Jones Intercable, Inc.

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Jones Intercable, Inc.

9697 East Mineral Avenue
P.O. Box 3309
Englewood, Colorado 80155-3309
U.S.A.
(303) 792-3111
Fax: (303) 790-0533
Web site: http://www.jic.com

Public Company
Incorporated: 1970
Employees: 3,800
Sales: $311 million (1996)
Stock Exchanges: NASDAQ
SICs: 4841 Cable & Other Pay Television Services

Jones Intercable, Inc. is among the ten largest cable television operators in the United States. Initially serving only 150 households, after 25 years the company provided cable service to more than 1.4 million subscribers. The rapid expansion the company experienced in its first quarter century was followed by a consolidation of its markets in the late 1990s, an effort to reduce costs associated with the system’s administration and operation.

Early History

Glenn R. Jones, founder, chairman, and chief executive officer of Jones Intercable chose the cable industry over several other career alternatives. The son of a Pennsylvania coal miner, Jones earned a degree in economics from Allegheny College and then a law degree from the University of Colorado. He served as a bomb-disposal expert for the U.S. Navy in Japan, worked as a lawyer, and also ran in 1964 for Congress as a Goldwater Republican. His loss in that race left Jones $40,000 in debt, but a lack of funds did not deter him from entering the cable industry. In 1967 Jones bought his first cable system, a small operation in Georgetown, Colorado, that served 150 homes. The purchase price was $12,000, and Jones scraped together the down payment of $1,000 by borrowing $400 on his Volkswagen and collecting $600 from subscribers of the cable system who had delinquent accounts. Jones was not completely unfamiliar with the cable industry; as a lawyer he had represented cable companies in their acquisition attempts.

Jones did not wait long to expand his infant cable empire. The next month, he bought the cable system in Idaho Springs, Colorado. Along with the former owner, whom Jones had convinced to stay with the company as a technician, Jones himself suspended cable from telephone poles. He soon bought a Lake County, California, system for $210,000. Once again, he borrowed most of the $50,000 down payment. In what had become almost a tradition, Jones began his operation of the system by walking door to door to collect on delinquent subscriber accounts.

Innovative Financial Structure for the 1970s

Jones had big dreams for his burgeoning company but little cash to expand. Establishing a new cable system requires buying expensive equipment and constructing the system before any appreciable income is flowing. Such a long-term, capital-intensive enterprise requires hefty financing. To solve this problem Jones organized public limited partnerships to fund his acquisitions, a structure common in the oil and gas industry and one which would protect Jones from debt. These partnerships paid fees to his company to run cable systems owned by investors. The first in the cable industry to use such a set-up, Jones pioneered a structure that would become a popular means of financing cable expansion. To gather these limited partnerships together, in 1970 Jones formed Jones Intercable, Inc.

“When you talk about vision and getting somewhere first, Jones is usually at the top of the list,” Sharan Stover, vice-president at Tele-Communications, Inc. (TCI), a major cable competitor, said to Ronald Grover of Business Week. In addition to his unusual financial arrangements, Jones built systems in close regional clusters to reduce administrative and operational costs. He also concentrated on building systems in affluent suburban areas, such as those around Chicago and in northern Virginia and Maryland. Throughout the years, Jones Intercable tried to stay on the cutting edge of communications technology. Beginning in 1989, Jones Intercable started to replace coaxial cable with high-performance optical fiber, making it one of the first cable companies to do so.

Jones Intercable expanded rapidly, despite frequent losses in its limited partnerships. The losses did not hurt the company because the partnerships were designed to provide tax losses to the investors. More important to Jones Intercable was a good cash flow, which was needed to fund expansion and technological upgrades, and which they received from their limited partnerships. By 1994, Jones’s companies owned or managed 55 cable systems with 1.3 million subscribers. The year before, the company had seen a loss of $25 million on revenues of $132.4 million. However, cash flow was up six percent in 1994 to $60 million.

The limited partnerships did have their negative affects. Jones Intercable stock traded lightly because traders and analysts found it hard to understand the company’s intricate interlocking of partnerships. “It’s just not worth the time it takes to understand it,” Kidder, Peabody and Co. analyst Alan Gould said to Grover. In addition, cable companies were falling out of favor because of competition from related industries. Long distance telephone companies, regional Bell operating companies, and satellite service providers were all encroaching on traditional cable markets as they tried to expand the types of services they offered.

Jones Intercable attempted to offset this competition in several ways. First, it sought ties with a major telephone provider and found a suitable partner in Bell Canada International, Inc. (BCI). The Canadian company bought 7.5 million shares of Jones Intercable for $27.50 a share in 1994, with an option to buy more later. The parent company of both Bell Canada and Northern Telecom, BCI offered Jones Intercable more than financial backing, although the deal would indeed help Jones raise the capital needed to buy more cable systems. The arrangement, which brought BCI’s investment in Jones Intercable to approximately 31 percent, also gave the company a link to technology that it would need to expand into phone and data services. Jones Intercable also used the association to engineer access to Britain by forming Bell Cablemedia in 1994 with Bell Canada and Cable and Wireless.

The Bell Canada investment in Jones Intercable did spark some controversy, however, particularly among shareholders. Shareholders contended that the agreement overly favored Glenn Jones, who received $78 million for the shares he sold to Bell Canada and who was assured of an annual $2.5 million salary. Several years later, the consensus was that Bell Canada had made a bad deal for itself. “They paid $23 a share for stock that’s been trading at $13,” Tom Kerver, the business editor for Cablevision magazine, told Stephen Keating in September 1996. “They lost their shirt.”

Jones also countered the competition from the phone companies by taking the offensive. Rather than just defend against telephone company encroachments into cable services, Jones entered the phone service market. The company made an agreement with Bell Atlantic-Virginia Inc., the regional Bell operating company, in 1996 to offer local telephone service. The opportunity presented itself after the 1996 Telecommunications Act, which gave the regional Bell operating companies license to enter the long-distance telephone market provided they open their local markets to competition. The agreement allowed Jones Intercable to offer full-service local telephone service and Internet connections in conjunction with their cable services. “In many respects, it gives us the experience and a template to look at other markets,” Jim O’Brien, Jones Intercable president, told Richard Tedesco of Broadcasting and Cable.

Jones Intercable’s agreement was one of the first to take advantage of the new act, along with an agreement between Time Warner Communications and BellSouth, announced at approximately the same time. Jones Intercable had been testing their approach in four high-rise buildings in Alexandria, Virginia. It offered a package of telephone and video services, including 44 cable channels and such telephone services as call-waiting, maintenance, and a free unlisted number, for a monthly fee of $37.32.

The company embraced the new opportunity wholeheartedly, building a cutting edge phone-cable TV-Internet network in Alexandria for $38 million. The investment was slow to see returns, however. When discussing the low numbers of subscribers to the new system, Jeff P. Spiegleman, then vice-president and general manager of the Alexandria system, said that people need “a compelling reason to switch,” something most did not yet see. In the 1996 Business Week interview, Spiegleman asserted that Jones Intercable was preparing to offer interactive services that would capture the public’s interest and that the company would be ready to introduce these services in approximately 18 months.

In the meantime, Jones Intercable’s new enterprise got a boost when the company concluded its deal with Bell Atlantic to include number portability. The company had been hampered by customers’ unwillingness to part with their existing phone numbers to try the new service. The agreement enabled customers to switch to Jones Intercable and still keep their existing telephone numbers. In addition, word was beginning to spread about the low rates offered by Jones Intercable—$13.99 a month for its phone package, compared to Bell Atlantic’s monthly fee of $24.88. Jones Intercable was also offering an unlimited Internet link for $39.95 a month, which operated 347 times faster than a 28.8-baud modem.

Company Perspectives:

Jones Intercable is committed to the extension of the human mind by delivering information, entertainment, and education to as many people as possible through the electronic pipeline of cable telecommunications.

Consolidation in the Late 1990s

Jones Intercable initiated a major reorganization in the second half of the 1990s. The cable industry was going through a period of consolidation and further grouping of cable systems according to region. Jones decided to sell off several of its systems and concentrate its acquisitions in two key regions of the country: Washington, D.C./Maryland and Georgia/South Carolina. The company also reduced its limited partnerships in an effort to increase earnings and make it easier for those in the stock market to understand and evaluate the company. Kevin Coyle, head of Jones’s financial operations said at the 1996 annual meeting, “We’d like to be able to move on with our lives and not be a general partner … and also be in areas where we want to be for the rest of the time.” Managed limited partnerships accounted for approximately 61 percent of Jones Intercable’s total subscribers, or 853,000 subscribers, in 1995. Wholly owned systems comprised 576,000 subscribers.

The company placed their managed limited partnerships in Colorado and in various other locations on the market. In 1996, Jones Intercable sold many of their systems in Colorado, with about 45,000 subscribers, to Tele-Communications, Inc. (TCI). Soon thereafter, Jones traded additional Colorado systems, with 25,000 subscribers, to TCI for systems in Maryland, with 25,700 subscribers. The trade included Glenn Jones’s original systems in Georgetown and Idaho Springs. “If you want to stay alive, you have to do it,” Jones said in a press release. “But it’s like selling your best pet.” The trade would expand Jones Intercable’s systems in the Virginia area, one of the regions on which the company had chosen to concentrate.

Jones Intercable’s consolidation strategy raised concerns among industry analysts because the company was growing smaller as other cable companies in the top ten were growing bigger. The ninth largest cable company in 1996, Jones Intercable was still far smaller than the industry leaders. Analysts speculated that by liquidating its managed partnerships, the company could see its subscriber base sink below one million, but Jones dismissed these concerns when he said to Keating, “In some ways, size is not that important. If you have 400,000 subscribers in a single market, you’re the dominant player in that market. If someone’s big in California, it doesn’t matter much in Maryland. The problem is if you have things strung out all over the place, which is why people are consolidating.” Although the company was selling off certain systems, it was acquiring new ones in its target regions. Jones said subscribers would remain about 1.4 million.

Jones Intercable had invested in several related companies launched by Glenn Jones over the years. Jones Futurex, Inc., a wholly owned subsidiary of Jones Intercable, concentrated on two main endeavors: its electronic manufacturing services manufactured products for companies in the computer peripheral, communications, medical equipment and scientific instrumentation industries, and its advanced products division provided information and data security products services to financial and computer industries. A former subsidiary, Jones Galactic Radio, Inc., operated two audio programming services: Jones Satellite Networks, Inc. (now Jones Radio Network), which supplied programming for radio stations, and SUPERAUDIO Cable Radio Service, which furnished music and information programming for cable television and direct broadcast satellite services. Jones Galactic Radio operated as a subsidiary of Jones International Networks, Ltd., an affiliate of Jones Intercable. Jones Intercable was also a major investor in Mind Extension University Inc. (ME/U), now called Knowledge TV and College Connection, which Glenn Jones had founded in 1987. ME/U provided educational programming to cable services, including classes for professional development or personal enrichment and courses to be taken for college credit, a program affiliated with 30 colleges and universities.

Glenn Jones remained at the helm of Jones Intercable as the company approach the 21st century, and his vision determined the company’s course. Asserting that “We anticipate things. That’s how we stay alive,” Jones predicted for Keating in 1996 that within five years the company “will have some subscriber clusters, a digital platform to build from and strategic partnerships.” Perhaps more important, Jones explained to Keating the company’s basic philosophy: “All of our businesses are plugged into expanding the human mind. That’s the biggest market out there. We build our business out from there. It gives you a different perspective.”