BUSINESS

THE KING OF CABLE

TED ROGERS IS IN THE MIDDLE OF A HEATED DEBATE OVER THE FUTURE OF CANADIAN TELEVISION

BRENDA DALGLISH March 22 1993
BUSINESS

THE KING OF CABLE

TED ROGERS IS IN THE MIDDLE OF A HEATED DEBATE OVER THE FUTURE OF CANADIAN TELEVISION

BRENDA DALGLISH March 22 1993

THE KING OF CABLE

BUSINESS

TED ROGERS IS IN THE MIDDLE OF A HEATED DEBATE OVER THE FUTURE OF CANADIAN TELEVISION

BRENDA DALGLISH

Edward (Ted) Rogers, president of the largest cable television company in Canada, Rogers Communications Inc., acknowledges a little sheepishly that his viewing habits are different from those of the average Canadian, who logs 2.8 hours in front of a TV set each day. Rogers is a 59-year-old workaholic who confounded his doctors by checking in with his office just three days after major heart surgery in the summer. Now, he is in the middle of a campaign to increase cable rates in order to provide the technology necessary to greatly expand the number of channels available on cablevision. But the increased selection will not make much difference to Rogers, who each night takes home five battered briefcases packed with material requiring his immediate attention. He says that he watches very little television. “I watch news and business news in the morning—in the bathroom,” he said. “Actually that’s where I watch television the most.” His second viewing preference is also in character. “I like exciting movies,” he said, “movies with lots of action.”

Rogers has pursued business action relentlessly since he started his communications empire in 1957 when he was still a law student in Toronto. At that time, following the example set by his father, an early communications pioneer who in the 1920s developed the technology that allowed radios to operate on directline electricity rather than batteries, Rogers launched the first commercial FM radio station, CFRB, in Canada. Now, after more than 35 years of expanding his communications empire by adding technological innovations as they emerged, Rogers appears poised to reap the rewards of his diligent investments. In addi-

tion, Rogers Communications is uniquely positioned to benefit from the coming convergence of the three main telecommunication tools; telephones, televisions and computers. Rogers says that he has always been prepared to gamble on the future, even though it has brought his company close to financial collapse on several occasions, most recently just 2lh years ago.

Now, Rogers, along with the rest of the Canadian cable TV industry, is seeking a 10per-cent rate increase. The controversial increase is necessary, Rogers argued before the Canadian Radio-television and Telecommunications Commission (CRTC) in Ottawa this month, to enable the cable companies to head off competition from the so-called deathstar satellites. The deathstars, which send signals directly to small home-satellite dishes, are scheduled to begin broadcasting dozens of new channels next year. The cable companies, including Maclean Hunter Cable TV Inc., owned by the company that publishes Maclean’s, are also seeking the cable rate increase to enable them to supply new digital compression boxes, which will greatly increase the number of cable channels available to all current subscribers to cable television services.

But the latest round in the tug-of-war between Rogers and the CRTC is less important than previous ones. Last year, the company won its most important concession ever when the regulatory body allowed Unitel Communications Inc. to enter the long-distance telephone market. Rogers owns 32 per cent of Unitel and the CRTC’s decision, in effect, gave it a stake in the last of three key segments of the telecommunications industry. In addition to owning 16 radio stations and a multilingual television station, Rogers Communications has 14 cable television systems, with \ 1.8-million subscribers, d and it owns the country’s 2 largest cellular telephone I company, with 480,000 z subscribers. That combi35 nation of assets leaves

Rogers well positioned to take advantage of the new era of so-called convergence dawning in the communications industry.

Convergence is the industry buzzword for the gradual merger or overlap of the functions of televisions, telephones and computers. Some analysts predict that ultimately there will be just one line going into each home to provide all of those functions. Others, including Rogers, disagree with the one-wire view. Instead they say that each home will continue to be served by more than one wire, but the services will overlap. In the future, they say, telephone companies will be able to supply movies, while the cable companies will be able to carry telephone calls and customers will enjoy the benefits of competition.

Regardless of how the future unfolds, however, Rogers, the king of convergence, is in a unique position to compete. “There isn’t anything quite like Rogers in the United States, or anywhere else that I know of,” said Eli Noam, director of the Center for Telecommunications and Information Studies at Columbia University in New York City, of Rogers’s diversification strategy. “That’s where the future is going to be: multiservice companies that do a bit of everything,” Noam added. “Furthermore, I call it a preemptive counterattack. If a company doesn’t do it first, it won’t be long before one of its competitors moves onto its turf.”

Rogers says that the strategy is appropriate for an industry driven by sudden technology breakthroughs that can make entire business sectors obsolete almost overnight. He describes his company’s dramatic move into longdistance telephone communication last year as “a different chapter in the same book.” Rogers’s businesses share similar characteristics. “They are all communications,” he said. “They are highly capital-intensive, have a high degree of technological change and a high degree of regulation.” As well, Rogers has been able to use the assets from one business to expand into the next. Rogers’s fibre-optic television cable, for one, is used to connect Unitel subscribers to the long-distance lines of the telephone companies.

The convergence of technologies, and the potential for competition that it is arousing, is causing adjustment problems for the old regulated monopolies, including the telephone and cable television companies as well. Even Rogers Communications, which is leading the charge into telecommunications while trying to shelter its cablevision franchise from competition, frequently finds the transition awkward. When Rogers recently addressed the CRTC about his proposed rate increase, chairman Keith Spicer could not contain his incredulity at Rogers’s argument. Said Spicer: “You’re asking us to soak—well let’s say to invite— Canadian subscribers to come up with quite a lot of money for your industry to build an infrastructure which would be used to provide a whole lot of other services that have nothing to do with what normal people call television, like home shopping and banking.”

Just two years ago, Rogers argued passionately before the same commission for the long-

BUSINESS

distance market to be opened to competition, complaining, with a rhetorical flourish, of the “Soviet-style” monopolies enjoyed by the provincial telephone companies. Indeed, Rogers’s facility at arguing either side of the competition argument is the subject of some amusement in the industry. Said Ian Angus, president of Angus TeleManagement Group in Ajax, Ont.: “Ted Rogers must suffer from a bad case of cognitive dissonance.” (Cognitive dissonance is the term for psychological conflict that results from holding two or more incongruous beliefs simultaneously.) Even Rogers acknowledges the awkwardness of his position. “It’s like having four children,” said Rogers, who has just that number. “You tell each of them something a little different.”

Despite the current conflict, Rogers’s success in the highly regulated communications industry—as evidenced by his unprecedented spread into four key industry sectors regulated by the CRTC—is the result, in part, analysts say, of his ability to get along with the commission. Said Angus: “What Rogers is really good at is running a company in a regulated industry.”

And despite the rhetoric, Rogers says that he neither expects nor wants completely unregulated, free-for-all competition. “We are comfortable with regulation,” said Rogers. Without the CRTC, he added, “I would feel naked.” In exchange for meeting the commission’s requirements, including such things as supporting the Canadian broadcasting system, Rogers and other cable company owners are assured a retum-on-assets in excess of 20 per cent, far higher than the returns earned in most unregulated industries. If their returns fall below that, they can apply for rate hikes.

The federal government’s regulatory system has frequently worked to Rogers’s advantage. The CRTC opened the long-distance telephone market to Unitel in June, on terms that some analysts claim are exceptionally favorable. Said one communications analyst, who declined to speak for attribution: “Let’s just say that if Brian Mulroney is looking for a job, he deserves to be chairman of Unitel.”

Although the analyst stressed that he was not suggesting any impropriety, he noted that Rogers’s long friendship with the Prime Minister, as well as their shared political philosophy, has not harmed the entrepreneur. Indeed, Mulroney and Rogers have been acquainted for 30 years, since the days when both young men were enthusiastic supporters of Conservative Prime Minister John Diefenbaker. Although Rogers supported Joe Clark rather than Mulroney in the 1983 Tory leadership campaign, he was among the group of 30 power brokers Mulroney invited to dinner the night before he announced his resignation from politics.

Despite Rogers’s political skills, his greatest business strength is his uncanny and almost infallible ability to envision ways in which

to marry the latest communication technologies with the wants and needs of consumers. But when Maclean ’s asked him to speculate about the future, Rogers dwelled instead on the state of the economy, not the wonders of technology.

Although he has spent his entire career preoccupied with communications, the sector now widely described as one of the leading growth industries of the future, he says that he is distressed by the demise of manufacturing in North America. “We need manufacturing,” he said. “Manufacturing has been pretty important down through history, for creating wealth and providing a good standard of living. History shows that at the beginning of the century, inventions were made in Britain but the products were mass-produced in America.” He

added: “After two world wars and a fair dose of socialism, England became relatively impoverished. You can take that same analogy now and move it west. There are tremendous inventions being made in North America today, but the mass production is being done in Asia.” Rogers predicts a rosier outlook for his own businesses. He says that Rogers Communications is finally poised to become profitable. In the past 11 years, it has reported a profit only once, in 1987. Instead, it has invested its earnings back into the company, to build its cable network and enter new businesses, including cellular telephones and long distance. But Rogers says he is changing his thrust. “We are concentrating on making the existing business profitable,” he said. “We are not going into other parts of the world, we are not getting involved in new things. But on the other hand, if by the end of the decade there was a new invention, just like cellular was a new invention in the 1980s, it would be impor-

tant for us to continue innovating and pioneering.” Despite the lack of profit, investors have had faith in Rogers’s expansion plans. They bid up the share price to such an extent that one share purchased 10 years ago for $7 is now worth $115.

But the company’s growth, financed largely by debt, has involved risk. In fact, Rogers says that the company had its third serious financial crisis just 2V2 years ago. “We were about eight hours away,” he said. “Often these things come unexpectedly. We were going along and then all of a sudden in August, 1990, there was a tremendous downdraft in the economy. It was like going down a coal shoot.” Rogers says that his partner in Unitel, Canadian Pacific Ltd., helped out. Following that near-disaster, Rogers replaced $3 billion worth of bank debt

by selling bonds and shares. Said Rogers, who seems philosophical about the experience: “It seems to happen to us about once every 10 years.”

For the future, Rogers shows no signs of slowing down, although he does express a desire to have the time to seek out other gurus of high-tech like the engineers at Bell Labs and William Gates at Microsoft Inc. He says that he would like to spend more time thinking about the future, instead of working on day-to-day operating decisions. But his wife, Loretta, who laughingly recalls the time he tricked her into believing that he was going on a work-free holiday by packing the contents of his five briefcases in suitcases, says that he will never retire. “His work is his hobby,” she said. With a job that entertaining, it is no wonder that Rogers wastes little time on television: the shows must all seem smaller than life.

BRENDA DALGLISH