Feeding the interlocked beast were cable rates rising 8 percent a year — more than three times the general inflation rate — since enactment of the Telecommunications Act in February of 1996, primarily because there was no effective competition to keep rates in check. The cable industry claimed that higher programming costs drove the rate increases and that subscribers got good value for the money. Yet, in places where competition did exist — such as the Chicago suburbs where Ameritech, the Baby Bell phone company, wired homes for video service — rates were anywhere from 5 to 20 percent lower.

The force behind the Consumers Union report was Gene Kimmelman, another member of the Tennessee tornado that bedeviled the cable gang. Kimmelman, in fact, grew up in Oak Ridge, the same town as Charlie Ergen. He attended the same high school as Ergen, but was a few years younger and claimed not to have many dealings with him in Washington, where Ergen had become a gadfly. It wouldn't have mattered if they were in constant contact, singing the Oak Ridge fight song, since their professional interests were already aligned against cable.

Kimmelman had graduated from Brown University and was a staff attorney for Ralph Nader's Public Citizen Group. He was the Consumer Federation of America's legislative director for a decade, then spent two years as staff director for the antitrust subcommittee of the Senate Judiciary Committee. He became co-director of the Consumers Union in 1995 and was a familiar face at congressional hearings on telecom legislation.

Kimmelman knew the ins and outs of Capitol Hill, but he was tilting at windmills if he thought the FCC or Congress was going to enact a cable rate freeze. The government had its chance with the 1992 Cable Act. Had there been the foresight and political will to separate cable, programming and direct-to-home satellite TV ownership at that time, there would be two distinct pipes into the home, with independently owned sources of programming — a theoretically competitive market. One difficulty then would be determining how much ownership concentration to allow in programming. In an interlocked business environment, with cross-investments and cross-purposes, there were no easy answers and no clean cuts.

To even head down that road would have required predicting the rise of the rat zapper as a competitor to cable, ending broadcast must-carry and fighting a likely court battle with the cable gang over programming ownership — all of which assumed that such a sweeping menu of intervention would even be supported by Congress, the president and the Supreme Court, where it undoubtedly would have landed.

What Congress did instead in the 1996 Telecommunications Act was to lift barriers between local phone companies, long-distance carriers and cable companies to let them compete. All the major industry players lobbied for the law — and then sent their lawyers into court and Congress and the FCC afterward to lobby against the parts they didn't like. The practical effect of the law was to spur more mergers, with no rate relief for consumers.

The truth is that it's not always economically rational to compete, though posing as a competitor is a great strategy. László Méró, a Hungarian mathematician and game theorist, wrote about such behavior in the wild.

Certain animals compete over mates or territory not by fighting, but by standing face to face in a threatening posture, ready to fight, and remaining that way for a long time. Finally, one of them backs down, and the other wins the valued commodity. This method of solving conflicts is common among animals living in strict hierarchical societies, but it also occurs in animals that do not live in groups, rarely meet one another, and have little memory of the outcome of previous fights. This form of combat is particularly common in well-protected animals for whom injury is very unlikely. For them fighting does not make much sense, because the outcome would depend greatly on chance. Furthermore, an injury could be fatal. For similar reasons, animals with strong offensive weapons may also settle their disputes by some kind of posing.

Animals that do not live in groups pay for such posing fights in the currency of time. No matter how valuable the commodity in question, no animal can afford to spend too much time posing — they have other vital things to do.

In late 1997 and early 1998, John Malone struck a mighty pose. He appeared to be standing in Denver holding up a large neon sign that blinked west toward Silicon Valley and the Redmond lair of the Green Giant, and that blinked east toward AT&T headquarters in Basking Ridge, New Jersey. The sign read, "Let's Make a Deal," just as it had four years earlier before the doomed merger with Bell Atlantic Corp.

In high spirits, Malone attended industry events, chatted up reporters and appeared on the cover of Fortune magazine. The dark days of 1996 were long gone. From a low of $11 then, TCI's stock was at $29 and rising. Malone, Leo Hindery and Colorado governor Roy Romer attended an indoor groundbreaking in late 1997 at a business park in Douglas County, one of the booming suburban flatlands south of Denver. TCI was going to build a new $50 million headquarters, shaped like a Pentagon with rounded corners. "None of us had the sense of circularity except John," said Hindery.

Malone himself was circling around the magic box, the holy grail of interactive television. The magic box would be the computer atop, and someday within, the TV set, making it a two-way eye: into the living room and out to the world. Magic box experiments ranged from Qube in Columbus, Ohio, in the 1970s to Time Warner's Full Service Network in Orlando, Florida, in the early 1990s.

The premise was always the same, that television could be transformed from a passive viewing device into a tool for home shopping, earning graduate degrees, paying bills and ordering pizza. By the mid-1990s, the Internet had stolen the thunder of the magic box. But since TV and computer screens were literally viewed differently — with users typically sitting 10 feet from the TV set and 18 inches from the computer screen — it was considered wise to pursue interactive content for both.

It was at the intersection of theory, engineering and hype that Malone shined. The magic box was 500 channels all over again. He had a purchase order from General Instrument, not for one million digital boxes to back up his boast, but 15 million! This consisted of 11.9 million that his company would order, plus 3.1 million by a consortium of nine other cable companies.

From his mainframe mind came the following download:

Intel can now do MPEG-2 in software instead of in hardware. We don't have to invent HTML or Javascript or WebTV solo chips, or 200 MIPS processors. We don't have to write Windows CE. All of these things exist. So, it's more of an assembler operation than invention and creation. So, GI's got to use the scale of this purchase order to bang their vendors to get world class pricing and start down the road of silicon integration, so instead of ten chips, you end up with two. That's really the process of what drives costs down the scale...

And so on.

The difference between 500 channels and the magic box is that this time Malone had two major software vendors, Sun Microsystems and Microsoft, eager to bang each other to get into his box. And there were retailers reportedly willing to subsidize the $300 per-box cost to get first crack at the viewers who would use it. Malone described, or rather sold, this potential participation "as the biggest bidding war in the history of the communications business."

The chess machine was ready to move the major pieces again and he would have a brand new headquarters from which to plot strategy. The building's circular design, said Malone, was to encourage a sharing of ideas. "Everybody should know as much as possible about what everybody else is doing." He said, half-seriously, that offices for him and Hindery would be in the back of the building, to avoid process servers delivering lawsuits. There would be underground parking and a perimeter security system and other protective features — just like the real Pentagon.

"The security issue has been of concern since the Unabomber sent me an e-mail a couple years ago," Malone said.

The Luddite terrorist sent a threat by e-mail?

That's what Malone said.

— Stephen Keating is a business reporter at The Denver Post, where he has covered the cable, satellite TV, and media industries since 1995. He has also written for Wired magazine. He lives in Denver.

This essay was excerpted from the book "Cutthroat: High Stakes and Killer Moves on the Electronic Frontier" by Stephen Keating. Copyright © 1999. Reprinted with permission of Johnson Books.

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