Broadband Cable Association of Pennsylvania

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December 20, 2013

Comcast CEO Brian Roberts met with Federal Communications Commission Chairman Tom Wheeler on Thursday, the company's spokeswoman said, at a time when the cable provider considers a bid for Time Warner Cable. This is one of many meetings between Wheeler and various industry executives since he became the top U.S. communications regulator in November. A source familiar with the matter said the two did not discuss possible deals or transactions.

Comcast is examining three scenarios for a potential deal with Time Warner Cable Inc, including a full takeover bid for the second-largest cable operator, people close to the situation told Reuters on Monday. Antitrust experts have warned that such a takeover of the No. 2 provider by the industry's largest company would run into major obstacles with the FCC and the Justice Department. Roberts also met with President Barack Obama on Tuesday as part of the tech industry delegation to discuss the healthcare site HealthCare.gov and U.S. surveillance programs. Reuters

Tom Rutledge worked his way through college climbing telephone poles and connecting homes to cable-TV service. By contrast, when Rob Marcus was in law school he interned at a New York law firm working on Time Inc.'s 1989 merger with Warner Communications Inc., the combination that created Time Warner Cable Inc.Today the two men are competing to run Time Warner Cable, a company fending off unwanted acquisition overtures. While the takeover fight represents what could be the start of a new consolidation wave in the cable industry, the contest also highlights a debate in corporate America over who is best suited to run a company: lawyers and accountants who join at the senior management level or those who rise through the ranks of a business. The 60-year-old Mr. Rutledge is chief executive of Charter Communications Inc., which for six months has been trying, so far unsuccessfully, to engage Time Warner Cable in merger negotiations. Mr. Marcus, 48, the No. 2 at Time Warner Cable, is scheduled to become CEO on Jan. 1, succeeding Glenn Britt, who is retiring.

Mr. Rutledge has worked in the industry all his life, after attending community college and then California University of Pennsylvania. Mr. Britt rose through the finance side of the business. Mr. Marcus, a lawyer, negotiated deals at the headquarters of Time Warner Inc., the cable firm's former parent, until joining the Time Warner Cable unit in 2005. (It became a standalone company in 2009, and is now the second largest U.S. cable company, measured by subscribers. Charter is the fourth biggest.) Adding a further twist is that Mr. Britt got the top job in 2001 over Mr. Rutledge, then a senior executive at Time Warner Cable. Passed over, Mr. Rutledge left to work elsewhere. "There are two different operating models for the CEO of a company," said Richard Parsons, a former chairman of Time Warner Inc. who knows all those involved. "Tom Rutledge represents probably the best of the 'come up through the ranks model' whereas Rob Marcus is a great example of the broader gauge 'top down' model. Which model works best frequently depends on what a company needs at a particular moment in time. Sometimes it's horses for courses."

Time Warner Cable has hit a rocky patch, lagging behind its peers in subscriber retention. To some critics, its under-performance reflects technological and operational decisions made under Mr. Britt and Mr. Marcus aimed at maximizing short-term profits rather than investments necessary to keep competitive. "They are driven by financial engineering, which is readily apparent by their dividend yield and stock buybacks," said Landel Hobbs, a former chief operating officer of Time Warner Cable who is now CEO of LCH Enterprises LLC. Such a focus "manifests itself in slower technological innovation," he said.

In an interview, Mr. Marcus disputed the idea that Time Warner Cable has fallen behind technologically. "I would really counsel against judging success purely based on subscriber performance," he said. "At the end of the day, it's all about generating profit and cash flow." Mr. Marcus brushed off critics who "pigeon-hole" him as a "deal guy" and noted that he has been responsible for "almost every aspect of the company" at some time or other over the last eight years. He said he has hired experienced executives to fill out his team, including incoming COO and cable veteran Dinni Jain, who came from cable operator Insight Communications Co. In an emailed statement, Mr. Britt challenged "the notion that a company can't be both investor-friendly and customer-focused," noting that Time Warner Cable has "consistently invested in our plant to keep it at a high level of performance."

Mr. Rutledge, who worked at Cablevision Systems Corp. prior to Charter, is known in the industry for his marketing prowess and technological savvy. But he too has his critics. One Cablevision investor said Mr. Rutledge's formula "worked well" fighting against satellite competitors but "had a harder time competing with" Verizon Communications Inc. 's FiOS network, which overlaps heavily with Cablevision's New York-area market. Some people close to Cablevision say Mr. Rutledge's focus on maximizing profits led to Cablevision not investing enough in its broadband network. Indeed, Cablevision was hit with heavy video-subscriber losses in the quarters before Mr. Rutledge left, and the company is yet to recover-something Mr. Marcus noted.

While Mr. Rutledge has "done a nice job of operating in the various places he's run systems, I think you've got to also check and make sure you know what he left in his wake," Mr. Marcus said, noting the "current state of Cablevision." "Like any operator, there are decisions made and there are consequences and you're not always around for the consequences," Mr. Marcus said. A spokesman for Charter says "Tom's 10 year operating record at Cablevision, a public company, is on full display," noting the highest percentage of subscribers relative to Cablevision's service area compared to other operators.

Both men are from the East. Mr. Rutledge is a Pennsylvania native, who was married and had a child by the time he finished college. He is a history buff with a penchant for trivia contests. Mr. Marcus, who says he works "hard" to keep his Long Island, N.Y., accent, is an avid sports fan, particularly of the Yankees. He is married with four children. Mr. Marcus is renowned for his work on complex legal matters, like the opaque Time Warner Entertainment partnership with outside investors that in the 1990s housed most of Time Warner Inc.'s cable operations. Mr. Rutledge doesn't have that kind of legal or deal experience, says a person close to Time Warner Cable.

But at Cablevision, Mr. Rutledge became known for championing new technologies like outdoor Wi-Fi and a digital video recorder based in the "cloud" rather than a device in the home. Both have subsequently been adopted by other cable operators. In contrast, critics of Time Warner Cable's management say decisions in recent years eroded a technological edge it once had in products like high-speed Internet. Cable executives and analysts cite Mr. Britt's decision to move slower than rivals in converting Time Warner Cable's systems to all-digital video transmission. Going all-digital allows a cable operator to shut off bandwidth-hogging analog channels, allowing for better programming guides, robust video on demand services and faster Internet. Across the industry, "the loss of video subscribers has a lot to do with the fact that so many cable operators have not digitized their networks," said Jeffrey Marcus, a former Charter director and partner at private-equity firm Crestview Partners, who is no relation to Rob Marcus. Those companies are "really behind the shift in technology and they've got to catch up."

Time Warner Cable adopted a different technology that was more cost-effective and freed up capacity for additional high-definition channels. But the more gradual approach to digital conversion limited its ability to boost broadband speeds. Verizon FiOS and Comcast now offer top speeds of about 500 mbps to residential broadband customers but Time Warner Cable's fastest speed of 100 mbps will be offered only in a few markets by early next year. Mr. Britt has defended the approach, saying converting to all-digital quickly is disruptive to consumers, as it requires converter boxes for all but the newest TV sets. Mr. Marcus says Time Warner Cable wasn't disadvantaged by its approach; in part, it wanted to wait for converter-equipment prices to fall. But he lately has announced plans to accelerate an all-digital conversion in certain markets.

Industry executives say Time Warner Cable's performance has also been affected by its move since 2007 to centralize decision-making on functions like marketing from more than 30 regions to the New York headquarters. Critics say it cost the company diversity of thought brought by regional managers who knew a particular market's competitive pressures well. Mr. Marcus acknowledges "growing pains" with those changes but argues the move has helped standardize decision-making and customer care.Mr. Rutledge is known for staying in close touch with operations teams in the field. In an interview earlier this year, he said he goes out "fairly regularly" to visit Charter's locations to talk with supervisors and managers, as well as meet "the actual people who are doing the work" in the front line when he can. Mr. Marcus says he has "spent a reasonable amount of time visiting with the field," noting that he has "managed the operations in the way that I think is the best use of my time." Wall Street Journal

The Federal Trade Commission on Thursday said Time Warner Cable Inc. has agreed to pay $1.9 million to settle the first case brought under the commission's risk-based pricing rule. Under the rule, completed in 2011, creditors must notify customers of higher charges that are based on less-than-favorable credit histories. "Consumers have the right to know if they are paying more for something because of information in their credit report," said Jessica Rich, director of the FTC's Bureau of Consumer Protection. "Getting this notice gives you a right to a free copy of your report, so you can make sure everything on it is correct. Some of Time Warner Cable's customers were missing out on this important right." In addition to agreeing to pay the penalty, Time Warner Cable is also prohibited from breaking the rule again, the FTC said. "We are pleased to have resolved this matter so that we can focus all of our efforts on providing outstanding services to our customers," Time Warner Cable spokesman Eric Mangan said. Wall Street Journal

Quotable: "That's a good question. I have to think about it." - U.S. Sen. Bob Casey Jr., beating a hasty retreat at Pennsylvania Society when we asked if Pennsylvania is ready for two senators from Scranton. As we reported last week, state Attorney General Kathleen Kane, a Scranton native, is considering a 2016 run for the Senate. Philadelphia Daily News

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