SIGNUPABOUTBW_CONTENTSBW_+!DAILY_BRIEFINGSEARCHCONTACT_US


View items related to this story

JOHN MALONE AND THE CABLE TANGLE

THE BILLIONAIRE SHELL GAME
How Cable Baron John Malone and Assorted
Corporate Titans Invented a Future Nobody Wanted
By L.J. Davis
Doubleday 292pp $24.95

You tend to remember meetings with John C. Malone. Big, square-jawed, with a ready wit and an intense dislike for those who disagree with him, the chairman of cable giant Tele-Communications Inc. tends to speak his mind and take no prisoners. ''Phone companies are never going to be the winners in this race,'' I recall his telling me when we sat in his Denver office in early 1995, a year after his celebrated $35 billion merger with Bell Atlantic Corp. had cratered. ''They have too many layers of detritus weighing down their cost structure. You know, whale shit.''

Since then, John Malone has been to his own private hell and back, watching as his company's stock price nose-dived while it built up its debt and customers defected to satellite TV. And through most of it, Malone was nowhere to be found, stoking rumors--since proven incorrect--that he was ill, soured on the cable industry, or just plain disinterested in running his once-robust company. But then there was the triumphant return, this June, when AT&T agreed to pay $60 billion for his newly reenergized company.

Did anyone ever doubt that Malone, variously called the King of Cable and Darth Vader, would come back in glory? Certainly not L.J. Davis, author of The Billionaire Shell Game, a highly critical account of how the cable industry overpromised new technology in order to curry favor with Wall Street and, in Malone's case, to find a buyer for Tele-Communications. Davis, a contributing editor to Harper's magazine, figures that Malone has been angling for a billion- dollar payday almost since the moment he took the reins of TCI in 1973 as a 32-year-old engineer who had befriended founder Bob Magness. Unwilling to pay taxes, he leveraged the company to the hilt to buy up any available system even if it meant losing millions. As for the TV viewer, says Davis, Malone couldn't care less: Better service and more channels meant higher costs, and if he spent more on existing subscribers, he would have to slow his march to build America's largest cable empire. ''The trick,'' Davis writes, ''was to never give the public what it wanted.''

Which makes it all the more improbable, Davis argues, that Malone really wanted to build TCI into the provider of the interactive ''500-channel universe,'' a phrase he coined in a speech to a trade group in Anaheim, Calif., in late 1992. TCI's cable systems, although serving the most subscribers in the country, tended to be small, rural outfits with outdated technology. Malone skimped on upgrades, made headlines about ordering set-top boxes for digital channels, and then quietly put off buying the boxes when the technology was slow in coming. Indeed, just a few years earlier, Malone had quickly canceled tests of a promising interactive system called Qube after buying a Time Warner Inc. system that was testing it.

The Billionaire Shell Game contains many juicy anecdotes about Malone, including one in which he is said to have scuffled with an equipment vendor who didn't agree with his terms and the oft-told story of how TV screens in Vail, Colo., went blank when the city council contemplated taking away TCI's franchise. We watch as Malone strong-arms ESPN into not raising the rates it charges TCI and as he double-crosses Barry Diller during the 1993 Paramount Communications Inc. takeover battle. A word of caution: Davis' only direct communication with Malone was in a 1990 interview, and Davis' recent other TCI contacts have been limited to two technology execs. Thus, TCI officials say, the book is flawed and inaccurate in parts.

No one seems to come out looking good in Davis' view of the world. Malone is both evil and henpecked, moving to Denver to please his wife, Leslie, who wants her husband at home more than at the office. Time Warner Chairman Gerald M. Levin is an absent-minded professor who dresses shabbily and bores people with endless talk of technology. Levin also loses his company millions as he seeks follow-ups to the success he created at HBO by delivering its movies via satellite. As for Bell Atlantic Chairman Raymond W. Smith, he's portrayed as affable but afflicted ''by an abiding madness that had reached its final form'' as he sat across the negotiating table from Malone. Smith, Davis writes, was sure his company's future rested on increasing its ability to deliver TV over its phone lines, even if he couldn't understand why.

In the end, of course, Ray Smith nearly overpays for TCI, Congress crimps cable's cash flow by reregulating its prices, and Bell Atlantic's due diligence turns up antiquated TCI cable systems and suspect digital technology. The deal falls apart, leaving John Malone to rebuild his company's image and look for another buyer. Now, as TCI and AT&T draft and redraft their merger documents, you know that AT&T's financial folks are going over the cable company's assets with a microscope.

It's a pity that Davis didn't have the time to do the same. His book provides a marvelous account of the early days of cable, when telephone companies didn't fear the startup industry and even allowed cable operators to string lines from their telephone poles. Davis skillfully tells the reader about John Walson Sr., a lineman for the Pennsylvania Power & Light Co. who gave birth to the industry by building a 70-foot antenna atop New Boston Mountain in Mahanoy City, Pa., and charging customers $2 a month for a TV signal. Davis also introduces us to such cable pioneers as Bill Daniels, a former Korean War fighter pilot who helped finance cable operators in the years just after World War II, and lawyer Glenn Jones, who lived in his car while searching Colorado for cable systems to buy.

But Davis misses a key change in cable-industry strategy. After years of fighting telephone companies, cable outfits are starting to look like telecoms themselves. By trading systems, they have bunched cable subscribers into densely packed regions in major markets. That has helped cable companies, who have caught Internet fever, to sell thousands of high-speed cable modems. Even TCI, after dragging its feet for years, has sped up its rollout of fiber-optic lines and begun taking deliveries of those elusive digital set-tops. Its connection to one-third of American homes was appealing to AT&T, which is eager to jump into local telephone service and expand its Internet services.

Make no mistake: John Malone still emerges as a winner. As Davis points out, he has carefully created a second kingdom for himself, Liberty Media Corp., the TCI unit that owns pieces of such cable channels as Discovery, Fox Sports, and the Home Shopping Network. And the 500-channel future that Malone and his ''assorted corporate titans'' envisioned has been altered to incorporate the Internet. Folks may never use their TV sets to order groceries or to download data from their local public libraries. But there is a moneymaking future for cable television, and whatever his motives, John Malone helped create it.

BY RONALD GROVER



RELATED ITEMS

PHOTO: Cover, ``The Billionaire Shell Game''

Return to top of story


SIGNUPABOUTBW_CONTENTSBW_+!DAILY_BRIEFINGSEARCHCONTACT_US


Updated Sept. 17, 1998 by bwwebmaster
Copyright 1998, Bloomberg L.P.
Terms of Use