Broadband Cable Association of Pennsylvania


July 12, 2013

Tom Rutledge, the chief executive of cable operator Charter Communications Inc., was on vacation in the Caribbean in February when he got an unexpected phone call. Cable tycoon John Malone was on the line. "It was out of the blue," Mr. Rutledge says.

Mr. Malone was interested in investing in Charter but hadn't made up his mind. Mr. Rutledge laid out his ideas on how the cable industry can grow. Weeks later, Mr. Malone's Liberty Media Corp. agreed to take a big stake in Charter. That deal set in motion an effort by the two men to spark consolidation in the nearly $100 billion U.S. cable industry. It also thrust into the spotlight Mr. Rutledge, a little-known executive with a reputation among his peers as one the industry's brightest minds but who also has had tensions in the past with some of its key players. Persuading rivals to join forces won't be easy. In recent weeks, Mr. Rutledge met with Glenn Britt, chief executive of No. 2 cable operator Time Warner Cable Inc. to make a case for the benefits of a merger between the companies, people familiar with the matter say. But Mr. Britt showed little interest after the meeting, one of the people said. That followed a previous unsuccessful overture to Mr. Britt by Liberty Chief Executive Greg Maffei, the people say.

Much like Mr. Malone, who engineered a series of deals that built Tele-Communications Inc. into the nation's cable largest operator before he sold it to AT&T in 1999, Mr. Rutledge is a big believer that size matters. He sees plenty of scope for mergers in a U.S. cable industry with one giant-Comcast Corp.-and many smaller players, including Charter, the fourth-largest cable operator. Messrs. Rutledge and Malone have in recent weeks taken their message to investors, touting the benefits of consolidation. In a phone interview this week from his Stamford, Conn., office, Mr. Rutledge said he expects the cable industry will eventually boil down to "two major players." To be competitive over the long term with telecom and satellite-TV giants, he said, "you'd need a substantially bigger company than Charter." Being bigger, he said, would help cable companies control costs, giving them more leverage over media companies that supply TV programming, and would put them on stronger footing to invest in new technologies. The cable industry has had a poor track record of working together on new initiatives-from targeted advertising to online video. "When you have scale, you don't necessarily have to collaborate, because you can do it on your own," Mr. Rutledge said.

The cable industry's deal buzz has been a focus of intense speculation this week at the Allen & Co. conference in Sun Valley, Idaho, an annual gathering of media moguls regarded as a breeding ground for big deals. Mr. Malone and Mr. Britt are both in attendance this year, while Mr. Rutledge is not. Should a merger frenzy unfold, investors expect Mr. Rutledge to be a central player. Mr. Britt is expected to step down at year's end when his contract expires, and Time Warner Cable Chief Operating Officer Rob Marcus is a leading candidate to fill his job. Cablevision Systems Corp. Chief Executive James Dolan also could play a big role, but until now the Dolan family, which controls Cablevision, hasn't been interested in selling at valuations buyers would find attractive, people familiar with the matter say.

Mr. Rutledge, 59 years old, held senior posts at Time Warner Cable and Cablevision before taking the helm at Charter in 2012. He started out at the bottom in the 1970s, working his way through college at a small Pennsylvania cable operator where he drove trucks, climbed poles and hooked up customers. Now, he is known for his marketing prowess and a knack for spotting promising technologies early on. At Cablevision he championed the cloud-based digital video recorder-which allows programming to be recorded and stored remotely-and came up with a way to implement the technology that helped Cablevision prevail against big media companies that had filed a copyright lawsuit. That set a legal precedent that has paved the way for new controversial technologies like Aereo Inc.'s streaming-TV service. "When he talks, everybody shuts up and listens to him," said Rocco Commisso, chief executive of cable operator Mediacom Communications Corp.

When other operators were buying up airwaves to offer wireless service a few years ago, Mr. Rutledge focused on much less costly Wi-Fi access instead, deploying thousands of outdoor hot spots as a free service for broadband subscribers. Bigger companies like Comcast later followed suit, abandoning plans to enter the cellular business. A history buff, Mr. Rutledge would routinely win a trivia contest spanning subjects like history, geography and TV shows at an annual junket for cable executives hosted by cable programmer A+E Networks. "If we did it with teams, everyone would want Tom on his team," said A+ E Chairman Abbe Raven. Mr. Rutledge has his detractors. He abruptly left both Cablevision and Time Warner Cable after disagreements with management-which could be a complicating factor as Charter seeks out deals. In the early 2000s, he was in the running for a top job at Time Warner Cable but was passed over in favor of Mr. Britt, according to a person familiar with the matter. Mr. Rutledge said he left in 2001 because of management concerns unrelated to Mr. Britt. "Glenn and I have a good relationship and have had one for years," he said.

At Cablevision, Mr. Rutledge focused relentlessly on increasing cash flow "per home passed"-that is, homes where its infrastructure was in place. That earned him plaudits from Wall Street but led critics to say Cablevision underinvested in cable broadband and customer service under his watch. Cablevision performed poorly-far below Verizon Communications Inc.'s all-fiber FiOS-in a 2011 FCC report that measured Internet performance. Around the same time, Cablevision suffered sharp video subscriber losses, which put pressure on Mr. Rutledge and contributed to tensions between him and Mr. Dolan, people familiar with the matter say. "I could have been a better manager always. I could have handled it better," Mr. Rutledge said, adding that a weak economy and other factors contributed to Cablevision's poor results.

He said that the main reason he left Cablevision is that he wanted to grow through acquisition-he even wanted to buy Charter at one point-while the Dolans were reluctant to jump in. "When I left he wasn't mad at me and I wasn't mad at him," Mr. Rutledge said of Mr. Dolan. Cablevision declined to comment. Cable companies have been losing video subscribers but Messrs. Rutledge and Malone are optimistic that the cable broadband business can capitalize on increasing demand for bandwidth-heavy services like online TV and video-gaming. Mr. Rutledge says he believes it is "more important now than it's ever been" to invest in capital network upgrades-such as increased broadband speeds and more TV channel capacity-something he says he's done since taking over at Charter. "We're in different circumstances than 10 or 15 years ago," he said. Wall Street Journal