Brave Talk From The Foxhole

Cable veteran John C. Malone doesn't mince words. This interview with Los Angeles bureau chief Ron Grover proved no exception. Grover caught up with Malone at the suburban Denver offices of Tele-Communications Inc.

Q: The Baby Bells vow to take a big chunk of your video market. Will they?

A: That's like Hitler invading Russia and assuming there would be no retaliation. The reality is that no one really knows how, if, or when the competition will evolve. So far, it's just a war of words but not much action. They've announced all kinds of multimedia program ventures, but you can't point to anything that they've actually done.

Q: They plan to offer a wide range of interactive services--

A: Market research shows that there are very few services the public has any interest in on any scale. I think we pretty much know what the locomotives have to be to carry these investments. Video-on-demand is a revenue generator, but not nearly as big as they think. I wish I had kept a file, but at one time [Bell Atlantic Corp. CEO] Ray [Smith] had video generating something like $10,000 of revenue per household in New Jersey. Even the Mafia doesn't have that kind of disposable income for communications. It was getting to the point of being silly.

Q: Are you as capital-constrained as the telcos say?

A: I have the money I need to do what I want. I built this whole company on a bootstrap. The wonderful thing about doing that is you don't get out of whack with reality. Our strategy is to add services incrementally, using technology as efficiently as possible. We're not building a field of dreams--you know, build it and they will come. The first set of services for the Information Superhighway will be digital TV, which we'll start late this year, then asymmetrical interconnect for personal computers. By building on what we have, we'll end up with a much lower marginal cost structure, and that will allow us to underprice our competitors.

Q: You mean the telcos?

A: Sure. Their entire cost structure is just so much higher than ours. Big overheads, unionized workforce. They are loaded up with 100 years of detritus--you know, loose stuff on the bottom of the ocean. It's the residual of having been around for a long while. The real point is: At what stage will they be willing to sacrifice their dividends and their stock prices for a war of attrition?

Q: They've signed agreements with Michael Ovitz and Disney to create programming. Does that worry you?

A: I'm not sure what it gets them. I mean, I may be smoking pot or something, but I thought I had a 15-year contract for all of Disney's movies. And Mike, he's a broker. I've never known a broker to take sides. He'll work for anyone. They say they want guaranteed access to programming, but that's like saying you need to own a share of stock in a dairy to get milk. Money buys programming. Anyone with good programming is going to want to distribute it as broadly as possible. They're not going to say: "I'm only going to sell my product to Ray Smith's subscribers." This is brain damage. Most of what they are doing is designed to stop their competitors from raising capital.

Q: The cable system that you and U S West jointly own in Britain has captured 30% of the phone market. Is that a model for the U.S.?

A: Or more. It depends on whether you can offer a superior product. We think our PCS [wireless telephone] product will be superior to anything the public has now, and we'll be able to price it more competitively. So, yeah, we think we can capture a substantial market share.

Q: The Baby Bells would dispute that.

A: How do they know? It's been years since they competed with anyone. Let's face it, if you give those guys three drinks, they'll admit they're still two generations away from becoming entrepreneurial. They're moving in that direction, but they're a long way from normal competitive practices.

Q: You're buying a lot of cable systems. How big does Tele-Communications Inc. intend to grow?

A: There is a benefit to growth in terms of being able to meet the competition, but we're not interested in growth for growth's sake. That's why I laugh when I see the Time Warner folks saying they're going to be so big. If we counted the way they do and included our affiliated companies, we'd be twice as big as they are. But the object is not to be the biggest, it's to be the richest. The biggest is the one that gets investigated by the federal government.

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