DENVER – John Malone, chief of the nation’s biggest cable company, Tele-Communications Inc., has a stunning admission to make: His widely hailed vision for TCI’s future as a multimedia powerhouse straddling television, telephones and the Internet, isn’t working.
It was too ambitious, over-hyped and impossible to carry out on schedule, he said. In its place, TCI is pursuing a much-diminished strategy and scrambling to make a major retreat to its roots in cable.
“We were just chasing too many rabbits at the same time,” Malone said in his first extended interview in several months. “The company got overly ambitious about the things it could do simultaneously.”
The litany of missteps Malone rattles off – and apologizes for – mark an unusual admission by any chief executive. They are especially striking coming from the 55-year-old Mr. Malone, who has long enjoyed a reputation as one of the most astute and influential visionaries of how new technologies are transforming the media world.
For one, he is abruptly revising his longstanding promise that TCI was set to become the powerful lord of the new information superhighway, using cable to deliver phone service, the Internet and other interactive goodies.
“If you read our annual report last year, you’d think we’re one-third data, one-third telephone and one-third video entertainment, instead of 100% video entertainment and two experiments,” he said. The hype, he conceded, “influenced our staffing and the market’s perception of the business.”
On the subject of TCI’s push into the telephone business, he is particularly sober. Like other big cable operators such as Time Warner Inc., TCI has been heralding for years the promise of using its cables to deliver phone service and citing that promise as a big justification for its capital spending, which totaled about $1.7 billion in 1996.
But now, Malone said: “I think I have a pretty good handle on the risks and problems.” And he doesn’t know whether the two-way technology that cable operators are aggressively deploying over their cable lines is “the right technology, given the understanding we currently have of where the business is going.”
Malone pulled back from day-to-day operations at TCI this year to focus on other divisions of the company, and to ponder a retirement in which he would enjoy his custom-built 80-foot yacht Liberty.
Meanwhile, business at TCI, which reaches 14 million subscribers, took a dire turn. The direct-broadcast satellite industry was mounting a major assault on cable’s longtime monopoly. In TCI’s recent third-quarter report, which Malone dubbed his “wake-up call,” the company acknowledged losing 70,000 customers, representing potential revenue of $25 million a year, mainly to rate increases and satellite rivals.
At the same time, TCI’s stock was in the doldrums, bumping in the $13 range, not far from its 52-week low. And a $15 billion pile of debt, largely from buying up cable systems, had investors worried that TCI was financially straitjacketed just when it most needed a big investment to fight its new competitors.
“Our biggest concern: They didn’t have financial flexibility,” said Neil Begley, an analyst at Moody’s Investors Service Inc., explaining the agency’s downgrade of TCI’s debt to below investment grade earlier this year.