Steve Simmons was looking for the ideal situation that would get him back into cable. What he stumbled upon was something he hadn’t counted on-a subscriber base so desperate for high-speed data service that a simple mail drop yielded an 80% response rate.
Simmons, the former CEO of Simmons Communications, had cashed out and sold his company in 1992 to spend time with his wife and five young kids. During spare moments left to him after playing dad all day, the former member of Jimmy Carter’s White House and tenured U.C. Berkeley law professor wrote a series of best-selling children’s books, promoted them on Today and Good Morning America, refined his skills as a sculptor and learned to play the guitar- your basic, garden-variety free-time activity.
Late in 2002, Simmons heard that RCN, the cable overbuilder, was looking to unload its Princeton, N.J., system. Simmons, who had a financing partner (Spectrum Equity) already in place, knew the system met three criteria he had for any property he would buy. First, very little of it had been rebuilt (and, therefore, he would not pay a premium on someone else’s investment). Secondly, it was in a high-growth area, with substantial new residential development planned. And, most importantly, it served a market of upscale, high-end consumers whose average income was three times the national average. "The system not only met virtually all of the criteria we had established, it had some aspects we hadn’t even considered," says Simmons. Simmons might not have been active in cable anymore, but he had been paying attention. He knew MSO margins were eroding under the wear and tear of runaway programming fees and operating expenses, and that the ability to generate revenue was being hampered by the politics of cable rates. Simmons also knew that, given greater bandwidth and digital advances, MSOs were tapping into a robust new revenue stream with virtually no programming costs. High-speed data had emerged as operators’ silver bullet, making the thin margins workable on the video side of the distribution business. And with other new services like PVRs, HD, VOD and SVOD gaining traction in the marketplace, Simmons figured the time was right to make his move. So after beating out eight other suitors for the system, in February 2003 Steve Simmons closed on the property and returned to the industry. Though Simmons is technically not running an MSO this time around-with Princeton his only system, Patriot is more an SO than an MSO-his company has emerged as a model operation. Job No. 1 Without question, the most desirable aspect of the Princeton system is its built-in demand for high-end products and services. While it had been a state-of-the-art 400-MHz operation in the mid-1980s, over the years the system had deteriorated to the low end of the technology scale. Meanwhile, MSOs in adjacent communities continued to invest in their plant and offer sexy new digital products. In most markets such a situation might have been merely troublesome, but in Princeton, a short train ride from Manhattan and home to techno-savvy users from such upscale workplaces as Princeton University and Johnson & Johnson, it was a downright liability. Simmons made upgrading the system job No. 2 Job No. 1, of course, was assembling a management team. Late in 2002, Simmons and his longtime CFO John Flanagan began perusing their Rolodexes, racking their brains for the right industry veterans to head up Patriot’s first cable system. After they targeted who they wanted, like some cable industry version of Ocean’s 11, they traveled the country to recruit them, one by one. Simmons found Jim Holanda, his president and general manager, in St. Louis, where he had been a regional VP for Charter. For his VP of engineering he went to Long Beach, Calif., and found Pat Murphy, a member of his old Simmons team. Director of technical operations, Lonnie Elswick, came from a Charter cluster in Greenville, S.C., while director of network services, Rob Roeder, was brought in from the Northwest, where he was managing a suite of broadband products for Charter. Closer to home in New Jersey, Simmons found controller Jon Cahill at a Comcast system in Vineland, Joanne Guerriero, his director of marketing and sales, at a Comcast system in Union and director of customer service Bill Shelley running Cablevision’s Westchester call center. He found one member of his team right in his own backyard. Twenty years ago, Patriot’s director of operations, John Gdovin, had helped build the system for C-TEC, and also worked for a brief time with RCN. Gdovin brought with him firsthand experience and tremendous knowledge of the community, which made him a key player for Simmons during Patriot’s huge task of transitioning. Simmons says his management team has 150 collective years of cable experience. "Even though many of them were from different parts of the country, many of their paths had crossed before and they all shared a passion for the industry," he says. Simmons’ hiring did not stop at the management level. Within a few months, Patriot had added 100 full-and part-time employees. This delighted the community and its leaders, many of whom were still reeling from a series of layoffs, plant closings and other body blows to the area economy. Playing Catch-Up First on the agenda for Gdovin was to renew the franchise agreements that RCN had let lapse. Of the 31 franchises, 29 were no longer in compliance. Gdovin’s marching orders included assuring each municipality that Patriot would invest millions in an upgrade, while working hard to play catch-up for time lost by RCN. Under the previous owner, consumer frustration had built up over the system’s below-standard technical capabilities. Municipalities were getting an earful from cable customers desperately seeking digital: Hundreds of those same customers were migrating to satellite. A year later, municipal complaints have all but disappeared, while 22 of the lapsed franchises have been renegotiated. Double-Time Rebuild Patriot knew early on that to get cash flow to acceptable levels, they had to launch high-speed data and other services quickly. That required the rebuild to be done in record time. Simmons huddled with VP of engineering Murphy, who suggested that Patriot hire two contractors rather than just one. That strategy would put the companies in competition with each other, and push each of them to work longer and harder. Murphy brought in full-service contractors Crown and CCG, and hired a third contractor to provide quality control. By last month the three groups had rebuilt more than 2,000 miles of plant. That left the system 92% upgraded and put it on a pace to have the project finished eight months ahead of schedule. "Having two contractors compete with one another definitely increased both the quality and the quantity of the work each provided," says Murphy. Murphy designed the system to have an average node size of just 250-significantly smaller than the industry average-because of the high demand for digital products and the tremendous residential growth. A small node size increases flexibility on the return path, which will be very important when Patriot launches VOD. "This spring, when we launch VOD, we’ll be able to hit a lower number of customers with a higher number of streams," says Murphy. New Operations Center Under the previous regime, the Princeton cable system operated out of five locations: one each for technical operations, administration and local origination, plus an out-of-state call center and dispatch facility. "It was a very disjointed setup, and it made it difficult to try to coordinate the local and out-of-state operations," says Holanda. In June of last year, Patriot merged the departments in its new operations center in Princeton. Simmons knew that having one local operations center would lead to greater interdepartmental communications, lower costs and customer-focused thinking. Central to Patriot’s new facility is its state-of-the-art call center, which, under the direction of Bill Shelley, hired 58 additional customer service reps and four new supervisors. The center handles more than 50,000 calls a month, with the average answer time just south of 25 seconds. The rebuild and call center, along with better management and more training, have helped slash truck rolls. Prior to Patriot’s taking control, the system was averaging 4,000 trouble calls a month. That number is now 2,800 and falling. Patriot made it a priority to reduce turnaround time on orders and installations, which has had a positive effect on both cash flow and customer satisfaction. Under RCN, the average wait time for installations had been 12 days; it is now 24 hours. "[The new facility] has not only given us office and warehouse space, ample parking and a strong local presence, it’s allowed us to dispatch from a central location and operate much more efficiently," says Holanda. A Branding Challenge RCN had a well-established, yet somewhat tarnished, brand name. With the help of a local ad firm, the senior managers developed the ongoing campaign, "I’m a Patriot." It started off as a series of print and video spots with employees saying things like, "I’m a father. I’m a fisherman. But I’m a Patriot, too." The campaign traded on what was perhaps RCN’s most glaring weakness, while focusing on the new company’s greatest strength: localism. After years of out-of-town call centers and a minimal presence in the community, residents were ready for a system run by neighbors, friends and family. Patriot’s trucks were also given a new look, its digital video products repackaged and renamed and the system’s local-origination channel upgraded and rechristened Patriot 8. New products have a decidedly Patriotic look and feel. For example, the system’s new digital box, the Motorola 6208, which combines HDTV, PVR, VOD and digital cable capability, has been branded Patriot Video Recorder. The boxes are so hot that, even though the system has not yet begun marketing them, Patriot is installing 25 a week based on word of mouth alone. Once a portion of the system is rebuilt, Patriot goes in immediately to upgrade existing customers, while also trying to win back those lost to satellite. The first step is a direct mail piece, which notifies an area that it is being upgraded. Pent-up demand for digital has made it possible for these pieces to generate an 80% response rate. Patriot has also assembled a strong direct sales staff, which then follows the mail drop with a demonstration-based effort to drive digital upgrades and high-speed data sales. As for those hundreds of customers lost to satellite, the strong Patriot name, targeted marketing and the allure of cable modems are beginning to make a difference. By the time VOD launches this spring-followed by VoIP early next year-Patriot is guessing it’ll have not only stemmed the tide, but reversed it. As Holanda explains, "It’s as simple as this: In those areas we’ve upgraded, we’re gaining customers from satellite. In those last few parts of the system where we’ve yet to rebuild, we’re still losing a few."