Interview Date: July 2002
Interview Location: Denver, CO
Interviewer: Rex Porter
Collection: Hauser Collection
PORTER: I'm Rex Porter. We're at The Cable Center for The Barco Library and we're here to interview Mr. Gordon Halverson, better known to his many friends in the cable industry as Gordy. Gordy, why don't you begin by giving us a little history about your early childhood and where you sent to school and your family and so forth.
HALVERSON: Well, I grew up in Seattle, Washington and my father was working at the shipyards during World War II. That was a job that he picked up; he moved from Spokane after he and my mom got married and moved to Seattle. He worked in the shipyards and I was born when they were very young and just starting out their lives. We moved to a community called Ballard, which was sort of a Norwegian fishing community, and my father's Norwegian so I guess that's why we ended up there. He then went into sales, so we grew up in Ballard, which was on the water. I lot of my friends were sons of fishermen who would go to Alaska every summer salmon fishing and they would come back and they could afford to buy real nice things. So, it was kind of an interesting place to grow up, a very good community.
PORTER: In the Seattle area?
HALVERSON: In the Seattle area. It's a community within Seattle. I went to grade school there, and junior high. Probably my first job was selling newspapers for the Ballard News; you'd make ten cents a paper, deliver them to the houses, you'd have to go collect the money once a month. I think I made twelve bucks a month or something. We moved to Yakima, Washington about the time I hit junior high. We were there for about a year and a half and my father moved there to become sales manager of a company in Yakima. I wasn't paying close attention as to what he was doing in life, but that didn't work out. We moved back to the Seattle area, but somebody was renting our house, so we moved into the Belleview area where I went to high school for awhile, and moved back to Ballard eventually, and graduated from Ballard High School in '60. I worked various odd jobs. When I was in Yakima I picked fruit in the orchards and back in Seattle I worked in a grocery store. I was not much of an athlete; I was too skinny to be on any of the teams, but I dreamed of being a football player. It didn't work out. I was too lanky and my junior and senior years in high school I really grew up like a weed, but I was very skinny. So, I then went to college in Chicago, a little school called North Park, which is now a university, and some friends of mine from church had gone to that school and told me it was a great place to go to school, Chicago, and that sounded pretty exciting. I wasn't the world's best student and I was asked to leave, academically, after my first year. I stayed for another year, went to night school and worked on campus, but didn't have my grades up to where I could get back into school. I moved back to Seattle, went to junior college, got my grades back up, was accepted into the University of Washington, but I still had dug a pretty deep hole from the first year, but as I got into taking courses I really enjoyed, psychology in particular, I did very well, and business law courses, but I didn't finish. I didn't graduate. During that period of time, I'd met my gal and married. We had a son. I went to work at Boeing where I became a buyer for the Minuteman Missile division. There were 1,200 buyers – a lot of young people, mostly guys out of college, young guys – buying specialties. My specialty was timers for the Minuteman Missile, and this particular timer would last exactly 17.9 seconds and it would turn on a switch and turn off a switch. It was very interesting because I got to visit some of the manufacturers that were part of the development of that particular switch and timer – United Development, Electro Development, a couple of other companies – and what I noticed was that buying was not all that much fun at Boeing, but I'd noticed a lot of the sales guys coming in, calling on me, who had nice suits and driving nice cars and they could take me out to lunch, and I thought, you know, I should be a sales guy. I had that opportunity. So, I was there about 3 ½ years and planned to be there the rest of my life. I mean, when you went to work at Boeing in Seattle that was your lifetime job, and my ambition was to move up and run the company someday. Not really, but I felt I could do well with the company. '69 was when the SST was voted down by Congress. Boeing lost all the funding that they were receiving on some of their defense projects, and so there was a massive lay-off and there were 35,000 people laid off that one year, most of them in Seattle, some in Wichita, Kansas, Rex, which you may remember. I think I was one of the fortunate ones. I was one of the younger guys, one of the first ones laid off, and had a number of opportunities to go to work and I decided I wanted to be in sales. By this time I was divorced and I had custody of my son, so I was a single father and one of the companies I interviewed with was the Pruzan Company. I met with Herb Pruzan and they had just been acquired by Anixter Brothers out of Chicago, and the Pruzan Company was a distribution company. They would sell hardware and some electronics to the telephone industry, the utilities, in the Pacific Northwest.
PORTER: Did you know who they were before you interviewed with them?
HALVERSON: I had no idea. I found them through an employment agency, and I was very close to taking another job. I interviewed with Pruzan and there was just something I liked about the people. The fact that they were the largest distributors, I found out, to the cable television industry – they were doing two million in sales to cable television in 1969 – they were a 13 million dollar business, the bulk of it was telephone and utilities. They wanted me to be a buyer. Well, I wanted to be in sales, but all they had was this buying job, maybe I could get into sales someday, so I took the job because I was pretty impressed with the fact that they were – I just liked the people and they seemed very well organized, smart people. I liked the fact that they were acquired by a Chicago company, they were going to have money, they were talking about expanding and going nationwide with this cable business. About two or three months into the purchasing job, I was invited to go into sales by Ferris Perry, who's still in the industry with Motorola today, and he and I became fast friends. He was the sales manager, I was the sales guy, and he gave me my training and my education in cable and that happened on a Monday morning. I come in and I said, "Well, what would you like me to do first?" He says, "I'll be with you in a minute." He comes back and he gives me a Fact Book. He says, "I want you to call every cable system east of the Mississippi and talk to them about our matching transformers." He gave me a quick education on what a matching transformer was, and so that's what I did. For that week I started calling every cable system on the east coast and trying to sell them our matching transformers and splitters and worked in inside sales probably for a year and a half or so. Ferris left and went with Hughes AML. Microwave was big. He went on to do very well with them; he moved to Denver. They moved me up to sales manager. By then we'd hired about 12 more sales people. Anixter Brothers in Chicago asked me to move to Chicago to become vice-president of sales for the cable television business about '74. I did that.
PORTER: What happened to the Pruzan side over in Washington?
HALVERSON: I should back up a tad. Jack Pruzan had started this Pruzan business in '45 after he had started and failed in numerous businesses and he got into this hardware supply business by buying up surplus government hardware, surplus from telephone companies, utility companies, refurbishing it and reselling it. He started the Pruzan business in '45. In '48 he was supplying to the cable company in Astoria, Oregon, which is considered one of the two first cable systems in the country in '48. The other one was in Pennsylvania. And so he became fairly well-known in the cable industry along the west coast. He would attend all the shows – this is Jack Pruzan. Herb Pruzan, his son, would work for him in the warehouse and they started picking up lines of products, new product for re-sale, connecters, cable hardware, tools, electronics, test gear, pedestals, everything you'd need to build a cable system – all of the infrastructure products. So, by the time I came in '69, they were selling about two million dollars worth of products out of the 13 million they were doing primarily with the telephone companies, selling hardware and tools products – the utilities, power companies, selling hardware and tools. One of the big accounts was Citizen's Utilities, which is Leonard Tow, and GTE Telephone up in the Pacific Northwest. They were selling to Storer Cable on west coast.
PORTER: The company name even at that time when you came on board was already Anixter-Pruzan, or was it just Pruzan?
HALVERSON: Well, the very month I was hired they were acquired by Anixter, within days, and that was June of '69, and so that was part of the attraction. I'd lived in Chicago, there was a possibility I could move to Chicago again – I love Chicago – but also I liked the people at Anixter, Anixter and Pruzan, both companies were very sales oriented and they were very positive people and fun people to work for and with. When I interviewed I got to meet one of the Anixter people who later became vice-president of operations for Anixter. His name was Bruce Van Wagner. He saw the vision of taking cable nationwide, and so asked me to move to Chicago. We had just the Seattle warehouse in '69, but by '74 we had five warehouses across the country. In Seattle we had the Cardeck system for all parts in the warehouse. Anixter had an IBM mainframe computer, a 360148, which they tell me is about as powerful as today's laptops, but it brought some sophistication to our business and we would put the inventories on the computer and be able to, when we had customers on the phone, tell them where their order was, how many products we had in stock, that sort of thing. Those days were a lot of fun because we were growing rapidly with the cable business. Probably in about '70, because Ferris had left, now I was the outside guy. I started making calls on customers around the country and traveling, and what I loved was Anixter had a policy manual that one of the policies was – because Anixter was a first-class company doing business with first-class customers and we had first-class products – we would fly our people first class. Well, before Pruzan came along, they didn't have anybody traveling because it was all local business for Anixter, so they had very few people on the planes except for the top three guys. So, we came along and we had to fly across the country, so for about three years I would fly first-class everywhere before they caught up with me and figured it out. Then some of our sales guys were trying to fly first-class and they had to change that part of the policy manual. I forget what it says now, but it says that we're first-class people but it no longer says we fly first-class.
PORTER: You just have to act like it, right?
PORTER: You're in Chicago now; you're the vice-president with Anixter-Pruzan, and you've got warehouses, obviously, in Washington because that's where the idea of selling to the cable industry originated. Your headquarters are in Chicago. Where were your other warehouses?
HALVERSON: We opened warehouses in California, Chicago, New Jersey – actually Long Island – and also down in Atlanta.
PORTER: And the Seattle warehouse.
HALVERSON: And of course Seattle. A lot of these were housed with an Anixter facility, but we would have a large portion of the warehouse dedicated to the Pruzan business. We started taking on a lot of new products and what I have to say is about 1970, I believe it was, '70 or '71, a fellow by the name of Gene Robinson joined the company. He had his own business in California, a rep business, but decided he wanted to go to work for us. Herb Pruzan hired him, and he was very instrumental in developing the business force in California. He was an outstanding sales guy. I'm backing up a little bit, but in '70-'71, I'd be his inside sales guy and he was the outside salesman. He was an outstanding guy and I learned a lot from him. He made tremendous contributions to our business. So, on to Chicago, and now we're much more sophisticated. Anixter is growing dramatically and so is the cable industry, and we're hiring a lot of people. John Egan came on board about '74, started by running the warehouse that was up in Long Island, and he moved it down closer to where he lived, which was in New Jersey, and I realized immediately that this guy was a lot smarter than me and really had a vision for where this business could go. He eventually became President and CEO of the cable business.
PORTER: Wasn't he originally a center for the Miami Dolphins?
HALVERSON: Yeah, I think he was an all-state football player in New Jersey. I forget the Catholic school, but the big Catholic school in New Jersey. He went to Boston College and played there, basketball and football, and then he was drafted by the Miami Dolphins. I think he was drafted right behind Mercury Morris by Miami, hurt his back, I believe in his first year, and had to quit football, which was probably a pretty smart thing, but he got to play with some of the big names. I forget the name of the linebacker that was there – Bonaconte, I guess? I can't remember. So, anyway, he then went to work for RCA. They put him through sort of a fast MBA program. He sold their computers. His beat was downtown New York, Manhattan, like a three square block. He was selling to a fellow who was with Anaconda, one of the executives at Anaconda, got the order and went down for lunch and was watching TV and he saw a news item that RCA had decided to get out of the computer business. So, he'd just made his first sale and he was out of business. The fellow that he was talking to was Bob Mcalvene with Anaconda, and they had recently bought into cable television, bought up some electrics – I think maybe it was RCA – I'm not sure what they bought up as far as electronic RF product, but they also bought Systems Wire and Cable. He hired John, asked John to come into that business, John was there for about a year, then Mcalvene, about a year later, came on-board with Anixter as VP of Marketing for the corporation. Actually, he's the fellow that asked me to move to Chicago. So, I was there as Vice-President of Sales; John was coming in as a manager of one of the regions, and then he was eventually asked to move to Chicago, too. For 20 years the business grew, we grew with the business, had a lot of great people in our company that we got to work with, but the fun has been the excitement of watching people in our company grow and see how well people have done in the industry and where they've ended up. Just the relationships have been great. We've known each other for 30 years; I've been here now 33 years, and it's just been fun going to the shows and having this camaraderie and this great group of people to work with in the industry.
PORTER: Let's go back to I think a lot of the efforts in moving what we had considered traditional distributorship, I know you guys decided that there should be no traditional distributor. In other words, the days of putting it on the shelf and shipping it off the shelf just couldn't keep up with modern telecommunications industry. I think one of the first things that I noticed or ran into with the president of your company was the idea of annual contracts, and I know that Anixter was a great promoter of finding out from an MSO or a cable operator, whether he was independent or owned by an MSO, annual usages of products, and sitting down and actually working out a time schedule so that delivery would be on time, you could depend on quality products on time. Talk to us a little bit about that because there were a lot of distributors back in the old days, but they remained distributors, they remained just shelves of equipment, but you guys kept up with the times. I know that you decided to leave the pure distributorship and actually get into manufacturing and I know that you've got a story about how that transpired. So, talk to us a little bit about how the thinking... you guys revolutionized the idea of supplying equipment.
HALVERSON: Well, it really was fairly simple, straightforward. There were a lot of distributors. There was one in every region; there were people who were supplying utilities and telephone companies, all of them supplying cable as well. I think what made us unique was just the fact that we focused on it, we opened up facilities nationwide, we hired people and trained them in the knowledge of the cable television products, but probably the biggest asset we had was this mainframe computer, which as I said, when it started it was just a small IBM 360148, which by the way, took up a huge room and required a lot of cooling. Well, Anixter put a lot of resource into developing systems programmers and analysts. Today Anixter is 3 billion dollars and they probably have 300 systems analysts and programmers, and they always develop tremendous tools out of the software that would come out of the mainframe. We had reports on virtually anything, so we could go into a customer – a Storer in one case, a Warner in another case – where they had expanded awfully quickly and at the end of a lot of this expansion, of course, you end up with a lot of excess product, product that they couldn't get the vendors to take back and literally millions of dollars worth of product. We would offer to go in and manage that inventory down for them for a fee. The reason we were able to do that was because of the software that we had at our disposal and where we could show them what usage was and how, if they gave us some forecasting, we could help them burn that inventory off, but at the same time we would then buy that inventory from them and sell it to our customers. We would literally put that inventory to a bonded warehouse and ship to our other customers from their facility and pay them back for the inventory at a discount. So they would be able to move that inventory and liquidate tens of millions of dollars worth of inventory fairly quickly because we had usage all over the country, and in fact into South America and other parts of the world. It was a small percentage of our business but we had a lot of places to dispose of their inventories. We've done this with many, many of the MSOs over the years, and in one case with one large cable operator, we were able to reduce their inventory by hundreds of millions of dollars and that took us about 18 months to wind that down and liquidate that inventory for them.
PORTER: When the 220 came to its end for all intents and purposes, that had to have opened up a new era for you.
HALVERSON: I'm sorry, when the what?
PORTER: When the 220 bandwidth, when we moved out to 300.
HALVERSON: Oh, yes.
PORTER: So all these amplifiers, specialty amplifiers in inventory and so forth, I know that there were a lot of South American countries and so forth where cable was just beginning. So they could use that 220 stuff as much as smaller companies would buy the old low band equipment when we first started. This had to have taken you into a worldwide concept of supplying. The story of Anixter and the story of Telewire and the story of Arris and all of the companies that came about because of Anixter's original operation is a pretty important story. Before we go far away, though, I always had a lot of respect for a guy by the name of Bob Berenger, and I know Bob is passed away now, but Bob worked as president of Anixter. Can you tell us a little bit about what it was like to work with Berenger?
HALVERSON: Well, as a matter of fact I quit one time when I was working for Berenger because at Anixter you had a lot of autonomy and you could really make a lot of decisions on your own and free wheel it. Berenger came in because we were in a downtime economically in the industry and our inventories were kind of out of control. So they brought in a fellow who they felt would be able to put some discipline to us and that was Berenger. Berenger I learned a lot from, but Berenger was a micromanager, which was hard for me to take and so I, in fact, quit the company for about ten days. I actually moved to Seattle and I moved out there with the intent of going to work in a RUP firm. I got there and two days later realized that this was a huge mistake. I called Bruce Van Wagoner and said, "Bruce, I've really blown it, but I don't want to work for Berenger." I mean I love the guy, but you'd have to sign out your pencils and there were some other things going on in my life. My dad was passing away and I wanted to be back in Seattle. Anyway, so they said, "Okay, fine. You want to come back? How about running Canada for us or how about moving to California?" I said, "I don't want to do that. I don't want to leave Seattle right now." So, they put me in the wire and cable business for a time and lo and behold the guy I'm working for again would be Ferris Perry. So we worked together for about a year in Seattle and then John Egan, in the meantime, had come in and he was chafing under Berenger and they made John the president. John flew to Seattle that week, president of our division, and asked me to come back to Chicago, which I was ready to do so I moved back to Chicago. But Berenger was a wonderful guy.
PORTER: All I wanted to say really about Berenger is I thought he was a neat guy and I used to go to his office, especially when he was over at Thetacomm after leaving Anixter, and he had a cot in his office. I wondered if he ever went home. I think he slept in his office on that cot and got up and worked the next day.
HALVERSON: He was a workaholic. You could not get to the office early enough and he would be there, or leave late enough. He was there on the weekends in Chicago and I suppose he was in his mid or late 60s then. His wife had passed away and I would guess he was a pretty lonely guy at that point. He had two kids; a daughter who was a singer who had worked in the Ike and Tina Turner Revue in Las Vegas, and I'm not sure what his son did. But he was a wonderful guy, a workaholic, but then he left Anixter about the time that I moved back to Chicago. I think he went on to do some work for Metrovision maybe, for Dick Hickman, for awhile. In fact, he ran Chicago Metrovision for Henry Harris.
PORTER: Let's go back to a period that you were just coming up to or you had just touched on. Now you're in Chicago and Egan is the president of Anixter Pruzan, or Anixter. There came a point where your name changed. Let's go into how that came about and how you picked the name ANTEC.
HALVERSON: Well, we've had a lot of name changes and first, obviously, it was the Pruzan Company, which then immediately became the Anixter-Pruzan Company in '69. We, for awhile, named the cable television division Anixter Communications. Anixter Brothers sells to industry, wire and cable.
PORTER: Still today?
HALVERSON: Still today. They're a 3 billion dollar company, very successful, still headquartered in Skokie, Illinois. The cable group, while we were selling some wire and cable – coax, ground wire, strand – we were not really wire and cable, in the wire and cable business, and the Anixters really didn't understand our division because we would have blow out years of sales a year or two in a row, and then all of the sudden, business would fall off a cliff.
PORTER: The whole industry was that way.
HALVERSON: The whole industry would fall off a cliff. We'd get caught with inventories it would take us a year to burn off, and of course the cable operators were not all that quick paced, some of them were 90 days.
PORTER: The good ones were 90 days.
HALVERSON: The good ones were 90 days, you'd have to go collect in person. The Anixters didn't understand that. So there was constantly a little rivalry. We were a small division within a much larger company, but taking advantage of their resources. So they appreciated it when times were good. There were times, I think, when the cable industry or the cable business, our Anixter Communications group helped carry Anixter through the year because we were having a great year. We would change our name for various reasons. We went from Anixter Communications to Anixter Cable TV to more align ourselves with the cable industry. Then, in the meantime we would acquire some of our other distributor competitors. We acquired Cable TV Supply, Midwest CATV, and Telewire. At that point we decided to name the distribution portion of our business Telewire.
PORTER: Now this is about the late '80s, early '90s?
HALVERSON: Yeah, late '80s. There was a point at which, if you remember the telephone industry was looking to get into cable and in fact early '90s Bell Atlantic was in the process of trying to acquire TCI.
PORTER: Pac Bell.
HALVERSON: We looked at that and the other RBOCs were – there was a lot of talk about the telephone companies getting into the industry and we realized from our Anixter experience that the telephone companies that had their own in-house distribution networks would not buy from distributors, in fact they would only buy from vendors. They would make that very clear that they'd only buy from the original equipment manufacturers if you wanted to sell it to them. So we felt that we were shortly going to be out of business. We'd better get into manufacturing. This was John Egan's vision. He said we needed to get into manufacturing, so we did. We started buying up some manufacturing companies.
PORTER: What was the first one you bought?
HALVERSON: The first one we bought was Powerguard, actually, a power supply company. Actually, prior to that we had been pseudo-manufacturing. We had gotten into the passes business and came up with the name Regal for a line of passes. What we were experiencing was that there were a lot of import passes that were being brought into the industry. We would sell some of those. If you remember some of the names: Dolphin Electronics and Cama, but there were a lot of imports that were coming in and as a distributor we would carry these and then get caught with inventories and we would have four or five lines and never enough of the right one. These people were coming in and out of business. We decided why don't we just manufacture our own? Design our own spec and then outsource the manufacturing. So that was the beginning of our pseudo-manufacturing. So that was the Regal product line. Then, actually about the same time or prior to that we'd been selling the Hamlin set top converters. Phil Hamlin with Irving Kahn designed this slide switch set top converter for 36 channels that prior to addressability was a pretty popular product and we became the exclusive marketing agent for his Hamlin converters and we would have to pay him a letter of credit, a non-cancellable letter of credit, before he would order these things; they were built in Japan. We would then resell to the cable industry. We eventually bought that product line, so we had had some experience in manufacturing and Egan felt that we could do this, but it was not something that would fit in the Anixter company and so we spun out the business in '93 and went public with the ANTEC name. ANTEC meant Anixter Technologies and we kept that name until recently when we acquired... we had a joint venture recently put together with Nortel...
PORTER: Before we get into the Arris thing, the product that really made the biggest impact, looking from my view as not a member of ANTEC at all, but your involvement in fiber optics seemed to have put ANTEC out in front of everybody else.
HALVERSON: Took us out of the distributor world.
PORTER: People stopped thinking of you that way.
HALVERSON: Started thinking of us as...
PORTER: You seem to see the need for a high class laser when the need was there. You did some – and I'm not trying to do your interview for you, but I think this is really important – I know you had an association with AT&T and you actually trained a lot of the installers of fiber on how to cleave and clean and polish. Can you talk to that? How did you know to make that move at that time?
HALVERSON: Again, John Egan's vision. I'm trying to remember the timeframe, but if you remember, Jim Chiddix really came up with a concept of transmitting light, putting the signals and transmitting them on fiber, and he did this over in Hawaii with Oceanic, and I'm not sure if he had by this time moved to the mainland, but it was his concept to transmit long distances in fiber.
PORTER: Because prior to that, we'd used them for short runs, from an earth station to a headend.
HALVERSON: That's right, and so John Egan picked up on that. In the meantime, we'd been talking to AT&T about maybe developing some products for us, but he knew that they had some lasers, that they were developing some laser chips that were world class and he went to them about that time and said, "What are the chances of you building some optical transmission products to transmit these signals over glass?" And they were in the midst of developing products at the time and said that they'd take a look at that. In fact, we then brought in a number of the cable engineers to talk with AT&T about that, including Chiddix. There some other vendors, little vendors, trying to get into that business as well, but I think the brilliance was in John working with AT&T in developing a product. I remember one time we were down fishing with the AT&T people on his boat, The Rampage. We were down in Boca Grand, Florida wishing for tarpin and we're having cigars and drinking beers while we're fishing for tarpin and we're trying to figure out what should we name this thing, and one of the guys came up with the word "laser" because it was laser, and one of us came up with the word "link", and we came up with Laserlink. So Laserlink was the name of the product and it just swept the industry. The industry loved it because now you could replace out dozens of amplifiers. You could leapfrog these amplifiers in series and remarkable improve your reliability, improve signals and take a lot more signal downstream.
PORTER: From a marketing standpoint, the customers liked it because now they tie new technology to an old trusted supplier. It didn't matter that it was originally a distributor. As a matter of fact, Telewire still distributes it. It was the people they knew. It's not a flash dance, it's a known product, and you guys were trying to move that idea forward.
HALVERSON: Right, and we were bringing in Lucent to this industry, and the AT&T and Bell Labs people, so this industry was very impressed with the product, and of course at that time SA and Jerrold, this was a threat to their amplifiers and they were trying to fight it and tell, at that time, engineers that this was not going to be a good thing to do.
PORTER: Tell us about the purchase of Tech Scan. That was kind of a shock to everybody because it happened over night, the value of ANTEC stock, or Tech Scan stock, was relatively low and then all of the sudden, overnight, the stock doubled and then it went to 40 and all of the sudden you guys were really moving along and people no longer thought... they thought of ANTEC as a manufacturer, as a supplier. How tough was that to purchase the Tech Scan properties? You kept it pretty quiet.
HALVERSON: Well, we were now in the optical transmission business with LaserLink, but we then decided we needed to get further into the transmission world and we needed some of our own manufacturing capabilities. If you remember, Malone had ownership in Tech Scan. I don't know the full story there. Bill Lambert had taken over Tech Scan and he'd come from Jerrold to run and operate that business and had grown the business. They came up with some pretty good products – the flamethrower, if you remember – and they were doing quite well internationally and so we felt that that would be a good addition to our manufacturing portfolio. We needed to get into manufacturing, again, distribution was going to be vulnerable because of the telephone companies, so we acquired from... actually gave some of our stock to Malone at Liberty Media, at the time, for Tech Scan. In fact, Liberty Media still owns – I forget what percentage of stock, of Arris. So now we had manufacturing capability, which by the way we've been able to grow nicely and add some product lines to, so it's been good for us, but we're also now into a whole new next generation of product, which is Cornerstone Voice and giving cable operators the ability to put switch circuit voice over their cable systems and further we've developed a product and acquired another product line manufacturer, Cadence, which has a marvelous CMTS product – Cable Modem Termination System – which will put high speed data and also high speed telephony over cable systems.
PORTER: And that's had a big impact. Probably that had as much impact as your movement into the fiber business because now you actually control a big part of the market on telephony and IP telephony, especially for such major companies as Cox and some of the other MSOs.
HALVERSON: We do.
PORTER: What do you think... you've had a lot of foresight with your company. You've kept Telewire as a prominent supplier of equipment when people need it; you've had other divisions now within the company that can help people with the optical portion of their system. Now you have the networking capability to do headend work, plus you have the at the home capability of actually supplying all of the equipment necessary for telephony and IP telephony. What do you think the next... what's out there? Looking at the state of the economy and business in general, what do you think is next?
HALVERSON: You know, Rex, it's so exciting. I've never been more excited about his business than I am right now. First off, the telephony is a very exciting story and I think CEOs and all of the MSOs now are starting to get it, and they've been hesitant to go with constant bit rate or switched circuit because they felt it was quite expensive to get into, which it is, but you've got this network and you've got access to homes that'll pay you fifty bucks a month for telephone service; they're paying you forty bucks a month for cable television; they're paying forty bucks a month or twenty-nine bucks a month for high-speed data service, so you bundle this, which is what AT&T Broadband is doing and Armstrong's dream is going to come true, I fully believe it. He was right, he just ran into a timing issue with long distance income dropping off faster than he could build out the cable network that he bought from TCI.
PORTER: But Cox is doing it rather profitably right now.
HALVERSON: Cox is, and AT&T announced last quarter that they are now in positive cash flow in telephony. It's very exciting and the interesting thing is that the telephone companies really are locked into a sort of dead end scenario in that you can only push so much signal down these copper twisted pairs to the home. They're in a situation where they're going to have to, at some point, replace all of that network and go glass to the home to be able to offer the breadth of services that broadband can offer. So it will take a generation for them to replace all of that out. In the meantime, cable has a tremendous opportunity with telephone. I know I'm selling hard here, but I truly believe it and the penetration and take rates are really amazing. It's slowing down dramatically the amount of churn when you have now bundled service and you put telephony in there and you can offer 150 a month service for maybe 120 or something, a discounted rate to sign up for all three. So that's very exciting and I believe that in ten years – today, I don't know, in the U.S. market maybe there's a million and a half telephony subscribers. We're probably... our equipment supplies about 70% of that, 75% of that. In ten years there could be ten, twelve, fifteen million telephones, customers for these cable operators. That's fifty bucks a month.
PORTER: I was at a ceremony that was held down at Arris's plant down in Georgia, and the ceremony was because Arris had just shipped their one millionth...
HALVERSON: Voice port?
PORTER: Voice port. And it was shipped to Cox, and so Alex Best was there and so Alex got up to say a few words, and what he said with a few words was, we have done research and we found that the ROI on telephony is better than the ROI on either high speed cable modem service or even traditional entertainment cable. Now that's saying a lot because we based our whole industry on entertainment television. So the future to that looks really good.
HALVERSON: Sure. If you think about it, during recessions cable has been fairly recession proof, particularly basic cable, and telephony is another one of those basic services that people don't want to give up.
PORTER: Got to have it.
HALVERSON: Got to have it, so you're either going to buy it from the cable operator or from the telephone company and a lot of people worry about the kids coming along now and just using their cell phones, but most people, even the younger ones, want to have a wire line service for lifeline because cell phones aren't reliable in emergency situations. Moving on to your other questions, what's the future look like? The cable, because of the platform which offers unlimited bandwidth for all kinds of programming services – video-on-demand, high speed data – is, I think, going to fulfill Malone's prediction of 500 channels. I was reading that Bob Pittman, who just left AOL Time Warner, was saying that the customers, the cable operator, will be paying $159 bucks. I think he was talking about mostly programming. I think that will eventually happen someday. You've got a lot of other new things that people are looking at in terms of bringing in streaming video using MPEG and a lot of new protocols that I don't have a clue of. Our business has totally changed. Our company now has 700 engineers, believe it or not, a lot of very smart people and scientists and we still have our distribution business, which today represents about 16% of our business. We're still the largest distributor, but our company has changed dramatically and somehow I am temporarily in charge of sales and marketing for this whole 800 million dollar business that is going to grow dramatically in the next five years, and obviously I'm too old to be running sales and marketing.
PORTER: Let's go back to something that you mentioned, video streaming. There's been some talk by the engineers that there may not be transmission over satellite as we've grown used to it by companies such as Showtime and HBO and any of the Starz because with video streaming there is a possibility that MSOs and cable operators can get their programming streamed video right into a server from wherever they go negotiate the price. Is that a new venue for Anixter? Equipment to do that - high-speed servers?
HALVERSON: You mean Arris, our new company, the Arris Company.
PORTER: Yeah, you've got to forgive me. It's a wonder I don't go back to calling it Anixter from old habits. I'm sorry.
HALVERSON: I don't know that we'll be in servers, but I think we'll be developing technologies that will facilitate delivering those signals, like dense WDM product. We're working on a product that would bring in a lot of these new services over the top of today's analog/digital system and maybe attach to the outside of the house and you could change the various types of... if you want to add telephony or high definition TV or video streaming you'd just put in module cards outside the house.
PORTER: Or remotely electronically do it.
HALVERSON: You could do it remotely with software once you put in the... so, this is very exciting. At the same time, cable's going to have to continue to support analog TV sets because...
PORTER: That's what's there.
HALVERSON: Absolutely. They'll be around for a long time. Everybody has a 20 year old TV set in their house and it keeps moving its way down to the bedroom to the youngest kid, or whatever, and you keep bringing in the new TV sets. High definition's going to be great for cable television and I'm hearing that now they can compress signals so that they can put four HDTV signals on 6 megahertz, but HDTV is going to be very tough for the satellite people to deliver. You know, local channels in HDTV? Very tough for them to do. I don't see the telephone industry doing this anytime soon, certainly not in my kids' lifetime, probably, and so cable is in a wonderful sweet spot. Arris will always have the telewire distribution business. There will always be a need for distributing products. One year we're distributing a lot of fiber optic cable, another year it's set tops, another year it's power taps for powering these networks to supply constant bitrate telephony. That was a big argument with constant bitrate is that you'd have to power the network, which really isn't totally true because you can local power these sets from the house themselves. So I think we'll always be in the distribution business but the future is continuing to grow in technology.
PORTER: Well, maybe in another couple of decades we'll get together again for another one of these and we can see how your predictions on the future will go. I thank you for joining us today, Gordy. It's been a pleasure. It's been a very interesting interview and it's nice to have you for a friend.
HALVERSON: Thank you, Rex. I enjoyed it.