Cable Operators

Putting a Perfect Storm Behind Them

2/16/2007 7:05 PM Eastern

As Hurricane Katrina loomed 18 months ago, a so-called “red team” from Cox Communications’ New Orleans cable system evacuated to Baton Rouge, La., roughly 75 miles northwest.

The members of that New Orleans emergency team, more than 100 employees, took refuge at Cox’s Baton Rouge cable system. The team prepared to use Baton Rouge as a base of operations until it could return to the Big Easy.

Little did the New Orleans team, or Cox’s Baton Rouge employees, know that they were about to endure a catastrophe of biblical scope.

“The first couple of days were a little surreal,” Cox Baton Rouge vice president of sales and marketing Jason Furrate said. “But it really turned into a testimony to the human spirit, because the friendly sibling competition you have between [cable] systems vaporized in about two seconds.”

Furrate recalled how workers from Baton Rouge and the New Orleans team worked side by side for weeks, with staffers from the Big Easy helping Baton Rouge get its system quickly repaired and restored after Katrina.

The two Cox systems have faced diametrically different challenges in the aftermath of Katrina. New Orleans suffered extensive damage to its operation, as well a massive loss of customers. Baton Rouge saw a surge in subscribers, evacuees from the Big Easy, and struggled to meet that demand. The two systems also saw additional wind damage a month after Katrina, when Hurricane Rita blew through the region.

Both systems have addressed those challenges with marked success, said Claus Kroeger, Cox senior vice president of operations. For their significant strides in continued recovery and positioning themselves for future growth, Cox Baton Rouge — now Cox Greater Louisiana — and Cox New Orleans have been chosen as Multichannel News’s Systems of the Year.

Cox New Orleans, which saw at least half of its plant significantly damaged, has restored service to about 95% of its former service area and has roughly 75% of its pre-storm basic subscribers back, according to Kroeger, who has been deeply involved on the corporate level with the recovery of the New Orleans and Baton Rouge systems ever since Katrina.

Boosted by increased penetration levels for its triple-play bundle — video, voice and high-speed data — Cox New Orleans will achieve a significant accomplishment in 2007.

“The system will return to being cash-flow positive this year,” Kroeger said. “That’s pretty amazing down-time, if you will. I’m just so proud of them. I think that’s pretty remarkable.”

Privately held Cox Communications this year once again started consolidating Cox New Orleans’ results with the rest of its cable systems.

“For the year 2006, we looked at our company results with and without New Orleans for comparative purposes, and beginning in January we returned New Orleans to the lineup,” Kroeger said. “They’re now reported and compared and measured across all other Cox systems. It was very much a symbolic bringing them back to the fold, so to speak.”

Kroeger lauded Greg Bicket, regional vice president and general manager for Cox New Orleans, and Jacqui Vines, regional vice president and general manager for Cox Communications Greater Louisiana, the moniker for the company’s Baton Rouge and Lafayette systems, which merged Jan. 1 last year, just four months after Katrina.

The Baton Rouge and Lafayette clusters saw accelerated subscriber growth during the past 18 months, much of it the result of sign-ups from former New Orleans residents who relocated to the 13 parishes covered, in whole or part, by the combined systems.

Vines had an extra set of challenges last year, not only dealing with the population overflow after Katrina but also overseeing the consolidation of the Baton Rouge and Lafayette systems, according to Kroeger.

“In addition to sort of hosting New Orleans for a long time through the hurricane recovery, having significant hurricane-recovery issues of her own — absorbing the growth, etc. — and combining those systems, [it] was a lot to throw at her,” Kroeger said.

“It was certainly almost a 'Perfect Storm’ of her own, if you will, without some of the extreme things that New Orleans had to go through,” he said. “They’ve [Cox Greater Louisiana] had a huge plate.”

The operator’s insurance claims in New Orleans stemming from Katrina are still pending, and they are mainly being handled by the operator’s corporate offices in Atlanta and its parent, Cox Enterprises. The cable company had insurance for plant damage and interruption of business, minus a $6 million deductible.

“We’ve submitted claims, and we have been paid for some claims, and we continue to work well with the insurers,” Kroeger said. “It’s an ongoing process that will probably, just by the nature of how it works, continue for at least a year.”

Asked for an estimated tally of Katrina’s devastating impact on the New Orleans system, Kroeger said, “It’s such a complex mix of physical damage, business-interruption damages, etc. Collectively, it’s well over $400 [million]. That’s sort of all-in.”

Cox Communications has committed $550 million to the New Orleans system.

“In a broad perspective, I would say — I don’t want to get too detailed — the majority of that figure is covered by insurance,” Kroeger said. “And I would say that we are at half, or over half, of that expenditure last year, and continuing this year and next.”

Cox in New Orleans had to painstakingly assess the physical damage to its equipment after Katrina.

“Ultimately it is a physical walk-out and ride-out of every single mile of plant and every single drop in the system,” Kroeger said. “There’s no other way around it. That’s what you’ve got to do.”

Longer term, the New Orleans system had to estimate at what pace its subscriber count, 257,000 before Katrina, would see growth. Basic subscribers are now at 183,000.

“Greg and his people have done a very good job in projecting of what they thought the homes and customers would be as we’ve recovered,” Kroeger said.

“They’ve been very, very close as time has evolved,” he said. “We have put moderate expectations on what we think the homes-passed growth will be over the next few years, because there still are so many questions.”

Kroeger acknowledged that the situation in New Orleans, in terms of the reconstruction effort, is “still regrettably in somewhat of a quagmire.” But Cox is optimistic.

“We’re back to 75%, somewhere in there, of our previous customer count,” Kroeger said. “And we expect continued modest growth. … And certainly it will take years for it to return to its prior levels. … As a business in and of itself, it has been a good business and it will continue to be a good business.”

He added that Cox is “frankly pleasantly surprised” at the improved penetration levels for its services, and its bundle, in New Orleans.

In Baton Rouge, officials at Cox Greater Louisiana have also done a good job with their initial estimates regarding the influx of New Orleans residents who relocated to the area, Kroeger said.

“We’ve been able to measure pretty readily the increase in homes and customers,” he said. “And so we’ve made projections going forward, and that looks good. It was already a fairly high-growth system, and continues to be.”

One wrinkle in Baton Rouge is that late last year some of the evacuees from New Orleans began leaving, either going back to the Big Easy or permanently relocating to cities like Houston.

“So there is a little bit of out-migration, and that’s obviously a tricky part,” Kroeger said. “It’s a little bit difficult to project. But all in all, we feel very good about the growth there.”

One beneficial consequence of Katrina is that the New Orleans and Greater Louisiana systems are ahead of some other Cox systems in terms of its Extendable Optical Network, or E.O.N., initiative, Cox’s company-wide plant upgrade project.

“They [New Orleans] became our first system to really implement E.O.N., because we were having to rebuild anyway, so we [thought we] might as well do it right,” Kroeger said. “And they are very close to being finished. Baton Rouge has got a little more time to go, but they’re also doing very well with that.”

E.O.N. will give Cox’s systems more fiber, enable them to offer faster high-speed Internet access, create greater storage capacity for video on demand and facilitate advanced services.

“These systems [New Orleans and Greater Louisiana] will be very much state of the art in a matter of months as we complete these E.O.N. upgrades,” Kroeger said.

Bicket and Vines credited Cox Communications and Cox Enterprises for their financial and other support after Katrina, particularly assistance for employees.

For example, while a number of companies in New Orleans laid off their workers after Katrina, Cox not only didn’t fire anyone, it paid employees for the month of September, right after the storm, when they weren’t working.

“The company culture is to support and help, and it stems literally from the Cox family [Cox Enterprises was founded by James Cox],” Kroeger said. “It’s just sort of ingrained in us. Yes, we’re concerned about the bottom line, and money and insurance, but that didn’t even enter into the picture until months later. We really were focused about our people and our customers.”

Cox Communications not only established a relief fund of New Orleans employees, it also brought in psychological counselors for more than a year. The parent company also helped coordinate the teams from its systems across the country that volunteered to come to New Orleans to do repair work.

“Cox people are there for each other,” Bicket said. “Our success is absolutely driven by the support that came from New England, and Omaha [Neb.] and Kansas City and San Diego.”

In keeping with Cox’s community-oriented culture and strategy, the company wants to take an active part in New Orleans’ revival.

“One of the things we challenged Greg to do was — in addition to having our business recover and do the right thing for our people and our customers — to try to take a leadership role in the community to help the community recover,” Kroeger said. “Greg’s been very active with that.”

In line with that effort, the operator has produced some New Orleans tourism TV spots that it’s airing in Cox markets across the country.

“They’re not Cox-specific,” Kroeger said. “They don’t necessarily have our names in them but rather about tourism is alive and well in New Orleans. … We’re approaching other avenues to have even wider distribution of those. So those are the kinds of things we’re trying to do to help the market at large recover.”

Bicket said some of Cox’s other cable systems had held their management meetings in New Orleans, as part of an effort to support the city.

Needless to say, the future of Cox’s system in New Orleans is tied to the city’s recovery.

“Like anywhere, we’re dependent on what the greater market does,” Kroeger said. “And we are concerned about housing. We are concerned about the federal government, the state government roles and are they going to be able to deliver for the citizens of New Orleans like we hope they would and we think they should. It’s very slow and very hard and very frustrating for the people there and for our people. Despite it all, we remain optimistic and feel pretty good about it.”

September