C-COR.net Corp.

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C-COR.net Corp.

60 Decibel Road
State College, Pennsylvania 16801
U.S.A.
Telephone: (814) 238-2461
Toll Free: (800) 233-2267
Fax: (814) 238-4065
Web site: http://www.c-cor.com

Public Company
Incorporated: 1953 as Community Engineering Corporation
Employees: 2,200
Sales: $281.1 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: CCBL
NAIC: 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 513330 Telecommunications Resellers

Based in State College, Pennsylvania, C-COR.net Corp. has been involved with the cable television industry from the very beginning. The company, originally incorporated as Community Engineering, ran a number of small cable systems in the 1950s and pioneered the development of the equipment necessary to amplify and distribute signals to cable subscribers. It earned a well-deserved reputation for making products of the highest quality. C-COR sold off its cable operations to TCI in 1970 to concentrate on manufacturing. As cable has moved into two-way communications via the Internet, C-COR has rapidly expanded through mergers and acquisitions to become a leading provider of the technologies and services necessary to create and manage a broadband delivery system of voice, video, and high-speed data. The bulk of its customers, however, remain cable TV operators. Time Warner accounts for 28 percent of sales, and AT&T another 17 percent. C-COR is now a worldwide company with a presence in South America, Europe, and the Pacific Rim.

Postwar Rise of Television and Birth of Cable TV

Although the technology of television was available before World War II, it was not until the late 1940s that the public began to embrace the new medium. In 1946, 6,000 television sets were sold. By 1948, sales neared one million. Transmitting stations were few and limited to urban areas. Signals could travel about 50 miles, and only then if the terrain allowed. People located in more mountainous regions saw little chance that television would be available to them in the foreseeable future, especially when the Federal Communications Commission in 1948 put a freeze on the licensing of new TV stations. Nevertheless, the desire for television existed just as much in remote regions as in big cities, and appliance dealers were eager to meet the demand. But in order to sell televisions, dealers had to provide something to watch. The answer would be Community Antenna TV, or CATV. Today it is simply known as cable.

Although simultaneous efforts were underway across the country to provide television signals to secluded areas, the father of cable TV is generally regarded as Ed Parsons, who ran a radio station in Astoria, Oregon, located 125 miles from Seattle and KRSC-TV, channel 5. In 1948, using frequency-survey equipment, Parsons discovered that KRSC’s signal reached Astoria in fingerlike bands, one of which extended to a nearby hotel. He received permission to set up an antenna on the hotel’s roof, then ran a line to his apartment. Using his own “booster equipment,” Parsons was able to deliver a signal to a television in his living room, which quickly became crowded with guests every time that KRSC was on the air. To regain his privacy as much as any reason, Parsons devised a way to distribute the television signal to others. A makeshift web of coaxial cable spread throughout Astoria. Parsons turned the system into a profit-making venture by charging $100 per installation, as well as through the sale of television sets.

Similar efforts were underway in Pennsylvania. John Wilson of Mahoney City also has a claim to having built the first commercial CATV system. In 1948 he owned an interest in an appliance store. He set up an antenna on one of the mountains that surrounded Mahoney City and offered to connect anyone who would buy a television. By June 1948 he claimed to have had 727 subscribers. A year later he upgraded his system to coaxial cable and began charging $100 for installation and $2 per-month per-connection fee.

In 1947 in another mountainous area, State College, Pennsylvania, Dr. Walter Brown (a Penn State University professor) and a group of investors organized a company called Central Pennsylvania Corporation with the goal of building a television broadcasting station. Unable to obtain a license from the Federal Communications Commission (FCC), the group in 1951 built a CATV system in Bellefonte, a dozen miles away. A second system for State College was added later. The investors created yet another venture, Centre Video Corporation to distribute equipment of Jerrold Electronics, an early developer of master antenna configurations. Because of poor relations with Jerrold, Dr. Brown and his investors in 1953 formed Community Engineering Corporation, which they called CECO, in order to build their own equipment. Dr. Brown was in charge of these wide-ranging television operations, as well as being a partner in an earlier and more prominent venture, HRB (Haller, Raymond, and Brown), a military electronics research and development company. In December 1954 he convinced Jim Palmer, who had been hired by HRB a year earlier, to “look after” CECO in addition to his regular work. His payment would be in the form of stock in the corporation.

Looking after CECO turned out to be a second full-time job for Palmer. After a year he was exhausted, and Dr. Brown had died in a drowning accident. Palmer and other CECO principals then sold stock in the company to friends and neighbors in order to allow Palmer to devote himself exclusively to CECO. On August 1, 1956 Palmer became president of the company. Two days later CECO took over Centre Video Corporation, which brought with it control of the cable TV operations in Bellefonte and State College. In this way Palmer, trained as an electrical engineer, would become involved in the cable television industry for the next 30 years.

A company called Century Lighting had trademarked CECO for a lighting system and forced Palmer to change his company’s name. At first he tried “C-CO,” a simple typographical alteration, only to discover another electronics outfit was using that name as well. In order to maintain the company’s position in the alphabet, the beginning of the “C” s, Palmer and his colleagues decided to call the company “C-COR,” a name that was then properly trademarked. In 1964 the company would change its name to C-COR Electronics, Inc.

Divesting Cable Systems Business: 1970

For a number of years C-COR continued to build and operate cable TV systems as well as manufacture the equipment that made the systems run. When Palmer first became president, the State College system only had 280 subscribers and Bellefonte another 500. None of them were overly pleased with the quality of the service of this one channel operation. By 1965, under the auspices of Centre Video and the management of Robert Tudek, cable operations had expanded to surrounding areas, subscribers totaled 9,000, and the number of television stations offered increased to three. Tudek wanted to grow further. He requested permission to build a cable system in his hometown of Glassport, located a few miles south of Pittsburgh. Although the city was easily within range of the five Pittsburgh television stations, Tudek recognized that the area’s topography prevented people from receiving clear reception on all of the channels. By 1970 Centre Video had 69 cable franchises, located mostly in the mountainous areas around Pittsburgh. Despite this success with cable operations, Palmer wanted to concentrate on engineering and manufacturing. Furthermore, to build and activate all the franchises that the company had won would require a great deal of capital. It was decided to either sell or merge Centre Video with a company that could take on that financial burden. On February 16, 1971 Centre Video was merged into Tele-Communications, Inc. (TCI) in a tax-free exchange of stock. What Palmer and his colleagues did not realize at the time was that their company was actually in a much stronger position than TCI, the future cable giant.

On the manufacturing side of its business, C-COR had been steadily gaining a reputation for innovation and quality. Palmer’s military background—he had been an electronics officer on a destroyer in World War II—and subsequent training with General Electric, led him to focus on a conservative approach to development and manufacture. The goal was product reliability; cutting corners was not acceptable. C-COR, although profitable, never attempted to compete with Jerrold for a greater share of the cable equipment business. It was a company run by a professional engineer, not a marketer. He did not have to claim that C-COR’s products were of the highest quality. His customers, as well as rivals, knew it. C-COR did not offer financing to customers, nor did it have the resources to do so. A discount schedule based on dollar volume of purchases was established and never compromised in order to make a sale.

C-COR made a number of advances in its field of electronics. In 1965 the company introduced the use of integrated circuits in amplifiers. It was the first to offer 220 MHz (megahertz) amplifiers. It did pioneering research on heat dissipation for solid-state amplifiers, which led to the first use of fins on amplifiers in 1969. In 1979 C-COR became the first to market amplifiers with a bandwidth greater than 300 MHz, in order to meet the demand of cable systems that were, in turn, trying to meet consumer demand for more and more channels.

By 1965 C-COR had moved into new facilities on the outskirts of State College. But the company suffered a setback in the early 1970s when federal regulations hampered the cable industry by requiring that systems offer 20 or more channels and provide studios for public access programming. Employment at C-COR, which had reached 219, fell to 35. The company slowly made its way back, and was doing so well that by 1981 C-COR made a public offering of its stock on the Nasdaq.

Company Perspectives:

C-COR.net is dedicated to responsive customer service, innovative technology, and the manufacture of quality products. We will be a leader in communication technology. The company will research and develop market opportunities within our expertise to enhance profitable growth.

Bolstered with additional funding, the company in the early 1980s became involved in digital fiber optics as well as network management software systems. The company, however, suffered another slump, forcing it to lay off 361 employees. In 1985 Palmer retired as president and CEO of C-COR, and in July of that year was replaced by Richard Perry, who had worked for Northwestern Bell Telephone Co. for 32 years. In 1983 he became CEO of a subsidiary of U S West, one of the seven regional phone companies that emerged from the AT&T breakup.

Deregulation of cable TV led to the upgrading of local cable systems, spurring demand for C-COR’s products. Perry hoped to diversify the company, which was heavily reliant on the state of the cable industry, with 65 percent of all sales coming from that sector. C-COR looked to the new technology of fiber optics, which had the potential of replacing coaxial cable by using beams of light rather than electrical pulses to deliver a much greater volume of TV signals, as well as other kinds of data. Perry considered opting out of the cable business to focus on data transmission and local area networks (LAN), but when that market slumped, C-COR became even more dependent on cable, now accounting for 85 percent of its sales. The company was then rocked by the uncertainty in the cable industry in 1990, when Congress was considering reregulation. C-COR was one of the first companies to suffer. The company posted four consecutive quarters of significant losses. Sales in the fiscal year ending in June 1991 were only half of what they had been the previous year. When cable regained its feet in 1991, coupled with the industry’s expansion overseas, C-COR began to recover as well.

The 1990s Bring Another Media Revolution

C-COR, which had been a part of the technology revolution of television, now found itself unexpectedly poised to play a role in a new technology revolution: the Internet. Two-way communications over a wire that could encompass voice, video, and data would require a wide highway, or bandwidth, and an amplification of the signal. C-COR’s reputation for producing the highest quality amplifiers in the world made it a prime choice for forward-looking investors.

Positioning itself to take advantage of the Internet was not without pain for C-COR. In July 1996 Perry stepped down as president and CEO, though continued to serve as chairman of the board. He was replaced by Scott Chandler, a U S West executive, who in 1997 would discontinue C-COR’s digital fiber optics business. He also shifted production of radio-frequency amplifiers to a new plant in Mexico, in turn downsizing a Reedsville, Pennsylvania facility. But less than two years into running the company, Chandler abruptly resigned to accept another position in the communications industry, forcing Perry to again assume day-to-day control. Almost immediately he was forced to make a difficult decision. To further cut costs he closed the Reedsville plant, eliminating 145 employees, or 12 percent of the company’s workforce.

In July 1998 a new CEO took over for Perry: David Woodle, who had been general manager at another State College electronics company, Raytheon, and whose focus had been on realtime information systems integration. He also brought with him considerable involvement in mergers, start-ups, international partnerships, and acquisitions. Less than a year later, in May 1999, Woodle would make his first deal to help C-COR position itself in the Internet business. For $46 million in stock C-COR acquired Convergence.com, an Atlanta-based company that serviced cable lines to prepare small to midsized cable TV operators to provide high-speed Internet access. In addition to the transaction, C-COR announced it would change its name to C-COR.net Corp. Later in the month, Woodle announced that C-COR had signed a letter of intent to acquire Silicon Valley Communications (SVCI), a company that supplied high quality fiber optic technology for hybrid fiber/coax (HFC) networks. To fuel its growth, in November 1999 C-COR offered an additional 2.8 million shares of stock at a price of $44 per share; and to make the stock more broadly accessible, the board of directors approved a two-for-one stock split of its common shares.

Early in 2000 C-COR made two more acquisitions to further enhance its position. It acquired Advanced Communications Services Incorporated (ACSI), a Riverside, California, company that provided engineering services for HFC system rebuilds and upgrades. Its customer base complemented C-COR’s, as well as added a presence in the West and the South. In addition, C-COR acquired Worldbridge Broadband Services, Inc., a Colorado company that provided full-system field operations as an outsourcing option for broadband cable operators. Worldbridge’s 230 technicians worked out of eight regional offices that covered the Southeast, Midwest, Mountain, Southwest, and Western states.

Also in 2000 C-COR made strategic alliances with other companies. It announced an agreement with Finisar Corporation to co-develop fiber optics-based products for HFC networks. C-COR also invested in Fortress Technologies, Inc., one of the leading security networking companies. With more and more businesses and individuals connected to the Internet via broadband conduits, the need for easy-to-use security products was certain to grow.

Key Dates:

1951:: A group of State College, Pennsylvania, investors establish CATV system.
1953:: Community Engineering Corporation (CECO) is created to provide equipment for the investors’ CATV operations.
1956:: Jim Palmer, an electrical engineer, becomes president of CECO.
1964:: To avoid trademark violation, CECO is renamed C-COR Electronics, Inc.
1970:: Cable TV systems are sold to Tele-Communications, Inc. (TCI).
1981:: C-COR becomes a publicly traded company.
1999:: Company changes name to C-COR.net Corp.

Woodle made clear in an August 2000 interview what was driving C-COR’s aggressive acquisition strategy and where he hoped to take the company in the future: “We have been known over our forty-seven-year history for providing highquality products. Building on that, we have added capabilities in the technical services and network management areas through four acquisitions. We are now providing a full life cycle of support to our customers, from designing and building the network, through management and maintenance of the network. We provide products, services and solutions for the entire life cycle of that network, to help our customers have a high quality, high integrity network for delivering advanced services to their customers.”