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EVERY CABLE COMPANY IS A CINDERELLA NOW

The race is on to find a partner before the glow fades

It got the biggest laugh at the June 24 briefing for analysts about AT&T's(T) pending deal to buy Tele-Communications Inc.(TCOMA) TCI Chairman John C. Malone, recalling his stint as a bean counter 32 years ago at AT&T, remembered the advice he gave to the phone giant's board: ''Leverage up, you're spending too much on g--damn taxes.''

Certainly Malone has taken his own counsel, becoming the leader of the pack of cash-hungry, debt-addicted entrepreneurs who built the cable industry. Now, he's found a big brother to take his company and its affiliates the rest of the way. ''I would imagine, with AT&T's help, we're going to be looking to get bigger,'' says Marc B. Nathanson, chief executive of Falcon Cable TV, a 1 million-subscriber system which is 47% owned by TCI.

FEELERS. Get bigger or get bought out. With a new vision of Internet-based ''convergence'' sweeping the communications business, cable companies are suddenly back in the high-tech game. Those with lots of resources may get to play alone--by building themselves into ''broadband'' pipelines. Others will become somebody else's pipe.

Even before the AT&T deal was announced, cable executives were getting feelers from the likes of Sprint, GTE, British Telecommunications, and even Deutsche Telekom. ''We've talked with all kinds of people who want to be our partners,'' says Richard Post, chief financial officer of cable operator MediaOne. ''We've got no shortage of interested parties.''

And the market figures the AT&T-TCI deal will push up valuations. TCI's stock was up 2.7%, to 39 3/4, on June 24, and No. 1 Time Warner(TWX) rose 6.2%, to 88 3/8. Appearing at the National Press Club on the 24th, Jane Fonda was asked how her husband, cable mogul and Time Warner Vice-Chairman Ted Turner, viewed the AT&T-TCI combo. ''Ted was happy this morning,'' she said. ''That's all I know.''

Whatever deals follow, one thing is clear: The cable industry will continue to suck up cash. Many cable companies have already done lots of rewiring. But even some of them are nowhere near having a system that can support phone service. John R. Alchin, senior vice-president of Comcast Corp.(CMCSA), figures it will cost his company up to $50 a customer to do so, on top of the $225 per home it now costs Comcast to upgrade for digital services. Little wonder that Alchin hints his company--which already got a $1 billion infusion from Microsoft Corp.(MSFT)-- would love some of AT&T's money as well. ''There are strategic and operating reasons for doing business with AT&T,'' he says.

Some companies are overtly deal-averse. Cox Communications(COX), for one, has launched local phone service in four markets, signing up 17% of homes where its services are offered. Treasurer Dallas Clement says that Cox might be interested in reselling local service to AT&T, but he says Cox has no need for a full telecom partner.

Moreover, cable and telco partnerships have been attempted before without much success. Malone himself has been there, in his short-lived 1993 pact with Bell Atlantic Corp.(BEL) ''But this deal will close,'' Malone stresses. He's probably right. Some 98% of American homes now have TVs, compared with 94% of homes with telephones, according to TCI President Leo J. Hindery Jr. Cable companies have at last found a company that needs to be in American homes even more than they do.

By Ronald Grover in Los Angeles and Richard Siklos, with Neil Gross, in New York



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Updated June 25, 1998 by bwwebmaster
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