Whining About FCC Rollback Won’t Pave Information Highway

“ Oh what a tangled web we weave When first we practice to deceive “

“Ill-advised, improperly based, probably illegal and probably unconstitutional,” fulminated TCI’s John Malone about the Federal Communications Commission’s proposed cable rate cuts, which purportedly cratered his company’s multibillion-dollar multimedia merger with Bell Atlantic.

“The unsettled regulatory climate made it too difficult for the parties to value the future today,” Bell Atlantic Chairman Ray Smith coolly explained.

The FCC’s decision “did not in any way make the future of the cable industry more unsettled,” insisted FCC Chairman Reed Hundt. “Our adoption of a comprehensive set of regulations clarified the industry’s future.”

Yeah, yeah, yeah. . . . Still, you almost have to feel sorry for Malone and Smith. Barely five months ago, they were heralded as gutsy visionaries who were going to reinvent telecommunications--the Wilbur and Orville of multimedia.

Today, they’re portrayed in the business media as just a couple of hype-spewing klutzes who couldn’t close a deal. Fickle, fickle, fickle. . . . Those clever Wall Street analysts, of course, knew it all along.

What’s so baffling, however, is not that the Bell Atlantic/Tele-Communications Inc. acquisition fell apart, but the bizarre reason the parties offered for its collapse. An excellent case could be made that the deal collapsed because Bell Atlantic shares--and then TCI shares--eroded because investors (for whatever reasons) felt the deal was just too pricey.

As a result, Bell Atlantic and TCI simply couldn’t come to terms. That’s a good, honorable reason for a deal to fail. You would think Malone and Smith would be comfortable saying that.

Instead, Bell Atlantic and TCI blamed the FCC’s proposed 7% cable rate rollback--which the entire cable industry knew was coming--as the deal breaker. That is downright weird. Are they being serious? Or are they telling a little multibillion-dollar white lie that will come back to haunt them?

Of all people, Bell Atlantic’s Smith should know that telecommunications deregulation over the past 12 years has aimed to promote competition, cut prices and encourage innovation. Thanks to divestiture, competition and new technologies, AT&T; has cut its long-distance rates more than 40% over the last decade. Emerging competition is now beginning to cut prices for cellular phone services. If you want to talk about truly vicious price competition, look at the personal computing industry John and Ray claimed they wanted their massive multimedia merger to embrace. PC and peripheral prices regularly plummet 15% a year. Hey, you can even rent a hit movie for $1.99 a night.

So when competition finally comes to local cable and telephone companies, do Ray Smith and John Malone think they’ll only have to cut their telecom prices by a measly 7%? The fact that they blame government regulators for blowing their deal reveals that these guys are out of touch with the marketplace they ostensibly want to serve.

Why did they think cable got itself re-regulated in the first place? Because everybody loved their local cable company and felt they were getting terrific service? These guys are whining that they need to charge their customers more in order to pave their (groan) information superhighway. Sorry, but that’s not what a competitive marketplace is all about.

But why should that be a surprise? TCI has no real competition in most of its markets. It’s a legal monopoly. So is Bell Atlantic. Malone and Smith may be visionaries, but they are practicing monopolists. They’re not comfortable with the concept that the future of their industry lies not just in providing mind-boggling interactive multimedia services, but in price wars as intense as anything the airlines have waged.

Wait till the Frank Lorenzo of cable TV emerges. Then let’s see how tough a competitor John Malone or Ray Smith really is. Consider the FCC rate cut an interesting test of how local cable companies might respond to future price competition. TCI and Bell Atlantic have failed that test with flying colors. The message is that a merged TCI/Bell Atlantic wasn’t prepared to compete on price.

On the other hand, if the FCC’s rate cut wasn’t the real reason for the breakup, then you have the leader of the nation’s largest cable company and the chairman of one of the largest telephone companies telling what can politely be called an untruth.

Why would they do this? Do they believe that blaming “the government” will help them in some way?

Similarly, the nation’s broadcasters have been ardently lobbying Congress for the right to take new frequency spectrum allotted to high-density television and use it, if they like, for pay TV or other services. If not, they make no promises about any new service being developed. What are they prepared to pay for this additional flexibility and capacity? Why, nothing, of course. Talk about a government entitlement program! Make them bid for the frequencies, don’t just give them away.

The common theme here is that the telecommunications industry is now trying to paint Big Government and regulation as the obstacles to their progress and to innovation. It won’t work. The real barrier to innovation is that the technology for the right price just isn’t here yet. Look at Time Warner’s delayed experiment with high-tech cable TV in Orlando, Fla.

By treating government as the enemy, the telecommunications industry thinks it can get the people on its side. The industry is wrong. What it will discover is that people will welcome even more government intervention, because that’s the only relief they see from the imperial behavior of the Smiths, Malones and their broadcast brethren, who are asking them to pay more at a time when competitive pressures are holding everything else down--including their paychecks.