Interview Date: Friday November 17, 2000
Interviewer: Jim Keller
Collection: Hauser Collection
KELLER: This is the oral history of Dr. Leonard Tow, cable television pioneer, the current chairman and CEO of Citizens Communications, and chairman of Electric Lightwave, co-founder of Century Communications in 1973. He was the chief financial officer and then chairman and CEO of Century Communications, a former college professor. This oral history is made possible by a grant from the Gustave Hauser Foundation and is part of the Oral History Program of The Cable Center. To start, Len, would you please give us a little bit of your background prior to the time that you got associated with the cable industry?
TOW: Sure, Jim. I was born in Brooklyn and lived a good part of my life, until 1969, in Brooklyn, was educated in the New York City public school system, went on to take a B.A. at Brooklyn College, and then subsequently a masters and a Ph.D. at Columbia University.
KELLER: The Ph.D. was in economics and economic geography, is that correct?
TOW: That's correct. Post my educational career, I went to Africa on a fellowship from the National Academy of Sciences to do a study of the economic activity, manufacturing in particular, in what's now called Zimbabwe, then Southern Rhodesia. When I returned from Africa, I taught at the graduate school of business at Columbia for a while, and then joined a company which was engaged in African business affairs called African Research and Development Company. Subsequent to that, I formed a partnership with two other guys, which was called Intervest, and our business was largely in the legitimate theater on Broadway and we owned several Broadway theaters and produced Broadway productions.
KELLER: Always in the entrepreneur even in your early days, huh?
TOW: Once I left the world of academia, yeah. In 1964, I and my partners decided to close down that partnership and I set out to seek employment, and I joined what was then one of the big eight accounting firms, Touche, Ross, Bailey and Smart, and one of my clients was in the cable television business. The client was TelePrompTer Corporation, and I assisted them with a series of acquisitions and that led to their enticing me into their employ, and so in the latter portion of 1964 I became assistant to the chairman of TelePrompTer, a guy named Irving Kahn.
KELLER: A monumental figure in the business prior to his death.
TOW: Right. Indeed.
KELLER: Tell me a little bit... what did you learn from Irving Kahn in the time you spent with him?
TOW: I learned a lot of things, some good, some not so good. Irving taught me to believe in myself, and in the power of human will to make things happen. TelePrompTer was a relatively small company which had been engaged in the prompting business, video prompting business from the early days. It was the successor to the cue card business, and was also engaged in the large screen television business which was theatrical presentation, principally of boxing matches around the country. It was kind of the first view of pay-per-view kind of entertainment, and it proved that people would get off their couches and go to theaters and pay 20 bucks to watch a boxing match that was live on TV. Somewhere in the few years before I arrived at TelePrompTer, the company had entered the cable television business, then called the community antenna television business. They'd bought a couple of small cable television systems through Bill Daniels and at the point that I entered the business had about 50,000 subscribers in perhaps a dozen locations. Irving, who was I think the one brilliant mind in the business at that time, maybe Milt Shapp out of Jerrold was the other, had a concept of building a national network of wired communications, ultimately tying those wires together into a national delivery system. That willpower and the use of stock and notes and what have you, we had to invent all kinds of currencies in those days because money was not something that was readily available in the business, helped us build TelePrompTer into a force in the land, actually. Irving was the concert meister. He was the guy who had the vision. He used to say that his wildest lies have made him a conservative because even the things he imagined all happened and seemed like ordinary stuff to everybody else but somehow Irving kept inventing new wild lies, and those fantasies of his ultimately became reality. So Irving was a driving force in the wiring of big cities. The convention of the time, say the mid-60s, 1965, was that cable television couldn't succeed in large communities because they had three networks, a couple of independents, and who the hell could watch more than five channels anyway, and that the place where cable TV was in small communities – a little like the story up until recently with satellite, that satellite delivery systems were good in the rural areas but they weren't going to make it in the urban areas. So he began a drive to secure franchises and wire Los Angeles and New York, Manhattan in particular. So I was very much involved in that process and along the way learned a little bit about how that happens. In Los Angeles the situation was very straight forward, it was an auction pure and simple, an auctioneer in city hall who said we've got the following territory, what is my bid?
KELLER: They divided the city of Los Angeles.
TOW: Into about five areas that were formulated really based on a consumer bitch system. People complained that because Los Angeles is kind of mountainous they couldn't get reception. So those areas that were not receiving reception of all the channels that were available registered complaints with the municipality and based on that they formulated a group of marketplaces.
KELLER: Did TelePrompTer ever build their franchise in LA?
TOW: Oh yeah.
KELLER: I wasn't aware of that.
TOW: At that time we knew that that was going to take a great deal of money and it was not going to be possible to build these major urban areas with the kind of pockets we had, and so we began to talk with Hughes Aircraft Company, which was at that time... Howard Hughes was still alive and was directly controlled by him even though it was owned by, as it was until it got sold to General Motors, was owned by the Howard Hughes Medical Foundation at that time, but that was really an arm of Howard Hughes. We started, Irving and I, visiting with the Hughes people in the latter portion of '64 and went on into '65 and '66, and ultimately formulated three partnerships with the Hughes Aircraft Company. The first being something called TelePrompTer Manhattan, another one called Theta Cable, which was an acronym for TelePrompTer Hughes Electronic Transmission Associates, I believe. They liked Greek letters at the Hughes Aircraft Company, and so they came up with that, and that was the Los Angeles Company. And then there was another company which was an equipment company called ThetaComm, which was ultimately merged with another company I think owned by Cox at that time, and that was the beginning of short haul microwave, named AML microwave, omni-directional microwave transmission, which was necessary in these large communities because there were huge undergrounding projects that made if very difficult to finance, and also there was bridging of rivers that were required and so on, and that product ultimately became a standard in the business and we began to fool around with communications satellites. At that point, satellites were purely a military device and Irving had the vision of using the satellite, owning cable systems in the major urban markets – Chicago, Philadelphia, Cleveland, New York, Dallas, Miami – all linked by satellite rather than by wire with the local on-ground systems wired. Of course that vision came faster than any of us at that time would have believed because the Air Force, which controlled those satellites at that time, began to consider opening up satellite frequencies for use. You'll remember that some of the early uses of that were by HBO, which was up until that point a microwave transmission system, and then Ted Turner with the cable news service and Channel 17 out of Atlanta.
KELLER: As a matter of fact, next week we will be doing a commemorative service for the remembrance of the 25 years of the first satellite transmission to cable television systems, which was the Ali fight, the Thrilla in Manila. How long did you stay with TelePrompTer then, after that?
TOW: I stayed with TelePrompTer about eight years, and I was a pretty lucky guy because I could have easily been hired at a level that would have never brought me into contact with Irving, and Irving was a kind of guy who forced me at every stage to assert myself. When he hired me he didn't give me an office. I sat for two or three days in the anteroom wondering what the hell was going to happen to me. One day I just walked down the hall and took an empty office, which happened to be two offices away from where he was. No one said a word to me until one day he said to me, "You know, I was waiting to see what you'd do." So he taught me to take initiative. And the same thing happened with authority. I didn't have a job! I mean, I was assistant to the chairman, but I didn't know what the hell I was supposed to do other than to sit and be a fly on the wall in meetings. So I started taking over the acquisition program, and I started taking over the funding program for the company, and began to negotiate both bank loans and long-term take outs with insurance companies, and take over the administration of the company. Each time I did that, he sort of smiled, and in some ways I was the son he never had. He had two daughters, and so he just sat there in admiration and over that period we built a company. Think of us back in 1973 we had more than a million subscribers, about a million two hundred thousand subscribers at that point, up from zilch, and that probably constituted 35 or 40 per cent of the total number of subscribers in the whole industry at that point. So that was a mighty accomplishment, and we established the business with Irving the spokesman. As a comer, he was great in public appearances, and he taught me to public speak and he learned after awhile that the thing that he shouldn't do is to get involved in the specifics because he was a big picture guy. So he would turn to me and he always addressed me in public as Dr. One thing we didn't have in our business was dignity and Dr. got us something. It served our purposes. We built a huge public image and had the FCC and the broadcast industry really concerned about what we were about. Probably the single most important thing that Irving planted seeds in me for was the concept of the almost limitless potential of coaxial cable. The first thing he gave me when I came to the company was a copy of a book called Monopoly and it was about AT&T, which at that time was the national telecommunications monopoly, and he wanted me to read that and commit it to memory because he said this is the future of the business – broadband, delivery of the full spectrum of voice, video, data over a common wire. That became a theme of my life going forward, the idea of almost limitless potential of coax, and later optical fiber in conjunction with coax.
KELLER: He was ahead of the day.
TOW: Oh yeah, and Irving was dead right on the subject as he was about satellites, as he was about the future of the business as a creator of programming. Irving was the guy who created the concept of local origination and local programming and access programming. I was involved in the earliest negotiations which took place in New York City on that subject, and it was indeed a remarkable place to be and a remarkable guy to be with. As you know, he was not without his faults. He was a genius, and probably the only real genius other than John Malone who ever was in the business, and John's genius was financial. Irving's was really concept.
TOW: Yes, a true visionary. He rubbed a lot of guys the wrong way, and Irving, to my regret, and I'm sure to his, allowed some things to happen and even participated in them, which ultimately got him into trouble, and as you know Irving was convicted of bribery in Johnstown, Pennsylvania sometime in the '50s. I don't know when it happened, it happened long before I was there, and I don't even know whether it did happen, whether he bribed a guy or whether the guy extorted it out of him, but the fact is he was convicted of bribery and he spent some time in jail, probably wouldn't have happened to most other guys but he was such a high profile figure that he had to be punished, so to speak. And the consequence of Irving's conviction, actually just his indictment was sufficient to engender a proxy fight for control of TelePrompTer Corporation, which fight was waged by another wild character, Jack Kent Cooke, against Irving in the person of Hub Schlafly, but it was really Irving funding it. And Jack won the proxy fight because it was an unwinnable situation for Irving, and he took control of the company. And Jack liked me, and in a lot of ways I liked Jack, too. But he was the total opposite of Irving. I mean, Jack had the same size ego...
KELLER: He was a martinet, though.
TOW: Oh, yeah, but Jack surrounded himself with yes men. Irving surrounded himself with no men, people who said, "Irving, your head's up your rear end," but Jack you couldn't tell that. So I was the sole voice of negativity about things in Jack's organization and he put up with me because I guess he respected me, and I did a good job and I stayed with Jack for about a year and a half. One day I just decided it wasn't for me anymore. I didn't like Jack's style, and I didn't like a lot of the weak people that he had installed in place, and I advised the company that I was going to resign, which led to my being summoned to Bel Air to Jack's palatial establishment. He offered me the presidency of the company and I said, "Jack, I just have had it. I don't want to do it." I remember telling him and he said, "Why? Why?" I said, "Jack, it used to be that when I got up in the morning I could hardly wait to go to work," and I said, "Now when I get up in the morning I'm fearful of going to work and I can hardly wait to go home by the end of the day. It's not good for me, it's not good for you, so I'm going to go out and do my own thing." And that's what I did.
KELLER: And what you did then was to form Century Communications?
TOW: I had a lot of friends developed over the years in the financial world, and I went around and talked to them, and my principle advisor, counselor, was Monty Shapiro. I don't know if you know Monty? Monty was at that time the head of General Instruments. He was as rough as Irving around the edges, he could only speak in four letter words, and expletives were his specialty, and he was very artful in constructing some which I had never heard before, but Monty had good sense. So I used him as a guide and he encouraged me to believe that I could do what I thought I could do, and I went down to Wall Street. He opened a few doors for me, I opened some doors, and I was trying to put together a company to go into the cable TV business. I wasn't interested in franchising. I'd seen what happened to Irving, I didn't want to be there, just acquiring and making of those business something better using the kind of management that I felt that I could bring to bear, and a number of parties were interested in joining with me. I reached a point where I had propositions from three Wall Street enterprises when one day I got a letter from a guy I had helped two years earlier write a report for his company, a guy named Bill Krause who worked for the Century Insurance Company up in Stevens Point, Wisconsin, and he wrote me this letter. It said, "Coming to New York. Can we get together?" And it had a matrix in it, he had a set of three days on the horizontal axis and three nils on the vertical axis, and he said check one. So I did, and we had a meeting at the Princeton Club one morning, breakfast meeting, and he told me why he had written me, and that was that they thought they wanted to get into the cable television business. I happened to be on my way down to Wall Street with my business plan to meet with some people, and I said, "Funny you should say that because that's what I'm about myself." So he said to me, "Why don't we do this together?" And I said, "Wow, why not?" He said, "What do you think would be a fair deal?" And I said, "How about 50/50?" And he said, "That sounds fair to me."
KELLER: Both putting up 50% of the equity?
TOW: No! They were going to put up all the money but it was a 50% ownership of the equity. My plan was a plan in which there was a very thin equity slice and a preferred piece of paper which would have a yield for a period of time and would be self-retiring, and indebtedness. At that time I was only looking for five million dollars, which for Bill was a piece of cake.
KELLER: The name again?
TOW: Bill Kraus – K-R-A-U-S. My plan, as I laid it out, was a very thin piece of equity, about a million and a half dollars at 5% preferred, and about 3 ½ million dollars of what was then 3.5% subordinated indebtedness. We shook hands on it. I said to Bill, "You know, I'm talking to three other guys, all of whom seem interested. Would you mind if they participated?" He said, "No." So I went down to Wall Street and talked to these guys, and not one of them was willing to do it with Century Insurance or on the terms under which Century Insurance was willing to do it. So I said, "Thanks," and I went back to Bill and said, "They want this, they want that. Why don't we go back to the drawing board and do this alone?" So we constructed a design in which we each put up $11,000 in equity. They committed to 3 ½ million dollars of subordinated indebtedness and they gave me a million and a half dollar check, which was the preferred...
KELLER: This is the insurance company, Century Insurance Company?
TOW: The insurance company, right. That was based upon a draft of agreements, all of which I paid for and did, flew out to Stevens Point, nobody read anything, they signed the papers, I left with a million and a half dollars. That was the beginning of Century.
KELLER: Was there a commitment for additional financing in the event of acquisitions?
TOW: Yes. They were willing to put up an additional 30 million dollars to follow the five million. We never drew any of that money. The company was founded and developed on the original five million dollars.
KELLER: What systems did you acquire?
TOW: The first systems we bought were from Cable Comm General, five systems in California.
KELLER: What year was this? This was '73?
TOW: 1973. We formed the company in June and by September I'd made my first deal.
KELLER: Did you do it through the Daniels organization?
TOW: To tell you the truth, I don't remember.
KELLER: I think they were representing Cable Comm General.
TOW: They might have been representing Cable Comm General. I don't recall. In any event, there was a guy in New York who worked for RKO General, which owned Cable Comm General, a guy named Arnold Kaufman, who took a shine to me and I kind of took a shine to him. He was another one of these down in the trenches guys, rough and tumble character from the world of finance, and Arnold and I worked out a deal to buy these systems, which I think had around 16,000 or 15,000... I'll tell you something – I have a piece in my office, which I'll show you before you leave which is pieces of foolscap paper glued together which record the number of customers in each of these systems and the progression over a couple of years, and it includes a subsequent acquisition. I'll ask Elaine to bring it in, you may want to take a picture of it because it's kind of interesting. In any event, they had around 15 or 16 thousand subscribers. Cable Comm had buried 13 or 14 million dollars in these systems, was losing money, was completely a dead loss and we bought it for four million bucks, and they were happier...
KELLER: 16,000 subscribers for four million dollars.
TOW: Yeah, right. It was four million bucks.
KELLER: You stole it!
TOW: Nobody in the business wanted it, and the reason nobody wanted it was it was in urban areas.
KELLER: Which ones, do you remember?
TOW: Yeah, it was Albany and San Pablo, which are in the San Francisco Bay area just to the north of Oakland; Benicia, which is a town sort of mid-way between San Francisco and Sacramento, also on the San Francisco Bay, on one of the arms of San Francisco Bay; Redondo Beach, which is a beach community just on the edge of Los Angeles; and two little systems in Orange County, Brea and a town called La Habra. Those were the five systems. They were largely underground in the south, and aerial in the north. They were 12-channel delivery systems in a market with 20 channels off-the-air, and you could see why there were going to lose their rear ends and they did. So I bought them because I thought I could do something with them, and everybody else out there just sort of laughed and said what the hell would you do that for. Those systems today have about 100,000 subscribers. They probably produce a cash flow on an annual basis of 20-25 million dollars, so they are handsome rewards for that investment. The way that I changed them was since there was no signal that I could bring in that was a broadcast signal to amplify the value of subscription. All I could do is get shadow customers, people who were in the shadow of a hill so that Mt. Wilson where the broadcast center was couldn't see them.
KELLER: In the San Francisco Bay area though you were in that Sacramento-San Francisco turmoil that was going on at that time – what signals you could use, what you could import...
TOW: Well, yeah, so it was kind of messy. But the way I changed those systems was to create a forerunner of Home Box Office. We found some guys who had invented a kind of video jukebox, and we were using initially a person in the headend who sat with a Sony U-matic tape player, reel tape player, put the reel in, played a movie, which we negotiated each movie individually with Hollywood, and we put together a program of movies – I forget how many now a night, at least two every night, some rotation of them so there were repeats.
KELLER: Did you charge additional for the movie channel?
TOW: Yes, we did. Well, we bundled it together, not as a movie channel. It wasn't an option. We made it part of the package, it's what you delivered. We went to the town and got the rate raised from what was then $5 for the over-the-air delivery to ten dollars including the movie service. It was $9.95. We didn't think we could get ten dollars from anybody. It took off. People were willing to pay for those movies. So initially we had these people handle putting the tape into the tape machines and then this guy, we found this guy who had this video jukebox, it was sort of a Rube Goldberg affair, but it would play the tapes against a timer, and that worked most of the time. But people were pretty tolerant in those days because it was really a nice thing to have.
KELLER: Were you able then to move out from behind the hills and come out into some of the flat areas to be able to compete?
TOW: Right, because we had something to sell, and that's how we got the subscription up and turned it into a cash flow generator, which it wasn't when we acquired it.
KELLER: And you built it from that startup to about 1.6 million subscribers?
TOW: In Century, right. The second system we bought was also a dog of Cable Comm General's, which was Colorado Springs.
KELLER: I want you to go into the story if you would, please.
TOW: You'll remember because you were around at that time, Bill Daniels and Monty Rifkin, mostly Bill I think, but Monty went along with it, thought that Colorado Springs would be a great place for a cable television system and it was a crazy competition going on in Colorado Springs for that franchise, and Bill bid outlandishly, one that he would build the system underground, and two, that he would give the city 35% of the gross. I mean, those two things were enough to predict that that was going to die of its own weight, and then Bill, who was incapable of doing anything excepting of style, he went and contracted with a very well-known couturier, a guy named Pucci, Emilio Pucci, to design the uniforms for all these wonderful people and decorate the trucks in Pucci style, and they had no knowledge of how to do an underground wiring system so they did a direct bury of what was a pretty primitive and not so waterproof cable. So it turned into a horrendous disaster. How he peddled it off to Cable Comm General, I don't know.
KELLER: He and Bob Crack were good friends.
TOW: I see. Well, anyway, Cable Comm General took it, and after I was dumb enough to buy those California systems, Arnold figured how do I get this jerk to take this dog off my hands.
KELLER: It was really bleeding cash, as I recall.
TOW: Oh, it was terrible! They did everything wrong, nothing right. Anyway, I couldn't see any way to buy it for money. So I agreed with Arnold that I would buy it for paper. We'd buy it for six million dollars and we'd have 15 years to pay the six million dollars, and I think we had five years of furloughed interest as well, and the interest was modest, and at that time I turned to Monty Rifkin, who I guess at that point had ATC, and Monty was scared of Colorado Springs because he didn't think that it was going to work as a business, and most particularly was going to adversely effect his financial statements. So since I was a private company and he was a public company, I didn't give a hoot.
KELLER: Yeah, he did it off balance sheets.
TOW: Well, on the face of it we owned 100% of Colorado Springs and he had a warrant that if exercised would give him 50%, and he agreed to co-fund with us and we co-managed. Initially he was involved and then he assigned Joe Collins who now heads Time Warner Cable to be my co-manager. We set out trying to operate the system and the first enemy was 35% of the gross. What were we going to do about that? I had a guy working for me who was my public persona. He went out to talk to the rest of the world about how great we were at city council meetings and so on and so on.
KELLER: Who was that?
TOW: His name was Otto Ohland – O-H-L-A-N-D. He died in '79 in an auto accident, but Otto came out of Time, Inc., had worked initially for the magazine and then later for the cable operation that Time had. At that time, Time was getting out of the broadcasting and the cable business, and so Otto needed a job and I made a commitment to him that when I formed a company I'd hire him as my first employee, and I did. He was a wonderful guy. He would have made a marvelous master of ceremonies. He was always quick on his feet and so on. But Otto was a very, very... deep down he was sort of a jailhouse lawyer and he used to come to me and say, "It can't be legal to have 35% of the gross franchise fee," and I said, "I know, Otto, but we're stuck with it." And he said, "I'm going to keep chasing this until I find that it's vulnerable." So he started reading case books on taxes in Colorado, and he came across a case in... I'm trying to remember the name of this town... the town of Minturn.
KELLER: In the mountains.
TOW: It was called the Town of Minturn v. the Foster Lumber Company, was the case, and the case was there was a tax on gross revenue in the town of Minturn against all businesses in the town and I forget what the percentage was of gross revenue, but like a sales tax except it wasn't a sales tax, it was a gross revenue tax. The Foster Lumber Company, which was inside of the town of Minturn, picked up and moved outside the incorporated limits of the town of Minturn to get away from the tax, whereupon the town of Minturn extended its borders to incorporate the area they were operating in. Well, a little town lawyer, very smart lawyer named Terry Scobie in Minturn challenged that and out of that came a court decision that said that that tax was illegal and it set an interesting precedent in the state of Colorado. Otto got this precedent and he marched down with it to the city attorney in the Springs and said, "Let me know show you something because your franchise fee here is not legal," and the guy looked at it and immediately knew about the case, and he said, "I know." So Otto said, "Well, why didn't you do something about it?" And he said, "Nobody ever asked." So that brought the 35% franchise fee...
KELLER: Later the FCC set a maximum of 5%.
TOW: Right, but that's how it died, and that of course was a miraculous affair, and then of course with satellite services and microwave services of distant channels we took the Colorado Spring operation from about 15,000 or so customers, many of whom didn't pay to about 125,000.
KELLER: You had a problem with a guy by the name of Roth, too, didn't you? He owned the local television station there?
TOW: I don't remember that. It wouldn't surprise me.
KELLER: Early days. He had that market all to himself. It was the only television station there.
TOW: And they fractionalized his market.
KELLER: Yeah, they brought the signals into his market.
TOW: That must have been before we got there. I do not remember that.
KELLER: That could very well have been.
TOW: We did have, in later years, an overwirer, a developer on the north end, and Bill – Bill Daniels – came to me and said, "This is not good. It's not good for you, it's not good for the industry, and we need to do away with this." Bill acted as interlocutor and we ultimately bought that out.
KELLER: I remember when they were starting that. Colorado Springs then became a great success thanks to you and to Monty.
TOW: When we turned cash flow, gave them to exercise their warrant and subsequently that was traded 100% to Century in exchange for some systems up in Milwaukee where Time Warner had a big complex and some systems.
KELLER: That was some time later, though?
TOW: Oh, yeah, quite a number of years later.
KELLER: And then Time merged with Warner Cable at that time. You were known almost all the way through your career in cable as kind of a maverick, especially when it came to any kind of regulation of the cable industry, especially with federal regulation. Do you want to talk a little bit about that and what your thoughts were when you opposed...? You never did join the National Cable Television Association.
TOW: No. I was offered many opportunities to do so, never did.
KELLER: You just felt that they were on the wrong track, as I remember.
TOW: Right. Let me just back you up a little bit. I come from a family of immigrants. My parents came to America as young children, were driven out of Eastern Europe, and were the subjects, they and their like, were the subjects of very considerable persecution, and the roots of control by dictatorial power, which is exercised around the world, lies in the control of speech. The experience of my parents and the experience of the Second World War, which was a very big experience for me from the standpoint of understanding what that was all about, left a very keep impression on me that any abridgement of speech rights, however small, can ultimately lead to the total abridgement of speech rights. I became an outspoken advocate of speech rights whether they be print or electronic, and continue to be so to this day.
KELLER: That was even before we were considered to be a First Amendment speaker because that was a big controversy at one time too.
TOW: We were never considered to be a First Amendment speaker. We began to consider that as the process of governmental control advanced. Let's go back a little bit in history. The cable television business was started by guys who were TV dealers, they were TV repairman, they were people who were addressing the problem of lack of reception – either total lack of reception or one signal or blurry signals or what have you – and they were engaged in business in their local communities and some of them operated in communities where you required a business license to establish. You'd pay $15 and you could open up a flower store or a newsstand or what have you, and so when they opened up a cable TV system they paid $15. That business license, over a period of time as people realized that this was a business and began to compete for the concept of getting that license, evolved into what we now call a franchise. The authority that municipalities, which granted those franchises for the use of the public ways, was really essentially limited to the public ways and how you behaved in them. Did you hang your wired in an unsafe way? If you buried them, did you repair the streets? Did you obstruct traffic? If you moved a house, did you provide for that? And so on. That got extended and extended and extended, partially by demand and partially by offer, and before we knew what happened, the franchising process took on a life of its own and we had municipal intrusion into, essentially, speech rights.
KELLER: There was one other person that I ever remember speaking in same phrases about the franchise, and that was a man by the name of Walter Hotts. I don't know if you knew Walt or not. He owned a small manufacturing company down in Aniston and he felt that same way and tried to get the NCTA to agree with that, that franchises weren't necessary, as a matter of fact, it was just about illegal.
TOW: Well, they really weren't necessary. I felt very strongly that we were delivering a service that broadcasters had been licensed to deliver for terrain reasons or whatever, and there was no reason why other than the so-called police power of municipalities which revolved around public safety that that should be extended, but as you well know, what happened here is that between the demands of municipalities which went satisfied by eager licensees, and the offers that came out during that competitive period in the '70s and '80s it was a disaster. After a while not only did municipalities demand these things, but they began to try and enforce and push for other kinds of things. I found myself in very strange positions in some towns where my franchise was expiring. I considered it a business license and they considered it an opportunity to put me on a grill and see how much fat they could render out of me. I had a series of court challenges of their authority. In Muncie, Indiana I took them to court. They were arrogant in their demands, they were avaricious in their approach to what it was we were doing, and guess what? The court said they had no authority to do what they were doing and I won. Then in Ventura, California I had a similar such challenge in which my franchise was expiring and I asked for a renewal and they told me to get in line with all the other applicants. I said, "Look, you can give as many franchises as you like to all those other guys. I'm entitled to a renewal." They said, "You're not." I took them to court again and I won.
KELLER: So you won in Indiana and you won in California.
TOW: Right. And then in Palo Alto I had a similar problem where I didn't have a franchise but I asked for a franchise, and that was a landmark case and again, I won. Those things helped me believe in the early '80s that the law was on our side and there was no need to cave in to this. So when the '84 Cable Act began to take form in '83 and '82, I became a very strong opponent of giving away the rights that we were on a roll winning in the courts as speakers under the First Amendment and members of the press.
KELLER: We were talking about your opposition to the formulation of the '84 Cable Act, which really was the first act that gave cable television some rights, or the recognition of some of cable television's rights, but also put them under the authority of the Federal Communications Commission. Do you want to continue on that story?
TOW: I don't think that's an accurate portrayal of what happened. The so-called '84 Act was described as a deregulatory act. It was the exact opposite of that. It was a major regulatory act. There's a volume as thick as this full of rules and regulations which were formulated as a consequence of the act by the Federal Communications Commission, and that act deregulated basic cable and so the service rates, but it regulated everything in sight other than that. Those regulations came to cost the industry hundreds of millions of dollars in increased administrative costs, and probably billions of dollars in terms of other forms of costs associate with the operation of the business. What the business got was liberty from the municipal council, which had no formula other than what's good to get reelected as a standard for the changing or adjusting of rates. In most cases, franchises contained rate adjustment provisions which required the endorsement of the municipal authorities. Politicians being what they are don't view in general terms that their obligation is to anything but to get reelected, not to be fair or reasonable, and consequently we were very frequently held hostage to the political realities of the communities in which we operated and that was why we had created these services like ancillary superior packages of satellite services or Home Box Office or Showtime or what have you.
KELLER: Tiers of services.
TOW: Yeah, tiers. I forgot the word. I'm out of the business only a year and a half and I've already forgot the language.
KELLER: You made a statement earlier on though that the cable industry was not a First Amendment speaker.
TOW: Oh, I thought it was a First Amendment speaker...
KELLER: We were finally adjudicated to be a First Amendment speaker.
TOW: With limitations.
KELLER: Well, perhaps so.
TOW: Well, we know that because there's a book of rules and regulations. There are no books of rules and regulations for print media.
TOW: There are a couple of court cases that say you can't holler fire in a theater, a couple of cases on the subject of pornography, but no cases which created an authority to say you shall not do this and you shall do this. In the case of broadcasting, which was the first case of intrusion into the media by government, that intrusion was based upon what was deemed to be scarcity of broadcasting spectrum, and so using that scarcity concept, that scarcity doctrine, they applied powers to broadcasting which governed certain aspects of their operation. They generally stayed away from what they could say, although in certain communities even that entered the picture. So cable came on to the picture and said, "We're eliminating scarcity. Our wires have unlimited capacity and there's no reason why you can't have two wires, three wires, four wires, five wires, as many wires as you can put up or bury ought to be out there competing and delivering a wide spectrum of different services at a wide spectrum of prices." No on that basis you shouldn't be regulated at all except under the police power for the public health and safety. But that is not what happened. What happened here is that a bunch of guys in the NCTA sold their birthright for a few pieces of silver and we pay the price for that to this day and probably will pay it for a very long time into the future. That was what I was fighting against. I was fighting for press rights for us because we have all the characteristics of the press and every time I went to court, the court said, "Leonard, you're right." And suddenly, by a congressional act, we cut the legs out from under those court decisions, and the only way to challenge that would have been to go and find the act itself to be unconstitutional and there were so many legs in that act that you'd never succeed.
KELLER: And that goes back to 1934.
TOW: Well, yeah, with the first act of the FCC.
KELLER: You fought a good fight, as I remember, but you finally lost it.
TOW: Not by many votes.
KELLER: That's right. After you continued along with Century, you formed your current company which was then known as Citizens Utility. Did you fold Century into that?
TOW: Let's go back. '84 came and it went, and I had to learn to live with what had been created. I just kept doing what I was doing and adding to the system. In about 1986 when the government started allocating cellular telephone licenses, I became interested... as a consequence of my education into the broadband delivery capacity of cable systems, I became interested in becoming an active participant in the telephone business. I missed the first boat, but in 1987 I began looking for opportunities to acquire licenses that had either been granted to the incumbent telephone operators or by lottery to applicants for those second – there were two licenses in every market. By early 1988, I was able to begin the process of acquiring and I acquired a series of cellular telephone licenses for Century Communications, which was up to that point pure cable, and there came a point where we decided that we could really build a cellular telephone company, and we succeeded in raising finance and were, I think, a small player but nonetheless a successful one. In 1986, my partner, Century Insurance, which from the day I met them looked like a behemoth, was in severe trouble. It was the victim of the cycles of the property casualty business in which prices get bid lower and lower and lower for coverage and events happened which proved that those prices were inadequate to service the liability, and Century Insurance was looking at the possibility either of being taken over by the state or merged out of existence somewhere else. They had been extraordinarily good to me and I set out to figure out a way to help them. We had a very valuable company at that point and the National Association of Insurance Commissioners which regulated Century Insurance and all the other companies carried that value that was actually negative because one of the designs of Century Communications was never to make a profit. We made cash flow through our taxes, but we never ever made a profit and when an insurance commissioner looks at a company that never made a profit, after all they put the money in in 1973 and here we were in 1986, still hadn't made a profit, it wasn't worth a damn, right? So as far as they were concerned they had to write it off. Century was missing any credit for the value of this investment.
KELLER: A huge asset.
TOW: Right. So I went to the National Association of Insurance Commissioners to try to state a case for why they were entitled to credit for value in their surplus, and they said, "No way," and they showed me the rule book and the rule book says no. As I'm walking out the door, one of them says to me, "You know, if what you say is true and that was a public company, we'd probably give them 95% credit for the value of this enterprise." So I went back to them and said, "You know, there's a way out here and that is if we go public."
KELLER: They were a mutual, is that right?
TOW: Mutual company. So, we agreed to go public. The very act of going public took that from a negative number to about $250 million dollars on the positive side. So now they had surplus and they survived, for which they were ever more grateful to me.
KELLER: Were you on their board?
TOW: No. I never wanted to be on their board because that would have given me problems. Anyway, about six months later the National Association of Insurance Commissioners calls them up and says, "You know, 100% of your surplus is in one company that's never made a dime, it's trading for blah and we're carrying this value at 95% but we don't think you could sell this stuff for that money..."
KELLER: You were still private, though?
TOW: No, no, we were public at that point.
KELLER: You were public then.
TOW: Yeah, but they challenged the issue of whether they could sell the stock for the public value.
KELLER: Couldn't you get an appraisal at that time?
TOW: No. So we had to demonstrate that that was the case and I bought back from them in a transaction at market an amount equal to the aggregate that we had raised by going public, which was $25 million. That having happened, the insurance commissioners said okay. So now they were all right. We were now a public company and from there forward I got into the cellular telephone business, and about 1991 or so I took the cellular telephone business public as a company called Centennial Cellular. Originally it was Century Cellular but we merged the cellular properties of this company, Citizens Communications, with Century Communications properties and then used that as a nucleus, and that leaves you with a gap in your story because in 1989 Century Communications bought into this company.
KELLER: At that time it was a utility company.
TOW: It was a diversified utility company in the telephone, water, gas and electric businesses.
KELLER: You've just recently divested of those other businesses or are in the process of it.
TOW: We're in the process of divesting of the utility portion, right, to turn this into a pure telecommunications company.
KELLER: And you still remain in the telecommunications business and the company will stay in the telecommunications business.
TOW: Right. So in 1989 I had my foot now in the wire line telephone business, we were in the cellular telephone business, and we were in the cable television business. In 1990, the board of directors of this company asked me to become the chairman and chief executive, and I was already the chairman and chief executive of Century Communications, and that made my life a little more complex because I had two jobs to do, but I decided that was my long-term interest, was telephone, and so I agreed to do it.
KELLER: But now there's very little difference between telephony and cable.
TOW: That's correct. In Irving's vision there was going to be a merger of voice, video and data over a common line, and that in fact happened. The only adjunct we have to that is that we have a wireless delivery system as well, both for voice, video and data. They use radio spectrum and we use wire service in conjunction with radio spectrum.
KELLER: Why then did you and Citizens sell Century, or divest of Century?
TOW: Well, I had been in the cable TV business at that point for 25 years in Century Communications, and I saw the business kind of coming to a crescendo as a wire delivery system and that the business was going to have to yield a portion of the market to a wireless delivery system whether that was MMDS or whether that was satellite, and I thought it was the right time to exit. I chose to exit only in part because I merged it with another cable company...
KELLER: Adelphia, right?
TOW: Right, and took a big pile of money and a big pile of stock. So I got my foot in both worlds, really. I didn't abandon the cable television business.
KELLER: So you now own sports teams, too.
TOW: Well, something like that. I own a piece of a company that owns a lot of stuff, and I'm not unhappy with that.
KELLER: They're good operators.
TOW: They're good operators and they will survive.
KELLER: The Rigas'.
TOW: Right. My own feeling was that there was more juice left in the telecommunications business then there was in the cable television business.
KELLER: And you feel right now that you can commit your total energy now to building the telephone aspect of the cellular wireless business.
TOW: Right. We did sell the cellular business, too. We sold the cellular business in the beginning of 1999. We had started that business with zero equity; we sold it for something more than 2 billion dollars, and we were too small to compete with the real big guys and too big to be a really small guy underneath the horizon, and we decided to take a gain and put it into other things.
KELLER: You are building a fiber internet system, are you not?
TOW: Oh, we are continuing to explore a wide variety of opportunities in the communications world but it was time for me. I was at that point running four public companies – Centennial Cellular, Century Communications, Citizens, then Utilities, now Communications, and Electric Lightwave, another company that I had started in 1991 here, which was a competitive local exchange telephone company, and that's a big load. I wasn't getting any younger. It was time to capitalize on my efforts. I had a lot of philanthropic interests that I wanted to devote money to, and so I got out of those two and I'm in these two.
KELLER: I think you've given us a great overview of what has developed from the cable television industry into an overall broadband delivery system now throughout both the wired and wireless systems. I think it's about at this time that we probably should end it. We've gone through the cable aspect of the thing and developed into your broadband area. I appreciate it very much. We are able to bring you this oral history because of a grant from the Gustave Hauser Foundation as part of the Oral History Program of The Cable Center. The date is November 17, 2000, your interviewer was Jim Keller. Thank you very much Leonard. It was a great pleasure. We appreciate it.
TOW: Thank you, Jim. It was a pleasure for me, too.