Cable Operators

Big Changes In Small Markets

5/25/2009 2:00 AM Eastern

Bill Bresnan has a knack for taking control of cable properties that no one seems to want and turning them into assets just about everyone would love to have.

He did it when he helped secure the cable franchise in Rochester, Minn., in 1958. He did it in 1984, when his Bresnan Communications bought five underutilized systems in Michigan’s Upper Peninsula region. And he did it again in 2003 when he acquired several properties in the Rocky Mountain region from Comcast.

Now, Bresnan Communications is celebrating 25 years of serving small and non-urban markets with remarkable success.

“When the town council approved the original franchise in 1958, the mayor said, 'Well boys, you’ve got your cable franchise. I am not sure what you’re going to do with it, but this is a free country and everyone has the right to go broke,’ ” Bill Bresnan recalled. “We went back when the system turned 25 and during the celebration festivities, the mayor said, “Well, I sure got that one wrong, didn’t I?’ ”

When Westinghouse was looking to dump a cluster of small, underperforming properties in Michigan in 1984, they were the first systems Bresnan snapped up after forming Bresnan Communications. He was familiar with the operations, having run them as president of Group W. He knew they had more potential than was being realized.

Within a few years, Bresnan Communications had upgraded them and it launched advanced services that added to the bottom line. By the time Bresnan sold its 650,000 customers to Charter Communications in 2000 for $3.1 billion, the MSO had connected systems serving 90% of its customers to five headends via fiber, enabling it to offer more-advanced services.

In 2002, AT&T Broadband wanted to unload its sparsely populated systems in the Rocky Mountains and Bresnan, who was eager to get back into the cable game, tried to buy them. Before the deal was done, Comcast bought the entire company. But Bresnan didn’t give up, convincing Comcast to sell the Rocky Mountain systems to him. Comcast was enthusiastic and had so much faith in Bresnan Communications, it kept a 30% stake in the company.

The deal was similar to the one that Bresnan cut with Tele-Communications Inc. in 1984 when he left Group W Cable to start his own company. TCI’s president John Malone called Bresnan, and the two men agreed to a partnership over the phone in March 1984. The bank agreed to lend him money right away. Bresnan took control of his first systems in October of that year.

“Everyone won with that partnership,” Malone said. Bresnan got the benefit of TCI’s buying power when it came to programming and equipment. TCI got a partner that focused on running cable systems well. The partnership would eventually extend overseas to Chile and Poland with much success.

Bresnan wasn’t looking for partners when it went after the AT&T systems, confident the company could turn them into profit centers. Still, Bresnan welcomes Comcast’s participation.

“Comcast has been a terrific partner,” he said. “It’s nice to know they have our back and we can take advantage of their buying power and technological prowess.”

The feeling is mutual. “Bresnan’s success is built on their smart, customer-focused approach to providing service in rural areas,” said Comcast senior vice president of content acquisition Jennifer Gaiski. “They’ve been a great affiliate partner for Comcast, and we wish them another 25 great years.”

Bresnan Communications executives said they are happy to watch what others do and replicate their success. However, Bresnan is no stranger to being on the forefront of technological innovation.

Bresnan helped change the face of the cable industry in 1976 when his TelePrompTer bought 50 satellite dishes to receive programming signals. Similarly, Bresnan Communications began offering high-speed Internet long before many operators. And Bresnan was the first cable company in Poland to receive a license to offer phone service when the company owned cable systems there in the 1990s.

“Video was our second product in Western Poland at the time,” said Bresnan president Jeff DeMond. “We learned how to offer that service over there, and it translated well when we wanted to offer phone service over here.”

Bresnan launched phone service in its current service territory in 2005, partnering with Net2Phone. Today, Bresnan is second only to Cablevision Systems among U.S. MSOs in residential phone-penetration rate, at 18% of homes passed.

Bresnan has run both small and large systems, and he prefers the former. Smaller markets are less complicated to manage and give the company the ability to offer more personal service, said Bresnan CFO Andy Kober.

Bill puts it this way: “We can identify with those markets and the people who live in them. [My brother] Pat and I grew up in a small town. We like operating in them. We always have.”

Less complicated doesn’t mean less sophisticated, said Pat Bresnan, Bresnan’s younger brother, partner and senior vice president. Residents in small, rural markets want all the advanced services that residents in urban markets want, he said. “As long as you don’t pretend to be something you’re not and you deliver quality customer service and products, life is good and consumers are happy. It’s not rocket science. It’s just good business.”

Bresnan has immersed itself in the communities it serves in several ways. The company is a great corporate citizen, said Sen. Max Baucus (D-Mont.). Among its various contributions is the creation of a small business incubator program that started in Montana and has since migrated to Wyoming. The MSO committed to spending $2 million in public service announcements and grants to help small, local businesses get off the ground.

The idea was sprung during a lunch the Bresnans were having with Baucus and National Cable & Telecommunications Association chief Kyle McSlarrow a couple of years ago, Pat Bresnan recalled. The Bresnans felt they had been given mentoring opportunities and help in their early careers, and they felt they needed to give back somehow.

“We thought, 'Let’s do something that helps local businesses.’ We came up with the incubator idea and ran with it,” he said. “We had it up and going in 45 days. It was the right thing to do.”

Upgrading the systems as quickly was also the right thing to do, DeMond said.

In 2003, operations in Montana, Wyoming, Colorado and Utah passed 571,000 homes with 58% of the plant being 550 MHz or greater. High-speed data penetration stood at a measly 4% of homes passed. In 18 months, Bresnan upgraded 93% of its plant to 625 MHz or greater, with 77% being 750 MHz or greater.

Bresnan has seen an 18% increase in homes passed and a 4% increase in basic customers (compounded 2.6% annually since the completion of the rebuild). Digital customers have increased 92%, and high-speed data customers are up a whopping 687%. Bresnan has added 120,000 customers since its launch in 2005, and the company has 8,000 commercial high-speed data customers. The MSO has also posted a 97% increase in RGU growth since 2003.

To be sure, Bresnan’s results are among the industry’s most impressive, according to research reports from Wachovia. Bresnan’s 2008 revenue growth was up 15%, compared to an average of 9% growth among publicly held companies. Cash-flow growth was up 17% in 2008, better than the public MSOs’ average of around 13%.

As other operators lost basic customers in 2008, Bresnan posted a 3% growth rate. High-speed data growth for Bresnan rose 16% in 2008, better than the almost 10% average posted by publicly held MSOs last year.

Based on the company’s strong fundamentals and growing subscriber base, credit-rating agency Moody’s Investors Service last week raised its corporate debt ratings on Bresnan, upping its Corporate Family Rating and Probability-of-Default Rating to B1 from B2. Both measures are used by creditors to gauge a company’s ability to meet its financial obligations and, like most of Moody’s debt ratings, the higher the rating the easier it is to access debt markets at favorable interest rates.

There may have been a three-year gap between the time Bresnan sold its properties in 2000 and when it picked up its current mix of systems, but the company and its core executive team never stopped operating.

Bill Bresnan kept about 25 people on staff — paying them with his own money — to keep the team together. “I knew I didn’t want to get out of the business,” he said. “I hadn’t wanted to sell those systems in the first place, but it made sense to do so given the price. We had a very good team in place, and I didn’t want to lose them.”

Although he still has final authority over decisions, Bill Bresnan has stepped back from day-to-day matters in recent months as he battles prostate cancer. Like other challenges he has faced professionally and personally throughout his 75 years, Bresnan is tackling this one with passion and determination.

Things are looking up, he said, and he is chomping at the bit to get back in the saddle of his daily routine. Still, he’s proud of his team and their ability to lead and succeed.

“We couldn’t do a lot of what we’ve managed to do without the great people we have in place,” Pat Bresnan added. “We attract quality people, and we like the culture that has been cultivated. You don’t have to be big to be smart.”

AT A GLANCE
Bresnan Communications

SOURCE: Bresnan Communications
Basic customers: 309,400 (48% of HP)
Homes passed: 655,000
Digital customers: 188,700 (60%)
HSD customers: 206,000 (31% of HP)
Telephone customers: 120,000 (18% of HP)
Commercial customers: 8,000