Malone: realignment will be good ‘for the little guy’

In a late-breaking announcement stating that they intend to merge, Bell Atlantic and TeleCommunications, Inc. have set the stage for a wild, noholds-barred spending extravaganza in the nation’s pursuit of an advanced telecommunications infrastructure.

With US West, Nynex and BellSouth already in minority partnerships with media concerns that own cable properties, and Southwestern Bell buying a large Washington, DC, area operator outright, the proposed $16 billion-plus Bell Atlantic acquisition of TCI leaves little doubt that other cable and telephone companies will be lining up partners as fast as they can to secure both the capital and market reach that has suddenly become the price of survival in the Information Age.

Clear direction. “I think the situation we all face is obvious,” said Allen Gerry, CEO of Cablevision Industries, the 12th-ranking MSO (multiple system operator) with about one million customers. “We’ve been talking to telephone companies, just like everyone else. There will be many different types of deals, depending on sizes of companies and other conditions, but the direction is clear.”

For smaller companies, Gerry said, the pattern might be closer to the BellSouth/Prime Management deal, which was announced the day the Bell Atlantic/TCI agreement came to light. BellSouth would acquire 22.5 percent of Prime’s stock for an undisclosed sum and would lend $250 million to Prime as part of a $450-million recapitalization of its Las Vegas-based cable property, Community Cable Television.

A week earlier Nynex said it was investing $1.2 billion in Viacom International, which, along with programming networks, owns the tenth largest cable MSO. Although the deal was pegged to programming, the tie-in with Viacom Cable added to the widely shared sense of urgency among cable and telephone companies that the ante has gone up dramatically in the information transport arena.

THE PURPOSE IS TO OPEN NETWORK CAPACITY

TCI CEO John Malone, at an Oct. 13 press conference in New York, made clear the purpose of the merger with Bell Atlantic is to open vast capacity and functionality across a combined service base of 23 million customers as quickly as possible.” There’s no time to waste in deploying this infrastructure,” he said.

A waste of cash? But if time isn’t wasted, a good deal of cash might be. Given the current state of the regulations, which bar cable and telephone companies from merging or jointly owning facilities in mutually held territories, the capital commitments in deals such as Time Warner/US West and Bell Atlantic/TCI point to head-to-head, house-to-house competition between telco and cable franchise holders, each offering to connect the customer to competing infinite capacity networks, each delivering the same services under the rules of open access.

Just ahead of the Bell Atlantic action, Rep. Ed Markey (D-Mass.), chairman of the House telecommunications subcommittee, let it be known that he was embracing the idea of legislating an end to restrictions barring telcos from entering the cable business. But he made clear that the aim of such legislation must be to preserve network competition, which means rules preventing in-territory buyout of one provider by another would remain in place.

Chaos and overkill. Just how the chaos and overkill of duplicate multi-billion dollar investments in local facilities by competing telco/cable alliances would result in low-cost introduction of advanced services was not addressed by Malone and Bell Atlantic chairman Ray Smith, who will be the chairman of what they referred to as “the New Bell Atlantic.”

Instead, the emphasis at the press conference was on the upside of open access by service developers to high-capacity networks, where even the smallest producers could rent storage space on the local system server and compete with the giants for customers on the merits of the content.

LOWERING BARRIERS FOR CREATIVE DEVELOPMENT

“We are stimulating creativity by drastically reducing entry barriers for producers of services,” Malone said. “There’s a massive initial investment in facilities, but the marginal cost of putting something on (the network) is very small.”

TCI, which is in the process of re-acquiring the programming interests that were spun off into Liberty Media two years ago, will be a relatively small contributor to the programming lineup that is available over the new Bell Atlantic’s full-service platforms, Malone noted. “We can be a fertile medium for creative development,” he said. “Our role is to define the consumer’s needs. The nation’s creativity will fulfill them.”

It’s for the little guy. The result, he said, will be a “massive realignment” of the entertainment and services sectors, with potential elimination of the distribution bottlenecks that keep “the little guy” from gaining direct access to the public.

But, in the meantime, as TCI’s networks continue in the traditional cable mode, the creative output of TCI’s farflung programming interests, ranging from Turner Broadcasting to the Sega Channel, will have a proprietary connection into the marketplace, establishing beachheads that any little guy would be happy to hold.

Fred Dawson