In June 2013 Charter Communications single-handedly touched off what is expected to be an industry-wide consolidation wave with its pursuit of Time Warner Cable. While Charter didn’t win the ultimate prize — Comcast and TWC agreed to a $69 billion merger in February that will create a 30-million subscriber behemoth — Charter negotiated with the combined companies a series of swaps, sales and spins that will double its footprint, strengthen clusters in key areas in the Midwest and South, and give it a 33% stake in a soon-to-be publicly traded company dubbed GreatLand Connections that could serve as an acquisitions vehicle down the road.
But overlooked in all the merger mania surrounding the Charter story is the company’s operational expertise. Charter CEO Tom Rutledge and his management team, including chief operating officer John Bickham, have been growing the company steadily while moving forward with plans to upgrade its network to all-digital by the end of this year. In the meantime, Rutledge and his team have boosted minimum data speeds from 15 Megabits per second to 60 Mbps, doubled HD channel offerings from 100 to more than 200, and increased triple-play penetration from about 30% in 2012 to nearly 33% in the second quarter of this year.
Charter has also managed to grow expanded basic-video subscribers by 51,000 in the past 12 months and expects, eventually, to show overall videosubscriber growth, while high-speed data penetration has risen to nearly 40%. For those reasons and others, Charter has been named Multichannel News’ 2014 Operator of the Year.
Rutledge and Bickham recently spoke with Multichannel News senior finance editor Mike Farrell about the past and how they see the future. An edited transcript follows.
MCN: Since you came to Charter in 2011, pretty much all the metrics have improved. When you came over, was it simply a matter of applying lessons from Cablevision on a broader scale or did it involve coming up with an entirely new strategy?
Tom Rutledge: To some extent, our history at Cablevision and Time Warner Cable is just not that relevant. Charter had gone through a rough patch, it went bankrupt, and in the process of doing that, the company went through the ringer in the sense that it didn’t have cash available to do normal things. It was a great cable company with great employees and great potential and great plant.
And after it was restructured, the opportunity presented itself to do things in a normal fashion — provide good, quality service and good products — and it required spending money and coordinating or fixing things that hadn’t been fixed in the past. So we did that. And we got good results as a result of it.
MCN: So was it just simply providing better service and better customer service and fixing the plant? Easier said than done.
John Bickham: I think one of the first things that Tom did, because it was before I got here, was he put in place a new product pricing and packaging set, and it emphasized high-value products and high-value packages, and it emphasized simplicity.
The employees could get their heads around it really quickly. It’s not a big menu; it’s a fairly short menu, it’s easy to understand and it’s selling your best products at great prices. And I think that was the catalyst for getting employees to sit up and take notice that there was something new happening.
The other thing we did early on was, we restructured the way the company was organized and we aligned authority and responsibility within the company, and we turned it into what some people call a modern cable company. That took a lot of energy and wasn’t easy to communicate with employees, but once they understood what it was we were trying to accomplish with the restructuring, they got behind it. And within six or eight months, the organizational structure was no longer an issue, and some of the clumsy things that might have existed inside the company before that went away, and we made progress more rapidly after that.
MCN: Did you decentralize? Is there more power, more decision making out in the field now than there was before you guys came in?
TR: People have accountability in the field, and they know it’s actually what is expected of them and they have the ability to meet those objectives successfully. Assigning clear responsibility and lines of clear responsibility to everybody is what we did. Those responsibilities were designed around service, the ability to perform and be responsible for that performance across the entire company, and uniformly across the entire company in every state and every location.
So when we look at how we’re doing, we look at how we’re doing everywhere simultaneously. And we put the same practices in place everywhere simultaneously.
JB: I would add that there’s not a customer-facing decision that can be made — whether it’s pricing or packaging or product definition — without either Tom or I agreeing to make that change.
And, in a way, what it pointed out to our entire organization was how important good customer service is and how important decisions are that affect that service. I think people took that to heart and realized how important great customer service is.
TR: By changing the product, we did that in a way that was designed to free up the capacity of our network, which was our biggest physical asset. It’s the thing that most of the money that was invested in the company was spent on, the upgrading of the twoway interactive cable platform. As a result of that, we were able to take our data speeds up very high, and take our video product up to be superior to all of our competitors, and to fully feature our voice service and extend its reach throughout our footprint. All of that means that everywhere we operate now, essentially, our product is better than our competitors. That helps when you’re trying to compete.
MCN: You had a year where you were pursuing Time Warner Cable. Although you didn’t win that prize, you were able to engineer a deal that looks like you made the best out of a potentially bad situation.
TR: I think so.
MCN: Looking back, did the whole Time Warner Cable pursuit distract you at all from the core mission?
TR: I don’t think it distracted us at all. Look, if we hadn’t pursued it, we wouldn’t have what we have. Our pursuit was successful, and we got that asset into play and we got a big hunk of it.
MCN: How much of your efforts are aimed at changing perceptions for customers and employees? If you look at Charter’s history, there have been a lot of promises made over the years that couldn’t be fulfilled for various reasons.
TR: Well, that’s a good question. Fundamentally, how do you change perception? Well, the best way is to change reality. So if you want to be perceived as a good operator, you need to be one. And if you want to be perceived as a good employer, you need to be one.
So that is our fundamental notion about what we do at Charter. We don’t want to say we’re good; we want to be good. And the way you do that is by organizing yourself to provide good service and to know who’s accountable for that service in the organization, and then measure yourself and see if you’re actually doing it. And if you do it, perceptions ultimately change.
So one of our branding strategies now is to change the way we call our products or to change the sub brand [for] products into Spectrum. We didn’t do that right away because we wanted to actually perform. And now that we are performing, we are free to rebrand ourselves.
MCN: You realized pretty early on that the Internet was going to drive sales. Was that market research, or did you see that as the direction the industry was going?
TR: Both. I’m an Internet user. Everybody loves speed and devices and has more and more of them every day. And how do you tell the world you’re better? You need to be better. We have the best speed; we’re 10 times faster than U-verse and 20 times faster than our average DSL customer competitor.
MCN: Your video competition — DirecTV — is going to get bigger soon, and it’s going to have access to a data product. Do you see a combined DirecTV-AT&T as a big threat?
TR: Should that deal be approved, we think that we’ll be effective competitors.
MCN: In the past DirecTV concentrated solely on video, which at the time was clearly superior. When you came on board, Tom, one of the first things you did was to try to close that gap — increasing the number of HD channels and, at about the same time, boosting Internet speeds significantly.
TR: That’s right. So we could do everything in one fell swoop. But our fundamental objective was to use our plant to be effective and to do that as quickly as we could. So when we joined Charter, it had a lot of analog signals and 50 channels of HD and data speeds of 15 megabits and below. And we wanted to go to a space where we could use the whole plant and make a set of products that were vastly superior to our competitors as quickly as we could, but getting there meant we had to do a bunch of things.
We had to go walk the whole infrastructure, and find all the deferred maintenance that wasn’t done as a result of the process of leading up to bankruptcy, and go do all that maintenance. And in order to improve the customer service, we needed to in-source our employees.
In this last two-and-a-half years since John and I have been at Charter, we’ve hired 6,000 people; we’ve built new call centers, we’ve expanded the capabilities of the call centers we have, and we’ve hired people into them and improved our ability to take phone traffic. We’ve improved our websites; we’ve had to buy trucks, tools and test equipment, and train people to hire people in the field to replace external contractors. And we believe that by being Charter employees, our long-term ability to provide quality service will be improved.
JB: And we’d like to think we have a culture of continuous improvement. And I think that’s baked in right now. It’s a nice place to be.
Going all digital — just to put this into perspective — for our company meant installing a stack of converters that’s about 240 miles tall if you stacked them one on top of another. That’s a lot of iron. It’s a lot of customers that you have to touch; it’s a lot of drops that you have to connect in the home; it’s a lot of signal quality that has to be improved and wiring that wasn’t of good quality. It’s a tremendous accomplishment, and our employees — to say they rose to the challenge is an understatement because we did this in one year. And the train hasn’t come off the tracks.
MCN: Early on, Charter was one of the first MSOs to sell a data-only or a data-plus-phone package, mainly to satellite customers. Now that you’ve improved video quality and you have much faster Internet speeds, is it time to go back and make those non-video customers video customers again?
TR: It’s an opportunity. And it [offering non-video packages] was a strategy that I didn’t agree with, and we changed it. You know, we’re cable operators through and through.
We are actually having success upgrading those customers. Obviously when you cede your video business, you make a statement to the market and, in my view, it’s not a good one. You have to reverse that through improving product and your branding and your marketing and all the things we’re doing. We are growing market share in video.
And that’s been a tough thing, a tough road to go down because of where we went previously. But we have fixed it and we have a better video product everywhere we operate than our competitors do. And so now we have to let that better video product improve our reputation and improve our ability to penetrate the market.
MCN: So you’ve had a couple of quarters where you added customers, and when you’ve lost subscribers, you’ve lost fewer than you previously did. Is the goal to get to a point where you consistently add video subscribers and, if so, how long is it going to take to get there?
TR: It is the goal. And we’re improving daily. From a video market-share perspective, we are positive and have been positive for a year. If you look at our expanded basic-subscriber growth, it’s positive for all of last year. We expect it to be positive this year.
So we have been selling what cable is, the full package, for some time now. We have high expectations for our video products.
MCN: What kind of role, if any, is M&A going to play in those efforts?
TR: M&A is an opportunity but it has nothing to do with our core strategy. Charter’s strategy against Charter’s footprint is how we create value. If there are M&A opportunities to expand the footprint and do value creation the same way — using the quality workforce to create quality products — and that opportunity exists for us, we are open to it. But we don’t need it. We’re very pleased with the deals we’ve done and the opportunities we have before us.
MCN: Minimum data speeds of 60 Mbps would seem attractive to the millennial demo everyone is chasing, but it also could encourage them to watch a lot of online video and access over-the-top services from Sony and Dish and Verizon and others. Does that scare you?
TR: That’s the point. [If] you want a good broadband network and you want to watch lots of video, you should buy ours. And if that changes the competitive landscape with regard to television, we can enter that world and be successful however it evolves. We have a service delivery platform that we think is superior to others and we intend to keep it that way.
So we don’t know how all of television will evolve or unfold from the business-model perspective, but whatever that is, we want our customers to have the best services possible.
Focusing on Customer Service Gives Charter Operations an Edge
While customer service in the cable industry recently has focused on shorter appointment windows and on-time guarantees, Charter Communications is taking its approach a step further.
“Shorter windows and on-time arrivals and all of those things are important,” Charter chief operating officer John Bickham said. “But at the end of the day, it’s all about the details of everything that goes into delivering great-quality service in the home … We have an organization that looks at service that way.”
Over the past two years, Charter has significantly beefed up its customer service workforce, hiring techs, call center employees and bringing the entire service function in-house. At the same time, Charter has spent substantial amounts of money in upgrading its network to all digital, which in addition to allowing the cable operator to more than double its HD channel capacity and more than quadruple its high-speed Internet speeds, also allows the company to pinpoint network outages and detect potential problems before they occur.
Charter has hired about 6,000 employees since 2012, most of them tied to the service function, CEO Tom Rutledge said. Charter has concentrated heavily on training its workers to provide top-notch quality — for example, field techs are rated by customer scorecards and are rewarded for high scores. For Bickham, quality literally begins at home — the customer’s home.
“When a technician leaves a home, we want to make sure that the home is pristine and that the signals are in great shape and that there are no wiring issues and no CPE issues in that home,” Bickham said, adding that Charter’s ongoing plant upgrade will also help the company identify potential problems — like bottlenecks and service outages — before they happen.
“We have lots of sophisticated tools for looking at how our network is performing and we’re producing on a daily basis, on a weekly basis, where we expect to see problems in the network and we go fix them before they become customer-impacting problems,” Bickham said.
So far, those efforts are having an impact. About 51% of Charter customers surveyed by Leichtman Research Group — which rates customer satisfaction on a 1-10 scale (10 being most satisfied) — placed the cable operator in the top three categories in the fourth quarter of 2011. That improved to 56% of customers a year later and to 63% by the end of 2013.
That commitment to customer service also extends to Charter’s own policies and procedures.
“Any time a customer complains, we pay particular attention to it because we usually find, at the core of the complaint, something that is systemic in nature and may be impacting other customers,” Bickham said. “We spend a lot of time paying a lot of attention to anything of that nature because it pays big dividends for us. It points out weaknesses in the way we manage the business and the things that we can fix that systemically create a better experience for the customer.”
— Mike Farrell