A High-Speed Inheritance Pays Off

Atlantic Broadband opened for business in March 2004 after it assumed control of Charter systems in Miami Beach and portions of Maryland and Pennsylvania. Some lower-profile transactions since then, along with rollouts of high-speed Internet access and telephony, have helped Atlantic begin this summer with 285,000 basic customers. The company’s focus for the remainder of 2007: Make triple-play bundles of video, high-speed Internet access and digital phone available to all its customers, and launch VOD in most systems. In an interview — a first for company management with the trade press — CEO David Keefe and president/COO Ed Holleran Jr. discuss bandwidth expansion plans, the telcos and retransmission consent reform.


What priorities did you set for your systems this year?

David Keefe: Our primary focus for 2007 is to grow high-speed data, digital phone and the triple play.

Ed Holleran Jr.: High-speed has become the backbone of our business, growing over 20% a year for the three years we’ve owned this company. The first quarter of 2007 was the best quarter we’ve ever had for high-speed.


By what criteria?

Holleran: New subs. Pennsylvania, which isn’t the highest income demographic area in our company, had the best quarter ever. High-speed for us, and I’m certain for the industry, continues to just grow. At the same time, we have digital phone, which was launched last year in Pennsylvania, Miami Beach and Maryland, and Delaware this past January. The next major priority is to roll digital phone deeper in our markets.

Keefe: Phone allows you to launch triple-play bundles. That has been a great marketing and customer expansion opportunity for us. People love the bundles. We’re pleased with our penetration and revenues.


How fast is high-speed in your markets?

Holleran: Charter, from which we bought many of our properties in 2004, was probably the only major operator who initially offered three tiers of speed. Most operators started offering and promoting one speed level in the mid-$40s price range. We inherited that in Miami Beach and the Pennsylvania systems. We’ve increased those speeds to the point where in all of our markets except Delaware, the highest speed is 5 megabits downstream, and the other levels are 3 and 1.5 megabits. In Delaware, where Verizon is overbuilding us with FiOS TV, we’re now at 16 megabits at the highest level and 8 megabits at the middle level, to be as competitive as possible. We’ve tripled the number of Miami Beach customers from 11,000 to more than 33,000. In Pennsylvania, we’ve gone from 25,000 residential customers to over 50,000, doubling there.

Keefe: Every February, people run out the door and buy high-speed in Washington Township, Pa. I can’t say I know why. We have marketing campaigns on the street. The last two years, back to back, we’ve grown 1,000 subs there.


Comcast, Cox and other big MSOs are hyping the ability to offer 100 megabits of high-speed or 50 to 100 high-definition TV channels in the near future. Is that in Atlantic’s game plan?

Keefe: Sure. The fallacy of the telephone companies is that they’re building something that doesn’t make any economic sense. As long as we’ve been in this business, we’ve always built to scale. Now the cable industry has learned the lesson of delivering on what they promise, as opposed to over promising and under delivering, which is an experience customers have with other technologies. Switched digital video is in our horizon to expand the bandwidth. We’re moving toward an all-digital platform in our lifetime, if not all-digital and all-HD…We’re not going to be a test bed. We’re going to adopt proven technology.

Holleran: We can resource switched digital and DOCSIS 3.0 just as well as Cox, Comcast and others. It’s a good place to be.

Keefe: And we do stand next to those people at CableLabs. We’re a member and Almis Kuolas, our CTO, is involved in that process.


When will you implement switched digital?

Keefe: It’s on the short horizon. Within a year or two. Sooner.


How much competition are you getting from Verizon’s FiOS and AT&T’s U-verse? How do you deal with it?

Keefe: When we closed on the Charter properties in March 2004, I was the acting GM in Miami Beach. I was in my condo on a weekend and every other [TV] ad you saw was from DirecTV, EchoStar and BellSouth on double-play and triple-play offers with DSL. They were laying down a nuclear footprint there. I went back to the office Monday and the phones were ringing.

Holleran: They were asking us for DSL installs.

Keefe: In a way, we’ve been competing since the first day we managed these systems. DSL is prolific all over Pennsylvania. We haven’t seen FiOS TV in any of our Pennsylvania markets yet. They’re targeting other parts of Maryland, New Jersey, New York, greater Boston and Pittsburgh.

Holleran: We do see FiOS in Delaware, where we have 6,000 basic video customers. We understand the competition will be tooth-and-nail. Where we have the advantage is that we can knock on doors and touch customers. I’d hate to be a satellite provider in those markets. They’re the ones losing customers.


In your systems, VOD is a toddler, just under a year of operation. Why did it take so long to get going?

Keefe: We couldn’t get anyone to fess up on the financial return of VOD. We didn’t understand that it was a good direction. By 2006, we had enough information to figure VOD would make it in Miami Beach. We started there last July, and ever since, it’s been “Katy, bar the door.” It’s a great product.
    We also had operational costs to deal with—coming off the rollouts of high-speed and telephone and DVRs. You want to do VOD right; you want to train employees to understand the product before it leaves the door. This isn’t the cable operations of your father or grandfather where you throw it against the wall and hopes its sticks with customers, or overpromise and underdeliver. When we saw how positive VOD could be financially in Miami Beach, we went ahead in other markets. We hit positive cash flow within eight to nine months.


How much VOD do you offer where available?

Holleran: Over 2,400 hours each month.

Keefe: We’re doing about 75,000 views a month in Miami Beach, a third of them premium movie buys.


Where’s wireless on your horizon?

Holleran: Not a priority at this time. We have enough to focus on right now and execute effectively, including an upgrade in Aiken, S.C., our newest market, and launching phone there this summer. Wireless will come along, probably in association with the National Cable TV Cooperative when they make a move. The Pivot folks are cutting their teeth and we’ll follow what emerges from that. We have some time.


Is retransmission consent an issue in your markets?

Keefe: All of our deals are done and in good shape. We’re active in the American Cable Association and their effort in Congress to get more balance in future retransmission negotiations.

Holleran: This is still a huge issue for the industry and our consumers. The need for Congress to understand that is important. Cash is being publicly demanded, and broadcasters about Sinclair brag about it. [CBS CEO] Les Moonves at every conference he goes to brags about getting cash from operators. This issue is likely to cause basic cable to go from $15 to $30 a month. Univision is looking at a buck per sub for retransmission. This issue will come up again and will be a big one before the end of 2008, when the next deal cycle comes up. Hopefully it doesn’t take a huge disaster before someone does something.

Keefe: In spite of the rhetoric, I’m hopeful that there’s an opportunity for us to work with NAB and local TV stations and come to some reasonable shared value we both benefit from. We want to see broadcasters succeed, and some fair amount of compensation is perfectly reasonable, in our view.


Last year, you launched “Operation Mail Call,” a project where any Atlantic subscriber who has a family member on military duty in Iraq or Afghanistan gets high-speed service and e-mail free. How is this doing?

Keefe: We thought it would be a great service to make sure families here had the ability to communicate high-speed from home. The idea came from our chief information officer Richard Shea, who was a military man himself. It was a unique thing to do. The number of people who’ve taken advantage of it so far isn’t that many, close to 100. I’m sure it’s a great service to them.

Have other cable operators contacted you about making this available elsewhere?

Keefe: No. In some ways it surprises me that they don’t do these themselves. This is the kind of idea that can captivate the industry’s imagination.


You’re approaching 300,000 basic subscribers. How big will you get?

Keefe: We’re capable of growing this company a lot larger. We’ve been on an acquisitions hunt the last three-and-a-half years. Some we’ve won and most we haven’t. We’re going to continue to look, keep our eyes open for acquisitions. This has been a lot of fun and we expect it to continue as the environment gets more competitive. We’re looking for strategic fits east of the Mississippi. We do lots of under-the-radar small acquisitions in Pennsylvania that add on to what we run there—about 50 to 1,000 customers per system.