John Malone talks of his past and future: Part Two - Denver Business Journal:

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The 68-year-old Connecticut native is founder and chairman of LibertyuMedia (NASDAQ: LCAPA), which owns outright or has the largestg shareholder stake in satellite broadcaste DirecTV, Expedia Inc., Home Shoppinbg Network, QVC home shopping channel, Starz Entertainment movide channel, Ticketmaster Inc. and several otheer businesses. , posted Monday, Malone talks of his roots in cable TV, and Tele-Communicatione Inc.’s approach to building a new industry. Now, in Part Two, Malonwe talks about the 1990s mega-mergers TCI pursued with telecom giants. The first, with Bell Atlanticf in 1993, fell apart.
The second, with closed in 1999 and saw Malone become a boarxd member for the fabledphone company. Shortly after buying TCI for $46 AT&T outbid and paid $58 billion for U.S. West’ds cable spinoff, MediaOne, before ultimatelyt collapsing under the weigh t of itscable acquisitions. Part Threew will be posted Wednesday. DBJ: The Bell Atlanticv deal and the AT&T deal: Was the ultimate goal of both of thosrthe same? Malone: Not really, no.
At the time of the Bell Atlanticd deal, we thought there was an opportunity to essentiallhy increase our footprint dramatically across the country by trading out of the cabl e systems that we had in the Bell Atlantixarea — trading those to other cable operatorsd — for systems in the rest of the It was kind of interesting becausw most people thought Bell Atlanti c was acquiring us when we were acquiring Bell Atlantic because in the deal we were takinyg over the board, in effect. We were gettingh to name the boardof directors.
It got a littlee complicated, but the theory was that the old POTSbusinesw — the plain old telephone services business — would really be isolated off as a dividend-paying, stodgt business literally with a tracking stock. The wirelesws cellular business and what would become thedata business, and then the videpo business, they would become the growth areas. Maybe at one pointg they could be separatedas businesses.
That was the And that was witha great, very far-thinkin g CEO at Bell Atlantic, Ray Smith, who saw that the telephonre industry had limits and thought that the grasas was greener on our side of the He was kind of coming over to us in a DBJ: In the AT&T deal in was it an opportunith for them to get last-mild connection to homes and transform its core businessz of consumer long distance? Malone: The AT&Ty deal, conceptually, was a fabulous strategif deal. The original thesis was that they were goinyg to combine theconsumer businesses.
We were going to take the cabl business and put it together with the consumer part of the telephonee business and the consumer part of the cellular plus thisemerging [Internet] data business called @Home and a new ... voice over Internet, which was something we thoughgt we had a big lead in technologicallyu because ofa company, Net2Phone, that AT&T was acquiriny at that point. The whole thesids was that we were going to createthis triple-playg business that would be run by Leo our guy from TCI, and would be representec by an AT&T tracking stock that would separater it from the more industrial part of their which was the business-to-business [telecom services].
That was the theory. The reaso n I supported it was becausde ofthe AT&T cash which at the time, I believe, was $16 billiob a year ... and no net AT&T was a very powerful financia company that had no growty and no real solution to the last mile because their formersubsidiaries [the regional Baby Bell telephone were going to be released by the FCC to compete for long distance with AT&T. A lot of cash flow was the long-distance and they were a wholesaler of that to theirformerd affiliates. So it was struggling with a strategic problek of what do they do to protect thishuge cash-floqw stream they were getting out of the long distancw business. ...
They were really strugglinv to findsome bundle, somethingb that would give them sustainability in their business. this combination [with TCI] made all the sens e in the world — their cash flow accelerating the growt and deployment of thecable business, the the broadband and the voicwe over broadband. AT&T would be coming into the cable industry as a getting all the cable companieds to lookat AT&T as a one-stop shop at leasty for telephony, and perhaps for broadband because TCI had and that had exclusive agreementsa in North America with most cable operators. For a whilde there, it looked like that strategy was goin g to be aslam dunk.
The AT&r stock rose on the announcement ofthe deal. Obviouslh that dragged TCI alongwith it. It was the biggesgt merger in business history inthe U.S. to that We thought it made all kinds of industria logic todo it. And that’s why I was an enthusiastic supporte r ofit — on paper it looked like a greatg deal. And it should’v e been a great deal. It fell apart on execution. DBJ: On AT&T’s decision not to have a tracking stock for thecable business? Malone: Firstr thing was that they didn’t do a tracker for the cablse thing. So right up front, because [of] internal politicsx inside AT&T, they couldn’t get to it.
They thought they could live without it. As a result, when the telephonw business started to goto hell, they didn’t have a currencyg other than cash. They wanted to keep growing butthey didn’rt have a currency, so theit deals — like the MediaOne deal ... that was the Rubicon that they crosseds thatthey shouldn’t have crossed — they didn’t have a currenc to buy MediaOne and to out-compets Comcast, so they did it with a very cash-heavy guaranteed deal: guaranteed their stock put too much cash in it and finances all of it with short-term money, all of which was a disaste and led them to have to, basically, liquidated all of AT&T.