HDTV and Malone: Round 2

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TCI's top executive took more steps to smooth his
swashbuckling stance on high-definition television last week.

In an unusual move, Tele-Communications Inc. chairman and
CEO John Malone sent a personal letter to members of Congress and the Federal
Communications Commission last Monday.

"Unfortunately, my use of hyperbole and techno-jargon
is often misinterpreted," Malone wrote about his recent high-profile remarks against
voluntarily carrying one type of HDTV signal, known as 1080i (interlace).

The letter -- more a clarification than an apology -- also
raised questions in the industry about whether there is strife between Malone and his
right-hand man, TCI president and chief operating officer Leo J. Hindery Jr.

That's because Hindery, to date, has been TCI's
front man on HDTV issues, retaliating against anti-cable remarks from the Consumer
Electronics Manufacturers Association and testifying before Congress about TCI's HDTV
preferences in late April.

In all of those conversations, Hindery submitted that TCI
prefers the 720p (progressive-scan) format, but that it will pass through 1080i signals,
if necessary.

Malone took a much stronger stance at the recent National
Show in Atlanta, vowing not to voluntarily carry 1080i signals. In an informal discussion
with reporters, Malone called the method a "spectrum hog."

Like Hindery, Malone said TCI will be technically capable
of passing 1080i signals through digital set-tops to TVs. Unlike Hindery, he said he
won't carry 1080i signals unless he is forced to.

That exchange set off a maelstrom of widely reported
activity in Atlanta, and it also created "serious tension" between Malone and
Hindery, according to several TCI and industry insiders.

When asked whether there is acrimony between TCI's top
two leaders, corporate spokeswoman Lela Cocoros simply replied, "Nope."

Cocoros declined to discuss the matter further, emphasizing
that Malone and Hindery "are buddies."

Wall Street analysts said they were aware last week of
internal TCI tension. Many refused to be quoted for this article, given the sensitivity of
the matter.

"John Malone is a strategist, and Leo Hindery is a
politician," one financial analyst said, adding, "Malone is a guy who examines
the art of war, and Hindery tries to keep everybody happy -- sometimes, those two agendas
sort of clash."

"I think that Leo is exhausted -- he's been
running hard for 18 months -- and part of what exhausts him is when John says something so
aggressively, which puts Leo in the position of having to make 10 damage-control
calls," said Ted Henderson, an analyst with Janco Partners.

Henderson described Malone and Hindery as "two astute
businessmen who have different approaches to doing business, but who ultimately have the
same goal.

"They'll butt heads once in a while, and one will
step on the other's toes, but that makes for effective management," he said.

Still, in his May 11 clarification letter, Malone backed
down a bit on what he characterized as "my somewhat emotional response to the
press" in Atlanta.

He cited "two important technical issues" --
channel capacity and the convergence of computer- and TV-display technologies -- as his
key concerns.

Malone's channel-capacity concerns relate to bandwidth
preservation, since only one 1080i signal, even if compressed, fits into a 6-megahertz
cable channel. By contrast, TCI could squeeze as many as four 720p signals into the same
space.

"This clearly has major implications for how many
broadcasting and cable programmers will be able to make the transition to HDTV and receive
cable carriage," Malone wrote. "There could be a squeezing out of existing
programmers, even on newly rebuilt cable systems, depending on the number of HDTV
signals."

He also noted that interlace techniques are, in general,
incompatible with the wave of future, personal computer-based display technologies.
"We are working with vendors on special versions of the advanced set-top that can
handle all formats; however, if the interlace format is adopted, such set-tops will be
available at a substantial increase in cost for those customers who want on-screen
features for their HDTV set while watching an HD channel," Malone said in the letter.

Additionally, with 1080i, customers tuned to an HDTV
channel "would lose all of the surfing features that we are able to provide, unless
he or she has the much more expensive, all-format set-top," he added.

In the letter, Malone also reiterated that while TCI will
be technically outfitted to pass through 1080i signals, its strong preference is to use
720p.

That's because Malone is serious about the notion of a
$10-per-month HDTV-multiplex tier, which, he said, he's been discussing with the
"Big Four" broadcast networks. The idea, if it proceeds, would give broadcasters
a ride on cable to the home, as well as a revenue split on what is now a cost-cow for
broadcasters.

Malone has said that broadcasters that opt for inclusion on
the HDTV tier can still transmit those signals over the air free-of-charge, as stipulated
by the FCC.

Some industry observers -- one pointed out that "the
microprocessor in Malone's brain runs at about three times the speed of the rest of
us" -- said his moves, while startling, could actually be a brilliant negotiating
tactic that will finally give a financial bootstrap to the cost-intensive HDTV plans of
the broadcasters.

"Malone always does what he says he's going to
do," one analyst said, explaining that it's likely that TCI will continue to
pursue the HDTV-multiplex tier. "It's a question of whether or not you're
smart enough to notice it."

Ted Hearn contributed to this story.

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