The federal government's antitrust police are swooping down on John Malone's cable-TV empire.
They think Tele-Communications Inc. may be too big, too powerful and too greedy for America's developing information su-per-high-way.With Malone stalking bigger prey outside cable - the seven Bell telephone monopolies - government scrutiny of TCI and the man who runs it is growing intense.
Government investigators are examining whether TCI, which serves one in four U.S. cable-TV subscribers, has a chokehold on the programming they watch and how much they pay for it.
They want to know more about TCI's business relationships with other large cable television operators. They're also scrutinizing its ties to equipment suppliers and how Malone hopes to profit from their new technologies in future two-way cable systems.
Playing by the rules
"It's driving us nuts," says Malone, TCI's brassy, freewheeling chief executive officer.
"Our problem isn't so much that we can't live with the policies they set," Malone said. "Our problem is they don't set consistent policies, and you have multiple agencies setting conflicting policies."
Malone denies doing anything anti-competitive, maintaining that TCI has abided by the new ownership rules set forth by Congress and the FTC.
Those rules restrict the number of subscribers a cable company can serve to 30 percent of the nation's 60 million cable-TV households (TCI now has 26 percent). They also limit the number of programming networks a cable company can own and supply to its cable systems to 40 percent of the channel offerings.
Tele-Communications Inc. is the world's largest cable TV company, providing service to 15 million American households. But TCI also has a hefty stake in the programming itself - owning big chunks of CNN, Home Shopping Network, Court TV, TBS Super Station, the Discovery Channel and many others.
Regulators are concerned that, even with government oversight, that breadth of power could stifle competition and restrict consumer choices.
No `shrinking violet'
Denver-based TCI isn't shrinking from the regulators' gaze.
The company wants to extend its reach to the $90-billion-a-year local phone business to strengthen its foothold in the budding two-way telecommunications industry.
Malone is targeting consumers in California, Illinois, New York and Connecticut as TCI's first telephone/cable-TV subscribers. He's also aiming at other regions where TCI is the dominant cable-TV provider.
But as he shops for partners and bigger stakes, antitrust regulators are nipping at his heels, effectively holding up billions of dollars in acquisitions critical to his telecommunications game plan.
Deciphering TCI
The FTC, which shares antitrust enforcement duties with the Justice Department, has assembled a special team of investigators to decipher three pending deals:
- TCI's $1.3 billion bid to buy the cable systems of TeleCable Corp., a company based in Norfolk, Va., with 740,000 subscribers in 15 states.
- A $1.4 billion joint venture with the No. 3 cable operator, Comcast Corp., to purchase QVC Inc., the nation's largest home shopping network.
- A cable systems swap with Multimedia Corp., a Kansas cable-TV company best known for its syndication of the Phil Donahue talk show. The swap would exchange TCI's cable system in Wichita, where the two companies directly compete in some neighborhoods, for Multimedia's cable systems in Tulsa and suburban Chicago.
"There is no vendetta," an FTC investigator said. "But Malone is so big and so powerful it's only natural that these kinds of major transactions warrant antitrust inquiry."
Asking concessions
After a five-month review, the FTC confirmed reports it's close to approving the TeleCable deal, but not without concessions. The government's OK would require TCI to sell some of its holdings in Columbus, Ga., where both companies operate but aren't competing for the same subscribers.
Columbus would remain a town served by two cable companies, something that doesn't fit TCI's philosophy to conquer and never divide.
Still, the acquisition of TeleCable would boost TCI's subscriber base in several major markets, most notably in Dallas, Kansas City and Lexington, Ky.
It's unclear whether FTC approval of either the TeleCable or Multimedia deals will remove stumbling blocks to an agreement between TCI-backed Intermedia Partners and Viacom, which is asking $2 billion for its cable systems in Seattle, San Francisco and Nashville.
Sticking point
For regulators, the sticking point in all three transactions is TCI's strategy of "clustering" - buying cable systems in adjacent areas.
Specialists in communications law said clustering could be viewed as anti-competitive because neighboring systems that don't compete for the same customers indirectly help keep rates down. It's also more difficult for new competitors to enter a market served by a single cable company.
Malone argues he needs the economies of scale that cable clustering makes possible. Clustering, he reasons, levels the playing field so that TCI can effectively compete against the regional phone monopolies, which want to offer cable TV over their phone lines.
"This antitrust stuff about clustering is totally bogus," said Malone, using one of his more polite terms. "The government has set it up so the phone company can enter the cable business when they already have 100 percent clustering (in the telephone business). Now they're telling the cable industry that you can't structure like that."
While regulators move to approve the TeleCable and Multimedia deals - with conditions - they appear a long way from permitting the QVC-TCI venture.
TCI's $1.4 billion deal with Comcast to buy the home shopping channel would raise TCI's investment in QVC from 22 percent to 43 percent. It also would give TCI a virtual lock on the home shopping business. TCI already owns 80 percent of Home Shopping Network, QVC's main rival.
Too big
TCI's sheer size and reach remain the overriding concern of regulators and consumer groups.
Some industry experts say it's difficult to start a new cable channel without TCI's support. Channels, for example, that are sup-port-ed by advertising generally need to reach a "critical mass" of 40 million households to attract national advertisers.
TCI acknowledges using its 49-state distribution network to extract discounts from pro-gram-mers.
"That kind of control over access can translate into unfair bargaining pressure," said Viacom Chairman Sumner Redstone.
TCI's growing alliances with other cable operators also is suspect, Redstone said.
Antitrust bent peaking?
Despite the current investigations, Malone said Washington's antitrust bent may have peaked.
The Republican takeover of Congress pleases him enormously.
"Increasingly, we would expect Congress and the regulatory agencies will be an ally in helping us effectively enter the telephone mar-ket," he said.
"There is some argument cable has been a monopoly. There's no argument that telephone is a monopoly."
Washington attorney Steve Newborn, former litigation director at the trade commission, said TCI is testing how far it can go before regulators step in and just say no.
Malone sees a threat, too.
"Any one of these groups has the power to slow us down or stop us," he said. "That's the problem."