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LANDMARK CABLE DEAL : Crowded Marketplace : More Acquisitions of Such Size May Not Be Likely


Both industries wire homes. Both want to provide video and telephone services. And both want to snatch each other's business.

So why not merge?

That's the question being increasingly asked of and by rivals to regional phone company US West Inc. and Continental Cablevision Inc. after US West announced it will acquire the nation's third-largest cable system in a $10.8-billion deal.

With the Telecommunications Reform Act foreshadowing an eventual competitive free-for-all among regional telephone and cable concerns to provide similar services, the playing field suddenly looks crowded. The US West deal suggests some of the players--most likely some of the nation's cable companies--will get benched. As Pacific Telesis Group said, this deal shows how crowded the business is "as telephone, cable and computer services continue to converge."

Still, more combinations of this size may not be likely. For one thing, the list of major acquisition candidates in cable is a short one, the result of a consolidation trend the last few years that has resulted in the industry's being dominated by a few large firms with huge clusters of cable systems.

Some of those companies, such as Tele-Communications Inc. and Time Warner Inc., would be a huge bite for a phone company, or would include businesses the companies may not want to acquire, although TCI did come close once before to merging with Bell Atlantic Corp.

And there remain some legal restrictions on phone companies' owning cable systems outright in cities they serve.

More likely, the US West deal will force companies to evaluate their options, possibly sparking alliances and ventures among phone and cable concerns. As a hypothetical example, a phone company might buy a third of a cable company, providing capital to upgrade equipment and services offered.

Phone companies have large amounts of cash, and cable companies have a huge appetite to keep building and upgrading their systems. In addition, at stake for both industries isn't just the glitzy 500-channel universe of interactive TV and movies on demand, which has received so much media hype, but also the creation of inroads into the lucrative long-distance telephone market.

Still unclear is the impact on other technologies bringing programming and communications to the home, such as wireless and satellite systems.

Phone companies and cable concerns each reacted with their own spin control, viewing the US West deal as validating their own businesses.

San Francisco-based Pacific Telesis said the deal is "a clear signal from cable that they don't expect to maintain their monopoly much longer." It added that it "is not currently interested in pursuing any cable ventures," although a spokesman said the company plans to keep its option open.

Cable executives said it shows that their coaxial cables are superior when it comes to transmitting more signals than phone lines, which phone companies would want if they built systems that provided elaborate video and online services.

"It makes much more sense to buy cable," said Falcon Cable Systems Co. Chairman Marc Nathanson.

An executive from Chicago-based Ameritech Corp. said the deal won't affect its plans to separately wire areas for cable in its five-state service area, although some analysts believe that duplicating the wiring of communities will prove too costly and inefficient.

"There just is not enough business for each of these guys to build the infrastructure to deliver video services. It doesn't make sense to overbuild by having two competing lines going into neighborhoods," said Jeffrey Logsdon, media analyst at Seidler Cos. in Los Angeles.

One executive who has worked closely with the regional phone companies on developing video services says the companies can't treat the US West deal lightly.

"It should be an eye-opener for them. Each of these companies has spent a fair amount of money trying to get themselves geared up to enter the video-delivery business. US West is now in the business immediately," the executive said.


More Cable Deal Coverage:

* US West to buy Continental. A1

* Regulatory hurdles unlikely. D3

* Deal shows potential of wire. D3

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