Malone again, Naturally

AT&T's disgruntled director speculates about cable sell-off
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John Malone has been particularly divisive lately. He waged a successful campaign to pressure AT&T Corp. Chairman Mike Armstrong to spin off AT&T's Broadband cable unit and its other operations into distinct public companies. Malone wants to boost the value of the once multibillion-dollar chunk of AT&T shares he got by selling Tele-Communications Inc. to the telco last year.

At the same time, he won freedom for his Liberty Media Corp., his tracking-stock subsidiary of AT&T that will now be fully separated and run as an independent company.

In an interview with BROADCASTING & CABLE Deputy Editor John M. Higgins, Malone assessed AT&T Broadband's prospects, defended Liberty's investments and assessed the fire sale among Internet companies. An edited transcript follows:

How long will AT&T Broadband last as an independent company? Other MSOs seem to want to swallow it fast.

It's entirely a function of how they structure the split-up of the business. If they just put a bow around it and kick it out the door, there will be a feeding frenzy of people wanting to do a deal with them.

As a director, will you push for it to be attractive as a takeover or protected to let it build up more value?

I would hope that AT&T says: "Here, we have three open companies and the store is open every day. We'll talk to anybody about anything that creates value for our shareholders."

One of the principal reasons you have an independent company is so it can carry a buyout premium in its stock, which helps you raise capital. Whether it wants to get taken out or not, whether anybody ever does take it out or not, it's nice to have the premium in your stock. When it's a tracking stock or you have a controlled company, you trade at a substantial discount because nobody can buy it. That's one of the reasons people invest in stocks, because of the potential consolidation or acquisition. Sure you want that.

Will they do that or will Armstrong get tied up in the politics of what's gone on there?

I think they'll do exactly that.

What's the value of AT&T's cable systems when they come loose?

Right now, their financial results, other than revenues, are very depressed by the aggressive nature of their service deployment. You can take your foot off the accelerator and the fuel consumption goes way down; it'll look terrific six months later. But that would be unwise. You want to make hay while the sun is shining. That's what Dan [Somers, AT&T Broadband chairman] is doing. Until he runs out of money, if he runs out of money.

I wouldn't have sold the company to AT&T if I had enough money to do what they're doing now, which is aggressively deploying these multiple services. It's the right thing for a cable guy to do; it's just very painful in the financial marketplace to see your earnings go down, your cash flow go down and your capital spending go up unless somebody is willing to look through that and say, "Yeah, but you're running a hell of a lot of units." This is for patient investors, not guys who are trying to make a quick Internet killing. Day traders are dead.

The dotcom stocks a year ago, were they appropriately valued, or overvalued?

Most of them were grossly overvalued against their business plans. If you believe their business plan and did the present value calculation, they were still overvalued. So the market was exuberantly irrational to the extreme.

You complain that Wall Street doesn't look beyond the near term. But then investors were looking long term. You never complained that they were wrong at the time.

Why would you complain about that? I'm not complaining today. There's opportunity on both ends of the spectrum. There's opportunity to make a lot of money in an exuberant marketplace if you're smart enough to cash out when it's hot. There's certainly opportunity to pick through the debris in a severely down market and find the opportunity on a selective basis because there are not many people picking through the debris. Limbo is when things are sort of [moderately] valued and not going anywhere. Then it's very hard to do.

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