Bell-TCI merger could spark explosive competition More choices, but possibly higher bills

October 14, 1993|By Michael Dresser | Michael Dresser,Sources: Company reports, Standard & Poor's and Value Line. Staff Writer

At first glance, the proposed merger of Bell Atlantic Corp. and Tele-Communications Inc. looks like a megamonopoly exceeding the greediest robber baron's dreams.

On the one hand, there's a cash-rich regional telephone monopoly with annual revenues exceeding $12.5 billion. On the other, the nation's largest cable television operator, a $3.5 billion company that touches everything from home shopping to CNN.

Together, they'd be worth an estimated $60 billion. And that's not counting a possible share in Paramount Communications Inc., a Hollywood studio that TCI has been pursuing through its alliance with Barry Diller's QVC Network Inc.

So what happens to competition?

According to telecommunications experts, it explodes. Cable will carry telephone service, and phone lines will bring you TV programs and movies. The seven territories carved by U.S. District Judge Harold H. Greene when he dissected American Telephone & Telegraph Co. will cease to have meaning.

"You're not going to have the same monopolistic service any more. It's going to be a very competitive environment," said Rick Bean of Arthur Andersen Consulting in Washington. "You're going to be in a position as a consumer where you have multiple sources of programming, i.e. cable, as well as communications."

And that brings the future of telecommunications a lot closer.

High-tech interactive services that might have taken five years to develop now might take three. Communications companies that might have enjoyed a leisurely courtship will now make plans to elope. Changes in public policy that might have been settled after long debate will now be forced by the marketplace.

"This is the bellwether of the new definition of what it means to be in the communications business," said Mr. Bean.

The increased competition might not mean lower phone bills, said Susan Kalla, a partner at KHX investments in Greenwich, Conn. State regulators probably will keep the cost of "lifeline" services for poor people low, but flat-rate service will probably disappear for most customers, she said.

"Your prices will go up, but the options available at your set top will be increased dramatically," she said.

The Bell Atlantic/TCI deal, announced yesterday, was driven by an erosion in the value of local telephone business, which was ceded to seven regional "Baby Bell" companies in the 1984 breakup of AT&T.

Residential rates are heavily controlled by regulators. Growth has been anemic. New competitors are eager to cherry-pick business services that are the most lucrative segments of the Baby Bells' business.

"You just know the quality of the business is going to deteriorate," said Tony Robertson, telecommunications analyst with Alex. Brown & Sons in Baltimore. "The content is going to have higher returns than the conduit."

And TCI brings a lot of content into the mix, with or without Paramount. It's the largest shareholder in Turner Broadcasting System and the Discovery Channel. Through its Liberty Media affiliate, it owns stakes in Black Entertainment Network, Prime Network, Family Channel, Home Shopping Network and QVC.

The deal vaults Bell Atlantic to a premier position among regional phone companies. Only U S West, which spent $2.5 billion in May to acquire a 25.5 percent stake in the nation's second-largest cable operator, Time Warner Entertainment Co., is in the same class, Mr. Robertson said.

But the TCI deal will force other regional phone companies to act, said Ms. Kalla, "You're going to see all of the Baby Bells partnering with someone else so they're not left out of the business, and you're going to see all of them trying to get into each other's territory."

Steve Gutkowski, telecommunications analyst for Moody's Investors Service, thinks the other Bells would be smart to

hesitate. "This isn't going to affect the consumer one iota. Bell Atlantic managed to get itself into the cable TV business, and that's about it."

Although technology might allow cable companies to provide phone service and phone companies to provide cable, he said there's no proof that consumers want one-stop telecommunications shopping. He was especially doubtful that the public would trust cable companies to provide phone service at a time when it is "up in arms" over price and quality.

"We're caught up in the enthusiasm where the technologists are sitting back and saying it's technologically possible for this to happen, but you don't hear the clamor in the marketplace for this to happen," he said.

THE DEAL-MAKERS

Raymond W. Smith

Bell Atlantic chairman, CEO

Education: Carnegie Mellon University, University of Pittsburgh (MBA) A native of Pittsburgh, Mr. Smith, 55, has been with the Bell system for 34 years, serving as chairman and CEO since 1989.

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