Cable Guy: John Malone: Wiring Europe

John Malone has been American cable's smartest operator and toughest dealmaker. But he's finding it hard to translate his success overseas

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Malone may face a similarly uphill march in Britain, but for different reasons--chief among them his friend, business partner and rival, Murdoch. Over the past decade, Murdoch's BSkyB has become Britain's pay-TV service of choice, known for offering its nearly 6 million subscribers superior customer service, compelling content and innovations like on-demand sports replays. As cable systems have tried to compete, it hasn't helped that until recently prospective customers have had to wait to have a trench dug nearby before service was available. Some 20% of cable customers still get fed up and ditch the service, roughly double BSkyB's churn rate. BSkyB not only controls the customers but also controls many of the sports and film rights that Malone will need to stay competitive. Fortunately for Malone, the two moguls already share a rich history of collaboration, including News Corp.'s Malone-backed but aborted bid last year for the U.S. satellite-TV firm DirecTV.

Cable may yet arrive. With its two-way capabilities, cable can eventually offer a wider assortment of interactive services--from online gambling and games to video on demand--than satellite can. And now that Parliament has passed a sweeping media-liberalization law, American firms will soon have a chance to grab some British broadcasting assets like itv and Channel 5. "I've always seen satellite as a transition technology," says Michael Grade, a longtime British TV executive and now chairman of Pinewood Studios.

Malone is banking on a bundle of TV, broadband and telephone service, known in the industry as the triple play, to make his business viable. By the year 2010, some 40% of British cable subscribers and 15% of European subscribers will be paying for such a trio of services, according to UBS Warburg. Still, when it comes to phones, Malone faces fierce competition--from the wireless kind. "Telephony doesn't make any sense," says Robert Routh, an analyst at Arnhold & S. Bleichroeder, "because Europe has a culture of people who don't use landline phones."

Broadband looks more promising. Almost half of Europeans are online, although fewer than 5% have true high-speed service. But in Europe, unlike the U.S., the telecom monopolies have got off to an early lead. Deutsche Telekom has garnered 2.3 million broadband users in addition to its 8 million dial-up subscribers.

The setbacks in Germany, the ad recession and Liberty's sinking media holdings have caused its stock to lose about 40% of its value over the past 12 months. But some loyal investors maintain that if anybody can thrive in Europe, it's Malone. Bill Nygren, manager of the Oakmark Fund, which holds about 7 million Liberty shares, says, "These are the smartest minds in cable, and he's the best wealth builder i've ever invested with."

Malone holds a B.S. from Yale in electrical engineering, master's degrees in industrial management and electrical engineering, and a Ph.D. in operations research from Johns Hopkins. He even worked as a scientist at Bell Labs for a few years after college. An intense listener and a keen analytical thinker, Malone is notorious for complicated transactions and financial gymnastics that keep his taxes low. And he understands the technologies underlying his various visions.

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