July 11, 2005

Riding the Triple Play With a Real Cable Cowboy

Many of cable's original entrepreneurs, like Buford Media's Ben Hooks, have gotten back into the business. With revenue coming in from data and voice, the business looks a lot different than it used to; but the spirit from these independent operat

By John P. Ourand

Ben Hooks' story is not entirely unique in cable these days. He's part of the clique known as cable cowboys—longtime cable executives who are reentering the business after a brief sabbatical. These executives—like Bill Bresnan, Steve Simmons, Steve Weed and others—started in cable in the early days and got out of the business as bigger MSOs consolidated the market in the late 1990s. Now they are back, buying smaller cable systems from larger operators that don't want to run them. And they are rejuvenating the independent operator community with an entrepreneurial spirit not seen in the industry for several decades.

Buford Media Group CEO Ben Hooks and president/COO Kay Monigold have brought advanced services to some of the smallest markets in the country.

Hooks, president and CEO of Buford Media Group, CableWORLD's 2005 Independent Operator of the Year, is bringing that spirit to the systems he oversees in Oklahoma, Kansas, Texas, Arkansas and Missouri. The 38-year cable veteran got back in the business last April when he bought 54,000 subscribers in six rural and small markets from Cox.

Through Allegiance Communications, which is managed by Buford Media, Hooks is taking cable to some of the smallest markets in the country. Importantly, he has figured out how to afford upgrading plant in these little markets.

His secret? He installs used equipment, bought on the cheap from bigger cable operators upgrading their own systems. The glut of used 550-MHz equipment on the market is one of the ways Buford's been able to keep costs down enough to bring digital video, high-speed access and, eventually, telephony to systems that serve as few as 500 subscribers.

"If you buy a 550-MHz amplifier used, refurbish it and come out with it to the marketplace, the reliability is wonderful," Hooks says. "If you go to a major market, you've got 120 homes per mile. You go into rural markets, you've got 30 to 50 homes per mile. That means you've got that many less subs to share in the upgrade cost. So it's restricted the upgrade in smaller markets."

Right now, it's not economically feasible for Buford to upgrade systems of fewer than 500 subscribers to handle high-speed Internet services. As prices come down, he plans to roll those services out to even smaller systems. "If you can figure out the cost, people in those towns like the services just like they do in bigger ones," Hooks says.

Rapidly dropping technology costs enabled Hooks to get back into cable, and when he closed the deal with Cox in April 2004, he announced an immediate 1,400-mile upgrade.

Allegiance may be using 550-MHz equipment, but Hooks insists that it is capable of delivering all of the advanced two-way services he wants to offer, including VOD. Even though the 550-MHz equipment doesn't allow for the same number of channels as 750-MHz, Hooks says his small-market subscribers won't be able to notice the difference. He reasons that bigger markets that roll out 120 channels with 750-MHz plant have a larger number of local and government channels they are required to carry.

"Buford has always gone the extra mile to provide their cable communities with the latest technology and the best in cable programming," says Mike Pandzik, president and CEO of the National Cable Television Co-op.

Rolling Out
Advanced Services

You'd be excused for thinking that because it is using bigger operators' discarded equipment, Buford Media's plant upgrades are suspect. Yet Buford's Allegiance Communications has some ambitious plans.

Top on its priority list: a build-out of the high-speed Internet platform. Buford's data plans are impressive and seem designed to wipe out the digital divide in one fell swoop. Take its biggest system in McAlester, Okla., for example. Only 20% of the subs there could get high-speed access when Buford bought the system last April. When the upgrade is completed, 85% will have access. But even that 85% figure is not good enough for Buford. The company is planning to test wireless applications that would allow small systems within 20 miles of McAlester to get access to high-speed services.

Next on Buford's list is telephony, which the MSO plans to test in McAlester this fall. Hooks is particularly excited about the potential for VoIP, which would complete the company's three-product bundle and provide price breaks to rural consumers who need them the most.

Then there's VOD and other interactive video services, which are even further down the list. Hooks says his system will be able to deliver VOD; he's just waiting for the costs to drop as the bigger operators roll it out. "It's like the first dish that came out with HBO that was $100,000," he says. "You can buy a dish for $1,000 now. That will all scale down. The important thing is that we don't have to rebuild the plant—we've got the plant to do it. And it's scaling down as we speak."

Advanced services could give Buford a leg up on DBS for the first time in many years. The small, rural markets Buford serves are the ones that have been most decimated by DBS penetration, which ranges from nearly 25% in Perryton, Texas, to more than 48% in Mena, Ark.

"This is the biggest challenge for smaller operators right now," Hooks says. "Just being competitive on a video product against DBS is not a position to be in. You can't stay where you're at in this new environment because you'll die if you're going to just be a 30-to-40-channel cable system. You won't be competitive."

The answer for many smaller market operators is to leverage their business to get the capital investment dollars needed to roll out triple-play bundles. "You've got huge risks and expenditures to get that platform built. But the opportunity's greater than it's ever been. That's because you can get to the market first with the best platform," Hooks says.

Cable also has inherent local advantages over DBS, which operators need to better exploit. "We're a local business. It's the lifeblood of the community," he says.

A Cowboy's Life

Sitting in an office tucked away in the woods on the outskirts of Tyler, Texas, and speaking with a Texas twang, Hooks gives the appearance of a real-life cable cowboy. And he has a history in the industry to complement that image.

Industry legend Bill Daniels hired Hooks in 1977 as a cable installer. On his first day on the job—his first install, in fact—Hooks was trying to put a connector on an open wire. So he set his ladder up to the wire and began to climb. The wire, of course, couldn't hold his weight. As he fell, he saw what seemed like miles of cable falling and unspooling. Stories like this are what bond the cable cowboys to each other.

"It's still like that," he says. "It's not as archaic, but it's still like that. The entrepreneurial spirit with an independent operator individually is higher than you'd find in the [rest of the] industry. The challenges are so different."

Hooks eventually moved over to run Buford's cable systems for about 15 years before selling them to Classic Communications in July 1999 for about $300 million.

While Buford Media's current business plan looks nothing like it did when Hooks got out of cable six years ago—back when data and telephony provided no revenue streams—he says the business still has a familiar feel to it, particularly in smaller markets. "The game hasn't changed much," says Hooks, who's passionate about providing cable services to towns that never expected to have them. "The big guys feel like Wall Street. Ours is the same, we'll help each other. You need a roll of cable, I'll get you a roll of cable. I don't know if you even think of asking that question in a big company."

As for his own acquisition bug, Hooks says that he's looking for systems within his footprint, adding that he has passed on systems that were too far away. "They either have to attach to an existing market, or they have to be within the existing market. Or, if it's outside the market, it's got to be of enough scale to start the whole process over again," he says.

One system that Hooks would love to get his hands on is the one Cox is selling in Tyler, part of a 900,000-subscriber sale from the MSO.

"That group might be a little out of my range," he says.

Managing Head-Ends at Cebridge

Jerry Kent's Cebridge Communications is a big operator that's getting bigger, right?

Well it is the 11th biggest MSO in the U.S. right now. But it looks, feels and operates like a small, independent MSO, especially when you consider that it has 500 head-ends for its 430,000 basic subscribers.

For the record, that averages out to 860 subscribers per head-end. Some of Cebridge's more rural head-ends connect as few as 14 subscribers.

This means that Cebridge has to act like a small operator. In many of its smaller systems, Cebridge saves money by having technicians and installers demonstrate new services. Its main promotion in some of these systems consists of a banner hanging above the sidewalks on Main Street.

Marketing to some of these rural communities becomes a serious challenge when populations dwindle, says Cebridge COO Dave Rozzelle. "They are simply dying economically. They've lost generations of young people. Sometimes it's very hard to make the commitment to quality service. We're in a competitive environment everywhere."

Cebridge boasts more than 70,000 high-speed homes. "In some places, high-speed has kept us providing services when video alone wouldn't do it," Rozzelle says.

Cebridge plans to roll out VOD next year. VoIP service currently is being tested in Portageville, Mo. —Simon Applebaum

BELD Broadband Lights Way

BELD Broadband of Braintree, Mass., has had the kind of success with advanced services that any cable system could envy. Of course, it has a slight advantage over almost all other cable systems, large and small—more than 100 years of familiarity. The cable system is a division of the municipally owned Braintree Electric Light Department, which was founded in 1892 by Thomas Watson (co-inventor with Thomas Edison of the telephone) and which provides electric, Internet and cable services to Braintree, located 10 miles south of Boston Harbor.

BELD Broadband serves 5,000 basic cable households; 4,500 of those households are digital subscribers, 3,850 subscribe to the system's high-speed Internet service. Do the math—that's 90% digital penetration and nearly 80% for high-speed.

In 1999, city officials urged BELD to jump into cable as competition to Cablevision, which at the time held the local franchise. "They weren't satisfied with the service they were getting, so they invited us to overbuild," says BELD general manager Bill Bottiggi.

By 2000, BELD Broadband was offering video and high-speed Internet services and had established a cable help desk, open every day with at least four service reps on duty. "The relationship is such that the customers relate to our CSRs on a first-name basis," says Bottiggi. "We end up having a very loyal customer base."

BELD says it increased its basic sub count 14% over the last 12 months despite current cable franchisee Comcast's door-to-door campaign that targeted BELD users. Comcast offered BELD customers 50% off their normal service rates for 16 months.

Bottiggi and his colleagues determined the Comcast offer was aimed at putting them out of business, so they sought legal aid as well as public support. "We appealed to local and state regulators to see this as discriminatory pricing. It's hard for someone to say no with an offer like that."

After visits to the state attorney general and telecommunications department officials, Comcast received a request for information from state regulators about the campaign. Comcast suspended the campaign after three months of door-to-door visits, according to Bottiggi.

BELD's claim that Comcast's discount was an attempt to put it out of business is "groundless and unsubstantiated," says a regional Comcast spokesperson. "We use a variety of competitive offers on an ongoing basis, and this offer ended when the promotional period expired," he adds.

What's the relationship with Comcast now? "We're both here and don't communicate a lot," says Bottiggi. "We exchange letters on occasion. The best way to put it is we ignore each other. As competition, they do a great job providing quality service."

In recent months, BELD Broadband has launched digital video recorders, HDTV channels and a faster, 5-megabit high-speed service. At least 500 customers subscribe to BELD's hi-def service, better than company expectations. Video on demand launches this summer, and voice over Internet protocol phone service will be introduced before the year ends, Bottiggi says. —Simon Applebaum