Rutledge: Scale Benefits Business Services, Too

Charter Chief Says Consolidation Expands Business Telecom Footprint

Charter Communications CEO Tom Rutledge told an industry audience late Wednesday that cable consolidation would not only help keep programming costs down, it would open up the consolidator to a world of opportunity in the business services market.

Rutledge, speaking at the Bank of America Merrill Lynch Media, Entertainment & Communications conference in Los Angeles, said additional scale would allow an operator to provide business services on a nationwide basis.

He added that most acquisitions offer costs synergies but they are often one-time benefits.

“Is there some scale level where it could be transformative and actually change the leverage in the business?” Rutledge asked. “I think there is. There are a variety of things that could be opened up if that were to occur – one is programming leverage and another is the whole telephone business and the ability to serve national clients, national phone customers that are in multiple locations.”

He added that in Charter’s footprint alone, businesses spend about $9.5 billion annually on telecom services. He added that Charter is expected to capture about $800 million of that business this year.

Charter has been at the forefront of consolidation talk in the industry ever since Liberty Media, run by cable legend John Malone, purchased a 27% interest in the MSO in March. In June, Charter and Liberty reportedly made overtures to Time Warner Cable concerning a possible merger, but were rebuffed. Since then, Charter has apparently hired investment banker Goldman Sachs to investigate possible M&A opportunities.

Rutledge was named CEO of Charter in late 2011 after a long stint as chief operating officer at Cablevision, where he was responsible for helping to grow that MSO into the most highly penetrated cable operator in the country. At the Merrill Lynch conference, Rutledge said he had his eye on Charter for years.

“When I was looking at Charter several years ago before I left Cablevision, I looked at it as an acquisition; I wanted to buy it,” Rutledge said. “That was not to be. So, I actually thought about it, well I’ll run it. The reason I wanted to run it was the same reason I wanted to buy it – I looked at it as an under penetrated asset.

“I basically think the whole cable industry as an under penetrated asset,” he continued. “And I don’t think there is a lot of difference when you get to a certain size between one cab company and another in terms of the demographics that it serves. They’re all pretty much alike when you get to a certain amount of scale. And most of the big companies that we all talk about publicly are at that scale.”

Rutledge said he still sees a huge growth organic opportunity at Charter – since he took the helm Charter has upgraded its plant and expects to be all-digital by the end of this year and has repackaged its products and promotional offerings.

Those initial promotions are scheduled to roll off soon and Rutledge said the company is well-prepared to hold off any potential defections due to a price change because it is offering a better value.

“We think that we’re going to do that successfully because what we put in the house was an all-digital product with a high-speed data service that was truly high-speed and a good voice product at a good price. When you look at the whole package, even with the price increase, it’s still a better value for the consumer. We have high expectations about the growth that is going to come out of all those changes we made. ”

Customer service also will play a role in customer retention and growth, and he pointed to a recent acquisition – the former Bresnan Communications – as an example. Rutledge has a unique perspective on Bresnan in that he bought it twice – in 2010 as COO of Cablevision and earlier this year as CEO of Charter.

“The first time I bought it [Bresnan], it was really a traditional cable operation. They were small cable systems, all independent operated cable systems in small markets, they had a lot of analog signals, they had slow data speeds, but they had higher penetration than the average MSO,” Rutledge said. “The reason they did is they had really high quality service. Bill Bresnan was a quality service operator. I think of service as a product. It covers a lot of sins.”