Interview Date: Tuesday September 16, 2008
Interview Location: Denver, CO
Interviewer: Craig Kuhl
Program: Oral History Project
KUHL: Hello, I’m Craig Kuhl, a freelance journalist covering the cable television industry. I want to welcome you to The Cable Center’s Oral History Program on September 30 of 2008. Today we are privileged to have David Van Valkenburg with us. David currently sits on a number of boards of directors and is making some significant contributions to the cable industry. Today we want to kind of rewind with David and talk about his cable career which began some years ago – right, David? – and his contributions to the cable industry. David, welcome to the oral history program at The Cable Center.
VAN VALKENBURG: Thank you, yes.
KUHL: David, you’ve had quite a diverse career in the cable television industry, have made a lot of significant contributions on the marketing, customer service, technology sides, and I want to maybe get started with a little rewind here and talk a little bit about what your first thoughts about the cable television industry were. Kind of walk us back, if you will, and tell us a little bit about your first glimpse of cable television, what your thoughts were at that time, and I know that you had a rural upbringing, so maybe let’s get started with that and we’ll move into your cable career at that time.
VAN VALKENBURG: We’ll come right up to that, exactly. In a couple sentences – a farm boy; oldest of seven boys in southern Michigan; small town; and one room school for nine years, my first nine years of school; college, small college; and then into the sciences at the University of Kansas, and moved then to an MBA at Harvard. Right after that – now we get to my first introduction to cable – the first industry I was asked to look at was my nuclear industry because of my background in biophysics and nuclear physics, but the second industry to look at was something brand new. It was the cable television industry and one of the portfolio managers had bought a company by the name of American Television and Communications, and it was in something called cable television, and he said, “Kid, what’d I buy?” So that led me to meet people such as Monty Rifkin, Henry Harris, and many others of the early pioneers of the industry, and that’s how I first got to know Monty well and others at ATC. This would have been in late 1969, so we’re coming up on almost 40 years, so 39 years now, since I first had a glimpse of the industry and it’s one that… I saw the great potential of this industry. At that point in time, a lot of the distant signal restrictions had just been lifted and so there were opportunities to bring in some distant signals, a few, but the potential of that coaxial cable was what attracted me. By 1973 – in fact, interestingly Paul Kagan and I were on a Wall Street transcript round table discussion in ’73 where we talked about the industry. Looking back at some of my comments it’s very interesting that I said that I thought the country would be wired, that there would be many sociological changes brought about by cable television, an explosion of programming, and within – interesting! – 20-30 years that the two-way systems would bring even greater changes. Well, I think it happened a lot faster than that, but that was my first view of the industry, that this was something that would be very, very attractive across the country. At that time it was really the U.S., although I had a vision then of doing international, but at that point in time it was just simply U.S.
KUHL: But you weren’t exactly wired into cable initially. Let’s sort of go pre-ATC days and talk about your science background, which I think is a very interesting kind of transition that you made from the science world into cable. Kind of take us through that time.
VAN VALKENBURG: I went to a small college in Ohio, Malone College soon to be Malone University, and took all the sciences and mathematics I could take there, and interestingly it was a perfect background for going into radiation biophysics which is the interaction of radiation with matter. One of the things that was a requirement as part of my Atomic Energy Commission Fellowship at the University of Kansas was to spend a summer at the National Reactor Testing Station in Idaho. There I saw scientists and engineers running the place, hating what they were doing, wanting to be back in the lab, and I said, “Excuse me, I don’t like to be in the lab. I like running things. I like working with people.” Well, it took me two more years, I completed the Master’s Degree and completed the academic requirements for the doctorate in biophysics before I really could make the break and say go get my MBA. So I did. Among the schools I applied to was Harvard, and somehow – and I have to say this is divine intervention because I didn’t know anything about business. In fact, I’ve told the story many times, that literally when I went to Boston I did not recall ever hearing the phrase ‘balance sheet’. So I was a very, very raw MBA student there at Harvard. But the transition was one of looking at myself and saying what do you really enjoy? And what I really enjoyed was working with people, running things, putting plans together and executing them.
KUHL: At what point in time did you come across ATC? What prompted that move to ATC? Was there a certain person that inspired you to join ATC, or kind of tell us how you got involved with them?
VAN VALKENBURG: Well, coming out of Harvard in 1969 and being a farm boy, small college scientist, I didn’t know the business world. My role models were farmer, teacher and preacher – not much else. So what I needed was a post-graduate education, and that’s what I got at IDS [Investa Diversified Services in Minneapolis]. I got the chance to see a lot of industries, interview some very interesting people like Harold Green, Pete Peterson, and many others that were – and even with Pete, who is still a major factor today at Blackstone – and a really good chance to dig into companies, look at their future, look at their strategies, and what their goals were. What I discovered about myself was, again, I was not the analyst. I wanted to be involved in the company and making things happen. And so I developed in ’71, coming to that conclusion, a list of about seven or eight criteria for the company that I would be looking to work for. They had to be consumer; I wanted to go to work for the best company in that industry; I wanted it to be a fairly small company, probably less than $100 million; I wanted one that had international opportunities. Well, out of the eight criteria, international was the only one I didn’t get with ATC. But I looked at several industries that I had the opportunity to be an analyst for and supporting our portfolio managers, but the cable industry continued to be one that was interesting. I got to know Bill Bresnan at TelePrompTer, and Les Read who was running the new build operations at the time in the early ’70s. Frank Biondi was Assistant Director of Investor Relations at TelePrompTer. So a lot of names that today we know well that were there at TelePrompTer at the time. The same at ATC – people like Joe Collins and Tom Binning there at ATC. So once I narrowed it down, in fact, it was over Memorial Day of 1973 I asked Monty for a job, and as he has said subsequently, why would somebody with this kind of position, to manage that kind of money that we had at IDS at the time – it was the largest mutual fund company at that time – want to come to a little company like this. And it was very simple. That was I saw the potential of the industry, ATC was clearly the best managed at that time, had a very solid balance sheet, and I wanted to do that and I wanted to start at the very bottom. One of the opportunities was to be assistant treasurer for investor relations and I said, “No, I want to go to the field and manage the business from the ground up.” So I started as a Manager Trainee in Moraga, California on November 1, 1973 and the rest is history.
KUHL: Now we’re talking 1970s, pivotal years for the cable industry, whether it’s going to make it or not. Talk about some of the challenges that you were confronted with working for a fledgling cable television company in a rather important decade to advance this business. Tell us about some of the challenges and how you met them.
VAN VALKENBURG: Well, the challenges were many, but the biggest one probably was the ability to finance all of that and that’s where Monty came in as one that understood banking, understood finance, and was able to obtain excellent financing for the construction program and also knew how to maintain cost control, and Monty did that very, very well, many times to our consternation. But he led us through a time of ups and downs in the industry, high interest rates, so I had the opportunity to go through some major reductions in workforce, which wasn’t easy, in a couple of my union systems at the time, and major expansion. My first major expansion was to have the responsibility for building the major area of San Diego, north of the San Diego River Channel, and all of the challenges of project managing that both in terms of going all the way back to permitting poles, easements, materials, labor, turn on, marketing, and then to full operations and all the IT challenges. So the challenges then were ones of project management. That I did throughout all of the ’70s, moving to corporate in 1975 taking over all of our new builds in the east at that time and managing those, eventually starting the construction company and managing construction for all of ATC. The job was one of cost control, tight attention to detail, and being sure that we stayed on budget within the financing that Monty was able to obtain. The other thing that was a real challenge was the franchise commitments that were made at the time. There Jack Gault and I played opposite ends of the game. Jack had to obtain the franchises – and Bruce Lovitt, but mainly Jack – and I had to then go build them. So we renegotiating… and I remember Durham, specifically, and Monty said we will not build what Jack got (the terms). You’ve got to go first and get this franchise where we can economically build it. And so it was renegotiating the franchise terms and then building, and that was one of the real challenges and one that Monty was very good at seeing what could be economically viable, whereas others that were promising dual cable, major programming, local origination and so forth, Monty knew those weren’t, at that point, economically viable. So that discipline was very valuable. Those were some tough lessons to learn in terms of renegotiating franchises and maintaining the integrity of the company and of the company’s commitments once I had made those commitments for Monty and the rest of the team. So it was one of franchise relations, of community relations, ones of marketing – and we can get into some of the marketing challenges at that time – and also the financing and being able to match the revenue generation, the cash flow generation with the financials that Monty and others had been able to obtain in terms of longer term financing.
KUHL: Marketing – that’s a great segue here.
VAN VALKENBURG: Oh, yes.
KUHL: It has become much more sophisticated, I’m sure, from the days that you were first entering the marketing world in cable. Talk to us a little bit about some of the marketing challenges, some of the strategies back then that may have had some impact on growing the industry, providing more customer service, etc., and the influence of some of your marketing strategies back particularly in those initial ATC days.
VAN VALKENBURG: Right, let’s move from the very early days before pay TV and then post-pay TV, which was really happening in ’75, ’76 timeframe. Two examples, I think, that were sort of precursors to our segmented marketing today: a very interesting one was how do you reach the Hispanic market. That’s still a challenge today. This was in the cities and towns around Bakersfield. We were bringing a Spanish language channel from Los Angeles into some of those towns. How do you reach those people? What we discovered was that they, both husband and spouse, or families, worked out in the vineyards and the fields, had their radios on and they were listening to Spanish language radio on transistor radios. So, we marketed in Spanish that the way to watch TV in your language was to get cable, and we put it in Spanish on local radio stations. Those were excellent returns and ones where our penetration went up significantly in the Hispanic areas because we were carrying. It was KEMX out of LA into the southern San Joaquin valley. Another one was Durham, North Carolina. Here it was one of the residual, left over from segregation days. Durham was a relatively, segregated city where blacks were in one part of the city and whites in another. With census track information we found that we could identify where those generally were. We altered our marketing pieces both in terms of radio spots, direct mail, so that when we focused on the black community we primarily talked about black programming that’s aimed to them – basketball as an example, talked about teams that were… and we put black athletes, and black movie stars on the direct mail pieces. And then in the white areas we did it with primarily white faces. Again, we very successfully segmented the marketing. This was obviously extremely simplistic at that time but one that we needed to reach all segments of the Durham community. We had programming that we imported from Washington and Atlanta at the time that was meant for the various segments of that market. Now you move to marketing with the launch of HBO and then Showtime. The question was do you package basic television with premium television? In the new markets, do you go through and market all your basic and then come back and add on pay TV, or do you put them together? And those were fantastic discussions among Tryg Myhren, Jerry Maglio, Joe Collins, others of us at that time in ATC in terms of how you do that, which is the better way. So through some testing we determined that the best is to package them together and sell them as a single package. That proved to be very, very successful in putting the two together in terms of packages. In terms of marketing to the industry, we could market at a high level and then as you went with sales or your telemarketing come down to a package that met the consumers’ need, but you started with the full package. So totally different concept at the time, but one that again was very, very successful and was followed by much of the industry.
KUHL: And that’s a good transition into the bundle conversation. How has that changed marketing – marketing strategy and tactics and marketing mentalities – the introduction of the bundle? We’ll get into the internet and mobile device side in a minute, but before we do that, let’s stay on track with this marketing and talk to us a little bit about the changes that have had to have been made to market this bundle. Now that there’s new services being provided other than just a single video service, how does that change? What is the conventional wisdom, if you will, today for marketing?
VAN VALKENBURG: Let’s differentiate between a package, which is putting various packages together of basic, expanded basic, pay TV, high speed data, and now telephony – those are packages. But in terms of the bundle, bundle is a very, very different concept. A bundle is taking those services and putting them together as a single product package, and a single price point, and a single system backing it up in terms of the CSRs, and installers, the technicians, and the information system, I have to fast forward to Telewest in the late 1990s. The person that really created the bundle is Sam Howe. Sam was my VP of marketing at Telewest, had worked for me at Cox, Cox had sent him over to the UK in the mid ’90s. We had to find a way to market these products successfully. Telephony was very successful, video was less, and we were just starting the introduction of dial up data as well as high speed data. So came up with the idea of marketing a bundle with a single price point. That became the way we expanded the whole market of all three services. But it meant that we had to have a unified package, it had to have a salesman who sold the package and could explain all three services and put them together as a complete bundle. We also needed a CSR who could discuss content of all three services and the benefits of all three. Billing had to be, again, single price point billings. So you had to change the IT system; the installers needed to be able to install all three services at once; and the technician who could provide service on all three of them. Remember Telewest had two different systems, twisted pair telephony and HFC. They were parallel but they were two different systems. The dial-up data was on the telephone system, high-speed data was on the cable system. You had telephony on the telephone, all twisted pair, and you had video, multi-channel video and pay, on the coax and fiber system. But to the consumer they didn’t care. It was the bundle that they were looking for and the reliance that it was all the way back through the system, through the operations they were all single price point, single point of contact, single installer, single technician, and fully integrated operation. This still today is not a concept that’s fully appreciated in this country as well as elsewhere in the world. But the bundling, which is really what did it, was to dramatically expand the telephony and high-speed data in addition to the video.
KUHL: The revolution of internet and mobile devices, etc. that are influencing all industry, everyone around the world today, tell us a little bit about your insights on the impact that this is having on the cable industry – the internet, mobile devices, wireless – talk to us a little bit about your thoughts on where that’s going. We won’t hold you accountable if none of this happens!
VAN VALKENBURG: This is a fascinating topic and one that goes right into three of my current board positions. Harmonic is building the electronics to integrate voice, video and add it from any input to any device anywhere. TVN provides video on-demand product, and again that comes IP to any device including to a mobile device or TV or PC. Now you come to my vision of where we’re going as these technologies merge, I think we’re moving towards a time of all IP, all on-demand. Now, will that be over the DOCSIS network, will it be MPEG 4 near-terms? But it goes to the video device, the TV in the home, the PC, and the mobile device. What we’ve just seen with one of the networks providing next day primetime on your mobile device. I think those things are what we’re going to see an explosion of being able to do. It will be IP and you’ll go from on the DOCSIS network, right to your TV set, or to your PC. All of this is happening as we speak and we’re right in the middle of the evolution. You see that around the world, you see that especially with telephone companies in Germany, in Hong Kong. PCCW is far out front with that. With Hanaro in Korea, of taking video input and putting it on the high-speed data network That’s one of the clients of Harmonic. That’s right now just in the development phase. But you then look across Africa and there it can be by satellite probably. There it is one of reaching the pockets and then spreading high-speed data across Africa. It’s there in internet cafes and it is spreading wide on the west coast, very much available, and will become very available on the east coast of Africa as the submarine fiber gets put in place here in the next year or so. Today most of that high-speed data and video is by satellite but it will all be over the fiber networks that are being built now up the west coast across the Indian Ocean to Dubai and other states in the Middle East and across to Mumbai in India. And that fiber is going right up through West Africa into Dar es Salaam into Nairobi, across to Kampala down to Kigali. That is going into place today. When you’re in West Africa, I’ve been in Accra, Ghana several times as well as down in South Africa, high-speed data is no different from here. In fact, I’ve had the experience of sitting in an internet café in Accra talking to my son on a mobile phone. He’s at a client’s there in Denver. We tested the speed of what I was on there going up the West Coast of African across the Atlantic to a website here and I was operating at 100 kilobits a second faster than he was here at a client’s. So that is happening across Africa. Of course you see what’s happened in India with the explosion of the data centers with high-speed data also the modems of 100 megabits a second across Japan and Korea. Liberty with J-Comm is seeing that in their competition there in Japan. And it’s happening obviously across South America. Then of course Australia is one of those where it’s been happening there as well. I see it personally in Russia. I’ve done a lot of work in Russia over the last eight years. There we could not build an HFC system fast enough. That was another one of the boards on which I served as chairman of the audit committee of a public telecommunications company in Russia. It was NASDQ listed, SEC file. As chairman of the audit committee that was an interesting challenge in Russia. However, from a technology perspective, there was great demand for high-speed data and for video programming – Hallmark, Discovery, other channels around Europe and the Mid East, as well as Russian channels. The video channels were on all digital networks, with digital set top boxes. The demand for high-speed data is right now insatiable. Yandex is a search engine growing over 100% a year and continues to stay ahead of Google as a search engine in Russia. So it’s one where that growth is around the world either through fiber or through satellite, and it’s happening sometimes with telecommunications companies, sometimes it’s by satellite, sometimes it’s telephone companies, sometimes it’s cable, but it’s a dramatic growth around the world and one that’s been very exciting to be a part of, not just here in the U.S. but elsewhere in the world.
KUHL: With all of these demands, David, and with all of the competitive landscape in cable and the emergence of mobile devices around the world, etc, I know that there’s one term that’s very near to your heart. It’s called customer service. How are these people going to be serviced around the world? Give us some of your thoughts on how far this industry has come as far as customer service, where is it now, and how is it going to handle all of these new products, these new services from a customer service perspective moving forward?
VAN VALKENBURG: Wow, what a question! A lot to try to answer there.
KUHL: Three words or less!
VAN VALKENBURG: Well, first of all, customer service is going to be the differentiator. For a company to be successful, it must provide excellent customer service. When I say customer service it’s not just the CSR. That CSR needs to be well trained, well motivated and have great knowledge of all of the products and services that the company provides. There needs to be enough of those to provide immediate service to the customer. However, it’s also the installer and the technician who need to be well trained as well as simply well groomed, positive interaction with the customer, being a salesman for the company, and needs to be able to understand and to work with all of the products and services that the company provides. So it’s a full range of customer service. It’s one must provide an integrated IT System providing all of the information and providing a comprehensible bill to the customer. So it is more than just a CSR. It is one of providing service and dedication to the needs and desires of the customers. It’s more than just providing excellent products. In the cable industry in the U. S. and around the world that’s happening. It must be one of differentiating some programming, but it also needs to be one of explaining the programming, marketing the programming, and that to my mind is the thing that really is the greatest legacy of this industry, is the diverse programming. The choices that we provide around the world. We can get into that somewhat later. In terms of customer service, that’s been where I have focused really my entire career, I believe it is important to provide the excellent service to everybody and to treat every employee as critical. The most important employee for any telecommunications company is the person that has the personal interaction with the customer. That’s where it’s critical and those are the points of light that happen between that CSR on the phone, the installer, the technician in the home. Those are the things that are most important in terms of providing excellent service. I’ve often used the football team analogy. The chief executive is probably the quarterback, gets a lot of attention, speaks out publicly – the wide receiver, the halfback, but those people are not successful … you talk to a John Elway or any quarterback and they will tell you that the critical thing is that center, that guard, tackle. They don’t get a lot of notice, but they are the ones that are the core of the team to make it successful. If they don’t do their jobs well then there is no success. And so the same thing in terms of a telecommunications operation, it is that CSR, it is that installer, it is that technician, those that interact every moment with the customer is most important. So you have to have, first of all, in order to have excellent customer service you have to have well trained and well motivated employees, every single one. They are the most important in providing that excellent service. That’s really the critical… from that then you can provide excellent service. Now the service must have excellent reliability and quality. It must be reliable video, reliable internet, and reliable telephony. Quality, you don’t have crackling sounds on the phone, internet has constant speed, and you’ve got reliable and high quality video pictures in terms of the various products. Those are must have. But in terms of how you provide that and provide it effectively as well as efficiently, you cannot throw people at it. You have to find what the root causes are of issues. What is the root cause of a lot of phone calls to the office because of billing issues? Well, I had the experience of asking CSRs, why are people calling about billing issues? I had the CSRs work together with IT and they came up with a much, much clearer bill than the IT people had, or marketing people had, and our calls went down. The CSRs were the ones that knew the problems, they’d heard it from the customer, and IT was able to interpret what they were saying and put it to an easily understood bill. The same thing comes from service issues, in being able to attack the actual problem. Another example is one, that is we were getting a lot of calls to the office for service problems. This was in Telewest. Well, why? We asked many questions. It was primarily outages. Okay, why are we having outages? Well, we got digging down into the issue and found it was a single module within the amplifiers that was the problem. We changed out the modules, outages went down, and calls went down. Now you’ve got satisfied customers. We didn’t throw more people at it. We put intelligence at it, analysis. Why do you have the problem? But you have to have those kinds of insights into the business in order to achieve excellent customer service. But it also takes one other thing and that is it takes that vision from the top to make it happen because if it isn’t in the chief executives vision and in one that is constantly spoken to and constantly worked on and measure, then it isn’t going to happen. So it takes that leadership to have it happen. And so we could go further in customer service but take me where you want to go next. This one I can go on for a long time.
KUHL: I can sense that.
VAN VALKENBURG: With a great passion for it, yes.
KUHL: Obviously. In that same vein, David, customer service obviously being a top priority in just about every cable system and telecom company around. There is a blurring of the lines now between the telecommunications companies and the cable industry. The landscape is changing and the businesses are changing, and there are some partners now that 15 years ago you would have never imagined partnerships with, obviously the Sprints, etc. Tell us a little bit about how you see those industries, those companies evolving now. Do you see a closer partnership being developed, emerging among all of these different players now in the telecom and cable industry? Just how do you see that? Give me your vision now of what that’s going to look like down the road.
VAN VALKENBURG: Well, let me give you a phrase, and it is still true and developing. This was from a speech that I gave in 1984 when I said we were, as a cable industry, on a collision course with the telephone companies. We now have three telephone companies in this country, basically, and two major ones of AT&T and Verizon, and with those the cable telecommunications industry all on a collision course Those that are working in New York, Long Island Cablevision, Tom and John are seeing that every day, and their teams. Some of the Time Warner systems, some of the Comcast systems, and especially with Verizon where it’s all fiber, we are on a collision course and the collision is happening in terms of competition with the telephone companies. You started to see that when cable got into telephony. Actually, if you really go back far enough, you go back to our days of competing with the telephone company with something called CommLine in 1989 with Cox in Omaha where we were doing business bypass and we were the cable operator providing data voice services to companies primarily as their redundant service, but we were competing directly. That has now expanded into residential telephony. it has finally started to happen in terms of business telephony and data, and in some markets where Verizon and AT&T are developing it’s in video. There it is one of direct competition with very, very similar product, very similar services. The winner there is going to be one of providing both the products as well as the excellent service, and that’s going to become critical. But that’s what I said in 1984, in order to compete with the telephone company or DBS, at that time, was excellent customer service. That’s the glue that holds the person, that customer, developing that loyalty and long-term loyalty to the cable operator versus the telephone company. But it’s still going to be hand-to-hand combat in the trenches and I think that’s going to continue to grow in terms of competition.
KUHL: Innovation is going to be key to this, too. I know that you certainly are aware of that. Talk to us a little bit, David, if you will, some of the technological innovations that you feel through the years have really had a significant impact on the cable industry specifically, and some of the innovations today that you see that are not only relevant but absolutely critical to the cable industry in advancing their business forward in a lot of different ways. In terms of providing customer service what are some technology advancements and innovation that are allowing better customer service, that’s allowing greater marketing opportunities, etc. Talk to us a little bit about some of those innovations.
VAN VALKENBURG: A lot of different things there. Let’s start with in terms of technology, probably the adaptation of fiber into cable telecommunications would be the major technological change that’s happened, and our ability to provide multi-channels, hundreds of channels, and then next would be digitization on the systems, putting on more channels. So those are critical for us, plus the ability to provide the two-way capability. The next though, in terms of providing excellent service, would be the use of wireless systems for dispatch of installers and technicians. Putting PCs and PDAs in the hands of the installers and technicians, having that instant information, understanding of the system wherever they are. That’s a critical one. Another one is the IT systems, how are the IT systems? There it’s one of both in terms of analysis and trends and so forth within the operation, but it’s also one of having all that information at hand in terms of the CSR reacting, and it’s one of understanding how to target marketing by overlaying your base of information with outside databases and integrating those in terms of marketing, and that’s gotten very, very sophisticated in terms of technology that really aided marketing. Then you go to the digitization and digital advertising, and with the advancement of digital set top boxes and getting those into every home, now we have information that we know what people are watching, not from a specific but from a general perspective in terms of the confidentiality issues and right of privacy and so forth, but you can now start to target market. What Canoe is doing and their objectives in that joint venture in terms of advanced advertising and digitization and the integration of the technology of digitization, fiber, and high-speed data, as well as advertising and the spots, where they go, or then you take video on-demand, you have different advertisements within product that would be a couple of days later than when it was live. You’ve got all those technology advances working to advance the entire industry from a residential perspective. Then you go to what’s happening on the business side and the high-speed data, the introduction of telephony and being able to package those for small or medium business especially, and with IP, being able to offer IP telephony out to small businesses and what they can do at far less expense, and the high-speed data of going to gigabit rate transfer of data across the company, across the entire country, I should say, and worldwide. You look at what Cox and Comcast are doing where they’re tying all of their systems together with fiber and Cox building two high definition TV headends – one in San Diego, one in Atlanta – and providing high definition TV throughout the country on their own network, telephone calls all on their own network and dropped off at the local endpoint. What’s fascinating for me in terms of that technology and where that’s going is we did that at Telewest in the U.K. in ’97, ’98 when we tied all of our headends and switches together and provided high-speed data across the country, with telephony –we could take a call from Edinburgh to London and drop it off at a DLE in London and dramatically reduced our costs. Now when we introduced digital we had the fiber all in place and we launched with a single digital headend for the entire company. Digital services are into mid-Scotland to southwest England to the English Channel. We did have a redundant headend where we tied into a cable and wireless headend for backup. But it was a single headend for the entire company and we were able to digitize every signal. Today with nominal… a few million dollars, they could be entirely digital, which is what I did in Russia with going entirely digital almost from the beginning. So, technology is sort of that foundation that leads us to really dramatically improving and enhancing our build to provide information, education and communication to our customers and customers around the world.
KUHL: You obviously have a good grasp of this business globally, David. Share with us some of your insights into the global potential for cable and the cable industry and its expansion into these new services. What do you see the potential globally for that and how appealing is that to the cable industry?
VAN VALKENBURG: Well, from international cable, the only one that really is international cable is Liberty Global based here in Denver, but all of their systems are around the world especially on the continent in Europe. They are in a few countries in South America, in Australia, in Japan, and they have made that a very big business. None of the other U.S. cable operators have really seen fit to expand internationally. It’s been basically indigenous growth, whether it is the cable operators in Holland or in Germany and throughout the whole central and eastern Europe. It’s all indigenous in Russia, in Ukraine. Liberty in Japan but other competitors there being local. Korea is all local with C&M and others competing with the telephone companies there. Obviously Global and others in Latin America, TeleMex has been a major operator throughout Central America. Telefonica is coming out of Spain into Latin America. So it has grown but it’s been the growth after seeing what happened in the U.S. So the inspiration has been here, but the growth has been one of indigenous operators. Some of its product is local and some of it is product that is imported from anywhere around the world. And then the other has been the growth, of course, of satellite. When you look at Africa, most of Africa for video is either MultiChoice or Gateway being the two major satellite operators throughout Sub-Sahara Africa, and the high-speed data is heavily local, indigenous. Vodaphone has grown aggressively into West Africa. Interesting, France Telecom into parts of East Africa such as Kenya, Tanzania. So it’s again been one of inspiration from the U.S. and it’s been a great market for Harmonic in that some quarters our revenue is 50% or better outside the U.S. And you look at China, the dramatic growth of digital systems, of fiber systems there, and obviously very tightly controlled by the central government but one that is growing dramatically, and many small entrepreneurs throughout China. India’s got thousands of cable systems, consolidation is just starting in India. So it’s an exciting time to be in this business and being involved in it all around the world and seeing what is happening. But what is happening is globalization is really happening and when you look at how it happened you go back to the cable industry in the U.S., its programming of choice, diverse programming, and then the introduction of high-speed data, and then the introduction of IP telephony. Others seeing it and take it around the world. We are a small world and getting smaller. Globalization is a reality and so whether you do it over Skype or you do it over satellite, or you’re watching CNN anywhere around the world, mobile phones – then that would be sort of an ancillary, but what’s happening there, of course, as we’ve talked about, is video on mobile phones and that’s taken off dramatically in Korea, Japan and parts of Europe and really starting to develop in Russia as well. The advances are just ones that are fascinating to see around the world, but when you look at the origin, it’s a creativity of the cable industry in this country.
KUHL: We’re back with David Van Valkenburg for The Cable Center’s Oral History Program. David, we were talking about the global expansion and potential of cable and one of the things that you mentioned that I thought was interesting was the inspiration and the leadership, if you will, of the U.S. in exporting cable and some of these technologies to other countries. The leadership skills today, tell us a little bit about how those have changed. What are some of the necessary components now to an effective leader in the cable industry, particularly at these large competing cable systems and cable companies now, which are a lot bigger, I suspect, than when you got started in the industry.
VAN VALKENBURG: When I started, yes! Exactly.
KUHL: Talk to us a little bit about some of those leadership skills that are mandatory today and that are different from years past. What does it take now to be a real quality leader in this industry?
VAN VALKENBURG: To be a quality leader, and let’s just talk about it at the chief executive level, or the senior executives – the first is, to my mind, you have to know your company and the industry from the inside out. You need to understand all of the pieces. That’s been one of my great advantages is having come up through the years and grown with the industry, know it very, very well. Secondly, though, the other extreme, a CFO must be able to communicate with shareholders, with Wall Street, with bankers, and communicate the vision of where you’re taking your company. So it’s one of understanding it from the very bottom and from the very top, but the critical is understanding how you get that vision implemented all the way down to the very youngest employee. That’s what’s critical in terms of leading the company is understanding those steps and the process of making the vision inspiring to all employees and setting the standards that you want in terms of serving the customer, in terms of effective production of programming, effective distribution of the programming, and one of effective financing of the entire operation. So it is one that yes, is dramatically different than what Monty Rifkin faced when I went to ATC in ’73, but in a lot of other ways it is the same, it’s just simply much more complex. So that leader must be one of vision, of communication, but also one that can communicate not just with Wall Street but with customers, with employees and suppliers at all levels of the business.
KUHL: The expansion of young executives in management is coming from a lot of different areas and a lot of different disciplines around the country into cable as it expands into telephony, etc. From your experience through the years, David, in growing up in this industry as you have, some guidance, some advice for some young executives that are entering this business now. What do you they need to really be concentrating on, to be focusing on, and what kind of skills to they need to bring into this industry?
VAN VALKENBURG: Well, interesting question. Obviously I’m very biased, but critical is patience. Yes, the industry’s moving fast but in order to be successful long-term, they need to understand the intricacies of this business across all of the functions and understand how they are inter-related to each other. They need to have, to be successful, I think, a great respect for all of those with whom they work regardless of their level of education, the position they have, but that every one of them, those people have much to contribute. So first of all, they have to have a respect and understanding across the entire business and entire company. The next is one of perseverance, to continue to grow and to drive, but one of perseverance and being sure that they have the foundation but that they’re following their vision of becoming one of those leaders in the industry. So, the other one, and again, I’m biased, and that is for those young ones coming into the industry is to get some time and experience in the international environment, in telecommunications elsewhere in the world. They may not spend many years there but really become a leader in the U.S. industry, but because the world is becoming so small you need to have that experience of working in telecommunications elsewhere in the world and understand also that there are some excellent ideas elsewhere in the world. One very simple one – I don’t think it would work today in this business in the U.S. – but in Russia, they had a very, very low bad debt ratio and I thought how do you maintain such a low bad debt… there’s got to be an accounting issue here. They couldn’t explain it to me. I finally dug far enough, very simple! They have hundreds and hundreds of places to pay or mail-in a debit card, credit card payment, automatic withdrawal, so forth, but it’s all in advance except for you video on-demand, but it’s all in advance and if you haven’t paid by the 30th or 31st of the previous month you get disconnected. You get your service turned off. It’s all addressable, it’s all digital. So the day your service is to begin that you’ve have paid for it on the 1st of the month, if you haven’t paid for that next month you don’t get one day of service. Well, that’s a very creative idea! Very, very creative, and what happens is that they get 95-98% of those people immediately pay and they have to go collect the converters and they’ve got no bad debt. So, anyway, it’s just one of those ideas, and so you look at that around the world, you learn very good ideas elsewhere and you may not spend any time after one or two or three years outside the U.S. in terms of your employment, but with the world becoming so much smaller you need that global perspective. So those would be the things I would say to young people today is do it while you’ve got that chance today to be, let’s say flexible, learn from the bottom, respect all of those that you work with and get an experience outside of the U.S.
KUHL: David, in your 35+ years in the industry, you’ve certainly seen a lot of sea changes through the years. Kind of reminisce just briefly and maybe give us top two industry changing events that you felt really redirected the cable industry and led it to where it is today. Are there one or two real huge events… I know the Thrilla in Manila always comes up, obviously as one. That’s a given.
VAN VALKENBURG: That’s absolutely one, and it was a great night, absolutely. Yes, I do remember it well.
KUHL: Let’s consider that probably number one, right up there. A couple of others that you felt advance or decisions that the industry made through years that really changed the course of the industry. Are there a couple that come to mind?
VAN VALKENBURG: Well, just as I was analyzing the industry, I would say the Fortnightly decision is a critical one for the industry. The ’84 Cable Act and the deregulation would be another. Obviously the ’92 Act set the industry back and Reed Hundt really hit the industry hard with the implementation of the ’92 Act, but then the further deregulation of the industry. So those would be watershed regulatory and legislative events. Another, obviously, is the lifting of the signal importation, and then you mentioned the satellite and that was the creation of programming, diverse programming, and a lot of the criticism that the industry took in the ’70s of not providing diverse programming. So that would be one. Next would be, obviously as I mentioned before, is fiber. The introduction of fiber is a critical, critical event for the industry and then the over 100 billion dollars that the cable industry invested in upgrading to deep fiber, to addressability, to digital set top boxes, and making that platform today that is a very, very competitive platform. From the ’94 Act getting into high-speed data and specifically into telephony – a major, major event was getting into telephony and providing that third leg of the stool of providing service. One that’s just happening that I think is major for the industry, and that’s getting into the commercial area, and the industry has not really understood how best to do that. Cox has got history, has done it well, but I can say from my experience in the U.K. that – this would be now a decade ago – that 25% of my revenue was commercial and 40% of my EBITA was commercial, so very different environment there in the U.K. than what cable operators so far have done here. They’re getting into it but that’s a change event. From a personal perspective, the one is the focus on the coming competition (this was 1984 Cox), the necessity of excellent customer service, and third, the necessity of getting decision making as close to the customer as possible, therefore really a distributed architecture of management and an IT system that supported all of that. So that was another critical, critical event in terms of Cox and its impact on the industry as a whole.
KUHL: Staying on that personal level, David, ten years from now when we’re all standing around at a cocktail party and your name comes up, what do you want us to talk about?
VAN VALKENBURG: Interesting. There I would refer to an Old Testament proverb, and I think it’s in the 22nd Chapter. “A good name is better than great riches,” and that’s what I would want to be remembered for, is one of integrity, one of honesty of my word, of not being afraid to say what I believed, vote what I believed, and not abandoning my values as a person. That’s what I would want to be remembered for really as a person, one that yes, had great attention to detail but also always maintained a vision of what this industry could be and its impact on not just U.S. but the whole world and society as a whole.
KUHL: Well said. I think we’re finished here. Our work is done. David, if there’s something that you want to add please let us know. You, I know, have a new grandchild that I’m sure you want to goof around with and maybe just talk to us a little about what’s in your future at this point.
VAN VALKENBURG: Well, yes, I’ve got now a grandson that’s living here that’s a year old. I’ve also got a granddaughter that is four years old that’s a joy. What I’m enjoying now is being on several corporate boards, some international, as I’ve mentioned, and diverse boards. With the events of Enron, WorldCom, Adelphia, and now Fannie Mae, Freddie Mac, the responsibility of a board member has become very, very critical. I’ve been chairman of audit committees and the impact of Sarbanes Oxley on audit committees and the Section 404 with the processes and the Foreign Corrupt Practices Act when you get to international, and then more recently the executive compensation, I think back to Grasso and some of the problems that that compensatory committee found themselves in, I’m chairman of a number of comp committees, one is a public company, and the necessity of being very, very aware of incentive systems and compensation systems and that what is fair to the individual but also what is in the best interests of the shareholders and just in terms of good governance of being responsible corporate citizens. So those are some of the challenges that I’m enjoying today as a director for companies that surround the telecommunications/entertainment business that bring me great satisfaction, and the ability to work with those chief executives in developing their skills as executives and helping them learn some of the lessons that I’ve learned over the years of being that excellent executive. I would close with the following two things. One was my high school baccalaureate sermon, a small town, Methodist minister, and his text was Romans 12:2 “Don’t let the world squeeze you into its mold.” So maintain your values. Be part of the world, but be sure that you maintain your values. The second is a story that I’ve told many, many times and that is that Jesus did not teach the Golden Rule correctly. It is not do unto others as you would have them do unto you. No. It’s do unto others as they would have done unto them. And that is one of respecting every individual as a unique individual and motivating each in the way their personality… understanding them. But it takes yourself to understand them from the inside out and to respect them as individuals and to lead them where they can be most productive, most effective, whether they’re frontline employees or senior executives.
KUHL: Well said. David, it’s been a pleasure having you here today, it really has. Thanks for participating in the Oral History Program here at The Cable Center and the best of luck to you in the future, and all your playtime with your grandchildren.
VAN VALKENBURG: Thank you very much. I appreciate it. Thanks for the questions, very good. KUHL: Hello, I’m Craig Kuhl, a freelance journalist covering the cable television industry. I want to welcome you to The Cable Center’s Oral History Program on September 30 of 2008. Today we are privileged to have David Van Valkenburg with us. David currently sits on a number of boards of directors and is making some significant contributions to the cable industry. Today we want to kind of rewind with David and talk about his cable career which began some years ago – right, David? – and his contributions to the cable industry. David, welcome to the oral history program at The Cable Center.
VAN VALKENBURG: Thank you, yes.
KUHL: David, you’ve had quite a diverse career in the cable television industry, have made a lot of significant contributions on the marketing, customer service, technology sides, and I want to maybe get started with a little rewind here and talk a little bit about what your first thoughts about the cable television industry were. Kind of walk us back, if you will, and tell us a little bit about your first glimpse of cable television, what your thoughts were at that time, and I know that you had a rural upbringing, so maybe let’s get started with that and we’ll move into your cable career at that time.
VAN VALKENBURG: We’ll come right up to that, exactly. In a couple sentences – a farm boy; oldest of seven boys in southern Michigan; small town; and one room school for nine years, my first nine years of school; college, small college; and then into the sciences at the University of Kansas, and moved then to an MBA at Harvard. Right after that – now we get to my first introduction to cable – the first industry I was asked to look at was my nuclear industry because of my background in biophysics and nuclear physics, but the second industry to look at was something brand new. It was the cable television industry and one of the portfolio managers had bought a company by the name of American Television and Communications, and it was in something called cable television, and he said, “Kid, what’d I buy?” So that led me to meet people such as Monty Rifkin, Henry Harris, and many others of the early pioneers of the industry, and that’s how I first got to know Monty well and others at ATC. This would have been in late 1969, so we’re coming up on almost 40 years, so 39 years now, since I first had a glimpse of the industry and it’s one that… I saw the great potential of this industry. At that point in time, a lot of the distant signal restrictions had just been lifted and so there were opportunities to bring in some distant signals, a few, but the potential of that coaxial cable was what attracted me. By 1973 – in fact, interestingly Paul Kagan and I were on a Wall Street transcript round table discussion in ’73 where we talked about the industry. Looking back at some of my comments it’s very interesting that I said that I thought the country would be wired, that there would be many sociological changes brought about by cable television, an explosion of programming, and within – interesting! – 20-30 years that the two-way systems would bring even greater changes. Well, I think it happened a lot faster than that, but that was my first view of the industry, that this was something that would be very, very attractive across the country. At that time it was really the U.S., although I had a vision then of doing international, but at that point in time it was just simply U.S.
KUHL: But you weren’t exactly wired into cable initially. Let’s sort of go pre-ATC days and talk about your science background, which I think is a very interesting kind of transition that you made from the science world into cable. Kind of take us through that time.
VAN VALKENBURG: I went to a small college in Ohio, Malone College soon to be Malone University, and took all the sciences and mathematics I could take there, and interestingly it was a perfect background for going into radiation biophysics which is the interaction of radiation with matter. One of the things that was a requirement as part of my Atomic Energy Commission Fellowship at the University of Kansas was to spend a summer at the National Reactor Testing Station in Idaho. There I saw scientists and engineers running the place, hating what they were doing, wanting to be back in the lab, and I said, “Excuse me, I don’t like to be in the lab. I like running things. I like working with people.” Well, it took me two more years, I completed the Master’s Degree and completed the academic requirements for the doctorate in biophysics before I really could make the break and say go get my MBA. So I did. Among the schools I applied to was Harvard, and somehow – and I have to say this is divine intervention because I didn’t know anything about business. In fact, I’ve told the story many times, that literally when I went to Boston I did not recall ever hearing the phrase ‘balance sheet’. So I was a very, very raw MBA student there at Harvard. But the transition was one of looking at myself and saying what do you really enjoy? And what I really enjoyed was working with people, running things, putting plans together and executing them.
KUHL: At what point in time did you come across ATC? What prompted that move to ATC? Was there a certain person that inspired you to join ATC, or kind of tell us how you got involved with them?
VAN VALKENBURG: Well, coming out of Harvard in 1969 and being a farm boy, small college scientist, I didn’t know the business world. My role models were farmer, teacher and preacher – not much else. So what I needed was a post-graduate education, and that’s what I got at IDS [Investa Diversified Services in Minneapolis]. I got the chance to see a lot of industries, interview some very interesting people like Harold Green, Pete Peterson, and many others that were – and even with Pete, who is still a major factor today at Blackstone – and a really good chance to dig into companies, look at their future, look at their strategies, and what their goals were. What I discovered about myself was, again, I was not the analyst. I wanted to be involved in the company and making things happen. And so I developed in ’71, coming to that conclusion, a list of about seven or eight criteria for the company that I would be looking to work for. They had to be consumer; I wanted to go to work for the best company in that industry; I wanted it to be a fairly small company, probably less than $100 million; I wanted one that had international opportunities. Well, out of the eight criteria, international was the only one I didn’t get with ATC. But I looked at several industries that I had the opportunity to be an analyst for and supporting our portfolio managers, but the cable industry continued to be one that was interesting. I got to know Bill Bresnan at TelePrompTer, and Les Read who was running the new build operations at the time in the early ’70s. Frank Biondi was Assistant Director of Investor Relations at TelePrompTer. So a lot of names that today we know well that were there at TelePrompTer at the time. The same at ATC – people like Joe Collins and Tom Binning there at ATC. So once I narrowed it down, in fact, it was over Memorial Day of 1973 I asked Monty for a job, and as he has said subsequently, why would somebody with this kind of position, to manage that kind of money that we had at IDS at the time – it was the largest mutual fund company at that time – want to come to a little company like this. And it was very simple. That was I saw the potential of the industry, ATC was clearly the best managed at that time, had a very solid balance sheet, and I wanted to do that and I wanted to start at the very bottom. One of the opportunities was to be assistant treasurer for investor relations and I said, “No, I want to go to the field and manage the business from the ground up.” So I started as a Manager Trainee in Moraga, California on November 1, 1973 and the rest is history.
KUHL: Now we’re talking 1970s, pivotal years for the cable industry, whether it’s going to make it or not. Talk about some of the challenges that you were confronted with working for a fledgling cable television company in a rather important decade to advance this business. Tell us about some of the challenges and how you met them.
VAN VALKENBURG: Well, the challenges were many, but the biggest one probably was the ability to finance all of that and that’s where Monty came in as one that understood banking, understood finance, and was able to obtain excellent financing for the construction program and also knew how to maintain cost control, and Monty did that very, very well, many times to our consternation. But he led us through a time of ups and downs in the industry, high interest rates, so I had the opportunity to go through some major reductions in workforce, which wasn’t easy, in a couple of my union systems at the time, and major expansion. My first major expansion was to have the responsibility for building the major area of San Diego, north of the San Diego River Channel, and all of the challenges of project managing that both in terms of going all the way back to permitting poles, easements, materials, labor, turn on, marketing, and then to full operations and all the IT challenges. So the challenges then were ones of project management. That I did throughout all of the ’70s, moving to corporate in 1975 taking over all of our new builds in the east at that time and managing those, eventually starting the construction company and managing construction for all of ATC. The job was one of cost control, tight attention to detail, and being sure that we stayed on budget within the financing that Monty was able to obtain. The other thing that was a real challenge was the franchise commitments that were made at the time. There Jack Gault and I played opposite ends of the game. Jack had to obtain the franchises – and Bruce Lovitt, but mainly Jack – and I had to then go build them. So we renegotiating… and I remember Durham, specifically, and Monty said we will not build what Jack got (the terms). You’ve got to go first and get this franchise where we can economically build it. And so it was renegotiating the franchise terms and then building, and that was one of the real challenges and one that Monty was very good at seeing what could be economically viable, whereas others that were promising dual cable, major programming, local origination and so forth, Monty knew those weren’t, at that point, economically viable. So that discipline was very valuable. Those were some tough lessons to learn in terms of renegotiating franchises and maintaining the integrity of the company and of the company’s commitments once I had made those commitments for Monty and the rest of the team. So it was one of franchise relations, of community relations, ones of marketing – and we can get into some of the marketing challenges at that time – and also the financing and being able to match the revenue generation, the cash flow generation with the financials that Monty and others had been able to obtain in terms of longer term financing.
KUHL: Marketing – that’s a great segue here.
VAN VALKENBURG: Oh, yes.
KUHL: It has become much more sophisticated, I’m sure, from the days that you were first entering the marketing world in cable. Talk to us a little bit about some of the marketing challenges, some of the strategies back then that may have had some impact on growing the industry, providing more customer service, etc., and the influence of some of your marketing strategies back particularly in those initial ATC days.
VAN VALKENBURG: Right, let’s move from the very early days before pay TV and then post-pay TV, which was really happening in ’75, ’76 timeframe. Two examples, I think, that were sort of precursors to our segmented marketing today: a very interesting one was how do you reach the Hispanic market. That’s still a challenge today. This was in the cities and towns around Bakersfield. We were bringing a Spanish language channel from Los Angeles into some of those towns. How do you reach those people? What we discovered was that they, both husband and spouse, or families, worked out in the vineyards and the fields, had their radios on and they were listening to Spanish language radio on transistor radios. So, we marketed in Spanish that the way to watch TV in your language was to get cable, and we put it in Spanish on local radio stations. Those were excellent returns and ones where our penetration went up significantly in the Hispanic areas because we were carrying. It was KEMX out of LA into the southern San Joaquin valley. Another one was Durham, North Carolina. Here it was one of the residual, left over from segregation days. Durham was a relatively, segregated city where blacks were in one part of the city and whites in another. With census track information we found that we could identify where those generally were. We altered our marketing pieces both in terms of radio spots, direct mail, so that when we focused on the black community we primarily talked about black programming that’s aimed to them – basketball as an example, talked about teams that were… and we put black athletes, and black movie stars on the direct mail pieces. And then in the white areas we did it with primarily white faces. Again, we very successfully segmented the marketing. This was obviously extremely simplistic at that time but one that we needed to reach all segments of the Durham community. We had programming that we imported from Washington and Atlanta at the time that was meant for the various segments of that market. Now you move to marketing with the launch of HBO and then Showtime. The question was do you package basic television with premium television? In the new markets, do you go through and market all your basic and then come back and add on pay TV, or do you put them together? And those were fantastic discussions among Tryg Myhren, Jerry Maglio, Joe Collins, others of us at that time in ATC in terms of how you do that, which is the better way. So through some testing we determined that the best is to package them together and sell them as a single package. That proved to be very, very successful in putting the two together in terms of packages. In terms of marketing to the industry, we could market at a high level and then as you went with sales or your telemarketing come down to a package that met the consumers’ need, but you started with the full package. So totally different concept at the time, but one that again was very, very successful and was followed by much of the industry.
KUHL: And that’s a good transition into the bundle conversation. How has that changed marketing – marketing strategy and tactics and marketing mentalities – the introduction of the bundle? We’ll get into the internet and mobile device side in a minute, but before we do that, let’s stay on track with this marketing and talk to us a little bit about the changes that have had to have been made to market this bundle. Now that there’s new services being provided other than just a single video service, how does that change? What is the conventional wisdom, if you will, today for marketing?
VAN VALKENBURG: Let’s differentiate between a package, which is putting various packages together of basic, expanded basic, pay TV, high speed data, and now telephony – those are packages. But in terms of the bundle, bundle is a very, very different concept. A bundle is taking those services and putting them together as a single product package, and a single price point, and a single system backing it up in terms of the CSRs, and installers, the technicians, and the information system, I have to fast forward to Telewest in the late 1990s. The person that really created the bundle is Sam Howe. Sam was my VP of marketing at Telewest, had worked for me at Cox, Cox had sent him over to the UK in the mid ’90s. We had to find a way to market these products successfully. Telephony was very successful, video was less, and we were just starting the introduction of dial up data as well as high speed data. So came up with the idea of marketing a bundle with a single price point. That became the way we expanded the whole market of all three services. But it meant that we had to have a unified package, it had to have a salesman who sold the package and could explain all three services and put them together as a complete bundle. We also needed a CSR who could discuss content of all three services and the benefits of all three. Billing had to be, again, single price point billings. So you had to change the IT system; the installers needed to be able to install all three services at once; and the technician who could provide service on all three of them. Remember Telewest had two different systems, twisted pair telephony and HFC. They were parallel but they were two different systems. The dial-up data was on the telephone system, high-speed data was on the cable system. You had telephony on the telephone, all twisted pair, and you had video, multi-channel video and pay, on the coax and fiber system. But to the consumer they didn’t care. It was the bundle that they were looking for and the reliance that it was all the way back through the system, through the operations they were all single price point, single point of contact, single installer, single technician, and fully integrated operation. This still today is not a concept that’s fully appreciated in this country as well as elsewhere in the world. But the bundling, which is really what did it, was to dramatically expand the telephony and high-speed data in addition to the video.
KUHL: The revolution of internet and mobile devices, etc. that are influencing all industry, everyone around the world today, tell us a little bit about your insights on the impact that this is having on the cable industry – the internet, mobile devices, wireless – talk to us a little bit about your thoughts on where that’s going. We won’t hold you accountable if none of this happens!
VAN VALKENBURG: This is a fascinating topic and one that goes right into three of my current board positions. Harmonic is building the electronics to integrate voice, video and add it from any input to any device anywhere. TVN provides video on-demand product, and again that comes IP to any device including to a mobile device or TV or PC. Now you come to my vision of where we’re going as these technologies merge, I think we’re moving towards a time of all IP, all on-demand. Now, will that be over the DOCSIS network, will it be MPEG 4 near-terms? But it goes to the video device, the TV in the home, the PC, and the mobile device. What we’ve just seen with one of the networks providing next day primetime on your mobile device. I think those things are what we’re going to see an explosion of being able to do. It will be IP and you’ll go from on the DOCSIS network, right to your TV set, or to your PC. All of this is happening as we speak and we’re right in the middle of the evolution. You see that around the world, you see that especially with telephone companies in Germany, in Hong Kong. PCCW is far out front with that. With Hanaro in Korea, of taking video input and putting it on the high-speed data network That’s one of the clients of Harmonic. That’s right now just in the development phase. But you then look across Africa and there it can be by satellite probably. There it is one of reaching the pockets and then spreading high-speed data across Africa. It’s there in internet cafes and it is spreading wide on the west coast, very much available, and will become very available on the east coast of Africa as the submarine fiber gets put in place here in the next year or so. Today most of that high-speed data and video is by satellite but it will all be over the fiber networks that are being built now up the west coast across the Indian Ocean to Dubai and other states in the Middle East and across to Mumbai in India. And that fiber is going right up through West Africa into Dar es Salaam into Nairobi, across to Kampala down to Kigali. That is going into place today. When you’re in West Africa, I’ve been in Accra, Ghana several times as well as down in South Africa, high-speed data is no different from here. In fact, I’ve had the experience of sitting in an internet café in Accra talking to my son on a mobile phone. He’s at a client’s there in Denver. We tested the speed of what I was on there going up the West Coast of African across the Atlantic to a website here and I was operating at 100 kilobits a second faster than he was here at a client’s. So that is happening across Africa. Of course you see what’s happened in India with the explosion of the data centers with high-speed data also the modems of 100 megabits a second across Japan and Korea. Liberty with J-Comm is seeing that in their competition there in Japan. And it’s happening obviously across South America. Then of course Australia is one of those where it’s been happening there as well. I see it personally in Russia. I’ve done a lot of work in Russia over the last eight years. There we could not build an HFC system fast enough. That was another one of the boards on which I served as chairman of the audit committee of a public telecommunications company in Russia. It was NASDQ listed, SEC file. As chairman of the audit committee that was an interesting challenge in Russia. However, from a technology perspective, there was great demand for high-speed data and for video programming – Hallmark, Discovery, other channels around Europe and the Mid East, as well as Russian channels. The video channels were on all digital networks, with digital set top boxes. The demand for high-speed data is right now insatiable. Yandex is a search engine growing over 100% a year and continues to stay ahead of Google as a search engine in Russia. So it’s one where that growth is around the world either through fiber or through satellite, and it’s happening sometimes with telecommunications companies, sometimes it’s by satellite, sometimes it’s telephone companies, sometimes it’s cable, but it’s a dramatic growth around the world and one that’s been very exciting to be a part of, not just here in the U.S. but elsewhere in the world.
KUHL: With all of these demands, David, and with all of the competitive landscape in cable and the emergence of mobile devices around the world, etc, I know that there’s one term that’s very near to your heart. It’s called customer service. How are these people going to be serviced around the world? Give us some of your thoughts on how far this industry has come as far as customer service, where is it now, and how is it going to handle all of these new products, these new services from a customer service perspective moving forward?
VAN VALKENBURG: Wow, what a question! A lot to try to answer there.
KUHL: Three words or less!
VAN VALKENBURG: Well, first of all, customer service is going to be the differentiator. For a company to be successful, it must provide excellent customer service. When I say customer service it’s not just the CSR. That CSR needs to be well trained, well motivated and have great knowledge of all of the products and services that the company provides. There needs to be enough of those to provide immediate service to the customer. However, it’s also the installer and the technician who need to be well trained as well as simply well groomed, positive interaction with the customer, being a salesman for the company, and needs to be able to understand and to work with all of the products and services that the company provides. So it’s a full range of customer service. It’s one must provide an integrated IT System providing all of the information and providing a comprehensible bill to the customer. So it is more than just a CSR. It is one of providing service and dedication to the needs and desires of the customers. It’s more than just providing excellent products. In the cable industry in the U. S. and around the world that’s happening. It must be one of differentiating some programming, but it also needs to be one of explaining the programming, marketing the programming, and that to my mind is the thing that really is the greatest legacy of this industry, is the diverse programming. The choices that we provide around the world. We can get into that somewhat later. In terms of customer service, that’s been where I have focused really my entire career, I believe it is important to provide the excellent service to everybody and to treat every employee as critical. The most important employee for any telecommunications company is the person that has the personal interaction with the customer. That’s where it’s critical and those are the points of light that happen between that CSR on the phone, the installer, the technician in the home. Those are the things that are most important in terms of providing excellent service. I’ve often used the football team analogy. The chief executive is probably the quarterback, gets a lot of attention, speaks out publicly – the wide receiver, the halfback, but those people are not successful … you talk to a John Elway or any quarterback and they will tell you that the critical thing is that center, that guard, tackle. They don’t get a lot of notice, but they are the ones that are the core of the team to make it successful. If they don’t do their jobs well then there is no success. And so the same thing in terms of a telecommunications operation, it is that CSR, it is that installer, it is that technician, those that interact every moment with the customer is most important. So you have to have, first of all, in order to have excellent customer service you have to have well trained and well motivated employees, every single one. They are the most important in providing that excellent service. That’s really the critical… from that then you can provide excellent service. Now the service must have excellent reliability and quality. It must be reliable video, reliable internet, and reliable telephony. Quality, you don’t have crackling sounds on the phone, internet has constant speed, and you’ve got reliable and high quality video pictures in terms of the various products. Those are must have. But in terms of how you provide that and provide it effectively as well as efficiently, you cannot throw people at it. You have to find what the root causes are of issues. What is the root cause of a lot of phone calls to the office because of billing issues? Well, I had the experience of asking CSRs, why are people calling about billing issues? I had the CSRs work together with IT and they came up with a much, much clearer bill than the IT people had, or marketing people had, and our calls went down. The CSRs were the ones that knew the problems, they’d heard it from the customer, and IT was able to interpret what they were saying and put it to an easily understood bill. The same thing comes from service issues, in being able to attack the actual problem. Another example is one, that is we were getting a lot of calls to the office for service problems. This was in Telewest. Well, why? We asked many questions. It was primarily outages. Okay, why are we having outages? Well, we got digging down into the issue and found it was a single module within the amplifiers that was the problem. We changed out the modules, outages went down, and calls went down. Now you’ve got satisfied customers. We didn’t throw more people at it. We put intelligence at it, analysis. Why do you have the problem? But you have to have those kinds of insights into the business in order to achieve excellent customer service. But it also takes one other thing and that is it takes that vision from the top to make it happen because if it isn’t in the chief executives vision and in one that is constantly spoken to and constantly worked on and measure, then it isn’t going to happen. So it takes that leadership to have it happen. And so we could go further in customer service but take me where you want to go next. This one I can go on for a long time.
KUHL: I can sense that.
VAN VALKENBURG: With a great passion for it, yes.
KUHL: Obviously. In that same vein, David, customer service obviously being a top priority in just about every cable system and telecom company around. There is a blurring of the lines now between the telecommunications companies and the cable industry. The landscape is changing and the businesses are changing, and there are some partners now that 15 years ago you would have never imagined partnerships with, obviously the Sprints, etc. Tell us a little bit about how you see those industries, those companies evolving now. Do you see a closer partnership being developed, emerging among all of these different players now in the telecom and cable industry? Just how do you see that? Give me your vision now of what that’s going to look like down the road.
VAN VALKENBURG: Well, let me give you a phrase, and it is still true and developing. This was from a speech that I gave in 1984 when I said we were, as a cable industry, on a collision course with the telephone companies. We now have three telephone companies in this country, basically, and two major ones of AT&T and Verizon, and with those the cable telecommunications industry all on a collision course Those that are working in New York, Long Island Cablevision, Tom and John are seeing that every day, and their teams. Some of the Time Warner systems, some of the Comcast systems, and especially with Verizon where it’s all fiber, we are on a collision course and the collision is happening in terms of competition with the telephone companies. You started to see that when cable got into telephony. Actually, if you really go back far enough, you go back to our days of competing with the telephone company with something called CommLine in 1989 with Cox in Omaha where we were doing business bypass and we were the cable operator providing data voice services to companies primarily as their redundant service, but we were competing directly. That has now expanded into residential telephony. it has finally started to happen in terms of business telephony and data, and in some markets where Verizon and AT&T are developing it’s in video. There it is one of direct competition with very, very similar product, very similar services. The winner there is going to be one of providing both the products as well as the excellent service, and that’s going to become critical. But that’s what I said in 1984, in order to compete with the telephone company or DBS, at that time, was excellent customer service. That’s the glue that holds the person, that customer, developing that loyalty and long-term loyalty to the cable operator versus the telephone company. But it’s still going to be hand-to-hand combat in the trenches and I think that’s going to continue to grow in terms of competition.
KUHL: Innovation is going to be key to this, too. I know that you certainly are aware of that. Talk to us a little bit, David, if you will, some of the technological innovations that you feel through the years have really had a significant impact on the cable industry specifically, and some of the innovations today that you see that are not only relevant but absolutely critical to the cable industry in advancing their business forward in a lot of different ways. In terms of providing customer service what are some technology advancements and innovation that are allowing better customer service, that’s allowing greater marketing opportunities, etc. Talk to us a little bit about some of those innovations.
VAN VALKENBURG: A lot of different things there. Let’s start with in terms of technology, probably the adaptation of fiber into cable telecommunications would be the major technological change that’s happened, and our ability to provide multi-channels, hundreds of channels, and then next would be digitization on the systems, putting on more channels. So those are critical for us, plus the ability to provide the two-way capability. The next though, in terms of providing excellent service, would be the use of wireless systems for dispatch of installers and technicians. Putting PCs and PDAs in the hands of the installers and technicians, having that instant information, understanding of the system wherever they are. That’s a critical one. Another one is the IT systems, how are the IT systems? There it’s one of both in terms of analysis and trends and so forth within the operation, but it’s also one of having all that information at hand in terms of the CSR reacting, and it’s one of understanding how to target marketing by overlaying your base of information with outside databases and integrating those in terms of marketing, and that’s gotten very, very sophisticated in terms of technology that really aided marketing. Then you go to the digitization and digital advertising, and with the advancement of digital set top boxes and getting those into every home, now we have information that we know what people are watching, not from a specific but from a general perspective in terms of the confidentiality issues and right of privacy and so forth, but you can now start to target market. What Canoe is doing and their objectives in that joint venture in terms of advanced advertising and digitization and the integration of the technology of digitization, fiber, and high-speed data, as well as advertising and the spots, where they go, or then you take video on-demand, you have different advertisements within product that would be a couple of days later than when it was live. You’ve got all those technology advances working to advance the entire industry from a residential perspective. Then you go to what’s happening on the business side and the high-speed data, the introduction of telephony and being able to package those for small or medium business especially, and with IP, being able to offer IP telephony out to small businesses and what they can do at far less expense, and the high-speed data of going to gigabit rate transfer of data across the company, across the entire country, I should say, and worldwide. You look at what Cox and Comcast are doing where they’re tying all of their systems together with fiber and Cox building two high definition TV headends – one in San Diego, one in Atlanta – and providing high definition TV throughout the country on their own network, telephone calls all on their own network and dropped off at the local endpoint. What’s fascinating for me in terms of that technology and where that’s going is we did that at Telewest in the U.K. in ’97, ’98 when we tied all of our headends and switches together and provided high-speed data across the country, with telephony –we could take a call from Edinburgh to London and drop it off at a DLE in London and dramatically reduced our costs. Now when we introduced digital we had the fiber all in place and we launched with a single digital headend for the entire company. Digital services are into mid-Scotland to southwest England to the English Channel. We did have a redundant headend where we tied into a cable and wireless headend for backup. But it was a single headend for the entire company and we were able to digitize every signal. Today with nominal… a few million dollars, they could be entirely digital, which is what I did in Russia with going entirely digital almost from the beginning. So, technology is sort of that foundation that leads us to really dramatically improving and enhancing our build to provide information, education and communication to our customers and customers around the world.
KUHL: You obviously have a good grasp of this business globally, David. Share with us some of your insights into the global potential for cable and the cable industry and its expansion into these new services. What do you see the potential globally for that and how appealing is that to the cable industry?
VAN VALKENBURG: Well, from international cable, the only one that really is international cable is Liberty Global based here in Denver, but all of their systems are around the world especially on the continent in Europe. They are in a few countries in South America, in Australia, in Japan, and they have made that a very big business. None of the other U.S. cable operators have really seen fit to expand internationally. It’s been basically indigenous growth, whether it is the cable operators in Holland or in Germany and throughout the whole central and eastern Europe. It’s all indigenous in Russia, in Ukraine. Liberty in Japan but other competitors there being local. Korea is all local with C&M and others competing with the telephone companies there. Obviously Global and others in Latin America, TeleMex has been a major operator throughout Central America. Telefonica is coming out of Spain into Latin America. So it has grown but it’s been the growth after seeing what happened in the U.S. So the inspiration has been here, but the growth has been one of indigenous operators. Some of its product is local and some of it is product that is imported from anywhere around the world. And then the other has been the growth, of course, of satellite. When you look at Africa, most of Africa for video is either MultiChoice or Gateway being the two major satellite operators throughout Sub-Sahara Africa, and the high-speed data is heavily local, indigenous. Vodaphone has grown aggressively into West Africa. Interesting, France Telecom into parts of East Africa such as Kenya, Tanzania. So it’s again been one of inspiration from the U.S. and it’s been a great market for Harmonic in that some quarters our revenue is 50% or better outside the U.S. And you look at China, the dramatic growth of digital systems, of fiber systems there, and obviously very tightly controlled by the central government but one that is growing dramatically, and many small entrepreneurs throughout China. India’s got thousands of cable systems, consolidation is just starting in India. So it’s an exciting time to be in this business and being involved in it all around the world and seeing what is happening. But what is happening is globalization is really happening and when you look at how it happened you go back to the cable industry in the U.S., its programming of choice, diverse programming, and then the introduction of high-speed data, and then the introduction of IP telephony. Others seeing it and take it around the world. We are a small world and getting smaller. Globalization is a reality and so whether you do it over Skype or you do it over satellite, or you’re watching CNN anywhere around the world, mobile phones – then that would be sort of an ancillary, but what’s happening there, of course, as we’ve talked about, is video on mobile phones and that’s taken off dramatically in Korea, Japan and parts of Europe and really starting to develop in Russia as well. The advances are just ones that are fascinating to see around the world, but when you look at the origin, it’s a creativity of the cable industry in this country.
KUHL: We’re back with David Van Valkenburg for The Cable Center’s Oral History Program. David, we were talking about the global expansion and potential of cable and one of the things that you mentioned that I thought was interesting was the inspiration and the leadership, if you will, of the U.S. in exporting cable and some of these technologies to other countries. The leadership skills today, tell us a little bit about how those have changed. What are some of the necessary components now to an effective leader in the cable industry, particularly at these large competing cable systems and cable companies now, which are a lot bigger, I suspect, than when you got started in the industry.
VAN VALKENBURG: When I started, yes! Exactly.
KUHL: Talk to us a little bit about some of those leadership skills that are mandatory today and that are different from years past. What does it take now to be a real quality leader in this industry?
VAN VALKENBURG: To be a quality leader, and let’s just talk about it at the chief executive level, or the senior executives – the first is, to my mind, you have to know your company and the industry from the inside out. You need to understand all of the pieces. That’s been one of my great advantages is having come up through the years and grown with the industry, know it very, very well. Secondly, though, the other extreme, a CFO must be able to communicate with shareholders, with Wall Street, with bankers, and communicate the vision of where you’re taking your company. So it’s one of understanding it from the very bottom and from the very top, but the critical is understanding how you get that vision implemented all the way down to the very youngest employee. That’s what’s critical in terms of leading the company is understanding those steps and the process of making the vision inspiring to all employees and setting the standards that you want in terms of serving the customer, in terms of effective production of programming, effective distribution of the programming, and one of effective financing of the entire operation. So it is one that yes, is dramatically different than what Monty Rifkin faced when I went to ATC in ’73, but in a lot of other ways it is the same, it’s just simply much more complex. So that leader must be one of vision, of communication, but also one that can communicate not just with Wall Street but with customers, with employees and suppliers at all levels of the business.
KUHL: The expansion of young executives in management is coming from a lot of different areas and a lot of different disciplines around the country into cable as it expands into telephony, etc. From your experience through the years, David, in growing up in this industry as you have, some guidance, some advice for some young executives that are entering this business now. What do you they need to really be concentrating on, to be focusing on, and what kind of skills to they need to bring into this industry?
VAN VALKENBURG: Well, interesting question. Obviously I’m very biased, but critical is patience. Yes, the industry’s moving fast but in order to be successful long-term, they need to understand the intricacies of this business across all of the functions and understand how they are inter-related to each other. They need to have, to be successful, I think, a great respect for all of those with whom they work regardless of their level of education, the position they have, but that every one of them, those people have much to contribute. So first of all, they have to have a respect and understanding across the entire business and entire company. The next is one of perseverance, to continue to grow and to drive, but one of perseverance and being sure that they have the foundation but that they’re following their vision of becoming one of those leaders in the industry. So, the other one, and again, I’m biased, and that is for those young ones coming into the industry is to get some time and experience in the international environment, in telecommunications elsewhere in the world. They may not spend many years there but really become a leader in the U.S. industry, but because the world is becoming so small you need to have that experience of working in telecommunications elsewhere in the world and understand also that there are some excellent ideas elsewhere in the world. One very simple one – I don’t think it would work today in this business in the U.S. – but in Russia, they had a very, very low bad debt ratio and I thought how do you maintain such a low bad debt… there’s got to be an accounting issue here. They couldn’t explain it to me. I finally dug far enough, very simple! They have hundreds and hundreds of places to pay or mail-in a debit card, credit card payment, automatic withdrawal, so forth, but it’s all in advance except for you video on-demand, but it’s all in advance and if you haven’t paid by the 30th or 31st of the previous month you get disconnected. You get your service turned off. It’s all addressable, it’s all digital. So the day your service is to begin that you’ve have paid for it on the 1st of the month, if you haven’t paid for that next month you don’t get one day of service. Well, that’s a very creative idea! Very, very creative, and what happens is that they get 95-98% of those people immediately pay and they have to go collect the converters and they’ve got no bad debt. So, anyway, it’s just one of those ideas, and so you look at that around the world, you learn very good ideas elsewhere and you may not spend any time after one or two or three years outside the U.S. in terms of your employment, but with the world becoming so much smaller you need that global perspective. So those would be the things I would say to young people today is do it while you’ve got that chance today to be, let’s say flexible, learn from the bottom, respect all of those that you work with and get an experience outside of the U.S.
KUHL: David, in your 35+ years in the industry, you’ve certainly seen a lot of sea changes through the years. Kind of reminisce just briefly and maybe give us top two industry changing events that you felt really redirected the cable industry and led it to where it is today. Are there one or two real huge events… I know the Thrilla in Manila always comes up, obviously as one. That’s a given.
VAN VALKENBURG: That’s absolutely one, and it was a great night, absolutely. Yes, I do remember it well.
KUHL: Let’s consider that probably number one, right up there. A couple of others that you felt advance or decisions that the industry made through years that really changed the course of the industry. Are there a couple that come to mind?
VAN VALKENBURG: Well, just as I was analyzing the industry, I would say the Fortnightly decision is a critical one for the industry. The ’84 Cable Act and the deregulation would be another. Obviously the ’92 Act set the industry back and Reed Hundt really hit the industry hard with the implementation of the ’92 Act, but then the further deregulation of the industry. So those would be watershed regulatory and legislative events. Another, obviously, is the lifting of the signal importation, and then you mentioned the satellite and that was the creation of programming, diverse programming, and a lot of the criticism that the industry took in the ’70s of not providing diverse programming. So that would be one. Next would be, obviously as I mentioned before, is fiber. The introduction of fiber is a critical, critical event for the industry and then the over 100 billion dollars that the cable industry invested in upgrading to deep fiber, to addressability, to digital set top boxes, and making that platform today that is a very, very competitive platform. From the ’94 Act getting into high-speed data and specifically into telephony – a major, major event was getting into telephony and providing that third leg of the stool of providing service. One that’s just happening that I think is major for the industry, and that’s getting into the commercial area, and the industry has not really understood how best to do that. Cox has got history, has done it well, but I can say from my experience in the U.K. that – this would be now a decade ago – that 25% of my revenue was commercial and 40% of my EBITA was commercial, so very different environment there in the U.K. than what cable operators so far have done here. They’re getting into it but that’s a change event. From a personal perspective, the one is the focus on the coming competition (this was 1984 Cox), the necessity of excellent customer service, and third, the necessity of getting decision making as close to the customer as possible, therefore really a distributed architecture of management and an IT system that supported all of that. So that was another critical, critical event in terms of Cox and its impact on the industry as a whole.
KUHL: Staying on that personal level, David, ten years from now when we’re all standing around at a cocktail party and your name comes up, what do you want us to talk about?
VAN VALKENBURG: Interesting. There I would refer to an Old Testament proverb, and I think it’s in the 22nd Chapter. “A good name is better than great riches,” and that’s what I would want to be remembered for, is one of integrity, one of honesty of my word, of not being afraid to say what I believed, vote what I believed, and not abandoning my values as a person. That’s what I would want to be remembered for really as a person, one that yes, had great attention to detail but also always maintained a vision of what this industry could be and its impact on not just U.S. but the whole world and society as a whole.
KUHL: Well said. I think we’re finished here. Our work is done. David, if there’s something that you want to add please let us know. You, I know, have a new grandchild that I’m sure you want to goof around with and maybe just talk to us a little about what’s in your future at this point.
VAN VALKENBURG: Well, yes, I’ve got now a grandson that’s living here that’s a year old. I’ve also got a granddaughter that is four years old that’s a joy. What I’m enjoying now is being on several corporate boards, some international, as I’ve mentioned, and diverse boards. With the events of Enron, WorldCom, Adelphia, and now Fannie Mae, Freddie Mac, the responsibility of a board member has become very, very critical. I’ve been chairman of audit committees and the impact of Sarbanes Oxley on audit committees and the Section 404 with the processes and the Foreign Corrupt Practices Act when you get to international, and then more recently the executive compensation, I think back to Grasso and some of the problems that that compensatory committee found themselves in, I’m chairman of a number of comp committees, one is a public company, and the necessity of being very, very aware of incentive systems and compensation systems and that what is fair to the individual but also what is in the best interests of the shareholders and just in terms of good governance of being responsible corporate citizens. So those are some of the challenges that I’m enjoying today as a director for companies that surround the telecommunications/entertainment business that bring me great satisfaction, and the ability to work with those chief executives in developing their skills as executives and helping them learn some of the lessons that I’ve learned over the years of being that excellent executive. I would close with the following two things. One was my high school baccalaureate sermon, a small town, Methodist minister, and his text was Romans 12:2 “Don’t let the world squeeze you into its mold.” So maintain your values. Be part of the world, but be sure that you maintain your values. The second is a story that I’ve told many, many times and that is that Jesus did not teach the Golden Rule correctly. It is not do unto others as you would have them do unto you. No. It’s do unto others as they would have done unto them. And that is one of respecting every individual as a unique individual and motivating each in the way their personality… understanding them. But it takes yourself to understand them from the inside out and to respect them as individuals and to lead them where they can be most productive, most effective, whether they’re frontline employees or senior executives.
KUHL: Well said. David, it’s been a pleasure having you here today, it really has. Thanks for participating in the Oral History Program here at The Cable Center and the best of luck to you in the future, and all your playtime with your grandchildren.
VAN VALKENBURG: Thank you very much. I appreciate it. Thanks for the questions, very good.
