Tele-Communications Inc., the Denver-based cable television giant that has offered to put up $30 million to finance the proposed District cable system, is more than just a suitor with deep pockets.
TCI has demonstrated in cities, suburbs and rural communities across the country that it is an extraordinarily aggressive corporation with a distaste for government regulation and a reputation as the most litigious cable company in America.
Critics say TCI, the nation's largest cable company, has used a blizzard of lawsuits to intimidate uncooperative local governments and would-be competitors by tying them up in costly and lengthy court battles.
A former cable consultant to the District government said TCI's practice of using profits from small, no-frills operations to finance new acquisitions amounts to "milking" its properties. And a federal judge in Kansas City, ruling last month in an antitrust case that cost TCI $35.8 million, asserted the cable giant had committed "commercial blackmail" in its fight to control a franchise in Jefferson City, Mo.
Other cable experts discount the accusations and describe TCI as the nation's most savvy cable operator, whose aggressive business practices are mistaken for wrongdoing in the fishbowl of municipally regulated cable franchises. In Pittsburgh, where TCI last year purchased a money-losing system from Warner Amex for $94 million, city officials said they are happy with TCI and that the Denver company has done a good job of providing cable TV to the residents.
Amid the clamor of TCI's detractors and supporters, there is at least one area of agreement: the company has taken the lead in promoting the idea that cable television should be stripped of regulation. In a number of lawsuits based on First Amendment and antitrust grounds, TCI has argued that government has no business issuing franchises and placing restrictions on cable wiring.
"There is no reason why there should be any more restrictions on cable than there are on newspapers," said Harold Farrow, an Oakland lawyer who has acted as lead attorney for the company in several suits.
TCI's role in a proposed cable TV system in the District has loomed large in recent weeks. The company offered to invest at least $30 million to bail out District Cablevision, a local, minority-controlled firm that won the D.C. franchise after a protracted bidding and negotiation process last year.
TCI's investment of the money, which is expected to give it significant control over the system's operation, is contingent on a set of cost-saving cutbacks that District Cablevision has asked the D.C. City Council to make in the franchise agreement.
Mayor Marion Barry sent proposed emergency legislation to the council yesterday that incorporates most of the cutbacks requested by District Cablevision. The council will act on the recommendations today.
The sticking point appears to be District Cablevision's request for an escape clause that would relieve the company of responsibility for wiring the entire city if the average cost per hookup exceeds $500. The ceiling would fluctuate with variations in revenue, a TCI spokesman has said.
With 3.6 million subscribers nationwide, TCI is at the center of a complex web of subsidiaries, partnerships and joint ventures that operate or have an interest in more than 700 cable systems. The company's president, PhD mathematician John C. Malone, has said TCI prefers to run "plain vanilla" cable systems that offer fewer frills than competing systems but are economically viable.
In the late '60s and early '70s when cable systems were being built in small towns and rural areas, that philosophy encountered little resistance. Viewers whose broadcast reception was poor or nonexistent were happy to have cable. However, when big-city systems emerged, offering more glamorous services, some of the smaller jurisdictions began to express dissatisfaction.
In Boulder, Colo., city officials unhappy with their TCI cable system tried to invite other companies to bid to take over the franchise and provide additional services. TCI sued in late 1979 and, after an extended legal battle, won its case in the U.S. Supreme Court.
" [TCI] is the most litigious of all [the cable companies]," said Cynthia Pols, a cable TV specialist who lobbies for the National League of Cities. "I think this has been the biggest problem for some of these cities . . . . It effectively precluded Boulder from getting a better system."
"We're a community of 80,000 with an annual legal budget somewhere in the half-million dollar range," said Boulder city attorney Joseph de Raismes. "It cost a quarter of a million to litigate as far as we had [with TCI]."
In Jefferson City, U.S. District Judge Scott O. Wright found that TCI's subsidiary had committed "commercial blackmail" in its efforts to prevent another company from getting control of TCI's cable franchise in that city. Testimony in the case, in which a jury awarded $35.8 million to the rival company, indicated that a TCI executive "threatened to destroy the career" of a cable consultant hired by Jefferson City.
TCI threatened to terminate prematurely its cable services unless its franchise was renewed and refused to pay the city $60,000 in past-due franchise fees, according to an order issued by the judge. A TCI executive also tried to intimidate city officials by threatening to flood the Jefferson City market with satellite dishes if it didn't get its way, the judge found.
John Sie, a senior vice president for TCI, said the judge's ruling in the case "is totally without merit."
"We think it is going to be reversed on appeal," he said.
In Richland County, S.C., a TCI subsidiary threatened to sue when the County Council revoked its franchise and refused to approve a buyer the company had lined up for its system. Last week, the council reversed itself and, in a preliminary vote, decided to give the franchise back to TCI.
Carl Pilnick, a cable consultant involved in the District's franchise negotiations, said TCI has become known for taking advantage of the smaller jurisdictions where it operates cable systems. "They have developed a reputation for milking the systems," he said.
Another cable expert disputed Pilnick, however. John Mansell, an analyst with Paul Kagan Associates, a newsletter publisher that concentrates on broadcast and cable television, said TCI's operations in the smaller markets are based on good business strategy and have created a base for the company's more recent entry into big city markets.
"All cable operators who have been bidding to build major markets are using the cash flow that they have available from their other systems to go forward," he said. "When you say 'milk' that suggests that they are using their monopoly power in anticompetitive wars."
Sie acknowledged that with about 700 franchises under the TCI corporate umbrella, "you always have a couple of bad apples," but added, "About 80 percent of our systems have been upgraded throughout the years so they offer the best of cable programming."
The company recently has begun to enjoy the fruits of its corporate strategy. Having stayed out of the "seemingly ludicrous and economically nonviable franchise war" of the mid 1970s and early 1980s, Sie said, TCI now is able to negotiate with big cities for simpler, cost-effective franchises. They are willing to accept what Sie terms "reality cable."
That means an end to complex two-way systems, institutional channels and elaborate public access programs. In its purchase of the Pittsburgh system last November, as well as in its offer to invest in the proposed District system, TCI has insisted on scaled-back "reality cable."
In Pittsburgh, the response of city officials has been favorable.
"Our initial reaction when we heard of the proposed sale was one of fear and skepticism," said Richard Emenecker, superintendent of the bureau of cable communications there. "But the company has significantly allayed our fears and our worries by their performance since November of '84."