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Cable Operators

Underserved Markets Serve Mediacom Well

2/24/2006 7:00 PM Eastern

Rocco Commisso has never been one to follow the crowd, and that independent streak has served him well. When some operators were selling out in the mid-1990s, or were focused primarily on their major urban markets, he formed Mediacom Communications Corp. and immediately began buying underperforming cable properties in secondary markets across the country.

Commisso, who holds the titles of chairman and CEO, was sure he could build up a profitable company if he was careful about how much he paid and how fast he rolled out new services. In 10 years, he has built Middletown, N.Y.-based Mediacom into the eighth-largest cable operator in the country, serving 1.4 million customers across 23 states.

Before he was a cable entrepreneur, Commisso served as chief financial officer of Cablevision Industries Corp. for 10 years. When CVI chairman and founder Alan Gerry decided to cash out and sell his company to Time Warner Inc., it didn’t take long for Commisso to start making his own plans. He ponied up his own money and bought the system serving Ridgecrest, Calif., from Benchmark Cablevision in 1996.

“I drafted my business plan for Mediacom less than a month after I left CVI,” Commisso said. “I didn’t agree with Alan’s decision to leave the industry. I felt it still had plenty of growth left.

A FRESH START

“He thought it was the end of the entrepreneur. I thought it might be just the beginning. I saw it as a window of opportunity. The big companies were concentrating on their big markets and the valuations for secondary markets were much lower. I was 45 years old and I was willing to put my money where my mouth was.”

An accomplished financier known for his creative and aggressive financial acumen, Commisso had no trouble raising the funds he needed to get his dream off the ground. He was well-known in financial circles: Before joining CVI as CFO, Commisso was a commercial banker whose clients were cable operators, including Gerry.

Yet in the beginning, every acquisition Mediacom did had different financing, says Mark Stephan, Mediacom’s CFO and Commisso’s first employee. In the first five years, Mediacom did 22 deals. It was a wild ride, Stephan recalled.

“We weren’t exactly on the edge,” he said. “But sellers had to rely on our ability to find debt and equity to buy those properties and so they were taking a chance on us, too.”

It wasn’t hard finding money, Commisso said. The trick was finding the right money. “I turned $100 million down because I wanted to retain control of the company,” Commisso said. “I had single-digit millions and that gave me control. I wasn’t about to lose it. Eventually, we raised more money, but I never lost control. I still have it today. I own 24% of the company’s A stock and I own all the B stock, which gives me 75% voting control of the company.”

Mediacom’s first big acquisition came in 1998, when it purchased US Cable from Cablevision Systems Corp. The properties served 260,000 customers in 10 states and quadrupled Mediacom’s subscriber base. By the following year, Mediacom had purchased Triax Communication and Zylstra, doubling the company’s size again to 725,000 customers in 21 states.

Commisso’s acquisitions slowed until 2000 when the company went public and was able to use that security to buy systems serving 800,000 customers from AT&T Broadband. The deal doubled Mediacom’s reach one more time, to 1.5 million customers, making it the No. 8 U.S. cable MSO. (It could slip to No. 9, though, once Cequel III closes its acquisition of several Charter Communications Inc. and Cox Communications Inc. systems in secondary markets later this year.)

Daniels & Associates helped Commisso with many of those deals and chairman Brian Deevy has the utmost respect for Commisso and his team.

“Rocco has done a terrific job of building his business from the ground up,” he said. “It took some courage to take some of those properties on, but the company has done a good job of making them attractive, financially and operationally. A lot of people have tried to do what he has done. I like Rocco. He works hard and he does a good job of building a strong business in 10 years.”

Commisso said he never expected to be here. “Never in a million years did I imagine that I’d own a company larger than Alan Gerry’s,” he said. “It’s not the same business as it was then, of course. It’s not as much fun, in some respects, but it’s a lot more in other ways. With all the new businesses and products, there is a lot to be optimistic about.”

Gerry still thinks he did the right thing, but he admires and respects Commisso for what he’s accomplished. “I am very proud of Rocco,” Gerry said. “He stands alone with what he has done with Mediacom. It didn’t surprise me that he got back into the business as quickly as he did. He disagreed with our decision to sell. He wanted us to stay in the business. But he stuck to his guns, and he went out and bought what he could.

“He took risks and eventually got a hold of those AT&T Broadband systems. He did what other early pioneers did: He wired — or rebuilt — small towns. Rocco got in the business as an entrepreneur at a good time, at a good price.”

Commisso has also made sure the company remains nimble, so it can react to industry forces as best it can, said executive vice president of operations John Pascarelli. “Rocco is so methodical. He can break down a P&L statement or legal contract and quickly boil it down to the nuts and bolts,” he said. “He works harder than anyone I’ve ever seen.”

Commisso is known as a no-nonsense cable executive with a penchant for voicing his opinions and bucking trends. But to people who know him well, he is also a caring brother, loving husband and loyal boss to some 4,000 Mediacom employees.

“As tough as Rocco is, he is the softest man in the world,” said Italia Commisso Weinand, Mediacom’s senior vice president of programming and human relations. She’s also Commisso’s younger sister.

Rocco Commisso thinks of every Mediacom employee as family and makes sure the company is properly taking care of its own, she added.

“It’s a very family-oriented environment here,” Pascarelli said. “He can come across as so intense and competitive. But he is also so caring. One of the things he is most focused on is our benefits package. He doesn’t see 4,000 employees, he sees 12,000 family members.”

ALL IN THE FAMILY

That “all-in-the-family” atmosphere has helped Mediacom overcome some of the havoc created by Hurricanes Ivan and Katrina. “We had quite an extensive plan in place when Ivan hit,” Weinand said. “But we still learned a lot after that storm.

“When Katrina hit, our field team knew what to do. They booked every room they could find before the storm hit and thank God they did because we had some employees living in hotel rooms for a month. We kept everyone on the payroll during those storms. Out of 415 employees affected by the storms, we only lost three, because they couldn’t live in the area anymore.”

Some employees lost their homes in the storms, said Jim Carey, Mediacom’s senior vice president of field operations in the Gulf Breeze, Fla., region, which includes the Gulf Coast systems. But the company’s employees all came together during both catastrophes. “The company brought food, water and clothing from all over the country. We had volunteers working 20 hours a day. Everyone pitched in.”

Commisso made sure every employee affected by the storms was taken care of, Weinand said. “There’s not an employee that Rocco can’t talk to. He has a rare relationship with our employees and they love him.”

Commisso has a long legacy of taking care of his employees. After the Sept. 11 attacks in 2001, Commisso established a scholarship fund for employees. Every year, Mediacom awards 50 $1,000 scholarships to the children and/or grandchildren of company employees across the country. And when Mediacom went public in 2000, he made sure every employee was granted stock, Pascarelli said.

But as generous and loyal as Commisso is to his employees, his demands on them are just as rigorous. “My son was two and had just been diagnosed as hearing impaired,” recalled Weinand. “Rocco convinced me to leave my job at Comcast and work three days a week for him … Six months later, I was working full-time and harder than I ever had before. But I love it.”

Pascarelli remembered when he took a weekend off in 2001 to take his son to Vermont to ski and watch the X Games. Commisso called Pascarelli on his cell phone at 8 p.m. on Friday to tell him he’d come to terms with AT&T Broadband for its systems.

“I realized my life was going to get very busy,” Pascarelli said. “I called him on Saturday and he was not happy that I had taken the day off. He was so engrossed in the deal and the business he didn’t even realize it was Saturday.”

Clearly, his employees admire and respect him. “What I really like about Rocco is that he does what he says he’s going to do,” Carey said.

Commisso is proud of the fact that he has never run out on a promise or commitment. When the company took over the AT&T Broadband systems, he visited every community and promised to upgrade the properties within three years. They finished in 18 months, said Charles King, senior vice president.

Most of Mediacom’s top staff has been with Commisso since he formed Mediacom in 1996. A few have come on board later but the loyalty they have for their commander is same. Mike Rahimi, a cable veteran since the 1970s who joined Mediacom two years ago, as senior vice president of marketing and consumer services, likes Commisso’s vision of providing underserved markets with world-class products and services.

“People are the same everywhere,” he said. “People in small markets want and use the same services as people in the big markets. Their tastes may differ, but their appetite is the same. Rocco realized that and filled a need.”

Commisso takes seriously his heritage and his family background prepared him well for what lay ahead. Born in Calabria, Italy, he and his family immigrated to the U.S. when he was 12. He graduated from Columbia University with a bachelor of science in industrial engineering and a master’s degree in business administration.

While at Columbia, he was co-captain of the varsity soccer team, earning All-Ivy League honors, and was elected president of the business school student body. In 2004, Commisso was named one of the 250 greatest alumni. He is currently a board member of the National Italian American Foundation.

“We had a strong work ethic at home and Rocco has taken that to his workplace,” Weinand said.

Commisso is an accomplished pianist and opera buff. But here’s something a lot of people may not know: He started out playing the accordion, Weinand said.

Although Commisso has ruffled some feathers with his blunt style of telling it like he sees it, he is well respected within the industry. Stephan said Wall Street analysts like the fact that Mediacom hasn’t pussyfooted around its subscriber losses. “We have gotten the benefit from being honest in terms of speaking clearly and being forthright. We’re not good at spinning or sugarcoating reality.”

The company has been pummeled by competition from direct-broadcast satellite. Indeed, Mediacom has lost about 10% of its subscriber base in the last three years. The DBS firms have hammered home the fact they have lower prices, and Commisso hasn’t been shy about complaining about things like programming rate disparities between large and small operators. He publicly decried rate hikes — especially those coming from ESPN — long before other operators joined in the chorus.

“In the last 10 years, we failed to contain our programming costs, including those charged to us and those we charged to our customers,” Commisso said. “I’ve tried to speak up on that. I think I’ve succeeded in some ways for our company.

“Everyone knows programming costs are rising even as their percentage of revenues overall is falling. It could be said that we operators work for the programmers,” said Commisso. He does believe that relations between operators and programmers have improved in the last couple of years.

“Rocco is a fighter,” said newly retired Cox CEO Jim Robbins, who himself went toe-to-toe with ESPN over rate hikes a few years back. “He stands up for his beliefs and passionately defends them.”

Gerry agreed: “Rocco has always been a little rough around the edges, but he is brilliant. And he is the industry’s lone voice against wronged actions either perceived or real.”

September