Malone Backtracks in Digital Cable Battle

Cable TV mogul John Malone, notorious for picking losing political battles with Washington regulators, was at it again this week.

Malone set off a firestorm Tuesday after asserting that his company, Tele-Communications Inc., would not voluntarily carry the new high-definition television signals of CBS and NBC when the networks begin broadcasting them in November. Among other things, the comments seemed to contradict testimony that TCI President Leo Hindery had given to Congress last week.

Now Malone is drafting a letter to half a dozen regulators and lawmakers backpedaling from those statements.

Malone’s outburst and retreat come at a sensitive time for cable and angered many of the industry’s top executives. The industry is fighting vigorously to keep regulators from mandating that they carry digital broadcast signals, arguing that such action would force them to drop scores of cable networks to make room for the new channels.

In an impromptu conversation with reporters Tuesday at an industry convention in Atlanta, Malone said that while his advanced digital set-top boxes will pass through the formats chosen by ABC and Fox, TCI will not make the sacrifices necessary to work with the more demanding standard adopted by CBS and NBC.

Within three hours, TCI, the nation’s largest cable operator, put out a statement aiming to dampen the comments, asserting that the company was continuing to work “to accommodate” NBC and CBS. Now the temperamental TCI chairman is ready to retreat from his position, explaining in a letter to watchdogs such as Federal Communications Commissioner Susan Ness and House telecommunications subcommittee Chairman W.J. Tauzin (R-La.) that he is prone to hyperbole and jargon that could be misinterpreted.

TCI contends that it would have to give up certain interactive functions such as home banking and shopping to make room for the more demanding formats of CBS and NBC--or invest an additional $100 in processing power, bringing the total cost of the new digital set-top box to $400.

Malone’s resistance to voluntary carriage raised the shackles of Washington lawmakers, who held hearings last month to ensure that the cable industry is prepared to carry the broadcast signals. In testimony, the industry’s two top companies, TCI and Time Warner Inc., said they could pass through to their customers all high-definition formats, although many broadcasters noted that lawmakers failed to squeeze commitments from cable operators on their willingness to do so at no additional cost to customers.

Malone’s comments reversed the goodwill generated by the hearings--and undercut the testimony of Hindery, who sources say was livid with Malone.

“If John Malone wants a war, he’ll get one,” said an aide of Tauzin. “After cajoling, prodding and then finally mandating that broadcasters covert to digital, Congress is not going to allow cable to become a roadblock to progress.”

A source supportive of Hindery said Malone’s “comments were ill-conceived and showed an insensitivity toward politics that has been troubling in the past.”

Hindery has been working behind the scenes for several months to strike a voluntary agreement with the broadcasters that would keep the government from stepping in.

Another idea floated by Malone was to place the high-definition broadcast channels on a special tier that would cost cable customers $10 a month, which would be shared with broadcasters to help them pay the bill for converting their analog systems to new digital technology.

But Congress has warned broadcasters against using the spectrum they are getting for free to make money. When Hindery was asked about the scenario at an opening session of the cable convention, he conceded that several options were under discussion with broadcasters.

Malone earned the distinction of being labeled the “Darth Vader” of the cable industry by Vice President Al Gore for his antagonistic approach to regulators. Many in the cable industry blame Malone and TCI’s aggressive rate hikes for triggering rate rollbacks that cost the industry hundreds of millions of dollars in revenues in the early ‘90s.