News Articles

Telcos and TV Don't Mix

Recent history says Ed Whitacre steers clear of DirecTV 2/16/2003 07:00:00 PM Eastern

No. No. No. Not for a New York minute do I believe that SBC Communications will mount a bid for DirecTV. Why? Because nobody knows better than SBC chief Ed Whitacre that the big telephone companies have no business in show business. Ed has been there, done that. And it wasn't pretty.

In fact, all the telephone companies heard the Siren call of TV in the 1990s, and they all learned the hard lesson about how big, fat companies that grew up on monopoly ratepayer profits should avoid a highly competitive business where billions can disappear as quickly as sitcoms with no appeal to 26-year-old high school dropouts.

The telco craze started in the early 1990s when the policymakers in Washington and the courts said the telcos could get into the TV business. The telcos apparently misunderstood and interpreted the rulings as saying they had
to get into TV. So off they went.

Even the long-distance companies got burned. AT&T, in fact, was the biggest loser of all. It thought it could reinvent itself as a full-service provider of telephone and television service if it could buy a big enough cable footprint. So, starting in 1998, AT&T boss Mike Armstrong spent more than $100 billion buying up Tele-Communications Inc. and other big cable companies. But no sooner had he amassed the properties then he discovered he couldn't manage them and began looking for a buyer. He found one in Comcast—and booked a cool $20 billion in losses.

You've got to give Bell Atlantic some credit. It made a deal to acquire Tele-Communications Inc. in 1993, four years before AT&T. But, before the closing, some Bell Atlantic executives apparently visited the TCI systems. Instead of on-ramps to the information superhighway, they found the two-lane asphalt roads of community-antenna television. Never mind, Bell Atlantic's Ray Smith told TCI's John Malone in February 1994.

Let's not forget two of the biggest telco cash sinkholes: Tele-TV and Americast. At the height of the telco TV craze in the mid 1990s, each of the big telcos poured money into one of these two ventures in an effort to jump-start its entry into TV. SBC, Bell South, Ameritech and GTE formed Americast with Disney, while Nynex, Bell Atlantic and Pacific Telesis joined forces under the banner of Tele-TV.

For a few years, the two ventures brought in high-power talent (CBS's Howard Stringer ran Tele-TV; ABC's Steve Weiswasser, Americast), rented offices, plotted strategies, developed services and spent money, lots of money.

And then suddenly they were closed down, with no clear public accounting of just how much had been spent or what they had accomplished. Americast seems to have been a mere funnel for money leading from the telcos to Disney.

Americast was not SBC's only misstep. In 1993, it purchased Gus Hauser's big systems in suburban Washington for $650 million. But, discovering shortly thereafter that the Clinton FCC intended to regulate cable, it put the systems back on the trading block. In 1997, it finally sold them to Prime Cable, which turned around and sold them to Comcast.

About the same time it was figuring out that the Hauser buy was a mistake, SBC called off a planned $4.9 billion cable joint venture with Cox Enterprises Inc. SBC joined Americast in 1995, but, before long, it quit sending in its checks.

By 1996, Whitacre concluded that what telcos are best at is running telcos. So, instead of rolling up cable companies, he focused on his fellow regional Bell operating companies.

During a Senate hearing on his acquisition of Ameritech, Whitacre said the company's aggressive cable overbuilding program in the Midwest "looks real good." Once the deal was done, though, he pulled the plug, lumping Ameritech New Media in on a $2.3 billion write off.

Southern New England Telecommunications executives professed love for the cable business, boasting that it would build a system to serve the entire state of Connecticut. But, in October 1998, Whitacre bought the company and promptly shut down the cable unit, saying it was uneconomical.

The same happened with Pacific Telesis. After buying it in 1996, SBC shuttered its wireless cable system in Los Angeles and its overbuild in San Jose, Calif.

Come now, does SBC sound like a company hankering to get into a bidding war with Rupert Murdoch to enter a business in which it will have to battle Charlie Ergen and nasty entrenched cable operators who seem to be adding new channels and services every day? I don't think so either.

Jessell may be reached at hjessell@reedbusiness.com

September
October