broadband / Intel

Mixed emotions about the potential acquisition of Time Warner Cable by Comcast


comcast+time warner My History with Comcast

I have always held Comcast in high regard. My experience with this company goes back to 1993, when I met Mark Coblitz, then the Senior VP of strategic planning at Comcast. We were both speaking at a small conference focused on the cable industry, organized by Paul Kagan. I was already working on the development of the cable modem, but had not yet gone public with the concept.  I discussed it with Mark and we arranged for me to come to Comcast headquarters in Philadelphia for a meeting. Mark was very open to the concept of using the cable system to provide high speed broadband connections.  I told him that we (Intel) had found a way to provide 10 megabit downstream and 19.2 KB upstream which would be shared with about 500 subscribers. Getting the upstream to be faster than the downstream was one of our many challenges as the cable plant was not designed with upstream in mind. It was kind of like watching salmon swim upstream to spawn. He took me upstairs and introduced me to Brian Roberts the CEO of Comcast and we had a brief conversation.

 

A few months later, I brought my boss Les Vadasz to visit QVC (a leading Cable Network for shopping) which was then run by Barry Diller.  Comcast owned 17% of that company at that time. I had been introduce to Barry by Norman Pearlstine who soon after became the Editor and Chief of Time Magazine. I was was one of the first, or maybe the first, to explain to Diller the potential of the internet. During our meeting at QVC (I thought that home shopping would be a big part of the broadband internet), I explained our idea to use the Cable Network together with home computers to create a new medium. Barry found this very interesting.

He had taken over control of QVC in 1992 after leaving Fox. QVC was located close to Philadelphia.  After hearing our story, he said we should meet with Brian Roberts and called him.  Just an hour later, Les and I were in the office that Brian shared with his dad, Ralph Roberts – a truly remarkable man. I explained to Brian that Coblitz and I were in discussions about doing a cable modem trial and he said he was supportive of that.

Later, in 1994, we did a trial in Merion County PA with 50 homes. The trial was very successful. By that time, I was meeting with most of the CEO’s of cable companies trying to convince them to deploy cable modems. It was slow going, although faster than my discussions with Phone Company Executives. I announced Intel’s cable modem, CableLink, in October 1994 and stated that we were doing a trial with Comcast as well as with Viacom which had owned some cable companies at that time.  It was not until 1996 that Comcast launched its first commercial cable modem.  Comcast joined with many of the other cable companies in forming @home which was created by Kleiner Perkins and TCI (John Malone) but was based on a concept that I had but was unsuccessful in getting launched.  Interestingly the first CEO of @home was Will Hearst the grandson of the publishing baron, William Randolph Hearst.

I continued to have discussions with Mark Coblitz and on many occasions with both Brian and  Ralph Roberts, particularly during the summer at the Allan&Co conferences.  I really liked them and they liked me.  Eventually, they asked me to join them and build their venture investment business. I might have considered it, but it would have required me to move to Philadelphia and for many reasons, that was not possible. Although I did say that if Ralph adopted me, I would do it.

 

Time for Time Warner Cable

My experience with Time Warner Cable was different.  Time Warner Cable bought their equipment from Scientific Atlanta, now owned by Cisco, while Comcast used equipment from the Jerrold Division of General Instruments who was Intel’s partner on the cable modem project.  Time Warner, under the technical leader ship of Jim Chiddix, developed their own approach to the cable modem and then created an alternative to @home called Road Runner (the name is still used by Time Warner Cable.)

In 1998, my friend David Roux who was at that time EVP of Business Development at Oracle (later he founded Silverlake Partners) contacted me with a very interesting opportunity.  Time Warner wanted to set up Roadrunner as a separate business and wanted investment and help from a couple of technology companies.  Oracle wanted to have Intel join them on this project.  We we had many meetings with the Time Warner team. The negotiation team on the Time Warner side was lead by Glenn Britt who later became the CEO of Time Warner cable.  Eventually we worked out the deal and were ready for the big announcement. We invited Compaq into the deal as well.

I was in NYC on a Sunday, the day before the announcement, when I got a call from Glenn.  It turns out that Gerry Levin, the CEO ofTime Warner called up Bill Gates on the Friday before to tell him about the pending announcement. Bill at that time, being one of the most competitive CEOs in industry, asked “what would it take to dump Oracle and do the deal with Microsoft?”  A number was discussed that valued Roadrunner at double the amount agreed to in our deal.  Bill actually committed to the deal even though they had no deal structure in place.  Time Warner and Microsoft just agreed to use the terms that had been agreed to between Time Warner, Oracle and Intel.  I was stunned when I heard this.  I tried to see if there was any way to turn it around but there was not. So I flew back to California more than a bit angry and embarrassed.

Two days later, I got a call from a very senior officer of Microsoft (I can’t use his name for obvious reasons.)  He said “sorry about screwing up the deal, frankly we would be happy if you joined our deal.  We had no issue with Intel, but we could not let Oracle make a deal with Time Warner.”  He then went on to say “we agreed to use the deal terms you negotiated so I would appreciate it if you could send me a copy of the agreement.”  All I could say was “we are not having this conversation” and hung up. Microsoft and Compaq did the deal and invested $425 million for a combine stake of 20%.  I don’t know how this worked out for them financially in the long term. I know it had no strategic impact on either company and I doubt that it did much for Time Warner Cable other than bringing cash into the Treasury of Time Warner Inc.

After I left Intel in 1999, I did not have much contact with the cable companies. I spoke a few times with John Malone.  Brian Roberts and I exchanged emails from time to time.  Of course, as I saw Comcast increase its power in the cable industry via acquisition of other cable companies, and then expand into  media/content by buying NBC, I have to wonder what would have happened to me if I had joined Comcast.

 

Broadband Development in the USA or, Welcome to the Third World of Communications!

The development of broadband in the USA has been disappointing with respect to Europe and Asia. We have an expensive, slow and somewhat unreliable cable network.  This is surprising to me. If you had asked me in the 90s, I would have said that the US would lead in broadband but like so much infrastructure development here, the USA is becoming a Third World Nation.

Cable companies like Comcast have improved their broadband delivery and provide video on demand, but given what could be done, this is really uninspired.  Generally, it is thought that the lack of competition is the main driver for this. I think it is true.

So I while I am proud that my old friends at Comcast have done so well, I will be disappointed if Comcast ends up with the Time Warner Cable business.  I would have preferred that Google, Apple, Microsoft or even Intel would have bought it.  Then the model could be changed because they would aggressively adopt new forms of  content programing and commerce. Google is actually experimenting with providing broadband in, of all places, Kansas City where they provide fiber.  They claim to offer speeds that are 100 faster the cable.  Actually, I am not sure that will matter that much. Changes in computer architecture and compression will have greater effects than just brute force bandwidth.

 

Growth will be Comcast’s biggest challenge

The problem for Comcast will be how to achieve growth.  Of course they have the opportunity to increase profits by reducing costs but that will only go so far. There are other opportunities for them of course, but given their slow rate of adoption of new technologies, they will probably no longer be available by the time they become interested.

With Mark Coblitz retired, they may need help in developing a strategy from the future.  I might know a candidate available for adoption.

One thought on “Mixed emotions about the potential acquisition of Time Warner Cable by Comcast

  1. Great history lesson as usual! I really enjoy reading your accounts. Unfortunately I must say that while a customer of Comcast I developed NO affection for them! I am also very disappointed that Netflix paid them a “protection fee” (as I see it)….

    Like

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