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That strategy would cost the Baby Bells tens of billions of dollars, a tidy sum even for a telco industry that will yield close to $100 billion in revenues this year. The message these telcos are trying to send Wall Street is that these takeovers are only the first step toward the construction of full-blown competing cable systems.
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Kaplan said that the seven Baby Bells are succeeding to a degree in “scaring off” investors in cable by taking over wireless cable companies in given markets where those companies are direct rivals to the local cable systems. He’s looking to Congress to pass legislation this year that “will not tilt in favor of the Baby Bells, all seven of which have mounted huge lobbying efforts to get Washington to make it easy for them to set up a competing program service right in cable’s backyard.īut since a new telecommunications bill is still wending its way through the twisting legislative corridors of both the Senate and the House, everyone seemed to be on hold in Dallas last week.Īs they wait anxiously for the ponderous legislative mills to grind their way to a decision, the telcos and the cable operators are engaging in a rhetorical war with each other, said Barry Kaplan, VP and senior media analyst of Goldman Sachs & Co., speaking at a panel set up by the convention to explore cable financing. “The cable industry needs relief,” says Jim O’Brien, president and chief operating officer of Jones Intercable. Lack of channel capacity has also hobbled the growth of pay per view, which, according to recent Morgan Stanley figures, generates only about $680 million a year from cable systems, compared to $13.2 billion for the purchase and rental of cassettes in video stores. That would be a crushing burden to overcome, considering that most of the mass-circulation cable networks collect about two-thirds of their total revenues from advertisers. Unless they cause viewers to say to themselves, “I’ve gotta subscribe to this network,” the new channels will pick up such a small percentage of a cable system’s subscriber base that advertisers won’t see any reason to buy time on their schedules.
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Speaking to a packed house during a programming panel in mid-convention, the heads of 12 cable networks painted a grim picture of fledgling channels struggling for survival on what the industry calls “new-product tiers,” which will cost a cable subscribers extra money every month to get them. That slowdown has meant that a number of promising new networks have languished because cabler operators don’t have the channel capacity to accommodate them. Without fresh streams of capital, most cable operators have had to slow down the costly upgrades of their systems.
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Even in his upbeat speech opening the convention on May 8, Decker Anstrom, president of the National Cable TV Assn., the lobbying arm of the industry, which sponsored the get-together, said, “Today, access to capital has become the chief competitive problem for the cable industry.” These delays, coupled with tough (the industry says unfair) reregulation from Congress and the Federal Communications Commission, have shut off the flow of investment from Wall Street.