Nice Article re book on Craig McCaw....
KLP
archives.seattletimes.nwsource.com
Business : Sunday, July 09, 2000
'Under the radar' with 'Money from Thin Air'
In this excerpt from "Money From Thin Air," author O. Casey Corr picks up the story following huge changes in the life of billionaire Craig McCaw: the selling of McCaw Cellular Communications to AT&T in 1994 and his divorce and remarriage. Copyright 2000 by O. Casey Corr. Reprinted with permission of Crown Business, a division of Random House.
Craig McCaw was feeling more fulfilled than ever in his personal life, but he had not lost his restless business ambition nor changed his quirky style. At Eagle River Investments, he would focus on a business opportunity, tell his staff to check it out, and sometimes lose interest even before they had completed the research. "Craig can get enamored with things," says Scot Jarvis, a former senior executive in McCaw's organization. "(And then) the ardor can fade. It's hard to tell when he's (just) enamored and when he really wants you to move. You're supposed to predict, but there aren't many people who are good at predicting which ones he's really interested in and which ones are a passing fancy."
Wayne Perry - a lawyer who began working with McCaw in 1975 and has long served as his top aide - knew better than anyone else how McCaw's thinking could take him down dead ends but also into opportunities no one else had seen. Despite his own obvious intelligence, Perry sometimes couldn't figure out the process by which McCaw got his ideas. "I used to try and go back and reverse engineer and see what it was - frankly, less to test him than to see if I could be a little ahead of it," says Perry. "(But) in spite of my work to stay abreast of a wide range of things, Craig McCaw is the first person in my life who used the words `cellular' or `Internet' to me - and he doesn't read as much as I do. I don't know where he gets it. I just hope he keeps a clear channel."
One of the most spectacular examples of both McCaw's intuition and his post-McCaw Cellular style of management had its origin in 1994. McCaw asked Jarvis and other aides to study an obscure segment of telecommunications in which telephone traffic was carried by fiber-optic cables not owned by the regional Bell companies. Typically, the service involved connecting companies in major cities directly to long-distance carriers. It represented only about 0.2 percent of local calls - a minuscule backwater of telecommunications.
At first glance, this was not an attractive business: The tiny market was controlled by regional Bells, the regulatory environment was complex, capital costs were high, and competition from new entrants could easily depress margins.
It wasn't like cellular in the early years, when competition had been limited to two players. The biggest player in fiber-optic service, Metropolitan Fiber Systems of Omaha, Neb., was losing money. This was two years before passage of the Telecommunications Act, which sought to open local telephone service to Competitive Local Exchange Carriers, or CLECs.
So as an opportunity for McCaw, this niche market didn't look good, or so his advisers thought. "There was no instant `ah-hah!' to it," says Jarvis. "I understand," McCaw had replied. "Keep going."
So Jarvis and his team studied it again and gave McCaw the same message - and again McCaw rejected their advice. He wanted in. He believed that the growth of data, voice and video would favor businesses that controlled "the pipes" - fiber cables. He also concluded that state and federal regulation of local exchanges would open. If fiber companies could be allowed to build their own switches and get reasonably priced access to the Bell switches, they could pick off customers.
As McCaw had learned from cellular, the sluggish Bells couldn't possibly hold 100 percent of the market. If both conditions were met, a niche business would explode in size. "McCaw could see that bandwidth would be more valuable," Jarvis says. "He could see the traffic was coming. He saw the CLEC industry before there was a CLEC industry."
McCaw formed a company called FiberLink, infused it with $55 million of his own money plus cash from loans, and told his tiny staff at Eagle River to get into the fiber business. He didn't tell them how - that was a detail for them to figure out. He suggested they consider buying some big players to catch up quickly, but he wasn't locked into that idea.
He did want action - fast. As with cellular, he wanted his people to get established in as many markets as quickly as possible. Speed was so important that overpaying was forgivable, to a point. But unlike cellular, where McCaw had gained markets by buying small, established players, his team decided it made more sense in this case to build markets from scratch.
Once the basic goal was set, McCaw spent very little time with FiberLink. He held the title of chairman and chief executive, but never came to a board meeting. Instead, he made himself felt in casual ways, including unannounced visits to Jarvis's office. "What did you buy today?" he would ask. Jarvis knew what that meant. McCaw didn't want to hear about a deal already done or one about to be done. He wanted an ever-faster pace. That was his way of saying "Go," Jarvis says.
Like others who worked for McCaw, Jarvis sometimes marveled at how little his boss actually knew about his companies. Many privately grumbled about this aspect of McCaw's leadership. The positive side of his empowering approach to management was its ability to unleash people's creativity - the benefit McCaw liked to celebrate. But there was a negative side, too. Some complained McCaw just didn't work as hard as they did. He would be "off doing his thing" while they worked years of six- and seven-day workweeks, facing problems he never knew existed.
Their criticism came from a deeply human need for praise from someone who really knew and appreciated what they had done. Many of McCaw's employees believed he didn't want to know about the difficulties of working in his world. At the same time, they felt a little guilty about their complaints. After all, McCaw had given them exciting careers and - no small thing - the opportunity to achieve great wealth.
Hard work was an unavoidable byproduct of the extent of McCaw's ambitions. Once he chose a project, he wanted it to succeed at a spectacular level. Within six months of forming FiberLink, McCaw said he wanted it eventually to reach $1 billion a year in revenue, an astounding goal for what was still considered a niche business.
McCaw brought in Jim Voelker to be FiberLink's president, moving Jarvis to work on projects at Nextel (his wireless company) and other McCaw investments. Voelker brought a deep background in telecommunications, especially with competitive-access companies. Voelker thought he had a bullish view of the CLEC business until he met McCaw, who saw FiberLink as growing into a big national player like MCI.
Like Jarvis, Voelker got very little direction from McCaw. "You know more about this business than we do. Go do what you think is right. Don't ask anybody around here for advice," McCaw told him, and he was half-serious. Voelker would check in with people at Eagle River from time to time, but he seldom heard directly from McCaw. In fact, during one 12-month period, he didn't speak to McCaw at all.
What seemed a long shot in 1994 started looking smarter by the month. FiberLink originally focused on small to midsize companies (typically with fewer than 50 access lines), offering them a package of local and long-distance services. In Spokane, FiberLink picked off US West customers. It didn't seem difficult. A FiberLink salesperson would visit a car dealer, for instance, and ask, "How's your phone service?" US West had never done that for a small company. In fact, US West's service was so widely criticized that the Washington state utilities commission ordered a rollback of its rates.
By 1996 FiberLink had changed its name to Nextlink, established itself in 23 markets in seven states, and was on a hiring binge. If all this sounded like the early days of McCaw Cellular, it seemed even more so when Wayne Perry and Steve Hooper left their jobs as vice chairman and chief executive, respectively, at AT&T Wireless to rejoin McCaw. Hooper became chairman of Nextlink and co-chief executive of Teledesic, the "Internet in the sky" satellite venture, while Perry became chief executive of Nextlink.
Their arrival coincided with the adoption of a more aggressive posture. Since the Telecommunications Act of 1996 had forced regional Bells to open their facilities to competitors, Nextlink could more easily enter bigger markets. McCaw wanted the company to adapt to this changed environment.
"You could march in the front door (of a regional Bell) and say, I've got my interconnection and colocation rights," says Perry. "You don't have to slip under the radar. You can go in the front door. This was classic McCaw. He's not a prisoner of any direction. His ability to turn on a dime and give nine cents change is unbelievable."
And rewarding. Nextlink went public in 1997. McCaw sold about 30 percent of the company, and the value of the shares rose 37 percent in the first day of trading. Analysts figured Nextlink would lose money for two more years, but the stock was well-rated. Some argued the company was well-positioned to help long-distance providers, especially AT&T, expand into new markets without building their own networks. McCaw did well on the sale, making a paper profit of about $500 million on his original $55 million investment.
Each element of McCaw's empire was successful, but the management structure was extremely fluid. By mid-1998 Jim Voelker was out, replaced by George Tronsrue as president. (Voelker said the change was his own idea, keeping a promise to his family to spend more time with them.)
Nextlink spokesman Todd Wolfenbarger said the move also involved bringing Perry into a more direct role as Nextlink readied itself for another series of strategic deals. "Craig probably felt more comfortable with people who had been close to him," says Wolfenbarger.
That proved to be a temporary step, though. Hooper and Perry later assumed other roles in the McCaw organization, and Dan Akerson moved from Nextel to Nextlink to become chief executive. Rather than move Akerson to Bellevue, McCaw moved Nextlink's headquarters to northern Virginia, where Akerson lived.
To outsiders, it all may have seemed chaotic, but it worked, and McCaw wanted even more for Nextlink. The company had grown to 3,000 employees and was able to borrow huge amounts of money for further expansion because lenders knew McCaw met his commitments. In mid-1999, Nextlink paid nearly $700 million to acquire McCaw's favorite asset - spectrum - in a purchase of Local Multipoint Distribution Service (LMDS) licenses.
LMDS was a means of beaming data and voice over short distances to a switching office. Few in the news media recognized what McCaw was doing - assembling his own nationwide telephone company, a smaller version of a Baby Bell. Nextlink could now provide fixed-wireless coverage for 95 percent of the U.S. population.
The fixed-wireless system eliminated the toughest challenge of competing for customers, the "first mile" of service usually controlled by the regional Bell companies. McCaw was getting into position to offer bundled long-distance and local service, which the Bells and AT&T were taking years to do. Further deals with Level 3 Communications, Covad and Speedus.com were struck with the goal of enhancing the service he offered to Bell customers.
Inside Nextlink, executives were talking about a goal of $10 billion a year in annual revenue, which they considered reasonable - just 5 percent of the $200 billion market for local and long-distance business. Nextlink could always get help from McCaw's other assets, including Nextel, Cable Plus, a private cable-TV company that served apartment buildings in 13 states, and eventually Teledesic. With cable playing an increasing role in the delivery of voice and Internet services, Cable Plus could become a stealth weapon for picking off even more Bell customers.
These certainly were interesting puzzle pieces, but how did they all fit together? Perhaps McCaw was indeed assembling his own version of AT&T, becoming a latter-day version of (legendary AT&T CEO) Theodore Vail. But McCaw was hard to know and harder yet to predict. Maybe he did have a plan, or maybe he wasn't quite sure where he was headed. Yet each step along the way brought its own huge payoff. By late 1999, McCaw's share in Nextlink alone was worth $3 billion.
Not bad for the "interested consultant" who had never even set foot in a Nextlink office. |
