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Cable Operators

30 Years of ‘Sudden’ Success

12/19/2011 12:01 AM Eastern

Jerry Kent could just have easily abandoned
the cable industry a decade ago when, in a bit of a surprise
move, he resigned as CEO of Charter Communications,
then the fourth-largest MSO in the country, to take
a step back from the pressures of running the company
he’d helped to found.

“Could have” is the operative part of that sentence because,
in reality, he couldn’t stay away for long.

“I told the world I was going to drive the car pool for a
while and relax,” Kent recalled. “We’d been through a pretty
long ride, and a very intense ride, with a number of acquisitions,
executed what was then the third-largest IPO
in U.S. history, dealing with the industry issues and my relationship
with Paul,” meaning Paul Allen, the Microsoft
co-founder and then-Charter chairman.

“It was a pretty trying time. On the second day of my
simulated retirement, my wife made me put in another
phone line because I was tying up the phone too much
for her.”

Kent drove in the car pool for exactly four months.
Then, he formed Cequel III, an investment vehicle to
look into partnering with and creating opportunities
in the telecommunications and cable industries.

That set Kent back on a cable trajectory that has put his
company, Suddenlink Communications, at No. 7 on the list of top U.S. cable operators, with 1.3 million customers
and $1.7 billion in revenue. It employs close to 6,000.

Along the way, Kent has forged and maintained strong
relationships with other companies and executives in
the industry, grown the business and maintained a stellar
reputation in the cable community. For those reasons,
Multichannel News has named Suddenlink Communications
chairman and CEO Jerry Kent its 2011 Executive of
the Year.

“He’s a good friend and a terrific executive,” said Insight
Communications CEO and co-founder Michael Willner.
“He confirms our strong belief that you don’t have to be
huge in this business to be successful.”

EARLY DEALS

After starting Cequel III in his home base of St. Louis, Kent
quickly began building a management team and the firm
eventually raised about $8 billion in capital.

Tapping partially into that war chest, Cequel cut a deal
to manage Classic Communications, which had about
325,000 subscribers in rural and secondary markets in 13
states. Oaktree Capital Management owned it and Cequel
got a small equity stake.

In 2006, Cequel made its biggest steps forward, buying
940,000 customers from Cox Communications, for a thenreported
$1.55 billion, and 240,000 subscribers in West
Virginia from his old company, Charter, for $770 million.

Cequel also morphed into Cebridge Communications
and then, with so many new subscribers coming in, opted
for a clean slate and a new, modern-sounding brand:
Suddenlink Communications.

While Kent’s mergers team has been less active recently
— the most recent deal was the $350 million purchase of
83,000 customers from NPG Cable in 2010 — that hasn’t
been for want of interest.

Suddenlink has looked at practically every cable deal
that has come up, and been listed among early bidders
for such major properties as Bresnan Communications
(bought by Cablevision Systems) and Insight Communications
(now pending a sale to Time Warner Cable).

Kent wouldn’t comment on specific properties, but
said Suddenlink isn’t afraid to make acquisitions as long
as they make strategic sense and represent a sufficient return.
“We’re a buyer, but we’re a cautious
buyer.”

OPERATING GAINS

As far as operating what Kent and co. have
bought, Suddenlink has managed to outperform
much-larger peers on financial
metrics, posting 20 consecutive quarters
of positive revenue growth, with cash flow
rising by more than 9% since 2008.

In terms of investing in the business, in
late 2009 Suddenlink launched a $350 million
plant upgrade — Project Imagine —
that will boost HD channel capacity and
high-speed Internet speeds throughout its
footprint. That project is slated to be completed
in the first half of next year.

Miller Tabak media analyst David Joyce
said Kent and his team have managed to
squeeze out strong returns, despite economic
challenges.

“Jerry Kent clearly knows the cable business,” Joyce
said. “Suddenlink was still adding subs organically when
most of the cable industry was losing them (although
they went a little negative recently). They are doing a
good job upgrading (Project Imagine, to go all-digital
and eventually become more interactive) and integrating
acquisitions.”

Back in 2003, when Kent was managing Classic Cable,
his return to the industry didn’t look quite so promising.

Classic had just come out of bankruptcy protection and
its rural systems, thought to be growth engines just a few
years before, weren’t living up to their billing.

Kent’s first agenda item was to clean up the existing
business by shutting down 100 headends and selling off
another 500, consolidating operations and beefing up service
offerings.

Along the way, Suddenlink has managed to grow its
digital-cable penetration to more than 50%, its high-speed
data penetration to 33% and its phone penetration to 18%.

“We’re very proud of how we built Suddenlink,” Kent
said. “It was a unique challenge. We love this business,
we think there is still significant growth and opportunity
in cable. It’s in my blood. And frankly, we thought
there was some unfinished business to accomplish in
Suddenlink.”

ABOUT THE BACKBONE

Ask Kent what has been the biggest factor in Suddenlink’s
success and he won’t talk about complicated deals.

Instead, it’s all about the backbone.

Suddenlink’s national backbone, the fiber-optic network
that connects about 90% of its customers, has allowed the
MSO to deploy services rapidly and efficiently.

It has also contributed to huge leaps in customer service:
Suddenlink’s J.D Power & Associates customer-satisfaction
numbers have improved by 101 points since 2007.

The backbone has also been the foundation of customer
growth.

Since the third quarter of 2008, Suddenlink’s digital
cable customers have risen 54%, from 488,700 to 753,600;
high-speed-data subscribers increased 42%, from 661,000
to 937,200; and phone customers grew 164.5%, from
161,100 to 426,100 in the third quarter of this year.

In the same span, penetration of homes passed
also has increased significantly for high-speed data (from 26.2% to 33%), phone (from 7.9% to 18%).

Digital customers made up just 38.2% of video customers
in third-quarter 2008. Now they account for 59.4%.

The financial figures are just as impressive. In the third
quarter of 2011, despite a sluggish economy that has served
as a drag against most of the larger cable companies, Suddenlink
again outdid its peers. Revenue rose 7.3%, compared
to an average of 3.3% for its peer group, and cash flow
rose 9.2%, compared to an average of 4% for its peer group.

Kent credits his team for much of the company’s success.
He has fostered a special kind of loyalty from employees
who have worked for or with him for several years,
through several different companies.

Howard Wood, chairman of Cequel III, has stayed with
Kent the longest. He and Kent left Arthur Andersen & Co.
together to start their own cable company, Cencom Cable
Associates, in 1982, with attorney Barry Babcock.

Cencom later sold out to Charter, where Wood served
on the board of directors for several years. “Jerry Kent
has been my partner and friend for 30 years,” Wood
said. “Those that know anything about business partnerships
know this is exceptional. Jerry is loyal, smart
and has great business instincts. He is a tough, demanding
manager, which accounts for his extraordinary
success. Jerry has very insightful business skills.
He loves the cable business and the industry would be
well-advised to listen to his advice.”

Kent has recruited several Charter executives over the
years to join him at Cequel, current programming chief
Patty McCaskill, chief technology officer Terry Cordova,
senior vice president and treasurer Ralph Kelly and
senior vice president of corporate development Heather
Wood.

Others have taken a different route to Suddenlink’s front
door. Chief financial officer Mary Meduski worked at AAT
Communications when Cequel III took over management
in 2002. She moved to the parent company when Suddenlink
sold AAT to SBA Communications in 2006.

“Jerry’s strategic vision, steadfast leadership, high expectations,
financial genius, integrity and customer focus
are the drivers of Suddenlink’s success,” Meduski
said. “Jerry’s passion for and dedication to his family,
employees, customers, investors, community and industry
inspire respect, confidence and loyalty.”

‘HIS DRIVE TO WIN’

One of the newer members of the team, chief operating officer Tom McMillin, joined in 2006 from Dallas broadcast
TV and radio station developer First Broadcasting. He had
also served stints with Marcus Cable and Cencom.

“Jerry’s drive to win, his courage to lead, his focus on
putting the customer first and his willingness to generously
give back have been a tremendous influence on all of
us who have been fortunate to work with him,” McMillin said. “Over the course of his cable career, he has unselfishly
invested his time and energy to positively influence
the thousands of employees (and their families) he has led,
and he has lent a steady hand to assist in guiding our industry
through tremendous change. I have no doubt his
influence will continue to serve our company and the cable
industry well for many years to come.”

Goldman Sachs senior partner Gerry Cardinale, who
led the firm’s private-equity investment in Suddenlink,
said Kent is one of the most entrepreneurial and successful
CEOs in his unit’s portfolio over the past 20 years.

“I’ve personally known Jerry since the mid-1990s and
have always been struck by his commitment to excellence,
his unwavering integrity and his passion for world-class
customer service,” Cardinale said.

In many ways, Kent is cut from the same cloth as other
smaller market MSO chiefs, such as Insight’s Willner
and Mediacom Communications
chairman and CEO Rocco Commisso.

Willner said that he and Kent
have shared philosophies over the
years and exchanged information
on what worked in their particular
footprints.

“I think Jerry is a true and pure entrepreneur,”
Willner said. “He really likes the
cable business, and from a structural and
fundamental point of view. It’s not just emotional
with him.”

Willner also pointed to Kent’s willingness
to take leadership roles on industry issues,
whether it be in Washington regarding
regulatory and programming cost issues,
or as the 2011 co-chair of the National Cable
& Telecommunications Association’s
Cable Show in Chicago. Kent will assume
Willner’s role as chairman of CablePAC,
the industry’s political-action committee
in Washington, and in June was named
chairman of The Cable Center, the industry’s
nonprofit educational arm.

Commisso said that Kent, like himself,
is the last of a dwindling number of ownerentrepreneurs
in the cable industry. And he
added that Kent’s track record speaks for itself.

“I think Jerry has done a great job wherever
he’s been,” Commisso said. “He’s got
the knack and the ability to do the three
things you need to do to be successful in
this business — the ability to raise capital,
the ability to make smart acquisitions and
the ability to operate the systems. He’s had
stellar performance.”

DILEMMA: RISING COSTS

Like most other cable MSO chiefs, Kent is
concerned that pressure from escalating
programming fees coupled with strained
customer wallets could mean tougher times
for the industry.

“I am concerned that we are reaching that
point where we may be pricing some of our
customers out of the market,” Kent said of the
industry as a whole. “We see programming
costs going up in double-digit percentages,
and that’s not sustainable. We’re going to
have to revisit our business model and provide
better, lower-cost alternatives for our
customers in order to be successful as an industry.”

Suddenlink is investigating lower-cost
packages, like the ones Comcast and Time
Warner Cable have introduced, but for now,
Kent believes the answer may be in more innovative
bundling.

“I think that over the next couple of years,
we’re going to have to find additional ways to bundle our
services,” Kent said. “If we continue on the current path,
we as a multichannel industry are [either] going to lose
customers, which is not healthy for operators or programmers,
or we’re going to invite government scrutiny of rates, because we can’t
cont inue to have
these kinds of increases
to our customers
year in and
year out.

“One of the two is
likely to happen. Either
we as an industry
take care of our
problem, or we’re
going to have someone
else come in
and try to take care
of the problem for
us.”

In the meantime,
Suddenlink is also
channeling its energies
toward new
products, launching
a TV Everywhere
application — Suddenlink2Go
— earlier
this year.

Last year, it launched what was (and still is) the highestspeed
Internet service of any MSO: a 107 Megabits-per-second
service dubbed MAX 107.0.

“We even have 107 Mbps service in rural places like
Pomeroy, Ohio and Ripley, W.Va,” Kent proudly noted.
“Having that national backbone allows us to push new
tech, including the fastest Internet speeds, into smaller
communities.”

That extension of broadband into rural areas has come
without need of federal stimulus funds. “We’ve done this
with all of our own capital,” Kent said.

Kent said the idea to build the national backbone came
from a development at his old job as CEO of Charter.

PICKING THE RIGHT MARKETS

“Back in the Charter days, we partnered with Southwestern
Bell in looking at acquiring cable systems in the top 20 metro
markets and competing against other telephone companies,”
Kent said. “This was in the mid-1990s, way ahead of its time.
It gave us some insight in how competition could evolve.

“We felt comfortable that that type of landline telco
competition was not likely to occur in suburban and second-
tier markets,” he added. “We’ve purposely focused
on those markets, and it’s been a great strategy for us.”

That strategy has also paid off for Suddenlink’s backers,
Goldman Sachs Capital Partners, Oaktree Capital Management
and Quadrangle Group. While private-equity groups
tend to want to monetize their investment after three to five
years, Suddenlink has kept its backers happy by issuing a
dividend earlier this year of about $500 million.

“When you’re growing EBITDA 10% a year, you continue
to build significant value,” Kent said. “At some point,
our investors will look for liquidity, but we’ve already given
them a dividend and we continue to grow revenue, so
there is no current pressure for a sale.”

SUDDENLINK AT A GLANCE

Products and services: Digital TV; HDTV; digital
video recorders, including TiVo Premiere; video on
demand; caller ID on TV; phone; high-speed
Internet; home security; wireless home network
(WiFi@Home); online video (Suddenlink2GO); and
commercial TV, Internet and phone services.

Major areas of operation: Texas, West Virginia,
Louisiana, Arkansas, North Carolina, Oklahoma,
Arizona

Corporate headquarters: St. Louis

Regional headquarters: Greenville, N.C.; Charleston,
W.Va.; Tyler, Texas; Lubbock, Texas

Customer call centers: Greenville, N.C.;
Parkersburg, W.Va.; Lubbock, Texas; Tyler, Texas;
St. Joseph, Mo.; Lake Havasu City, Ariz.

Employees: 5,880

2010 revenue: $1.69 billion

SOURCE: Suddenlink Communications

FROM CEQUEL TO
SUDDENLINK

How the midsized
MSO has evolved
through the years:

January 2002: Cequel III
is formed by former Charter
Communications CEO Jerald
(Jerry) Kent, former Charter
co-founder Howard Wood
and telecommunications
lawyer Dan Bergstein.

May 2002: Cequel announces
it has partnered
with Charterhouse Group
International to buy a controlling
interest in AAT Communications,
which operates
and manages 5,700 wireless
communications sites.

February 2003: Cequel
enters into a management
agreement to run Classic
Communications, a ruralmarket
cable operator with
about 325,000 subscribers
that emerged from bankruptcy
protection in 2002.

February 2003: Cequel
buys 27,000 cable subscribers
in Houston from Shaw
Communications.

August 2003: Cequel buys
81,000 subscribers in nine
states from Alliance Communications
for $81 million.

June 2003: Cequel partners
with Corvis Communications
to buy broadband
infrastructure provider
Broadwing for $91 million.

September 2003: Classic
changes its name to
Cebridge Connections.

March 2004: Cebridge
buys 60,000 cable subscribers
in two separate deals,
with Tele-Media Corp. and
USA Media Group. Terms are
not disclosed, but the deal
is estimated to be worth a
combined $120 million.

November 2005: Cebridge
announces deal to buy Cox
Communications systems
with 940,000 subscribers
in 11 states. The deal, later
valued at $2.5 billion, will
triple Cebridge’s size.

February 2006: Cebridge
announces deal to purchase
240,000 subscribers in
Charleston, W.Va., from
Charter Communications.
The transaction is later
valued at about $770
million.

March 2006: Cequel sells
AAT Communications to SBA
Communications for $1 billion.

April 2006: Cebridge
changes name to Suddenlink
Communications.

April 2006: New York
private-equity firm
Quadrangle Group invests
$150 million for 17% equity
stake in Suddenlink.

May 2006: Suddenlink
closes Cox deal.
July 2006: Charter West
Virginia deal is closed.

February 2008: Suddenlink
reaches 100,000--
phone-customer milestone.

December 2009:
Suddenlink embarks on
$350 million upgrade,
dubbed “Project Imagine.”

August 2009: Suddenlink
reaches 250,000 phone
customers.

March 2010: Launch of
MAX 107.0 ultra-high-speed
Internet service in Texas.

November 2010: Suddenlink
agrees to purchase NPG
Cable and its 83,000 customers
from News-Press &
Gazette Co. for $350 million.

April 2011: NPG deal
closes

June 2011: Suddenlink
launches TV Everywhere
product, Suddenlink2Go.

SOURCE: Multichannel News research

 

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