really need? It’s because you can get it, and that’s how it works.
SCHLEY: Was Chello Broadband an entity that existed prior to your run –
NAIR: It was there. We shut it down — not shut it down. It was just a brand name. So, we took that brand name, and then we spread it out, because the Chello brand name was kind of confusing to some customers.
SCHLEY: I remember it, though, from the early days.
NAIR: That’s amazing that you know all this terms.
SCHLEY: Here’s what I don’t know. It’s maybe a naïve question, but what were the plant conditions like? Pick a couple of different markets. Was it mimicking the utility pole configuration? Was there a lot of underground plant in your market? Or, what did you face?
NAIR: There were a lot of underground plants. In Eastern Europe, like in Romania, there were a lot more aerial plant, but if you go down to Zürich, Amsterdam, if you go to Cologne, or downtown London, or anywhere, it’s mostly underground. Now, we had to spend a lot of capital upgrading our plant, but more important than that, we had to spend capital upgrading our customer homes’ plant.
SCHLEY: How so?
NAIR: Because most homes – and it’s not unique to Europe – the inside wiring is terrible, and it generates lots of noise, and it contaminates your service. I learned this a lot in the field. I mean, the last bit of your wiring usually is probably the crappiest.
SCHLEY: So, an installation might have taken hours to sort of get everything –
NAIR: Theoretically, it should. So, what we ended up doing was counterintuitive. We told our customers, you install it yourself. A lot of people said, does that make sense? Do customers really want to do that? They’ll get intimidated. But, what we learned was, customers actually like that. If you make it simple and clear, and a big piece of paper that says, “Step one: open the box. Step two: connect this red to this red.” Make it very simple, because of a couple of reasons; one, they feel they’re in control.
SCHLEY: I agree.
NAIR: Two, they don’t have to wait around for your technician for your two-hour, or four-hour window, to show up. They work on their own timeframe. And, if you get a good supply chain partner, you can get these boxes out to them within 24 hours. So, the cash through the door from the order. It’s sooner. When they get it done, they feel really good about it, as well.
SCHLEY: They had a role to play.
NAIR: Now, not all customers are that way. Maybe about ten, 15 percent of customers would end up calling you with some question. Whether it’s really complicated, or really simple, it doesn’t matter. To them, it’s still a problem. And for those few, we have a safety blanket and you say, we’ll send somebody out.
SCHLEY: OK. And, at this point, did you have a situation where your broadband business was sort of carrying the company economically? Or, was video still the mainstay?
NAIR: I’d really like to know the date when all cable guys woke up one day and said, it’s no longer video. This is a broadband company. And, every one of us will have a different date in our mind of when that became clear to us, and probably every one of us would think that we were the first ones that came up with that idea.
SCHLEY: Right (laughs).
NAIR: But, to us, it was probably in the 2010 timeframe when we said, you know, our commercials probably should lead with broadband.
SCHLEY: Connectivity.
NAIR: And, it’ll drag video, as opposed to lead with video and it drags broadband.
SCHLEY: I did want to talk about video, though, because I think one differentiating characteristic in some of your markets was, you had a pretty prolific satellite television operation in many of the locales. Maybe competitively it posed some issues for video, but could you just describe the competitive landscape that you – and how maybe it different from the US at the time?
NAIR: It differed in a number of ways. One, ARPUs, the average revenue per user, was significant lower.
SCHLEY: Yours were?
NAIR: Yes. In Europe. It doesn’t matter if you’re in a first-world country like Germany, or if you were in a second-world country like Romania, the ARPU was very low.
SCHLEY: Fifty-dollar range?
NAIR: Fifty dollars in Germany for the whole triple play.
SCHLEY: Wow.
NAIR: For voice, video, and data. Maybe about $10 in Romania for voice, video, and data.
SCHLEY: That’s challenging.
NAIR: Yes. Because Cisco still sells you the same devices at the same price in the United States or in Europe, regardless. So, you gotta get really creative. Second, even with that low ARPU, there are dozens of entrepreneurs coming into this business. People would just string wires up, drop a little ethernet box, and say, “You have broadband.” Illegally attaching to poles, you complain, you call the city. They come out, take off the wires. Five poles behind, the guy is climbing back up and putting it back together. Yeah. It’s the wild, wild West.
SCHLEY: I had no idea. I wanted to talk about technology deployment decisions, and when is the right time. Of course, nobody knows. But, can we talk about it in the context of Horizon? Can you explain what the Horizon platform is, and was, and why it was revolutionary for its time?
NAIR: Since I came from AOL, and being more software-driven, the other thing I didn’t understand about the cable industry when I joined was, why were we on this monolithic, one single stack video service, with just the most god-awful user interface, terrible search? It’s just hard to accept that’s what it really is. But, it took me about a year to two years to really understand why that’s the case; everything from the conditional access, all the entitlement rights, how little memory you have in those boxes, how captive the audience – I mean, the vendor community was. And so, you had to figure a way to break loose from a lot of orthodoxies. So, what I wanted to do was build a user interface that’s beautiful, great search, lots of really cool graphics where you can go in and out, things move really fast. So, I looked to a number of people to partner with. Everybody from TiVo, to Motorola, all the usual suspects.
SCHLEY: This was, again, Balan, when?
NAIR: 2009. Yes. By 2010, it became clear to me, this can be done. We can buy memory, and put the whole gig of memory in this box. There are processers already at that point. We were working with Intel. Intel came out with this chip called a Groveland chip, and you look at the mps on the Groveland chip – that’s the processing power – and you go, wow. We can probably make software run on this thing. You don’t need a PC. Because everybody would compare to why you can have these great UIs in PCs. Well, a PC costs $1,000 and a set-top box is, like, $100 bucks, $50 worth of material in there.
SCHLEY: That was always the excuse.
NAIR: Yes. So, you say, OK, to get this high processor, you can’t put a Pentium chip in a set-top box. That would be a $300 set-top box. But, Intel came up with this Groveland chip. So, the possibilities were getting there. Now, you gotta find the right software guy that understands all the cable industry’s specifications. In our case, DBBC. Everything. All the entitlements. Then you’ve got to convince your board. First, my CEO, Mike Fries.
SCHLEY: It sounds expensive.
NAIR: Yes. This is going to cost some money, it’s going to be different, it’s going to be radically – it’s going to be changing a lot of things. The headends, the boxes. We’re going to deploy a lot of it. But, guess what? This is what customers want. I was very lucky, because Mike Fries got it just right away. John Malone, who is our chairman, founder, owner, said, “Yes. This absolutely makes sense. We should go for it.” So, I partnered with the company in Israel, NDS, who built security, who had real aspirations to want to get into the software world. They had bought a company called Canopolis. Canopolis had many different divisions, a design house, and a number of guys that were good designers of user interfaces. So, we partnered with them. We built this beautiful interface.
SCHLEY: What’d you call it?
NAIR: We called it Horizon. Running on this really simple – what I thought was simple back then – middleware, and using Adobe Flash, which was cutting-edge back then for the cable industry, or even any industries. We started our project in the middle of 2010. By middle of 2011, Apple came out and said, Flash is dead. Nobody’s going to use Flash. By 2012, Intel decides they probably don’t want to be in the set-top box business in the cable industry.
SCHLEY: Are you already out in the market with –
NAIR: No. We’re still building this. So, at every stage, there was a problem in this. Intel — NDS just found out how hard it is to write software for this new chip. Then, right before we – now, we’re 18 months into the project, and we’re about to launch in a couple of months, and NDS gets bought by Cisco, and all those guys that worked on the project, some of them left. Yeah. It was quite a learning experience. Nevertheless, we launched this in September of 2012. Initially, great reviews. Everybody loved it. Cutting-edge. By second quarter of 2013, problems starting coming in. Software that wasn’t good. There were some bugs in the software. It became a little buggy, and you run into memory issues. A lot of stuff that software people understand. But, the guys that wrote a lot of this in NDS – a lot of them left. It just became very painful.
SCHLEY: Was it unnerving, sleepless nights, kind of unnerving?
NAIR: Yeah. Probably, I’d say, 2012 and 2013 were probably the most challenging, from a technology standpoint, for me. We brought in a whole bunch of new software developers. Cisco, to their credit, decided, you know what? We’re going to make this right, and they hired a lot of people in to replace the folks that had left. By the middle – second half of 2013, we were able to resolve most of the issues. But, at that point, it became clear to me that it’s really hard to rely on somebody else. You can’t just outsource your core business. And, just about then, a colleague of mine who used to work with me in AOL, Sree [Kotay], was working with Tony Werner at Comcast. Tony Werner, in a very foresighted decision, decided that he’s not going to outsource the development of his video product. And, we had chatted, and I had spent some time on the architecture that Sree was building and everybody was involved in, and said, you know what? This is what we’re going to do, as well, and it’s something called RDK. At that point, we told Cisco we were going to move on.
SCHLEY: OK. And so, Reference Design Kit would be the entity that was sort of owned by the cable industry, or –
NAIR: Yeah. So, Comcast, back-then Time Warner Cable, and Liberty Global were the three founding partners.
SCHLEY: So, that was the big departure from the way the cable industry supported technology?
NAIR: Yeah. So, we ended up moving a lot of that development back in-house, and built our own platform together with Comcast.
SCHLEY: And, did it work?
NAIR: Yes.
SCHLEY: I mean, have you gotten what you wanted out of the vision?
NAIR: Yes. Well, I’ve left Liberty Global since, but I think it’s probably one of the – thanks to Comcast, one of the best things we decided on.
SCHLEY: For those viewers who are familiar with the X1 Interface –
NAIR: Same technology, except different interface. Truth be known, I would have – also, I wouldn’t have mind using the X1 Interface in Europe. Unfortunately, it was too challenging, I think, for Comcast to develop X1 in German, and Dutch, and Italian, and French. In all the different languages. In the Queen’s English.
SCHLEY: Right. I understand.
NAIR: It’s just not possible for them to.
SCHLEY: So, we were talking about the interface being a table-stakes inclusion in a broader video service, and you’ve talked to me about the cost of programming. The enormous cost of content acquisition, and how it differs from a cable industry perspective, and that of a direct-to-consumer provider like Netflix.
NAIR: Yeah. So, so let me talk about content, because that is really a challenge for the cable industry. We’ve all solved the user interface problem. Solved the fact that you can get your content anywhere, in any device, inside the home, outside the home. All that’s solved. Now, it comes to the quality of the content. That’s really the product, right? But, if you look at the way the cable industry approaches this, when we look at our balance sheet, there’s a line item called, “revenue”. Right under that is a line item called, “cost of goods sold”. We take revenue, subtract cost of goods sold, you have gross profit. Then you have another line item called, “operational expense”. You subtract that, and you have something called, “operating cash-flow” or EBITDA. OK? We always look at that EBITDA line item because that’s what the industry is valued on. So, if you’re Comcast, you’re about eight times that EBITDA number.
SCHLEY: That’s your value.
NAIR: That’s your value. If you’re Liberty Global, or you’re Charter, you’re nine times that value. So, you want that value to be a big number, because you’re taking a multiple of it. Now, remember that second line item, cost of goods sold. What’s in cost of goods sold? The primary part of cost of goods sold is programming. It’s stuff you buy; HBO, CNN, all that. Right? If you’re a good manager, and you see a line item that has the word “cost of goods sold”, what do you do?
SCHLEY: You want to lower costs.
NAIR: You want to cut costs. So, you are constantly trying to take down your costs, right? Your programming costs. If you are Netflix, and you have that line item, they don’t look at content as cost of goods sold; they look at content as product. If you were building product, what do you do? You try to spend more in products. While we are trying to cut down content, they are trying to increase content. I’m not saying one is right or wrong. The real answer is in between, but we’ve been looking at this content incorrectly. We spend lots of money on building products, but we put the line item for building products under something called, “cap-ex”, below EBITDA, when the world has changed. Content is your product.
SCHLEY: This is more than just a financial treatment; it’s an entire strategic scenario for how you run your company.
NAIR: And, how you try to convince your investors to value your business. That’s why Netflix, who has terrible EBITDA – their EBITDA margins are terrible. Right? And, you subtract all their cap-ex, they are negative free cash-flow business, but their value is significantly higher, on a multiple that’s completely insane compared to what the cable industry is, because they look at valuation differently. Their investors look at them differently than ours.
SCHLEY: Well, I wanted to turn to Latin America in that context – well, first, do you see that model changing? Do you see the economic foundation of cable shifting over time, where you treat that programming expense differently?
NAIR: I think we should treat valuations of our industry just based on the free cash-flows of business, whether it’s cap-ex or op-ex or COGS [cost of goods sold], it doesn’t matter. It’s how much cash you generate. If you have a cousin that has started a business, and they ask to borrow $100 bucks from you, and you give them $100 bucks, all you care about at the end of the year –
SCHLEY: What’s left over.
NAIR: Yeah. Did you generate $20? Fifteen bucks? Ten bucks? Right? You don’t really care if it’s op-ex or cap-ex. That’s how we should value our business.
SCHLEY: You’re now running a sizable international cable company in its own right.
NAIR: It’s very small.
SCHLEY: Uh huh.
NAIR: Really.
SCHLEY: In the day it would have ranked as a – how many video subscribers do you have?
NAIR: Not very many; a few million.
SCHLEY: And, you have operations in Chile, and Puerto Rico, and some of the Caribbean properties. I wanted to go straight to an issue that has been really intensely on your mind, which is disaster recovery.
NAIR: Sure.
SCHLEY: Hurricane Maria. Let’s talk a little bit about the devastation that wrought, and how you guys reacted to it.
NAIR: OK. Hurricane Maria hit us in Puerto Rico in 2017, September. September 21st, I think. We were going to take this company public in January of 2018, and we had already made the decision at that point we were going to do that, prior to the hurricane. By all measures, it was probably the worst time to spin off a company and take it public. You had this terrible devastation, where Puerto Rico is about a $440 million revenue business annually. September 23rd, it was zero revenue, and it was zero revenue for many, many months. Forget that your customers are all losing their homes and everything. There’s no power, people are leaving the island. All of our facilities were destroyed. I’ve never seen anything like that, ever. Even Katrina, when I worked at Qwest. Katrina hit, and we had lots of facilities that got destroyed, and it was terrible. But, rarely do you see one whole geography destroyed. It’s like, all of the United States destroyed.
SCHLEY: I don’t think you can adequately convey what happened. I mean, you know what happened, but you saw it from afar.
NAIR: It’s terrible, but I’ll tell you, here’s a few things that I’m really proud of. One, during the destruction, almost all businesses there were out. Hotels. Tourism is a big part of – you know – and everybody shut down, tried to rebuild themselves. Everybody’s let go. During this whole period, we had no revenues. We did not lay off a single employee. We did not fire a single employee. If you were a call center agent, there was nobody calling our call centers. We said, just come to work.
SCHLEY: People got paychecks.
NAIR: Everybody got paychecks. In finance, in marketing, in the call centers, engineering, construction. Everybody. Then, of course, the construction started to come back, the construction guys got busy, but still nobody was calling our call centers. But, yet, we said, everybody, come to work, because we made a decision that this would probably be the worst time to tell the employees, you’re out of the job. So, you gotta go back and tell your family. You don’t have healthcare when you need it most. You don’t have security when you need it most. You, as a parent, this is when your kids really count on you the most. You can’t come back and tell your family, your kids, “I just lost my job, as well.” So, we made that decision. This was a very – financially, it made absolutely no sense, but I am so proud we did that, and our whole board was very supportive of it. So, we had no revenues, so you lose $400 million revenues, but you had to spend a few hundred million rebuilding. So, your swing is really, like, $600 million, $700 million, but we did it. Then, in nine months, we rebuilt the whole thing, and we’re back in business, and stronger than ever. It’s a great business. Our employees are great. I love them, and yeah, it’s just awesome.
SCHLEY: Man. Well, you recently acquired the remainder of that company, right? Is that correct?
NAIR: Not recently. It was a little while back.
SCHLEY: OK. So, you believe in the market. You believe in the products.
NAIR: Oh, absolutely.
SCHLEY: You believe in the people, obviously.
NAIR: Yeah. Absolutely.
SCHLEY: You talked about the human impact there, but what does that buy you for the future, in terms of employee relations, loyalty, belief in the mission?
NAIR: Well, I think our employees would say they trust us more. They would probably say that we really meant what we said when we said we care about our employees.
SCHLEY: Oh my gosh, yeah.
NAIR: But, we didn’t do it because we were looking for loyalty. We didn’t do it because we thought this would pay back. We did it because it was just the right thing. If I was living in Puerto Rico, and my boss told me I got laid off, and my house is already damaged, and insurance money is not coming in, that would be terrible.
SCHLEY: Right. You’re just about ruined at that point. From an operational standpoint, and from a rebuild standpoint – from kind of a boots-on-the-ground cable industry standpoint, how did you rebuild the system? Did you change the architecture? Or, what did you do to, you know?
NAIR: Being an engineer and a technologist, when you get to rebuild everything from scratch you’d say, wow. I’m going to fiber-to-the-home, everything. I get to do everything all over, and do it right.
SCHLEY: (Laughs) Of course. Right.
NAIR: But, the reality is you can’t. You cannot for a couple of reasons. One, it’s a race of who gets it built first, fastest, and into the customer home first.
SCHLEY: You have competitors there?
NAIR: Yeah. Claro is our competitor. They’re the local telephone company. And so, whoever gets into the home first wins, because they’ve been starving for broadband, and for video.
SCHLEY: OK. So, it really is a race.
NAIR: It is a race. The power companies are putting their poles up, and you’ve gotta be right behind them, attaching your cables. You have no time to try to be cute, fancy, and no time to go ask for permits to dig up streets, and stuff like that. It’s a race. It’s a race for engineers, and construction crews, and it’s a race for our commercial teams. So, as soon as the drop happens in a home, the commercial team is right in there to try to get the customer to resign back with us.
SCHLEY: OK. You said it took like a nine-month period to get back to more or less where you were?
NAIR: Yes.
SCHLEY: What about going forward? I mean, do you have fear that this episode is going to be repeated? Or, how do you deal with that mentally?
NAIR: You deal with that through stress, through waking up in the middle of the night during the months of September and October thinking and hoping that no hurricane –
SCHLEY: “Is today the day?”
NAIR: I learned a lot about Doppler radars and stuff. We dodged a bullet this year. There’s not a single hurricane that hit us this year.
SCHLEY: What was enticing to you about making the transition from technology leadership to general management leadership?
NAIR: I think I’ve always been a general manager. Doesn’t matter what role I’ve played. I really do enjoy building our own culture, building our own philosophy of how we want to run our business. Building teams, being able to teach. That’s something I enjoy a lot. And, trying to also create value for others, because it’s not my money that I’m investing; it’s someone else’s. I learned a lot from John, from Mike Fries, from Tony Werner, from a lot of people, on being an entrepreneur, and risk-taking. All that’s coming together now.
SCHLEY: So, you feel you sort of fit into that cable persona that you mentioned earlier?
NAIR: Yes.
SCHLEY: Risk-taking, and sort of a pioneering –
NAIR: I don’t think I could have made the decision on what we did in Puerto Rico in any other industry.
SCHLEY: That’s interesting. That’s a great line. What excites you about the near-term future of the business? You guys continue to invest, and I think to acquire properties selectively.
NAIR: Yes.
SCHLEY: Why?
NAIR: Because we are bullish about our products, we’re bullish about what we can do for the local citizens. I tell my team, and some of my colleagues keep reminding me of this as well, that we are not out there selling tobacco, we’re not out there selling alcohol, we’re not out there selling things that people don’t want, don’t need. We’re not selling nice-to-have things. We are selling stuff that are life changers. The product that we sell builds communities. The product that we sell builds businesses. The product that we sell builds good government. The product that we sell builds good communities.
SCHLEY: Education.
NAIR: Everything. Our team should wake up every day feeling proud. They’ve made a difference in somebody’s life. Every day we do, and not often do you get to work in an industry where people really want your product, because it really makes a difference in their lives.
SCHLEY: Cannot live without it. Absolutely. How do you manage a far-flung global enterprise when you have operations that are geographically disparate, and you have managers who – they know each other, I presume – but, how do you keep everybody on the page?
NAIR: Well, a few things. One, you hire good people that are entrepreneurial, in some ways like-minded, but not all like-minded, right? You want a diversity in opinions and ideas. But, you want people with great character that work really hard, that are honest not just with others but with themselves. You want people that are kind and respectful, and you want people that are really risk takers. You have that combination you can do a lot of great things. And, we’ve hired and built a team around people like that. This business in Latin American is going to be a rocket ship.
SCHLEY: Can you talk about the Latin American market? What do you face in terms of competition, and where do you stand in terms of, you know, kind of rising to the top of the provider list?
NAIR: Well, let’s start with the fact that only about 35 percent of the population even have broadband. So, yes, that’s a great opportunity. Second, a lot of the services in the region have been, I’d say, not bad but not great, either. So, you have an opportunity on the service side. Third, with scale, you can drive a cost structure, and we did this in Eastern Europe. You know, I learned a lot there on how to price your product effectively that provides value but yet, you get to also create value for your shareholders and your employees. We feel that we’ve got all of that going for us, plus we have — on my board we have some amazing people.
SCHLEY: Who’s on your board?
NAIR: We have John Malone, Mike Fries, Paul Gould, Eric Zinterhofer. Just these four people are the smartest people on Wall Street. Paul Gould from Allen and Company, Eric Zinterhofer, one of the really super smart venture capitalists, John Malone, Mike Fries. I tell people, even if I wanted to — even if I wanted to screw up a deal, it’s almost impossible.
SCHLEY: Not with that governance.
NAIR: Yeah. And I’ve got great operators. We’ve got Alfonso Noriega — he’s the CEO of Televisa. Brendan Paddock, he used to run — an entrepreneur himself, run a business. We’ve got Miranda Curtis, who is also a really smart financial person, a good operator. She used to run the Japanese operations for Liberty Global. Charlie Bracken, who is one of the best treasury minds out there. So, we’ve got a great board. Everybody’s a hard worker, everybody’s an expert at something. So, I’m quite lucky. And, having John Malone, I mean, he’s wise in so many ways.
SCHLEY: Right.
NAIR: Mike Fries, who’s built great businesses. Yeah, it’s really hard to screw this up.
SCHLEY: The team is strong. The team is strong. What do you see from a product standpoint — to the extent you can say without giving away the roadmap — down the road or an immediate horizon, that is really a great opportunity for cable?
NAIR: Remember, I said two things in broadband; speed and price. And you’re going to see us investing in speed and trying to take cost out so my price can be something that’s really attractive to customers.
SCHLEY: It’s a hard bar for the other guys to reach?
NAIR: Not really. If they really — it’s not rocket science.
SCHLEY: It can be done.
NAIR: You just have to want to do it. So, mobile networks? We’re going to be LTE everywhere, and the best LTE. Now, fixed broadband networks? It’s going to be DOCSIS 3.1 everywhere.
SCHLEY: OK. Can you talk, Balan, about wireless and the dimension it adds to your business, both from a customer experience — but, how do you parlay the network into an asset you can use for enabling wireless, or do you?
NAIR: I think the day of having a wireless company and a fixed company separate is coming to end. It has to combine. Now, they’re two different businesses, but they are destined to be together. It is as clear as day that every customer will want a wireless connection.
SCHLEY: But, why can’t I be content to get that wireless connection from AT&T and get my wireline services from Comcast —
NAIR: And you can —
SCHLEY: Here, in the US?
NAIR: You can, and many people do that. But, if you were a business you would want to have both for a number of reasons. One, scale, because if you own a wireless and don’t own the wireline, you end up spending a lot of money. Look at Sprint.
SCHLEY: To buy capacity from somebody —
NAIR: Yes, you’re constantly writing checks. Second, in the home, most people would use wireless but something called WiFi.
SCHLEY: True.
NAIR: And, if you look at your home, already today, even if you’re the most unsophisticated user, you have at least five devices that’s connected to your WiFi. If you’re sophisticated, you may have 150. You have light switches, your light bulbs, TV — whatever.
SCHLEY: Alexa, yeah, sure.
NAIR: Whatever, yeah. So, no matter what, you’ll have more than one device. So, to think that just a mobile operator can replace fixed broadband is kind of silly, you know, because it’s multiple devices connecting and WiFi is great for that. And, the combined traffic requirements, nothing can beat fixed. So, if you want to truly be a communications company, then you don’t care if it’s fixed or mobile, you just have to have both.
SCHLEY: OK. And then, from a customer’s standpoint, I think you do get some benefit in terms of just consolidated billing and sort of a one-stop provider.
NAIR: Yeah, there’s a little bit. You know, you get the bundle. Bundle is really just a code word for discounts, right? Essentially you’re just getting discounts. And, the reason a bundle company can give discounts is because of the economics of scale. Right? You know, serving four products, the marginal cost of the fourth product is pretty low.
SCHLEY: Ah, OK. Do you have kids or young people in your life? In your family?
NAIR: Of course.
SCHLEY: What about their use of media has just kind of blown you away, and how does it instruct you about where your business is going?
NAIR: I think all of us would have kids that consume their content differently than this.
SCHLEY: Sure.
NAIR: They’re not interested in 100 channels. They’re not interested in channels, they’re interested in content. And, not all content that they’re interested in is professional content, you know? And so, there are services out there that support that. Good for us that we provide the connectivity to enable that, but for us to think that we could be in that business, that would be a bridge too far for me.
SCHLEY: You’re not going to establish another YouTube.
NAIR: No, you’re not, and to try to do that would be silly. Now, but you want to be in the entertainment business because if you’re not in the video entertainment business, the franchise that you have, the value of it diminishes because, when you build a network, one of the beautiful things about cable is that, in that same network you have a voice, video, and data revenue stream coming in on the same network. One of the challenges when I was in the telcos, you build that same network, it cost about the same amount, except you have only voice and data. You have two revenue streams on that same cost. It’s always more challenging. The cable industry has always had three revenue streams on that same infrastructure, and you don’t want to lose that because, when you lose one-third as your revenue stream on that, it may not be as profitable as the other ones, but it’s really — profitability in a big part is just cross-allocation. So, guess what? If you don’t have video, are you going to shut down a third of your call centers? Probably not, because you still get a lot of calls that come in for your broadband product.
SCHLEY: I see.
NAIR: Are you going to lay off a third of all your technicians? No, you’re not, because it still takes the same amount of people to fix up an amplifier.
SCHLEY: Understood. Is that why you see the wireless titans really trying to participate more in the video business today, whether it’s AT&T-Time Warner, or whether it’s Sprint offering free Netflix, and that sort of thing?
NAIR: Yes. They have to. Plus, they all have to get into fixed business as well, nationwide, in the United States.
SCHLEY: In the moments I have left with you, what are you most proud of? I mean, when you kind of look back — and it’s maybe a hard question to just answer on the spot — but, what sort of, “I did this”? You know, what comes to you?
NAIR: I’d be remiss to not say that I’m most proud of my family, my kids, my wife has been amazing. Like I said, almost all my smart business decisions, she made for me. I’m mostly really proud of the friends that I’ve developed, especially in this industry. They really care for each other. I cannot imagine myself being this successful anywhere else.
SCHLEY: Well, that’s a question we ask this table sometimes; is the cable community really different from that that you might form in the shoe business or the grocery business, and it seems to be that there is a real distinction. I mean, people believe that there is.
NAIR: It’s truly a meritocracy. I mean, a kid like me — when I was a kid, coming up from Malaysia, an Asian dude that hardly knew anybody in this industry, being able to make so many friends, trust so many people, get so much support from so — I mean, it’s just unbelievable. Me sitting here talking to you today? It’s like magical. By all measures and means, I should be somewhere else, not here.
SCHLEY: I don’t know if I buy that entirely.
NAIR: No, it’s the truth.
SCHLEY: A topic du jour is of course the onset of the 5G ear in the wireless industry. Just some opening thoughts about either the competitive threat or the business opportunity, or the mix of both, that it presents?
NAIR: It is a mix. Like all technology, there are tremendous opportunities for some and risk for others. And so, you have to know which part of that side of the fence that you want to be on. Let’s put it this way: 5G will become real. Given. It’s high speeds, it’s better priority. It’s got something called network slicing. So, so many features built into it that it will be great. However, it’s not as big a step change from 4G as 4G was from 3G.
SCHLEY: Really?
NAIR: If you have a 4G phone, you would never use 3G. When you see on your iPhone, 3G, you’re like, “Ahh!” Right?
SCHLEY: Right.
NAIR: 5G to 4G, not as significant, but still, 5G will make a difference. Now, when will 5G become available? Probably after the 2020 Tokyo Olympics. 2021, the Apple iPhone may have a 5G iPhone. Right now, it’s still mostly for the fixed wireless network, less mobility, and that’s what Verizon has been talking about.
SCHLEY: Exactly. Right.
NAIR: I’m not a believer in that as much. 5G makes sense for mobility. For fixed? It’s questionable.
SCHLEY: I had a similar outlook when I saw that Verizon was offering a free Apple TV, and a free subscription to YouTube TV for a while for the fixed 5G implementation. I didn’t see the magic there. Do you see residential video playing a role in 5G?
NAIR: No. See, the reason 5G is going to take off also is because of the amount of spectrum bandwidth that’s going to be thrown at it, but spectrum is limited in different phases. So, the 3.5 GHz, there’ll be some spectrum, the CBRS bands, but maybe about 100 MHz to 160 MHz, 200 MHz perhaps. But, the real spectrum is up in the 60 GHz, the 35 GHz, where you can have like swaths of spectrum. The problem with those higher frequencies is that they are susceptible to all sorts of interference: range, line of sight, all of that. And, but if you want to be in the fixed wireless business, you have to operate at the highest frequencies, which means you have to have an antenna right outside your home, you’ve got to have line of sight from the beaming station, you’ve got to have a lot of these cells. Economically it’s challenging. When anybody has to sell a product and they have to give so much away for free, and still can’t sell it?
SCHLEY: Right. That’s what I’m saying. OK. And then, do you have plans to incorporate 5G technology anywhere in your —
NAIR: Yeah, absolutely. When it comes — when 5G for mobility is available. There may be some corner cases with 5G fixed wireless, but they’re corner cases.
SCHLEY: Mostly a mobility product?
NAIR: Yeah. Be most excited about mobility play.
SCHLEY: Right. Thank you. As a closing thought, it has been absolutely delightful to talk to you about really a far flung set of issues. And I love that your career involved time in the trenches, you know, and you kind of carried that forward with you all the way through to CEO of, what you call, a small cable company, but what is in fact a fairly prominent international cable company. So, thank you so much, Balan.
NAIR: Thank you so much for having me.
SCHLEY: For the Cable Center’s Hauser Oral History Series, I’m Steward Schley. Thanks for watching.
END OF INTERVIEW
