Verizon Has the Last Laugh

ANDY GROSSMAN

Passing on TCI looks good now Somewhere Ray Smith is laughing.

The former head of the regional Bell company Bell Atlantic (now Verizon after the GTE merger) might be thinking how close he came to buying TCI earlier in the 1990s. We know what happened there: The 1992 Cable Act intervened, and Smith got a closer look at the dilapidated state of TCI's cable systems and fled faster than MacArthur from the Phillipines. Luckily for Smith, he didn't return.

Mike Armstrong's predecessor at AT&T, Robert Allen, reportedly chuckled when offered the opportunity to buy TCI, but Armstrong had a different vision, and in 1998 he bit for $48 billion. At the time, the prevailing wisdom on Wall Street was that a company could prosper through the purchase of related businesses such as long-distance and cable TV. AT&T could just "bundle" all its services, and consumers would jump at the AT&T brand.

While the inherent problems in the long-distance business are dragging down AT&T, the company's transition to the broadband world has been as rocky as the Roger Clemens/ Mike Piazza relationship.

Shortly after buying TCI, AT&T found out - surprise! - TCI's systems were in pretty miserable condition. While TCI had fixed up some of its worst actors to become respectable 550 MHz hybrid fiber-coax systems, many of the others remained creaky, channel-locked 450 MHz systems with terrible reputations. Ask anyone who lived in the Chicago area or New Jersey what they thought of TCI or its cousin, TKR.

AT&T has rebuilt the company as quickly as possible - but that's cost billions of dollars, and many systems are still not equipped at 750 MHz.

So last week's cash flow shortfall in the video sector is really no surprise. The question is: What will some furniture moving in the corporate headquarters do to help AT&T Broadband overcome TCI's history?

It's a past to learn from.

Cable veterans will recall that John Malone brought in Leo Hindery to fix up TCI after the 1992 Cable Act, years of neglect and customer abuse, and a marketing disaster had left the company in free-fall. The stock had fallen by 50% to $11, and customers were fleeing to DBS.

Hindery always denied he was brought in to put on some window-dressing until Malone sold the company, but that's in effect what he did. AT&T saw a growing, vibrant company that fit in with what was in vogue at the time - growing bigger through the "synergies" of related businesses and bundling all those services. The reality became apparent to AT&T soon enough.

To add to its wounds, in the TCI deal AT&T also got a big share of Excite, trading at the time at $91 per share, now at $10. Many of its customers were in revolt over slow download speeds and other problems. Even Cablevision CEO Jim Dolan criticized its partner in print, later deciding to market the MSO's own Optimum Online service rather than Excite Throw into the mix AT&T's troubles in attracting MSOs as cable telephony partners.

The past all adds up to a third quarter where the MSO reported a 12.7% cash flow decline. The good news for AT&T is that revenue in video operations climbed by almost 7%, while overall revenue increased by nearly 11%.

Armstrong is spinning as fast as he can, maintaining his original vision is still clearly in focus, but everyone who held TCI stock in March 1998 - and didn't sell AT&T earlier this year - probably doesn't find his analysis all that convincing.

n n n

This week we announce four new staffers, and that's only the beginning of Cable World's expansion. Shortly, we will have more to say about our new post in Los Angeles and a second editor in our San Francisco bureau. A senior editor who will help oversee our longer pieces will join us within a few weeks, as well.

Richard Cole, our San Francisco bureau chief, has a rather colorful history, having worked for the AP for 19 years and then CBS Marketwatch. He covered the Unabomber and forced a Russian minister to resign in a case of missing gems. Cole is on the case now, and our bureau will open shortly.

News editor is a new spot at Cable World, and Jon Lafayette brings more than 15 years of experience to the job, the last eight at Electronic Media. He'll run the newsroom out of New York. If you're looking for a basketball player for a pick-up game at the shows, he's your guy.

Mavis Scanlon covered the oil and gas industry for Thestreet.com and worked at dbusiness.com. She's a quick study and aggressive reporter, and some of you will be hearing a lot from her.

Finally, Charley Biggs is the new managing editor in Denver. A pro's pro, he's a 22-year journalism vet who will make sure the magazine gets out every week. A native of Oklahoma, Charley is happy because he found a group of OU alumni in Denver.