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Tele-Communications Inc.

From Wikipedia, the free encyclopedia

Tele-Communications, Inc.
Traded asNASDAQ: TCOMA
IndustryCable television
FatePurchased by AT&T Corporation for broadband Internet services
Cable television systems sold to Cablevision and Comcast
SuccessorAT&T Broadband
Founded1968
Defunct1999
HeadquartersDenver, Colorado, USA
Key people
John Malone

Tele-Communications, Inc. (TCI) was a cable television provider in the United States, and for most of its history was controlled by Bob Magness and John Malone.

The company was started in 1958 in Bozeman, Montana as Western Microwave, Inc. and Community Television, Inc., two firms with common ownership.[1] The companies merged in 1968 and operations moved to Denver, taking the name Tele-Communications Inc. It was the largest cable operator in the United States at one time.

After going public in 1970, the company grew rapidly, and became the top cable provider in the United States. After a failed merger attempt with Bell Atlantic in 1994,[2] it was purchased in 1999 by AT&T, whose cable television assets were later acquired by Charter Communications and then Comcast Corporation.

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Transcription

Undoubtedly, one of the greatest inventions of the 19th century was the telephone, and it is safe to say that the world would not be the same without it. That’s why today we’ll be exploring the company that built the American telephone system and that remains the world’s largest telecom business to this day, AT&T. This video is brought to you by Tab for a Cause, a free browser extension that donates money to charity with every new tab open without costing you a single dime. While there is some controversy over the true inventor of the telephone, it is Alexander Graham Bell that was awarded the patent and it was his company that would go on to spread it across America. The phone came to life on March 10, 1876 and the first phrase ever whispered down the wires was “Mr. Watson, come here. I want to see you”, spoken by Bell to his assistant. Just a year later, he had already found several financiers to back his invention, including J. P. Morgan, and thus in 1877 they set up the Bell Telephone Company and then the New England Telephone company in 1878. Their model was to license the telephone to local operating companies around Chicago, Boston and New York. Bell himself was much more focussed on his work as an inventor and by 1879, he had sold his share in both companies to a group from Boston, who consolidated the two parts into the National Bell Telephone Company. If all these different names sound confusing, well, I see your point, but the real history of AT&T is all about whether it’s one company or many. If you look at the largest telecom businesses in the world, you’ll see that most of them were state-run telephone operators. China Mobile, Deutsche Telekom, Telefonica; all these and others started out as government entities that were originally run by the post office. But the US never had a state run phone operator, partly because it goes against the nature of American values, but also because, for America, the telephone service was a business first and utility second. So, why did the Bell company license out the operating service rather than building it’s own networks and having complete control? It’s not like they had any rivals and they did own the patent. In short, it was simply a matter of time and capital. Bell’s patents weren’t indefinite, so the Bell company had a limited time to cover as much area as possible, before competitors could pop up. By licensing, it could avoid spending the millions of dollars necessary to set up the telephone service in a new area. Instead, it gave 5- to 10-year contracts to independent operators, who would pay the Bell company $20 per phone per year and then also give it the right to buy the operator's property once the contract was over. It was actually a pretty sweet deal: the company didn’t have to invest a single dime in telephone lines and would get a fixed income, with which to buy out the operator in less than a decade. But Bell had a more important place to spend its money, so in the end the company only bought about a 30-50% stake in most operators. So what was this other project Bell was investing in? Well, part of the deal with the operators was that they could expand in their own territory, but could not link up with other operators, regardless of whether they were a part of the Bell system. This meant that there was no effective way to make long-distance calls, and this is what the Bell company was interested in. It was the only company rich enough to build its own network of long-distance telephone lines, and although in doing so it ended up with a ton of debt, it now had a complete monopoly on the long-distance phone service. The Bell company set up a subsidiary to manage this new network in 1885, and it called it the American Telephone and Telegraph Company, or AT&T for short. Over time, the long-distance network would become the backbone of the Bell company. Even after all of Bell’s patents had expired, AT&T were the only company that could provide service across the whole nation. Of course, local independent operators started popping up left and right and by 1907, they actually ran just over half of America’s telephones. By that point, around 20% of American homes had a telephone, so there was a lot of demand for the service. But while you could use your local operator to call your boss or shout complaints at the mayor, but the only way to make calls outside the city, was through AT&T. Of course, this early network wasn’t particularly good: the service quality was downright abysmal, not to mention the customer support. Because of this public relations crisis and AT&T’s immense debt, J. P. Morgan was able to take control of the company and to instate his own man, Theodore Newton Vail, as president. He set about restoring AT&T’s image, and also decided to invest heavily in research and development, setting up the now-famous Bell Laboratories in 1925. Bell Labs, by the way, is now owned by Nokia and it’s been one of the world’s leading scientific institutes for almost a century. It is responsible for 8 Nobel Prize winning works, including the creation of the transistor, the “C” programming language, and the discovery of cosmic background radiation, one of the key pieces of evidence for the Big Bang Theory. But back to AT&T. By the start of the Second World War, they had $5 billion in assets, which was light years ahead of any other competitor. Thanks to aggressive acquisition tactics, they controlled a huge majority of US phones and ran 98% of long distance lines. They played a big part in the war effort, thanks to the research done through Bell Labs and Western Electric, an early phone manufacturer who they had purchased in 1881. The war effort paid off for them too, since it caused a big jump in long distance calls, which continued even after the fighting was over. After the war came the space race, where Bell Labs was once again a major player, this time with satellite technology. Their communications satellite Telstar 1 was the first to relay television and telephone calls through space, as well as giving the first transatlantic live feed. They worked hand in hand with NASA, but despite their heavily involvement with the government on research and development, there were some big question marks over their business practices, especially around how they controlled the telecoms market. An agreement was signed in 1956 that limited AT&T to the telephone business alone and that also required it to license its patents to anyone who was interested. In 1968, a further ruling by the FCC forced AT&T to allow third parties to connect to their network, in an aim to stop their monopoly over the long-distance telephone lines. This eventually lead to the creation of the answering machine, the fax machine and the modem so, see, the FCC wasn’t always bad. But even after giving away access like that, AT&T still had huge power over the network, and so the government fought a long and bitter battle in the courts that would take 8 years to settle. Finally, in 1982, United States v. AT&T ended with the breakup of the AT&T network, or Bell System as it was called, on antitrust grounds. A total of seven independent companies were carved out of the former AT&T, leaving it a shell of its former self. These new companies came to be known as the Baby Bells. Two of them went on to become Verizon. Another one, called Southwestern Bell Corporation, eventually bought up three of the other Baby Bells and the weakened AT&T itself. In the end, although most of the Baby Bells ended up back together, the breakup did give them a unique opportunity. You see, the 1956 agreement that made AT&T stick to telephone business had prevented them from entering the computer market. So, after 1982, while AT&T did lose power over regional networks, they kept the long distance operations and, most importantly, could finally take a bite at computers...no pun intended. Of course, it wasn’t easy and the next 20 years saw the company constantly changing strategies in order to keep up with the lightning pace of development happening in the computer industry. Its long distance operations were slowly eroded, partly through new legislation, but also thanks to the development of fibre optics, which, coincidentally, was inspired by Alexander Graham Bell’s photophone that had transmitted a voice message using light, all the way back in 1880. By 2005, when Southwestern Bell Corporation finally bought its former parent for $16 billion, AT&T was like roadkill picked apart by buzzards. Only their consumer and business services had remained; their Wireless, Broadband and telephone systems were gone, not to mention Bell Labs. So, the AT&T we know today is really the work of SBC, simply rebranded under this more famous name. Today, the company’s new direction is wireless. Through a series of acquisitions, AT&T became the second largest cellular provider in the US, just barely behind Verizon. In 2015 they also acquired DirecTV, a satellite television service providing some of the biggest channels such as ESPN, HBO, and numerous major news networks. They spent almost $50 billion to get it, but of course the real elephant in the room is AT&T’s planned acquisition of Time Warner. It’s not very clear whether US regulators are gonna approve it, but if they do, the combined company would be the second largest broadband provider in the US. On top of that it would also have ownership of Warner Bros, DC Comics, CNN and a bunch of other major properties. Naturally, monopoly concerns have been raised by pretty much everyone, but this time around AT&T have definitely learnt their lesson. Since 2015, they have spent close to $30 million on political donations and today they have over a hundred registered lobbyists. It’s pretty obvious that AT&T really want this deal to go through, but for now we’ll just have to wait and see what happens. Now, before you click off this video and open a new tab, I want you to check out Tab for a Cause. It’s a free browser extension that modifies your new tab page so that every time you open a new tab, you raise between a tenth and a third of cent for your favorite charity. That might not seem much, but it actually adds up. In fact, so far Tab for a Cause has raised almost $400,000 for charity. This week they’re focusing on Puerto Rico, which as you know was hit very badly by Hurricane Maria and will likely remain without power for months to come. With Tab for a Cause you can help the recovery of Puerto Rico, and numerous other charities across the world, by simply browsing the web as you’ve always done. When it comes to charity, every little bit helps, and collectively we can make a big difference. That’s why I want you to visit the link in the description and to download their free browser extension. I’d love to hear which charities you’ll be supporting, so do let me know on Reddit, Twitter or Facebook. Thanks for watching, and a big thank you to all our patrons for supporting us, and as always: stay smart.

Contents

History

After graduating from Southwestern Oklahoma State University, Bob Magness was a cotton seed salesman and cattle rancher. In 1956, he met two men who were stranded and needed a ride. Learning that they wanted to build a community antenna system in Paducah, Texas, he decided to raise the money for a similar system in Memphis, Texas. He sold his cattle, took out a mortgage on his home and borrowed $2500 from his father. His wife did the office work while Bob put up the wires himself.

Two years later Magness sold the system and was looking for a way to invest the sales proceeds. Another cable pioneer, Bill Daniels, told him about a community antenna system in Bozeman, Montana.[3] The Kearns-Tribune Corp., publisher of The Salt Lake Tribune, which owned a cable system in Reno, Nevada, began relaying signals by common carrier microwave from Salt Lake City in 1956.[4] In 1958 it became a partner with Magness in establishing a partnership for cable TV in Montana. George C. Hatch and Brian Glasmann were also partners in the companies known as Community Television Inc. and Western Microwave Inc. The Magness family moved to Bozeman.[1] Six systems were built, serving a total of 12,000 homes.[3]

In 1962, Magness purchased Collier Electric Company, which had subscribers in Wyoming, Colorado, and Nebraska, bringing the total number of subscribers to 18,000. Magness later moved to Scottsbluff, Nebraska.[5]

Over time, Magness acquired more systems but remained in Bozeman. By 1965, Daniels told him the companies needed to be located in a larger city.[3] Salt Lake City and Denver, Colorado, were both considered.[5] In 1968, the companies moved to Denver and became Tele-Communications Inc.

Tele-Communications Inc. went public in 1970.[3] At the time, it was the 10th largest cable company in the United States. By 1972, with 100,000 subscribers, Magness needed someone with more business knowledge to run the operation. He decided on John Malone, president of Jerrold Electronics, a division of General Instrument. Malone took on the bankers who wanted to call in their loans, and effectively saved the company from bankruptcy. Magness made Malone CEO but remained as chairman. By 1981, Malone had made TCI the largest cable company in the United States.[3][6][7]

In 1982, Malone hired Peter Barton, who called himself the company's "Jimmy Olsen" because he just did whatever was needed, fresh from Harvard Business School. Barton went on to become president of TCI's Cable Value Network (later QVC) in 1986, and in 1991, president of TCI spinoff Liberty Media. Barton had a playful side and even kept toys in his Liberty Media office, and a gorilla costume to represent his status as "second banana" to Malone. Yet he had a reputation as "a shrewd and sometimes vicious negotiator".[8][9]

First Merger

In May 1991 United Artists announced a merger deal with their largest shareholder TCI (now Liberty Media) to form the largest cable operator in the US, a deal valued at $142.5m.[10] TCI and US West announced a joint venture, and in 1992 the joint venture company became Telewest Communications. By June the deal was improved.[11] A week later on June 8 the deal was finalized with TCI acquiring the remaining 46% of United Artists, to allow full control.[12]

Flextech

During the autumn of 1993 talks were also held with Flextech (a British television programming provider). Under the original terms of the proposed deal, Flextech would acquire TCI's European programming business in exchange for shares.[13] By January the deal was complete with TCI [14] acquired 40-60% of Flextech while Flextech acquired 100% of UK Bravo, 25% of UK Gold, and 31% of UK Living and 25% of the Children's Channel which increased its share in that channel.

Mile High Cablevision

In Spring of 1995 TCI Purchased Mile-Hi Cablevision, the CATV Provider for the city of Denver, Colorado & the city of Glendale, Colorado Mile-Hi Cablevision had been in business since 1983. And prior to the merger, TCI Served only the suburbs around the city & county of Denver.

Merger with Liberty Media

In Spring 1993, Bell Atlantic began looking at merger partners, including cable companies. TCI and Liberty Media would be acquired for $11.8 billion in stock and assumption of $9.8 billion in debt. And $5 billion in Liberty properties could likely be added to the deal. Numerous regulatory concerns made the deal tricky; regional telephone companies could not offer long distance service or transmit satellite television services such as Discovery Channel. TCI would also have to sell operations in Bell Atlantic territory. As for antitrust concerns, Bell Atlantic argued that competing telephone services could be offered where TCI had cable systems, and video services could compete with TCI. Vice President Al Gore supported the idea of improving the nation's infrastructure, and the business community took his statement to mean administration approval of the merger.[15]

The $33 billion deal, based on a $54 per share price for Bell Atlantic stock, would have been the largest in American telecommunications history, the resulting company serving one in four cable TV customers. But it fell apart for many reasons, including declining stock prices for both companies. Malone, who would have made over $1 billion, wanted more shares of Bell Atlantic when its price dropped below $54, which Ray Smith refused to do because it would lessen the value of existing shares. The two companies also had different cultures. Bell Atlantic paid dividends and was used to being regulated, while TCI tended to invest in the business rather than pay dividends. And thus ended a $20 billion project to expand the information superhighway, though other mergers promised to put the project back on track, with a more local emphasis rather than attempting a nationwide system upgrade.[16]

The Bell Atlantic deal also fell victim to new federal regulations that reduced cable bills up to 16 percent, costing TCI $300 million over two years. Higher spending coupled with lower cash receipts made TCI less attractive to investors, and the stock price dropped to $17 a share, half what experts believed the company was worth. Bill Nygren of Harris Associates, known for profiting from TCI's Liberty Media, said TCI could make a comeback, and Michael Mahoney of GT Capital expected the proposed deregulation of the cable and telephone industries to increase cable company revenues. Both expected TCI to benefit, especially since TCI owned 30 percent of a joint venture that included Sprint and 10 cable companies with the ability to serve 40 percent of American homes. Cable and phone companies could both offer each other's services, benefiting both companies and customers with product bundling. TCI had plans to upgrade to digital cable and offer more channels and services. Satellite TV providers would be competing to offer digital service, but TCI owned a share of Primestar, and predicted a 28 percent share of the satellite market by the end of 1995.[17]

In Fall 1995, Time Warner agreed to exchange $8 billion in stock for 82 percent of Turner Broadcasting System. TCI would trade its 21 percent interest in Turner for the third largest stake in Time Warner, or 9 percent. Since the resulting companies would have 40 percent of cable households, enough to cause anti-trust concern, TCI agreed to let Time Warner's Gerald Levin represent TCI.[18] This did not satisfy federal regulators. Malone ended the 15 percent discount on Turner programming that would have lasted 20 years, and Time Warner had to pay $67 million to cover TCI's taxes due.[19]

Magness died in November 1996, with a 26 percent share of the company. No one believed this meant the end of Malone's tenure as head of TCI, even though Malone called Magness his "mentor" and "father figure". Still, TCI had $15 billion and debt and negative cash flow of $400 million for 1996. Malone believed he could turn the company around. This meant higher rates for customers as well as programmers. Malone even succeeded in getting Fox News Channel to pay $200 million for his companies to add the network. At the same time, cost cutting had to take place, and many of the cable customers were in rural areas with old equipment and limited offerings. Upgrading to fiber optic service, which could be used for Internet and telephone service, would be cost-effective only in urban areas. Satellite TV, while not a major threat yet, represented a possible problem in the future. The good news: satellite companies could not offer local channels or phone service, and individual dishes served only one TV.

The new technologies had two benefits for TCI. First, customers would need set-top boxes, which TCI already had ordered from General Instrument. Another advantage was technology developed by a new company called Imedia which would allow four times as many channels to be delivered using existing technology, even in areas not getting fiber-optic service.

On the other hand, digital service had its disadvantages. Customers who did not even want a box would still lose channels so that digital channels could be added. And General Instrument only reluctantly agreed to allow multiple suppliers to bring TCI's costs down.[20]

In 1997 TCI sold ten of its cable systems in NJ and NY to Cablevision.[21]

TCI improved its fortunes, hiring Leo Hindery as president and making Malone chairman and CEO. Still, it was regarded as a company likely to be taken over. TCI was acquired by AT&T in 1999 and in 2002, Comcast acquired the rest of TCI's cable television systems.

Merger

In 1997 TCI merged with the Kearns-Tribune Corp., publisher of The Salt Lake Tribune, Utah's largest newspaper. Kearns-Tribune Corp. was a large holder of TCI stock.

On June 24, 1998, AT&T, the nation's largest provider of telephone service, announced a plan to buy TCI, second to Time Warner among cable operators with 13 million customers, for $32 billion in stock and $16 billion in assumed debt. This marked the first major merger between phone and cable since deregulation. The new company, to be called AT&T Consumer Services, planned to "significantly accelerate" efforts to offer digital telephone, data and video services as the companies combined the long distance, wireless and dial-up Internet service of AT&T with the cable, high-speed Internet and telecommunications services of TCI. For the first time, AT&T would be able to offer local telephone service. To do this, the company could have bought a Baby bell such as SBC Communications (which purchased AT&T in 2005 and took the AT&T name), but this would have meant regulatory problems. Liberty Media stockholders would receive separate tracking stock.[22]

Federal regulators and the two companies' shareholders approved the merger February 17, 1999. By that time, the value of the stock portion of the deal had increased to $43.5 billion. The Federal Communications Commission did not require TCI to give other companies access to its cable lines, despite requests by America Online and others. TCI had made its cable lines capable of providing Internet access, and AT&T wanted those same lines to provide local phone service, which it was already doing in another agreement with Time Warner.[23]

AT&T completed its acquisition March 9, 1999, and TCI became AT&T Broadband and Internet Services, the company's largest unit, with Hindery its chief executive. Malone moved over to Liberty Media, which remained a separate stock and included newer TCI businesses under the heading of TCI Ventures.[24]

See also

References

  1. ^ a b "1958". Chronomedia. Archived from the original on December 13, 2004. Retrieved August 5, 2018.
  2. ^ https://query.nytimes.com/gst/fullpage.html?res=9C01EED8113BF937A15751C0A962958260, Retrieved on 2009/02/24.
  3. ^ a b c d e http://www.cablecenter.org/education/library/oralHistoryDetails.cfm?id=238, Retrieved on 2009-03-12.
  4. ^ O. N. Malmquist, The First 100 Years: A History of the Salt Lake Tribune, Utah State Historical Society, 1971 pp391
  5. ^ a b http://www.cablecenter.org/education/library/oralHistoryVideo.cfm?id=186&ln=Willis&fn=DAVE+WILLIS, Retrieved on 2009-03-12.
  6. ^ Retrieved on 2009-03-12.
  7. ^ Retrieved on 2009-04-02.
  8. ^ "Peter Barton, the Cable Pioneer at John Malone's Side, Passes Away". Cable World. 2002-09-16. Retrieved 24 February 2009.
  9. ^ Retrieved on 2009-04-02.
  10. ^ "United Artists Entertainment Agrees to Merger : Media: It will become a subsidiary of Tele-Communications Inc., the nation's largest cable-TV firm". Los Angeles Times. 1991-06-08. Retrieved 2013-07-13.
  11. ^ Storch, Charles (1991-06-08). "TCI Cools Opposition With Sweetened United Artists Bid". Chicago Tribune. Retrieved 2013-07-13.
  12. ^ "COMPANY NEWS; Tele-Communications In United Artists Deal". The New York Times. 1991-06-08. Retrieved 2013-07-13.
  13. ^ "Flextech stock flies after TCI buy". HighBeam Research. 1993-11-01. Archived from the original on 2015-09-24. Retrieved 2013-07-13.
  14. ^ "Merger Plans For Flextech". The New York Times. 1994-01-03. Retrieved 2013-07-13.
  15. ^ "Plugging in for Profit". US News and World Report. 1993-10-17. Archived from the original on 2012-10-13. Retrieved 2013-07-13.
  16. ^ Retrieved on 2009-04-02.
  17. ^ Retrieved on 2009-04-02.
  18. ^ Johnnie L. Roberts, "The Friendly Giant: Is Time Warner Favoring Its Merger Partners?" Newsweek, Feb 19, 1996.
  19. ^ Retrieved on 2009-04-02.
  20. ^ Retrieved on 2009-04-02.
  21. ^ "Cablevision to Buy 10 New York Systems". Los Angeles Times. 1997-06-10. Retrieved 2013-07-13.
  22. ^ Retrieved on 2009-04-02.
  23. ^ Aversa, Jeannine (1999-02-17). "FCC Approves AT&T-TCI Deal". Associated Press. Retrieved 2 April 2009.
  24. ^ "AT&T Calls TCI Deal Finished". The Hollywood Reporter. 1999-03-10. Retrieved 2 April 2009.
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