Staying the course
New CEO Carl Vogel doesn't have to fix Charter; he just has to pick up where Kent abruptly left off
New CEO Carl Vogel doesn't have to fix Charter; he just has to pick up where Kent abruptly left off
The cable business is filled with CEOs fond of bold strokes. At Comcast, Brian Roberts has been cheered for his daring bid for AT&T Broadband. Cox's James Robbins is praised for gambling hundreds of millions of dollars on the cable telephone business when practically every other MSO shied away. And John Malone, well, he's got a list of audacious moves stretching back nearly three decades.
But don't look for such business swagger from Carl Vogel. The freshly minted president and CEO of Charter Communications has been hired in part to calm Wall Street, easing anxiety over the abrupt departure of President and CEO Jerry Kent two months ago. When Kent quit, the fourth-largest MSO lost a leader who had a strong reputation on Wall Street for posting the right numbers.
Kent's exit trashed Charter's stock, slicing it by 35%, chopping $1 billion in value out of principal shareholder Paul Allen's personal holdings and, more significant, putting him underwater on his three-year journey into cable. Allen's cost basis in Charter is $19 per share, or about $16 counting certain tax benefits. Charter is trading around $13.
Charter watchers caution against expecting big changes. The 6.9 million-subscriber company is not in need of a turnaround; indeed, the demands on Vogel are quite the opposite. Everyone—bosses, subordinates, investors, peers—characterize his task as keeping the company on its existing path, one of strong, consistent growth. And despite Kent's complaints about Allen's involvement, the billionaire is striving to convince investors that Vogel isn't suddenly going to dramatically alter the game plan.
Vogel himself says he's not looking to tear things up. "I've got to show leadership, show financial discipline, convey the message to a lot of constituents. It's a different job in terms of scale, but it's not much different than what I've done before," he says.
"Carl is smart enough to know that what he needs to do is stay enough out the way that the other guys keep doing what they do," says Morgan Stanley media analyst Richard Bilotti, who has followed Vogel career over the past decade.
"Isn't that what leaders do, surround themselves with good people and let them do what they're good at?" asks Bill Savoy, president of Allen's personal investment vehicle, Vulcan Inc.
Steady does not mean unchanging. Charter lacks the strong, major-market system clusters of AT&T and doesn't have quite the reputation for quality of Cox, which is well-regarded for customer service and high-quality cable plant.
What Charter does have is a management with a strong reputation for delivering numbers, for consistently outperforming its peers. Cash-flow growth of 15% to 17% has been common. And the company has stayed on the technological cutting edge.
Two years ago, the company bragged about 3.4% basic-subscriber growth at a time when other MSOs were at 1%. But those new subscribers were too expensive and churned out too quickly. Charter is now ratcheting back to 1% basic growth and allocating the marketing dollars to digital cable and data. Today, it leads the industry in digital penetration, with 31% of homes paying about $16 a month for the extra service.
Further, about 30% of Charter's cable plant has yet to be rebuilt to offer strong high-speed data and other digital service. The company is working with different video-on-demand platforms and planning deployment in 10 markets.
"There's no such thing as a calm day in that kind of job," says Bill Schleyer, the former COO of Continental Cablevision who just took the reins of AT&T Broadband.
Vogel has a long, long résumé. A former CFO of cable operator Jones Intercable, he's the only man on the planet to have been president of three DBS companies: EchoStar, Canada's Star Choice and the now defunct Primestar.
He has also served in several different positions in the world of John Malone over the past four years, including president of Liberty Satellite and a three-week stint at collapsing telephone provider ICG (it took him only three weeks to discover that ICG's finances were much worse than Liberty had been led to believe).
Vogel is sensitive to the many, many jobs on his bio. "I've essentially worked for three people in my career: Glenn Jones, [EchoStar's] Charlie Ergen and John Malone."
His three years in the early days of EchoStar's DBS operation draws the most interest from Charter staffers and investors, who spend about a third of any sit-down quizzing him for insight on cable's biggest rival industry. (He's happy that Ergen will be tangled in federal antitrust review of his planned takeover of DirecTV and believes Ergen will stop discounting DBS shortly afterwards.)
One of the bigger questions about Charter is what role it plays in Allen's notion of a Wired World (yes, he always capitalizes the Ws). Allen envisions that everyone will be connected to networks and any transactions that can be done electronically will be done electronically.
When he bought Charter and Marcus Cable for $6 billion in 1998, the cable systems were to sit in the middle of a bursting portfolio of commerce and education ventures, of distance learning, e-commerce, conduit and content companies. Some, Ticketmaster and DreamWorks, have paid off well. But others are the detritus of the dotcom bust: travel agent Priceline, variable-pricing e-merchant Mercata, DSL provider NorthPoint, cable Internet provider High Speed Access. They are all either out of business or severely damaged. A $1.65 billion investment in cable overbuilder RCN Corp. is now worth about $100 million.
Not that Allen's trip has been a wipeout. He has tended to invest at the early venture stage, where one hit and well-timed sale can erase 15 mistakes. Further, Savoy says, Allen started unloading what Internet stocks he could early last year before the worse of the dotcom slide, selling $9 billion worth of securities.
Also, Savoy adds, the dotcom bath doesn't change Allen's view of Charter: "It wasn't presumed that we had to own all these assets for the benefit of Charter."
But some Wall Street and industry executives are nagged by the worry that a multi-multi-billionaire like Allen collects companies the way he does Impressionist paintings, cars and sports teams.
"You're always asking, 'Is this a sandbox where Paul wants to play?' " says one cable CEO.
Vogel considers that characterization unfair. "I don't see it that way at all. Charter is an important business to me. I sense that it's important to him. It's not a sandbox."
Vogel has plenty of incentive to make Charter work on its own.
In addition to receiving $1.5 million a year, he has options for 3.4 million shares with an exercise price of $13.20. If he gets the stock back to where it was before Kent's exit, the options would be worth $13 million. If the stock gets back above $20, where it was in August, his deal would be worth $23 million.
When Kent quit, he was the only Charter executive with a contract. Everyone else could have walked out the door in a day. Savoy and Allen rushed to secure commitments from five senior executives, offering, at the least, immediate grants of about $500,000 in stock, plus raises. COO David Barford and CFO Kent Kalkwarf signed new deals that roughly doubled their pay to $525,000 and gave them each options for 750,000 shares.
Vogel and Kent have oddly similar backgrounds. Each was an accountant at the same firm, Arthur Andersen, in the early 1980s, though in different cities. Each was tapped by a mentor to jump into cable. In Kent's case, it was Howard Wood, who wanted to start his own firm, St. Louis-based Cencom Communications. In Vogel's case, it was Allen Angelich, who, in the finest traditions of accounting and consulting firms, was taking a job at one of Andersen's Denver clients, Jones Intercable.
As a junior staffer at Andersen in Denver, Vogel had three types of clients: oil and gas, ski resorts, and cable. "Cable clients were by far the most interesting," he recalls.
Further, Cencom and Jones Intercable had similar, unique financial structures as syndicators of limited partnerships. As treasurer and later CFO, says Jones Intercable founder Glenn Jones, Vogel was in part responsible for coordinating dealings between Jones Intercable and the thousands of investors in the web of partnerships. He was also a senior executive in three related companies: Jones Spacelink, Glenn Jones's personal holding company Jones International, and small TV and film producer Jones Entertainment.
Jones has nothing but praise for Vogel, describing his former executive as "high-bandwidth," quickly absorbing information. "When he left here, the only higher job available to him that would have challenged his abilities was mine," he says. Could Vogel have succeeded Jones if he were inclined to step aside? "Absolutely."
Of course, Jones still hasn't stepped aside in his various companies, even three years after being forced by a partner to sell his core cable systems to Comcast. So Vogel jumped in 1994, when EchoStar Chairman Charlie Ergen came calling. After years of maneuvering, Ergen was close to fulfilling his dream of becoming a major satellite player.
For years, Ergen had been a small-timer, selling equipment and subscriptions in the backyard, big C-band dish business. Even in the small-dish DBS business, he was small fry going up against General Motors-controlled DirecTV. That's the point at which Vogel, who had lots of experience raising money from banks and investors for Jones, stepped in. He helped work the company through its first junk-bond offerings and an initial public offering.
"At EchoStar, I was trying to build the business, while I was trying to raise the capital, while I was trying to build the management team," Vogel says. "It was a ton of adrenaline." He ultimately helped raise $1 billion for EchoStar.
With EchoStar's first bird eventually launched safely in late 1995, Vogel worked on finding strategic partners to bring in enough money to fully fund the launch of the retail side of the business. That hunt resulted in Ergen's momentous deal with News Corp. Chairman Rupert Murdoch, a deal that later collapsed but foreshadowed Ergen's victory last month in snatching a deal to buy DirecTV from News Corp.
Despite their success, Ergen and Vogel did not get along. "Charlie's the only decision-maker," says one DBS industry executive who knows both. "It's pretty tough to sit in there: Your title is president, and you can't make a decision."
Vogel chalks up his unhappiness more to the work pace. "Charlie had an expectation that, when he was there, I should be there. And when he wasn't there, I should be there." That was particularly difficult when Ergen periodically retreated to his ranch for a few weeks at a time. "I didn't have a ranch to go to."
But he did have EchoStar shares at pre-IPO prices. SEC filings show that Vogel's 340,000 shares were worth about $8.8 million when he left the company. EchoStar's price soared twentyfold over the next three years, but SEC filings don't show whether profited from that growth.
A non-compete agreement sent Vogel into a brief Canadian exile, where he became CEO of Shaw Communications' startup Star Choice DBS service. He was unwilling to relocate his family from Denver, though, and commuted to Calgary.
In 1998, Vogel was tapped to run Primestar, which was launched by a consortium of cable operators, including Malone's Tele-Communications Inc. News Corp.'s Murdoch had jilted Ergen and wanted to contribute his DBS license to and join forces with Primestar.
While trying to coax that past antitrust regulators, Vogel had to completely overhaul Primestar's operations. Instead of acting like a franchising operation, in which cable operators handled billing and service, he rolled all the local territories and subscribers up into a central operation.
It was mostly for naught. Antitrust regulators didn't want a cable consortium owning any more DBS licenses, so it blocked the Murdoch deal. News Corp, wound up back at EchoStar as a passive partner; Primestar sold out to DirecTV and folded.
But that put Vogel firmly in Malone's sphere, first as COO of AT&T Broadband for five months and then as president of Liberty Satellite, taking on such tough tasks as working with hotel pay-per-view provider On Command, fixed wireless phone company Teligent and failing telco ICG. "From the time I went to Primestar, I was putting out fires," Vogel says.
Fortunately, there are no fires at Charter—yet. For now, Vogel will not relocate his family but will commute between St. Louis and his Denver home. But he insists this is the job he's wanted for years. "I am not a temp," he said. "I fully intend to be part of the community here."