It is an honor for Sunflower Broadband to receive acknowledgement of our accomplishments by being named CableWORLD’s System of the Year in the small market category. This accolade really speaks to the extraordinary team of people at every level of our company. We are also fortunate to be supported by
a visionary ownership group that is fiercely committed to customer service and quality. Lawrence is the home of the University of Kansas, which boasts one of the best basketball programs in the country, and in my job I often feel like the shortest guy on a basketball team. As a small operator, you’d better be more agile and make fewer mistakes or you’ll quickly find yourself on the bench. Being a small operator is increasingly challenging, but being independent also comes with some luxuries. As a privately held company, it has been easier for us to focus on providing long-term value to our customers rather than short-term value to stockholders. Providing value to customers has brought Sunflower financial success, especially in regard to our data services. We have kept the retail cost of our high-speed Internet service below $30/month while providing speeds faster than DSL. As a result, we’ve achieved over 40% penetration to basic homes and over 33% to homes passed. Some of our nodes have over 50% data penetration to homes passed. This has also created some unique, but positive, network management challenges. Our small size allows us to turn on a dime, as we can wake up in the morning and change direction that afternoon. Our size is an asset to our management team, as everyone has a voice in what is going on. We get feedback from customers and front-line staff as much as possible, and then skim the cream to make the best decisions possible. This is critical to minimizing our mistakes. As the Simons family, our owners, is fond of saying, “We have to get it right the first time.” Small Players in a Big Game As with basketball, the broadband game is challenging all by itself, and it’s even more so being the “short guy,” especially with hardware and programming. The biggest players on the court, like Comcast, Time Warner and DirecTV, can negotiate with the media and hardware conglomerates to get equitable deals. But even MSOs like Mediacom and Cox are struggling for equality with programmers like Disney, Viacom and News Corp. If not for the American Cable Association and the National Cable Television Co-op, many smaller operators would not be in the game at all. But even through the NCTC, some costs for programming and hardware are double that of the largest MSOs. To combat high hardware costs, we carefully evaluate the timing of deployment of new technologies. We either launch early when a technology is still uncertain in order to receive a guinea-pig discount and face the problems inherent with a beta-type launch, as we did with DOCSIS in 1998, or we wait until the technology matures and the price drops, as we hope to do with VOD in 2004. Despite advances in technology and manufacturing, digital remains our most challenging product line due to the painfully high cost of boxes. I am hoping change will come over the horizon with standards like OpenCable. While even the largest operators are challenged by rising programming costs, the problem is exponentially bigger for the smaller operator. This seems to be causing a rift within our industry. Many small operators now feel compelled to ask Congress for relief in order to deal with the media giants that provide programming, especially sports. The paradigm is shifting. Prices are rising and consumers want options. DBS companies offer their product in tiers, such as being able to buy the NFL a la carte from DirecTV. The model can work—look at HBO, another great example of an a la carte service. ESPN says it is the most valuable channel, and I agree. A recent Beta Research study found that ESPN was valued the highest by consumers at $1.96 per month. The problem is that all of us pay more than that. Many people say that advertising is not as effective in an entertainment-on-demand or an a la carte world. I disagree. Advertising is about getting a message to consumers. ESPN being “sent” to tens of millions of households is an illusion. Advertisers value viewers, and ESPN delivers great ratings. A la carte can deliver great ratings, as HBO has proven. ESPN will still get great ratings and the ad revenue that comes with them. The difference will be people who want ESPN will have to pay $9 or more, instead of the people who don’t want ESPN paying $3, as they do now. Some observers compare the a la carte issue to the newspaper industry, arguing that newspapers would never deliver separate sections of the newspaper according to what the customer wants. Well, our company is also in the newspaper business, and has been for more than a century. I can tell you firsthand that newspapers are eager to provide customized content to subscribers in order to compete in this Internet age. The cable industry can do that today. I love the cable business, and I love TV, yet I can’t navigate 200 channels in a productive way! When consumers are paying for channels they don’t want, they feel cheated. Let the Customer Be Heard Customers want what they want, when they want it. That’s why successful companies give customers what they want. Consumer electronics, cable operators and programmers must all work together to do this. If we don’t collaborate, consumers will find the technological means themselves. Every 16-year-old is racing to provide consumers with what they want, a la Napster—it’s up to the cable industry to be at the forefront with the technology
we are capable of producing. I believe what customers will want in their homes is a media center. Whether it will be a “black box” or a PC is yet to be determined. The smart home is coming, where consumers can set home thermostats remotely, access a DVR server from any television in the house or answer their front door via their cell phone over 1,000 miles away and “see” who’s on their doorstep. Cable operators are best positioned to bundle all these services together in a customized way to provide true value to our customers. The technology to do this is not around the corner—it’s here today. But to ultimately make it succeed, and make our industry as a whole more successful, it will mean shifting the aforementioned paradigms. We short guys on the basketball court need to be agile. That means being the first to change paradigms. Large MSOs and media conglomerates should pay attention to the challenges of smaller operators. We contribute innovative ideas, but also have a symbiotic relationship with larger companies. If media giants, intent on protecting their profits and paradigms, drive smaller operators to extinction, the loss will be bigger than just the sum of the small operators. It will ultimately cost them both profits and paradigms. This would irrevocably damage cable as a whole, and create a virtual monopoly for DBS in rural America. We all have a position to play, and the only way to win is to work as a team. Besides, we have a pretty sweet outside shot—for a short guy.

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