IDB Communications Group, Inc.

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IDB Communications Group, Inc.

10525 West Washington Boulevard
Culver City, California 90232
U.S.A.
(213) 870-9000
Fax: (213) 870-3400

Public Company
Incorporated: 1983 as IDB Communications
Employees: 430
Sales: $310.7 million
Stock Exchanges: NASDAQ
SICs: 4899 Communications Services, Not Elsewhere
Classified; 4813 Telephone Communications Except
Radiotelephone

The fourth largest U.S.-based international long-distance carrier and the largest U.S.-based international private line carrier, IDB Communication Group, Inc., emerged as a rising giant in the telecommunications industry during the late 1980s and early 1990s, giving chase to telecommunications heavyweights AT&T Co., MCI Communications Corp., and Sprint Corp. 1 Originally founded as a mobile satellite services company, IDB diversified during the 1980s, branching into several broadcasting niches through its four subsidiaries, IDB Systems, IDB Broadcast, IDB Mobile, and IDB WorldCom. Together, these subsidiaries offered a variety of services to international and domestic customers and made IDB a company of special interest to both investors and competitors in the telecommunications industry.

When he was 13 years old, Jeffrey P. Sudikoff prophetically buried telephone wire beneath the lawns surrounding his Newton, Massachusetts, neighborhood. Though technicians from the telephone company were perplexed when they later unearthed the wires, Sudikoff s idea was clear: he wanted to connect his friends to a battery-operated telephone system that would allow them to talk to each other whenever they wished. The plan showed innovative thinking and an enterprising will unusual for a 13 year-old, attributes Sudikoff would rely on 15 years later, when, at age 28, he created IDB Communications with not much more than he had at his disposal when he was a telecommunications-minded teenager.

Several years after he graduated from Dartmouth College in 1977, Sudikoff began working as a rock music promoter in Los Angeles, taking care of logistical details for Jackson Browne, Neil Diamond, Reetwood Mac, and other music groups. In 1983, a banner year for Sudikoff, his job took him to San Bernadino, a county near Los Angeles, where a three-day concert was planned. Organizers of the concert approached him before the event, wanting to know if he could arrange to have the concert broadcast live to radio stations throughout the country. It was a defining moment for Sudikoff and IDB, not only because it launched the former toward enormous success and the latter into being, but also because it provided an early indication of the manner in which both would flourish.

Put simply, this approach could be defined in one word: “yes,” the answer Sudikoff gave to the concert organizers in San Bernadino and the answer he would give to almost any proposal during IDB’s first decade of existence. His willingness to provide whatever a potential customer wanted—no matter whether a project called for untested technological techniques or required equipment and other resources his company did not possess—gave IDB a foothold in markets eschewed by larger, more established competitors and proved to be instrumental in its quick rise to the upper echelon of the global telecommunications industry.

For his first project, the live broadcast of the three-day concert to radio stations across the country, Sudikoff lacked the necessary equipment and the resources to purchase such equipment, fundamental factors that did not deter him from agreeing to provide satellite link-up. To overcome this first hurdle, Sudikoff took out a $15,000 automobile loan, purchased a mobile transmitter with the money, then hauled it himself to the venue, and provided for the live broadcast. Left with the mobile transmitter after the concert was over and facing payments on his loan, Sudikoff decided to pursue the market for live concert broadcasts further and created IDB Communications to facilitate such an endeavor.

Several concerts followed, then later that year Sudikoff became involved in broadcasting sports events live, carrying radio broadcasts for major-league baseball. These broadcasts were the first step in IDB’s development into the largest independent transmitter of sports events in the country. The next step in this direction was taken the following year, a busy year for IDB, when Sudikoff decided to construct the company’s first major 24-hour up-link facility, the Los Angeles Teleport. The construction of the Los Angeles Teleport occurred contemporaneously with perhaps the largest sports spectacle in the world, the Olympic Games, held in Los Angeles in 1984 and fatefully arriving as Sudikoff was honing his fledgling company’s skills at transmitting sports events. Then not more than a year old, IDB garnered a contract to transmit the 1984 Olympic Games live to radio stations nationwide, adding a prestigious client to a corporate resume that was quickly increasing in length.

Perhaps the most important event for the company’s future occurred in 1984 before the windfall announcement of IDB’s contract for the Olympic Games and before the construction of the Los Angeles Teleport, when AT&T was ordered to break-up and the telephone industry was deregulated. Coming when it did, less than a year after the formal creation of IDB, the dismantling of the enormously powerful AT&T provided a significant and considerable boost to a young company striving to compete in a field dominated by a leviathan corporation. In the aftermath of AT&T’s break-up, the demand for satellite transmissions escalated exponentially; IDB was well positioned to provide satellite transmissions of programming previously sent via long distance phone lines. By the end of the year, the combined forces of the Olympic Games and the weakening of AT&T had fortuitously given IDB a firm foundation from which it could grow and had added measurably to the company’s revenue total of $1.5 million at year end.

The following year, IDB constructed a system of fixed earth stations located in 36 cities in the United States called the Sports Satellite Interconnect system and later named Digital Sports Interconnect. The company’s sales volume continued to increase, leading to preparations for IDB to become a publicly held company. Instrumental in this shift from private to public ownership was Edward R. Cheramy, a former partner with accounting firm Price Waterhouse, who joined IDB in 1986. Cheramy also figured prominently in matters beyond engineering the transition toward public ownership, functioning as a sometimes necessary voice of reason and prudence rebutting Sudikoff s unflagging desire to do anything, anywhere. So, with a former Price Waterhouse accountant and a former rock-and-roll promoter leading the way, IDB went public in 1986, with an initial share price of $6.

The same year, IDB broadened its scope by introducing television transmission services. Revenues by the end of the year totaled $6.3 million, as the company funneled as much money as possible toward expansion. A second major teleport modeled after the Los Angeles Teleport was constructed in New York in 1987 and named the Staten Island Teleport. Voice and data transmission services were also introduced that same year, a year that witnessed one of the most peculiar and formidable projects taken on by IDB. At various points in his company’s history, Sudikoff s penchant for undertaking unique projects led to several inspired arrangements, including floating a satellite on a barge to Antarctica for Korean television, contracting with wedding parties to transmit the ceremonies to overseas relatives, and providing mobile communications for Allied troops during the Persian Gulf War. Now, in 1987, Sudikoff s former passion and his current one dovetailed, when the former rock-and-roll promoter was asked to transmit Billy Joel’s concert in Leningrad back to radio stations in the United States.

Back at IDB, the company’s management was creating a genuine corporate structure, forming subsidiaries by combining acquisitions, and adjusting for the added corporate weight these acquisitions produced. In 1988, IDB Systems was formed and established in Dallas, Texas, to focus on designing and constructing satellite networks in such countries as Chile, Argentina, Portugal, and the Philippines, countries largely ignored by the larger telecommunications companies. Intended to be used by U.S. companies with facilities in such countries and by the foreign governments themselves, the creation of IDB Systems strengthened IDB’s international ties and opened a vast market for the company’s future ventures.

In 1988 revenues totaled $20.1 million and would treble the following year, when IDB entered the television business by acquiring Hughes Television Network (HTN), a broadcaster of sports and horse racing, for $36 million. The acquisition of HTN gave IDB long-term leases controlling the scheduling of 37 transponders on nine satellites, as well as some needed experience from a pioneer of television transmission and scrambling. With the acquisition, IDB formed a second subsidiary, IDB Broadcast, to provide domestic and international services for major network, cable, syndication, pay-per-view, sports, and remote special events. In 1989, IDB bought CICI, a division of Cantel Corp., for $21 million. The acquisition gave the expanding company private voice and data transmission services between the United States and more than 120 countries, which were to serve the U.S. government and corporations with international operations.

By the close of the 1980s, however, IDB’s bright prospects began to fade and the company appeared headed for trouble. The recent acquisitions had added weight—divergent corporate structures and new employees inculcated with a much different business philosophy, in sometimes a much older corporate environment—to a company that owed its success largely to nimbleness and flexibility, to quickly taking advantage of a particular situation in a particular market niche. IDB was slow to assimilate these new employees and various corporate structures, and the company began to suffer, particularly from the HTN acquisition, which crimped the company’s profits. Superfluous layers of management had also been added, clogging IDB’s communications channels and further slowing its decision-making abilities. Finally, to exacerbate matters, several of the company’s early acquisitions had been fueled by junk bonds, which raised IDB’s debt to a dangerous level. These factors combined to send IDB’s stock cascading downward from a high of $18 a share to $6, the original price of stock when the company went public in 1986.

Consequently, as IDB entered the 1990s it appeared headed for trouble, or at least for slower growth. To effect a recovery and a return to the exponential growth the company had known since its creation, Sudikoff and Cheramy readjusted the company’s strategic focus. Its debt was reduced to a more comfortable level, and, perhaps more important, the company began to pursue a course that would make it primarily a telecommunications company, rather than a broadcasting company, returning Sudikoff to his childhood roots, when he created a battery-operated telephone system for his suburban neighborhood.

In 1991, IDB began offering international public switched telephone capacity between the United States and more than 70 overseas destinations, organizing these services under IDB&T. The following year the company bolstered its telecommunications interests with the acquisition of World Communications, Inc., an international private line and long distance telephony provider, from TeleColumbus AG, a Baden, Switzerland-based telecommunications company. The purchase of World Communications gave IDB precisely what its strategic shift called for, an extensive fiber optic network and a significant presence in Europe that strengthened considerably its position in the international telecommunications field. Concurrent with the World Communications acquisition, IDB purchased Houston International Teleport, Inc., the holding company of Satellite Transmission and Reception Specialist Company (STARS), both of which were U.S. subsidiaries of TeleColumbus. The company then formed IDB WorldCom, an amalgamation of IDB&T, IDB International, World Communications, STARS, and Houston International Teleport.

Through IDB WorldCom, IDB offered international private line and public switched long-distance telephone services, and facsimile and data connections to a global customer base. By the following year, 1993, the results of the company’s shift toward telecommunications were easily discernible. IDB continued to be involved in broadcasting—the company transmitted television and radio broadcasts for more than 13,000 sports events in 1993 alone—but the proportion of revenue generated by its broadcasting business had decreased in relation to the amount of revenue generated by its telecommunications business. In 1992, WorldCom accounted for 27 percent of IDB’s total revenues and in 1993 it accounted for more than 50 percent, whereas the company’s broadcasting total fell from 49 percent in 1992 to roughly 25 percent in 1993.

In December 1993, IDB further strengthened IDB WorldCom’s position by purchasing TRT Communications, Inc., a provider of international telephone, private leased circuit, facsimile, telex, packet switching, and messaging services, from Pacific Telecom, Inc. The acquisition established the company’s international digital communications subsidiary as the largest U.S. international private line carrier and the fourth largest provider of international public switched long distance telephone service, ranking behind AT&T, MCI, and Sprint. Revenues for the year were indicative of IDB’s strong presence in a growing market and marked an end to the problems that plagued the company in the late 1980s. In 1992, revenues totaled $155.3 million, an encouraging rise from the $105.4 million recorded the previous year; however, 1993’s total surpassed the most optimistic expectations, soaring to $310.7 million, a 100 percent increase in one year.

As IDB entered the mid-1990s, its telephone services generated three to four times as much revenue as its broadcasting, and it continued to augment its presence in the international long distance field through agreements with telephone companies in Italy, Belgium, and the United Kingdom. In 1994, WorldCom announced that it signed an agreement with British Telecom, which would allow IDB to provide direct-dial telephone service in the United Kingdom and thereby increase its international telephone services considerably. With the international telecommunications market valued at $10 billion for U.S. carriers in 1994 and expected to grow 15 percent annually throughout the decade, IDB’s acquisitions had positioned it to take advantage of this lucrative market.