tv till you drop : WITH INTERACTIVE VIDEO, PAPERLESS BILL PAYING AND PAY-FOR-PLAY MOVIE PREMIERES JUST AROUND THE CORNER, CABLE-TELEVISION BARON JOHN MALONE IS READY TO ZAP YOU, ONE WAY OR THE OTHER. AMERICANS MAY NEVER LEAVE HOME AGAIN.

CABLE TELEVISION, THE CREEPING GIANT of American communications, probably got its start in the 1940s in the mountainous backwoods of northeastern Pennsylvania. Legend says a local merchant, desperate to sell more television sets in terrain that blocked the signal, came up with the idea of planting a large antenna on New Boston Mountain and connecting it through a web of underground wires to nearby homes. The makeshift system worked, boosting the merchant’s television sales and providing a blueprint for rural America to plug into the dawning television age.

For the better part of the next three decades, community antenna television, as it was initially tagged, was viewed as little more than a way to bring big-city culture to the hinterlands. In the hierarchy of American entertainment and communications, it held also-ran status.

Then along came John Charles Custer Malone.

Out in the Rockies and Western plains, this Connecticut Yankee intellectual saw a vast, untapped potential for the new technology and set out to exploit it. Malone, whose chiseled jaw, piercing brown eyes and unflappable presence conjure memories of Western-movie heroes, began with stealth-like quiet, patiently piecing together far-flung mom-and-pop cable operations. By the early ‘80s, the patchwork had become the nation’s largest cable television company, Tele-Communications Inc. Then, as TCI became the provider for about a fifth of the nation’s 60 million cable subscribers, Malone moved into programming. His company has invested in at least a dozen of cable’s largest entertainment producers, including, in April, a tentative agreement with the Hollywood production company Carolco.

And in the past five months, he has launched the most aggressive technological overhaul of any cable operator in the nation, including plans for expanding his cable systems to carry up to 500 channels and for spending $2 billion to install about 7,000 additional miles of fiber-optic “electronic superhighway” that can serve as both a television and telephone pipeline. Now, as America awaits the next generation of home-delivery entertainment and information, it is Malone, more than anyone else, who is determining how the much-ballyhooed vision of 500-channel, interactive television will be realized.

Yet until recently, when his business exploits became more frequent and dazzling than ever, Malone was little known beyond the worlds of high technology and high finance. This determinedly private and aloof man had maintained, by his own choice, the lowest of profiles even though business superstars have relied on his judgment and leadership. Programming mogul Ted Turner, the never-shy entrepreneur, owes his financial life to Malone. Apple Chairman John Sculley and Microsoft Chairman Bill Gates, cited endlessly as the marketing and intellectual wizards of the high-tech world, are scrambling to join Malone’s parade. John Cook, president of Disney Cable, says that Hollywood studio chieftains, including Disney Chairman Michael Eisner, don’t make a move without thinking how it will play in TCI headquarters outside Denver.

And with an estimated net worth around $500 million, Malone himself should debut on Forbes magazine’s next ranking of the nation’s 400 wealthiest individuals.

Both his admirers and his detractors rank him alongside John D. Rockefeller and J. P. Morgan, the powerful and domineering industrialists of a century ago. Just as Rockefeller and Morgan molded the oil and railroad industries through the overpowering force of their personalities and visions, Malone is shaping the convergence of computer, telephone and television technologies into an industry for the 21st Century. He is not, however, without fierce competitors, most notably the nation’s well-financed local telephone companies, and he is also confronted with a trustbusting chorus within Congress and the Clinton Administration that worries about the effects of Malone’s mushrooming empire.

Friends call Malone cerebral, unemotional, logical. Detractors use descriptions like ruthless, evil genius, monopolist. “He’s a reincarnation of a Roman general, except in those days they didn’t have to worry about PR,” says Craig McCaw, chairman of McCaw Cellular and a friend and business associate of Malone. “John’s problem is that his intellect and power are absolutely huge, but he isn’t always aware of the effect he has on people.”

An engineer by training and personality, Malone’s strategies and conversation are logical, sequential and chess-game orderly. He limits his public comments, rarely offering more than he can prove--or force into existence. He is a seeming stranger to hyperbole and conjecture. Even his vision of what his business and its larger industry will become is stated in precise techno-jargon. He says, for instance, that by the end of the decade, his cable television system “will allow us to offer a full range of services, including interactive video, alternative-access telephone transport and (the emerging wireless) personal communications (telephone) networks.” It will, he adds in a matter-of-fact tone that rarely changes mood or pitch, be “the local component of a broad-band, interactive, terrestrial network that is tied to a national and international network that provides the same services.” In plain language, entertainment, information and business transactions for the masses in their living rooms--if they want them, a very big if.

What it won’t be, he insists with an assurance only someone with billions riding on the outcome could have, is hot air. “We can’t get too far ahead of the curve. We can’t invest too much money in a business that we can’t firmly predict,” he explains. “I do not want to build a ‘field of dreams’ and hope that if it’s there, the services will come to it. I don’t need anything that requires a leap of faith.”

CLICK, CLICK. HOW DID WE EVER GET ALONG WITHOUT THE TV ZAPPER? ARMED with sophisticated versions of the handy push-button remote control, the experts are telling us, we will soon be cruising down the broad communications highway of the future, zapping our way into electronic caches of information, tapping our way through vast collections of video entertainment, clicking our way through a purchase from a paperless catalogue.

“You’ve got to think of the television as a retrieval device,” explains N.J. Nicholas Jr., the former president of Time Warner, the nation’s No. 2 cable operator. “It’s really quite a simple concept. You don’t think of channels and shows but of the huge amount of access this device gives you to complete purchasing transactions or to browse through libraries of digitized information and entertainment. And the best part is that you pay for only what you use.”

To be sure, this is all going to require some huge advances: Computerized remote-control devices and more high-tech cable decoder boxes are needed to provide the technology to navigate this uncharted territory; federal and state regulations governing communications, now based on separate telephone and cable television monopolies, will have to be adjusted to reflect the dual capabilities of this electronic superhighway; vast quantities of video software capable of exploiting the new technology must be created. But some experts say the first wave of these advances is just around the corner.

By the end of this year, a new generation of “smart” cable TV boxes should be rolling off the assembly lines, allowing Malone’s customers to decode the so-called digital compressed technology, signals that ultimately will allow TCI to offer information and entertainment on up to 500 channels. Full of computer chips and PC-style software and fully capable of handling two-way communication between homes and a cable TV operator’s huge computers, these boxes will forever transform the TV set from a passive receptacle of one-way signals into a computerized communications hub for consumers and their remote-control zappers.

Given its long, hype-inflated buildup, the first offerings of this new age of interactive television might seem strikingly banal. Later this year, we can expect to see the Sega Channel, a new all-video game outlet. Developed and owned by Tele-Communications, Time Warner Communications and Nintendo-rival Sega, the channel will allow kids of all ages to plug their Sega video-game player into the TV and, with the touch of a few buttons, pull such games as Sonic the Hedgehog onto the screen. Other services planned for later this year include a Domino’s Pizza ordering system for couch potatoes too lazy to pick up a phone. The zapper will do it. Full-scale video-on-demand--the video-store-busting, dial-up movie service widely considered the Mother Lode of the new services--should follow shortly, allowing customers to scan an electronic card file, select a desired film and order it up on a pay-per-view basis (price to be competitive with video-store rental fees) with a couple of quick taps on the zapper.

And within the next few years, there should be far more goodies, including personalized at-home shopping, paperless bill paying and services that most cable subscribers haven’t even considered yet: Video mail-order catalogues that consumers flip through, ordering merchandise by tapping in their name and credit-card number; vacation getaway programs that let you research potential destinations and book your plane flight and hotel rooms without leaving your easy chair, and special advertisements from local merchants anxious to target their special customers. “Programmers already are approaching us with ideas that would have been unrealistic only a year ago,” says Malone. “Television will never be the same.”

Which worries some people, but not Malone. “Bill Gates thinks this technology will take over for regular social activities,” Malone says. “I don’t agree. I think it will increase rather than decrease the social content of people’s lives. Now you won’t just talk to Grandma, you can leave a video message for her. And Johnny can play an interactive video game with Charlie up the street.”

Talk about services and technology that don’t yet exist commercially can be overblown. But what Malone and others are describing is not some pie-in-the-sky creation. To some degree, it is already happening across the country in experiments conducted by cable TV operators and telephone companies. For instance, in three separate video-on-demand trials in Colorado, New York and Florida, consumers are able to summon up movies by calling a central office and tapping in a code number. Within minutes, the movie appears on their screen and the charges are added to their bill.

What is unknown is whether enough consumers want enough new television selections to cover the enormous expense of providing them. Americans, on average, already have their sets on for more than seven hours every day, and it’s not clear how much more material they want to watch--for a price. Remember, this isn’t going to be free like network TV. Every time we click on that zapper, the meter is running.

“Despite all the enthusiasm and the torrent of ideas, the consumer is still limited by the amount of time and money he wants to spend in front of the TV,” says Gary Arlen, a Bethesda, Md., telecommunications market analyst. “So while the technology may be there, we are still in the early stages of the revolution.”

DENVER FEELS SURPRISINGLY REMOVED FROM THE GENTEEL RESTRICTIONS OF urban civilization that entwine most American cities. Nestled against the Rockies, the city reflects its rugged geography, allowing its half-million residents latitude to be who they are and to do what they think they must. Rules, while not to be openly flouted or broken, are often considered mere guides. Opportunity is to be pursued, and luck is to be made. For the past 20 years, it is from here that John Malone has dominated the television cable industry.

Possessing the spirit of a cowboy and the heart of a gambler, the 6-foot, 1-inch Malone rode into Denver in 1973 at the behest of Bob Magness, an Oklahoma cottonseed salesman and part-time rancher who had mortgaged his home to get into the cable business 20 years earlier. While Magness had built Tele-Communications Inc. into one of the country’s largest cable companies, its foundation was a pile of debt that was fast coming due. Magness turned to Malone.

By any measure, Malone was overqualified for the job. He had graduated from Yale University in 1963 with degrees in economics and electrical engineering and the next year earned a master’s degree in industrial management from Johns Hopkins. In 1965, Malone added another master’s in electrical engineering from New York University, and two years later, he was awarded a doctorate in industrial engineering from Johns Hopkins.

By 1970, after stints at AT&T;’s Bell Laboratories and the management consulting firm of McKinsey & Co., Malone was president of General Instrument Corp.’s Jerrold Cable equipment division. There he caught the eye of the late Steven J. Ross, then chairman of Warner Communications. When Ross asked Malone to head up Warner’s new cable operations, Malone begged off, explaining later that he knew he wouldn’t be given the freedom and power he wanted in an organization already under the control of such a strong leader. But when Magness called from Denver offering Malone the presidency of TCI and a handsome ownership stake in the fledgling operation, Malone saw not only the corporate opportunity he had been waiting for but also the vehicle for creating an entire industry from scratch.

“John felt constrained by his previous corporate experiences,” says an associate. “They were too conservative, too corporate, too structured. He likes a more entrepreneurial environment, a chance to exercise his ingenuity to produce a product that people will want to buy. That has always been the ultimate test for him.”

Malone’s early days at TCI were a struggle. At one point, the legend goes, Malone was so besieged by creditors that he threatened to close down the company if they didn’t give him operating room. They backed off, and the negotiating style of TCI was born. Over the years, similar take-it-or-leave-it plays have been repeated by his employees. Stuck in cable rate negotiations with local regulators in Vail, Colo., in 1973, TCI operators turned off programming for a weekend, running nothing but the names and home phone numbers of the mayor and city manager. Years later, in Jefferson, Mo., TCI threatened to go dark if the city failed to renew the company’s franchise. The city caved in but later was awarded about $36 million from an antitrust lawsuit against the company. As a result of many municipal face-offs, TCI was long considered one of the worst cable franchisers to deal with, a reputation it is only now slowly shedding.

“They are not as confrontational as they used to be. The level of sophistication has increased, and there aren’t as many double-knit suits making their deals,” says Nicholas P. Miller, a Washington attorney who represents several cities in their cable negotiations. “Let’s just say they don’t walk into a room with a .45 on their hip. In TCI’s terms, this is warm and fuzzy.”

Until a few years ago, Malone concentrated on expanding TCI’s cable-system holdings. Completing acquisition deals at an astonishing rate of about one every two weeks, Malone turned the company into the nation’s largest cable operator, with annual revenues of nearly $4 billion, direct service to about 10 million subscribers in 48 states and minority interests in other cable operators with 3 million additional customers. But the company hasn’t posted a profit since 1988. “Every good new idea will lose money in the first few years. I always say, when you start to show earnings,” Malone says, “you’ve run out of good ideas.” In recent years, with subscribers in tow and ideas flowing, Malone expanded into cable programming. His first big deal remains his most remarkable feat. It was 1987, and Ted Turner’s broadcasting company was drowning in the debt he took on to purchase the MGM-United Artists film library. Recognizing an opportunity that another company would seize if he didn’t, Malone led a consortium of cable companies, including Time Warner Communications, that invested $568 million in Turner. The deal gave TCI a 12% stake in the company, whose CNN channel reaches more than 55 million of the nation’s cable subscribers, as well as three seats on Turner’s board of directors. Wall Street analysts say Turner now wishes he could reverse the decision in order to exert full control over his company. However, reports of a serious rift between the two men earlier this year appear to have been overblown. “Ted and John have kissed and made up,” says one close associate of Malone.

Malone has been described, condescendingly, as a mere asset manager, an investor who dabbles without seeking control. He thinks such a strategy is admirable. “I like to think of myself as a portfolio manager,” he says. “We think of ourselves as investors in a business even if we own 100% of it. The owner is the person charged with running it and making it work. Our job is to help out, be demanding and allocate resources.” Malone’s style has been to back ambitious entrepreneurs and leave them alone. “I don’t like to run things, but I invest in people who do, in someone whose whole personal net worth is invested in his own success. Maybe some businesses can’t be run that way, but I haven’t run into any yet.”

Malone’s programming investments over the past several years include TCI’s interest in the Black Entertainment Network, the Prime Network group of sports channels, American Movie Classics and the Discovery Channel. Those pale, however, in comparison to TCI’s new arrangement with Carolco, a deal Malone has been trying to make for at least two years. According to several associates and Wall Street analysts, he had been angling to invest in a Hollywood studio--20th Century Fox was said to have been his first choice--in order to secure pre-theater release rights on cable TV for a handful of blockbuster movies. When the big studios resisted his overtures, Malone turned to financially strapped Carolco, promising close to $90 million in cash in exchange for rights to air up to four movies on pay-per-view cable--possibly for as much as $40 per viewing-- before they are shown in theaters. With about 20 million homes now equipped to participate in pay-per-view cable, even a 10% draw--2 million homes--could generate one-night revenues of $80 million, nearly the $100-million threshold that movies must hit throughout their entire theater run to be afforded blockbuster status.

“This is going to get the attention of the studios in Hollywood,” says Bill Daniels, founder of Daniels Communications and a longtime associate of Malone. “This is the big move . . . the move that could bring big changes in Hollywood, not just on cable TV.” Hollywood studio executives aren’t so sure, arguing that a down-on-its-luck production company isn’t likely to set a trend.

Malone’s other big mega-deal before Carolco occurred two years ago. In a complicated transaction, Malone, as chief executive of TCI, spun off most of the cable company’s programming properties into a separate corporation, Liberty Media Corp. “The Liberty deal is the most salient example of his genius,” says Jeff Marcus, a Dallas cable operator. In the past two years, Liberty has been the best-performing stock on the Nasdac exchange, rising from the equivalent of $1.50 per share to its current price of nearly $18. The deal has made Malone and his investors rich--Malone’s 22% stake in Liberty alone is worth between $400 million and $500 million. (At TCI, Magness is still chairman and largest single stockholder; Malone has about 2%.)

Since the spinoff, Malone, now Liberty’s chairman, has gone on a shopping binge on behalf of the programming company, buying the QVC shopping network along with former Fox network chairman Barry Diller and, more recently, negotiating to buy the rival Home Shopping Network. The latter deal ran into trouble several weeks ago following revelations of financial irregularities at HSN, and Malone withdrew Liberty’s $9-per-share offer for the company. After Malone’s pullout caused HSN stock to plunge, Liberty reversed itself and came back to the table--this time at $7 per share. “This guy is not in business for charity,” says Rick Michaels, a cable-system broker in Tampa who has known Malone for more than two decades.

“The genius of the man is his knowledge of the operational and technological sides of the business,” points out Richard D. McCormick, chairman of U.S. West, the Denver-based telephone holding company that is both Malone’s business partner and rival for part of the emerging entertainment and information businesses. But then, McCormick adds, “there’s the fact that he has a strong sense of programming, an absolute understanding of finance and a flair for creative deal making. And the thing is, he only keeps getting better at it.”

But Malone’s deals have generated some unwelcome scrutiny from politicians and regulators who fear that too much power over both the pipeline and its contents has been concentrated in one individual. Sen. Howard M. Metzenbaum (D-Ohio), chairman of the antitrust subcommittee of the Senate Judiciary Committee, demanded that the Justice Department review Malone’s planned purchases of the Home Shopping Network and QVC for potential monopoly implications. “The conventional wisdom in Washington,” says a Metzenbaum aide, “is that there is no effective separation between TCI and Liberty Media.”

Although the Justice Department decided not to challenge Malone’s HSN and QVC transactions, finding no apparent violation of antitrust laws, Washington is sure to remain focused on Malone’s progress. “Government will have a point of view,” Malone says in a typical understatement.

AN OUTSIZED MAN IN EVERY WAY, Malone lumbers into a modest-size conference room just down the hall from his office. He rises on the balls of his feet as he crosses the floor, like a high school athlete. He grabs a doughnut and devours it in a few bites, but not before joking about who’s responsible for paying for the coffee and breakfast rolls for this early-morning interview. It’s the last bit of levity of the morning.

Despite his daunting physical presence and intellectual ability, Malone is a surprisingly unassuming man. He is quiet, unpretentious and modest, given the huge-ego league in which he’s entitled to travel. When he’s in town, he can be found here in TCI’s glass-and-steel headquarters tower in Englewood, just outside Denver. Purchased 18 months ago at a bargain-basement price from Resolution Trust Corp., the savings and loan cleanup company, in yet another example of Malone’s tightfisted corporate management, the high rise is strictly utilitarian. There are no frills, no artistic conceits.

With technology advances exploding around him and deals being struck at a rapid pace by all the major players and wanna-bes, Malone says his goal is to keep TCI tightly disciplined and focused on what can be accomplished immediately. “The public doesn’t give a damn about the technology,” he says. “That’s why it’s important that we focus on the services that it can deliver.”

Cable-industry analysts find Malone candid and open about his plans for the future. “He’ll tell you more in 10 minutes than most executives will in a half hour,” says Sharon Armbrust of Paul Kagan Associates, a media-market research firm in Carmel. “The only problem is that most of us just don’t understand the full impact of what he’s saying. He’s laying it all out for us to hear, but his thinking is so far ahead of the pack that the rest of us just don’t get the picture.”

Cable entrepreneur Daniels finds “an air of mystery” about Malone, admitting that even after five years of sharing box seats at Bronco football games, he finds him “hard to know.” “He’s just not a talker, not a socializer” says Daniels. “He’s got a fast wit, and he’s very secure about who he is. He’s just into his family and his business, which he thinks about 80% of the time.”

A few years ago, Malone made news by declining to air the Playboy Channel on subscription services unless a franchise specifically requested it. And Malone still asks cable services to “refrain from scheduling it during times when children could be exposed. I’m not a prude,” he adds. “I am a First Amendment believer all the way. . . . We’ll have (the Playboy Channel) on the shelf if anybody wants it.”

Malone’s habits are not those of a workaholic. Generally, he’s not at the office before 8:30 in the morning, and on most days, he’s gone by 5:30 p.m. He usually goes home to his huge new spread in nearby Parker for lunch with Leslie, his wife of nearly 30 years. Their two children are grown, and the elder, a daughter, made them grandparents last year. Come summer, the Malones drive east in their specially outfitted RV--she’s afraid of flying--to spend a month or two in their vacation home in Booth Bay Harbor, Me. Malone is in constant contact with the office, although, as an avid sailor, he spends as much vacation time as possible on the water. Back home in Colorado, he collects vintage luxury cars and is known as a prodigious reader with a particular fondness for mysteries.

And he likes TV. “I grew up in front of a TV. I did my homework in front of it. I don’t always watch it, but I get lonesome if it isn’t turned on.” His favorites are the Discovery Channel, the Learning Channel and CNN, but “my wife always grabs the remote from me and switches it to a movie.”

TUCKED AWAY IN A STRIP mall in Littleton, a Western-style, “Leave It to Beaver” suburb just south of Denver, are the electronic guts of the technology that will power Malone’s cable company into the 21st Century. Housed here, at the vortex of a web of fiber-optic and coaxial cables, are four personal computers, about 50 VCRs and nearly 2,000 movie cassettes--the basic ingredients of a crude prototype of the video lending library that is to become the much vaunted “video on demand.” At the other ends of the fiber and coaxial network are 300 families--a test audience--and their remote-control zappers.

Click. Click. A zapper aimed at the experimental black box sitting atop the TV signals Malone’s lending library that a customer is placing an order. Within minutes, a worker--when the real thing comes, the system will be automated--stuffs a cassette into a VCR. Then, one of the computers orders the VCR to play the movie on the appropriate customer’s television. And so it goes, day and night, every day of the week as Malone prepares to take a huge bite out of the $12-billion video-rental business. Although the Littleton rehearsal is a decidedly Rube Goldberg operation, it should not be taken lightly.

“This is what the future will look like, and Malone has understood it better than anyone,” says former Time Warner president Nicholas. Video on demand, or “Viewer Controlled TV,” as the Littleton experiment has been dubbed, is the linchpin of Malone’s carefully crafted strategy in a coming battle between his cable television and a rival system promoted by the nation’s phone companies. The result will determine the principal communications pipeline into America’s homes. Even as the cable industry charges ahead, the phone companies are developing their own versions of dial-up movies for the nation’s couch potatoes and pushing federal legislators and regulators to let them compete for a bigger piece of the video market.

By many reckonings, the cable industry enjoys the advantage for now. The fiber-optic and coaxial lines that compose cable’s network have the greatest capacity--it’s called band width by techies--to carry video signals. And although local telephone companies have been adding fiber to their networks at a record pace in recent years, they are prevented from offering video entertainment on the same terms as cable companies by regulatory restrictions dating back to the breakup of AT&T; nine years ago.

Malone recognizes that he has been dealt a window of opportunity to get his system in place first. But if the technology is deployed before it’s perfected, its poor quality could sour customers on the new products.

With cable operators facing a mandatory rate rollback imposed by the Federal Communications Commission under Congress’ order to re-regulate the industry, viewer-controlled TV could let the cable companies make up for revenues lost to re-regulation. Currently, the government’s new cable regulations cover only basic services, not premium packages, and certainly not the new on-demand services. “The re-regulation of cable addresses the cable of the past, not the cable of the future. And Malone knows that,” says Mark Riely, a stock analyst at the MacDonald Grippo Riely investment house in New York.

Michaels, the Tampa cable-system broker, says it’s no simple coincidence that Malone announced three major deals--the $2-billion deployment of fiber-optic lines, the introduction of Sega Channel and the proposed $90-million investment in Carolco--in the weeks following the FCC’s forced cable rate cutting. Malone’s aim, Michaels says, is to show the industry how to get past the current crisis and focus on the future. “While most executives deal with their in-box every day, John looks at a time horizon three to seven years out,” says John Hendricks, chairman of the Discovery Network, of which TCI owns 49%. “That’s where he lives, in the future.”

There is, for instance, the possibility that we may be able to get telephone service from our cable company. Cable operators across the country have been investing in small, alternative phone companies that connect businesses to their long-distance carriers by bypassing the local phone company. TCI has a major stake in the largest of these, Teleport, and is gradually aligning its cable network to mesh with the Teleport system. Ultimately, analysts say, Teleport-type services, which are usually less expensive than the local phone companies’ connections, could be available to residences through the cable network. But the telephone companies are taking aim at cable as well.

JON BON JOVI’S RAUCOUS “Blaze of Glory” video may not be what you’d take to Congress to plead your case, but as the driving beat of the rock group bounced off the walls in the Rayburn House Office Building last month, at least one congressman was impressed with what he saw. “That’s better quality video than what I get on my VCR,” exclaimed a surprised Rep. Edward J. Markey, chairman of the House subcommittee on telecommunications and finance.

The video had been transmitted to Capitol Hill using ordinary telephone wires, the two twisted strands of copper that compose the bulk of the nation’s local telephone networks. Markey’s reaction was just what the lobbyists from Bell Atlantic, the East Coast telephone company, had been counting on. After all, if high quality video can be delivered over the network that already serves virtually every American home and business, why would consumers want to turn to the cable companies?

The Bells, as the seven offspring of American Telephone & Telegraph are called, aren’t the only companies chasing this new market: Newspaper publishers, computer manufacturers, Hollywood studios and software publishers are all scrambling for a piece of what is expected to be the largest new business opportunity of the coming decade.

But the race is most urgent for the Bells, who know that if they lose, they stand to hand over a large piece of their local telephone franchise to the cable companies. “This is ‘War of the Worlds’ stuff,” says William Davidson, a USC business professor and telecommunications expert. “The telephone companies have 10 times the money of the cable companies, but the cable-television industry is more dynamic, and it has more momentum at this point.”

The once-sleepy telephone-monopoly fiefdoms do have lots of money--revenues last year for the Bells totaled $85 billion--and they are showing increasing signs that they will not give up either their core business or the chance to participate in the emerging markets. “Just because the race has started doesn’t mean you have to declare a winner,” advises Bruce Egan, a researcher at Columbia University’s Institute for Tele-Information in New York. The Bells have an increasingly sympathetic audience in the Clinton Administration, particularly with Vice President Al Gore, and on Capitol Hill. (While still a senator, Gore not only co-sponsored the cable re-regulation bill, he called Malone a “monopolist bent on dominating the television marketplace.”)

No fewer than 72 experiments are under way to probe consumer interest in services ranging from Bell Atlantic’s dial-up movies to paperless bill paying to elementary-school tutoring. In just the past few months, several Bells have struck groundbreaking deals, some even with their archrivals, the cable companies.

U.S. West, the Baby Bell headquartered just across Interstate 25 from TCI, has been among the most aggressive and innovative in finding partners for its new ventures. And guess whom it chose? Two years ago, TCI and U.S. West formed Tele-West to offer cable television and telephone services in the United Kingdom following the breakup of the government-owned communications monopoly. “We’ve learned a lot from John,” says U.S. West chairman Richard McCormick. “There’s no bureaucracy where he comes from, and he expects all his employees to contribute. You don’t just push paper.” For Malone, Tele-West offers a chance to test the full range of the available technology without any interference from government regulators--just what he, and his competitors, would like here at home.

“If I’m a smart phone company, I’m looking for ways to hook up with this guy,” says former Time Warner executive Nicholas.

John Malone’s Long Reach

Cable baron John Malone, CEO of $4-billion-a-year Tele-Communiations Inc. (he now owns 2% of its stock) and chairman of $156.5-million-per-year Liberty Media (22%), wields influence over a broad television empire:

Tele-Communications Inc.’s holdings:

Discovery Channel: 49%

Turner Broadcasting: 12%

Teleport less than: 49%

Liberty Media: 5%

Liberty Media’s holdings:

Black Entertainment Television: 17%

Courtroom TV: 33%

QVC: 23%

American Movie Classics: 50%

Encore Movies: 90%

Home Shopping Network: 23.5%

Family Channel: 16%

Prime Network: 38%