Cox's Robbins Offers Optimism

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Cox Communications Inc.'s Jim Robbins — one of the most respected CEOs in cable — has drawn on his nearly 30 years of industry experience to navigate his company through some rough waters in the past. With the economic climate now becoming increasingly uncertain, the former U.S. Navy officer is tapping into that knowledge base more than ever. In a recent telephone interview, Robbins talked with Multichannel News finance editor Mike Farrell — between intermittent fire alarms — about the industry and Cox's place in it. An edited transcript follows:

MCN: The big news this week is the announcement of the merger of EchoStar Communications Corp. and DirecTV Inc. parent Hughes Electronics Corp., which would create a 16.7-million-subscriber satellite powerhouse. What's your reaction to this? What do you think it means for cable operators?

Robbins:
My sense is that we have felt that cable is a formidable competitor, has been for a long time, and there is no change in our strategy as a result of any of this stuff because we've been preparing for this a long time. For us, the Holy Grail is voice, video and data. If you are able to deliver a bundle of services like that, and you've got good customer service, you shouldn't have any real problems with the DTH [direct-to-home] business. In the old Cox markets and some of the markets that we've acquired, DBS [direct-broadcast satellite] penetration is higher because we haven't got the rebuilds done yet. But if you provide plenty of capacity [and] good customer service at a fair price, we absolutely have the winning network.

I'll go beyond this and tell you that I think, today, people want more and more personalized services. With nodes of 500 homes, that's what we are prepared to provide. That's a lot better than a node of 90 million homes. So that's where I think we have the advantage. But you know they are out there. They are banging away. They're moving from their original base of rural America into suburban areas and urban areas where the cable operator price-value equation is out of whack.

MCN: Is this merger less of a problem than one between News Corp. and DirecTV? Some people were worried that News would have sacrificed cash growth in order to boost subscribers.

Robbins:
I think they [DirecTV] have been doing that all along. The SG&A [selling, general and administrative] costs on the DTH business left them barely making any money. At some point along the way, they are going to have to run the business as a going concern, not as a company that is up for sale, and try and maximize the number of subscribers. You've seen some pretty healthy churn numbers that would suggest they're getting more and more marginal customers and they were just trying to pretty the thing up for sale.

I think the difference between News Corp and EchoStar [is that] News Corp. has the opportunity to cross-promote dramatically, which EchoStar doesn't have. I don't think News Corp. is out of it. I'm not sure that this thing is done.

I don't want to suggest that I'm making derisive comments about the competition. I think they are formidable. We respect them. We just think we've got a better mousetrap. And if we do it right, we are going to be the long-term winners.

MCN: Does this merger force operators to take actions like accelerating dish buyback programs? What, if any, plans for dish buybacks do you guys have?

Robbins:
We've done some dish buybacks in territories that haven't finished the upgrades and where dish penetration is higher than what we think it should be. But we haven't been putting out a huge bounty of dollars to get people back. And we haven't done it until we are ready to be able to offer at least two of the services, digital video and high-speed Internet access.

MCN: Is consolidation more important than ever for operators, now that you've got a DBS competitor with 16.7 million subscribers now. Is being a 4-, 5-, 6-million-subscriber cable operator enough?

Robbins:
I suppose that's arguable. But we've got awfully good markets and we like where we are. We continue to watch the Good Ship Cable and it's hauling around over choppy waters. We've had two men overboard in the last month or so [Charter Communications Inc. CEO Jerry Kent and AT&T Broadband CEO Dan Somers], and we've got three more men occupying the various deck chairs in the industry. You know, it's wonderful industrial theater. So we'll just continue to watch.

MCN: You used to work with those three new guys in the deck chairs — newly appointed AT&T Broadband CEO Bill Schleyer, chief operating officer Ron Cooper and chief technical officer Dave Fellows — when you were at Continental Cablevision Inc., didn't you?

Robbins:
Yes. I worked with Bill Schleyer, actually, but I left Continental in 1979. But I've always respected the way they've done business and have great admiration for that company. And a lot of the things I learned early in the business, you know, I got from some of those guys. Schleyer and I overlapped at Continental, Dave Fellows and I did not and Ron Cooper and I did not.

MCN: What's your impression of Bill? Were you surprised that he ended up taking the Broadband job?

Robbins:
Not surprised. I'm delighted he did, and I look forward to working with him as an industry colleague.

MCN: Do you think he's got his work cut out for him?

Robbins:
He's got plenty on his plate.

MCN: We heard that Cox was at one point seriously interested in bidding on Broadband, but never put together an actual bid. Is that true and are you still seriously interested?

Robbins:
We continue to watch the Good Ship Cable ply the industrial waters of the industry, and that's our position on that one, Mike. I ain't going any farther.

MCN: Regardless of what AT&T decides to do, stay on its own or sell out to another company, what kind of impact do you think that's going to have on the industry as a whole? [At this point, a rather loud fire alarm can be heard at the MCN offices in New York.]

Robbins:
I worry about your personal safety hearing those alarms.

MCN: I think they're just testing it. Nobody seems to be moving around. So I think we are okay. [The alarm stops.]

MCN: Where were we? What impact do you think AT&T's ultimate fate will have on the rest of the industry?

Robbins:
I'm not going to add to the fountain of human knowledge by commenting on that question.

MCN: Can you comment on whether or not you see any opportunity to get larger by buying systems that may not be strategic to whoever ends up with that company?

Robbins:
Not going there, either.

MCN: There was some talk a while ago that you were one of the candidates for the AT&T job. I was just wondering if that was something you ever considered?

Robbins:
I ain't going there either.

MCN: Do you feel you need to get bigger? Is 6.2 million subs enough in today's climate?

Robbins:
We got plenty on our plate today. If the right stuff comes along, we've got a wonderful balance sheet. Getting bigger is among the options, but we are not going to get bigger just for the sake of getting bigger. [The alarms resume, accompanied by an announcement from a fire marshal with a heavy New York accent.]

Robbins:
Even on the phone I can tell where you are just by listening to the accents in the background there. How tall is your building?

MCN: Twelve stories. So we are OK. I kind of missed part of what you said: You're not going to get bigger for the sake of getting bigger?

Robbins:
I'm saying that we are not going to go get bigger just for the sake of getting bigger. We are going to get, if there is stuff out there that we think makes sense, it's reasonably priced and it's available, we'll do something. But we've got plenty to do right now. We did $10 billion worth of acquisitions in the last couple of years and we're still in a lot of ways digesting them.

MCN: A lot of analysts have said that the Cox family would be against producing its holdings or its control of Cox Communications, which I guess they thought could pose a problem in doing a deal with another company. Has that been the main thing that has been holding you back on the deal front?

Robbins:
Mike, how many ways do I have to tell you no comment?

MCN: And you won't comment on the 13 million shares that they sold?

Robbins:
Nice try. Nothing other than what we said in the press release. They have issues, you know, in the Cox Enterprises businesses that they were dealing with and they've had a hell of a run with Cox Communications and this is a way to raise some cash to help Cox Enterprises' balance sheet and their business opportunities at Cox Enterprises.

MCN: The family still has a 64 percent economic interest and more than 70 percent voting control. So it's not a big, big deal that they sold a few shares.

Robbins:
That's correct.

MCN: Is it an indication of a shift that the family might be changing its earlier position?

Robbins:
The press release said absolutely not.

MCN: OK, let's try a different track. What do you make of the changes of the Western Show and the hits some of the regional shows are taking? Can an industry kind of outgrow the need for trade shows and, God forbid, trade magazines?

Robbins:
There's a need for trade shows in general, but I think some of the smaller shows have been on borrowed time for a long time. And as the industry consolidates there is a smaller number of players and there is more and more statewide consolidation. An industry trade association effectively becomes one company's public affairs office. So somehow that duplication of cost doesn't make a lot of sense. And so I think that what's going on is a natural evolution that these shows are going to have to rethink what their purposes are and what they do.

I've long been a fan of the regional shows or state shows basically being a good lobbying effort to bring local political leaders, state political leaders up to speed on what's going on in the industry. I think hauling exhibitors in there and corporate suppliers and programming suppliers is a huge waste of money for those guys. They finally agreed. They said, 'Hey, we ain't gonna to do it anymore.' Now whether that's spilling over into the Western Show — the Western Shows have been one of the great anchors in the industry. But it's got some serious challenges, I think, this year. The combination of the consolidation in the industry and tough economic times and people's greater reluctance after 9-11 to travel, all of those things are contributing to changes are going to have to take place. What those changes are I don't know.

MCN: Speaking of Sept. 11, where were you?

Robbins:
I was actually at Stratcom [Strategic Air Command] headquarters in Omaha, Neb. I was there as a guest of [investor] Warren Buffett, playing in a golf tournament. In the morning they took all of those guys over to Strategic Air Command headquarters and we were 70 feet underground in a bunker. It turned out four hours later the President of the United States was in the same place. So I'll never forget that.

MCN: Did you get to meet the president?

Robbins:
No, no, no. As soon as the second plane hit they got us out of there so fast you would have thought we were Muslims in today's world.

MCN: Are you going to the show?

Robbins:
We are going to the show. We are having a general managers' meeting that we would usually have in January at the Western Show. It gets us started about a month early on our goals and objectives for the next year. And we just thought it was a convenient way of pulling our guys and gals together there. I'm talking about our systems managers.

MCN: Over the years, a lot of the cable guys have gotten out of the industry Bill Bresnan, Leo Hindery, Marc Nathanson and others. You are one of the last remaining long-term cable guys along with Chuck Dolan, the Rigases.

Robbins:
Don't remind me how old I am.

MCN: What makes you stay, and do you expect the old guard to be replaced entirely?

Robbins:
I love what I'm doing. I love the people that I work with. I love the company that I work for. And I hope I got a few more years left. And I'm having a good time. It's a fabulous business. It's a fabulous business. I consider myself lucky to have gotten in it 30 years ago. And I really do enjoy the people. And as long as my boss wants to keep me around here, that's OK with me.

MCN: Do you think it's good or bad that a lot of the old guard has moved on? Is it just a natural progression for an industry that's maturing?

Robbins:
It's all natural. I think it's all very natural. You know we all still remain good friends. I was on a call the other day, the 23rd annual meeting of C-SPAN. I was on that call yesterday and who was there but Bobby Rosenkrantz. He's the guy that threw the switch on C-SPAN in 1978. I remember being in the room in one of the House office buildings when he did that.

MCN: Is succession something that you are thinking about?

Robbins:
We spend a lot of time on what we call talent management, talent review at all levels of the organization. So just leave it at that, because if I go any farther than that you are going to go down the road on who is this, and who is that and who is the next thing.

MCN: At one point, a lot of people were talking about Maggie Bellville as your most likely successor, but she moved on to other things. Is succession a constant thing that you are evaluating?

Robbins:
We spend a lot of time thinking about people and people issues and it's part of our budgeting process and I think it makes our company stronger because we pay a lot of attention to it.

MCN: There was a bit of a shake-up at Cox in Phoenix after Qwest Communications International Inc. made some inroads with their video digital subscriber line service. Things on that front have changed pretty dramatically and Cox has turned around those operations. What do you think went wrong there and what have you done to rectify it?

Robbins:
Well, you know we put new leadership in command out in Phoenix. And Steve Rizley, our new general manager, is doing a great job focusing on the things that we are really bringing that system forward. And he's done a super job so far this year and we expect that to continue. Phoenix is a very large operation. It's a very complicated operation. It's an operation we acquired from Times Mirror and not only did we have to get our arms around it, but we had to get our arms around very, very, very high growth in the market. And you know very candidly we didn't do everything right for a number of years. We are now doing an awful lot of things right in Phoenix. But we've got work to do there.

MCN: Is Qwest still pretty aggressive on the VDSL front there, or have they backed off like they've backed off pretty much everywhere else?

Robbins:
You should talk to them. I don't like giving trade secrets away about our competitors. We pay very, very close attention to what they are doing. All I can tell you is that we are making terrific progress in Phoenix.

MCN: Cox bought TCA Cable in 1999, pretty much at the height of the consolidation movement. How has that acquisition worked out for you and would you do it again today? What are the plans for the TCA systems right now?

Robbins:
It's working out fine. Yes, we would do it again. And we are happy campers. We are nicely concentrated in Louisiana, nicely concentrated in Eastern Texas. We are nicely concentrated in Arkansas with everything except Little Rock. Those are nice clusters and we are stitching them together and that helps. We've got a proprietary data service that is very popular. Those systems are doing fine.

MCN: At the time you made the TCA acquisition, everyone seemed to think secondary markets were the next big growth areas. Now, because the economic climate has changed pretty dramatically, that isn't the case.

Robbins:
I think you've got to pick your spots. And I think being able to string systems together is extremely important. So, would we be chasing a classic market? I don't think so. But when you've got smaller systems that are contiguous to larger properties that we have that can fit together, statewide strategies, all those things.

MCN: Telephony has been a big part of your success, especially with bundling. Where do you see the telephony product going forward?

Robbins:
I see it going onward and upward. It's been a terrific product for us. We've got a couple of markets that are banging out new records every day in cash flow, stuff like that and it just reaffirms in my mind the strategy of the triple play or voice, video and data, whatever you want to call it. That's the Holy Grail.

MCN: A lot of the operators have been saying that they are waiting for Internet-protocol telephony. Cox, of course, has a switched network. What do you think the advantages are of having a switched network now? Looking back, would it have been a better idea to hold off and use that money for other kinds of advanced services?

Robbins:
Absolutely not. We are thrilled with what we have done. IP has been coming for the next two years for the last five. We've already made an investment in platform; an investment in our people so that they know how to do the telephone business, which is a very complicated business. I have great respect for Bell telephone engineers. But we now have that behind us, under our belt. And, you know, if IP comes along and it makes sense for some of our smaller systems, hey, we'll be the first to embrace it and we'll hit the deck running because we got all this knowledge about the telephone business. That's been a home run for us.

MCN: EchoStar chairman Charlie Ergen said that he thought that VOD, as the cable operators see it, is not necessarily what the consumer wants and it's not something that they'll pay for. Basically, he was saying that his strategy of rolling out PVR technology is more viable. I wonder what your response to that would be.

Robbins:
I think VOD is a good strategy and is very viable. We've been testing it in San Diego for the better part of a year. The system works beautifully. I think subscription video-on-demand is a subset of that, which presents us more revenue and cash-flow opportunities.

And, you know, I'm not saying there is anything wrong with Charlie's ideas. I'm saying that video-on-demand is coming. There is more product [than] ever that is being delivered, which is good news. Hollywood is trying to figure out how they can replace some of that revenue that Blockbuster [Inc.] has been giving them all these years, with people making fewer trips to the video stores. And people have gotten smart about late charges and stuff like that.

MCN: A lot has been said about cable being recession-proof. But in the current economic climate, what do you think an operator's top priority should be and is that any different than what it should be when the climate is a little more favorable?

Robbins:
I don't think so. I think that I've used the expression recession-resistant rather than proof. Look, if somebody loses a job they ain't going to be able to pay all their bills. We are going to hit with some of that. But essentially people are staying at home more, and for our services, I don't know what the average bill in America is, a buck and a half [per day]. If you have high-speed data, it's 2 and a half, 3 bucks a day. That is the best information, entertainment, productivity bargain that you can find anywhere. Everybody screams about prices. Well, I think it's bull when you figure out the number of hours that the TV is on and the number of hours people are spending in front of their computers, and what they are paying for it. It is fabulous value. That's what we press forward on.

MCN: The second quarter for most MSOs was pretty slow, but a lot of operators shrugged it off as a product of seasonality. Are you seeing that the new numbers are bearing that out?

Robbins:
Yes. I think if you look at our third-quarter numbers, there are records on all counts. The second quarter is generally slow because you've got a lot of moving traffic, kids are out of school, people are moving before they get kids into new schools for the next school year, stuff like that. So you do have a seasonality impact. In September we came back with a rage and did fine.

MCN: What about operators foregoing basic subscriber growth in favor of growing digital and high-speed-data subscribers?

Robbins:
You've got to do it all. You cannot forego basic or you cannot go forego anything. Basic is a big engine in this business.

MCN: But several operators have said that they were spending a lot of money on marketing to maintain that 2 percent basic-growth rate, money that could better be used toward growing the new-services base. By keeping basic growth at 1 percent or lower, and focusing those marketing dollars toward higher-margin new services, aren’t you getting a bigger bang for the buck?

Robbins:
It depends where you penetrate it and depends where you've got good customer service and, you know, we got some markets that are still under 50 percent. We've got to get our customer service in shape; got to make sure we've got the right product offering. Then you can market like hell. If you market like hell and you don't have that stuff in place, the new Cox Cable ain't new at all. It's the old, same old crap. So I don't know what stage different operators are in, but our objective is to make sure that we got the foundation in place before we rock and roll on a whole lot of marketing stuff.

I've got to run.

MCN: Good enough. It was great talking to you.

Robbins:
All right. I'll see you out there at the Western Show. Take care of yourself and pay attention to those fire alarms.

MCN: I will.

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