Telecommunication deals shelved for now

April 07, 1994|By New York Times News Service

WASHINGTON -- One after another, the biggest and flashiest merger deals in the telecommunications industry are collapsing under the cold feet of the corporate players and uncertainties about new regulatory obstacles.

The first victim was Bell Atlantic Corp., which six weeks ago abandoned its bid to buy Tele-Communications Inc., the nation's biggest cable-television company. The two companies had planned to develop futuristic networks offering interactive television, games and electronic commerce.

Then on Tuesday came two blows. Southwestern Bell and Cox Enterprises called off plans to form a $4.9 billion joint venture in cable television.

And a federal judge called time out on AT&T's $12.6 billion plan to buy McCaw Cellular Communications, the country's biggest cellular-phone company.

Does all this mean a dead end for the information highway, the interconnected array of fiber optic and wireless communications networks that is supposed to transport the nation into the digital future?

Over the longer term, probably not. Industry executives and many outside experts believe that the technological and market forces that propelled the urge to merge are still at work.

AT&T's case for buying McCaw has been based on the value of acquiring a profitable, well-established provider of wireless communications as a crucial complement to its own lucrative long-distance network.

That motivation to provide "any time, anywhere" communications is as strong as ever, and AT&T executives have made it clear that they will use every legal weapon in their arsenal to consummate the deal, despite the antitrust concerns raised on Tuesday by U.S. District Judge Harold H. Greene.

AT&T and McCaw, selling telecommunication services already widely used by business customers and consumers, are virtually certain of making money from Day 1 of a merger.

But in the short term, many other information-highway deals seem riskier.

That is particularly true for agreements between local telephone and cable-television companies, both of which want to build futuristic two-way networks that offer interactive television, movies on demand and a smorgasbord of new electronic shopping and information services. For all these new services, there is as yet no compelling evidence anyone is willing to buy them.

Much of the turmoil for the cable-telephone deals, experts say, stems from the enormous uncertainty created by the Federal Communications Commission's decision on Feb. 22 to cut cable television rates by 17 percent.

Despite the uncertainties, however, the strategic reasons for forging alliances in communications, entertainment and computing are still in force.

At the least, industry analysts say, the pace of big deals will be delayed until the effect of the FCC's new cable-rate regulations becomes clearer. Concern that the industry will lose several billion dollars in cash flow each year has prompted all the phone companies to sharply lower the prices they are willing to pay.

"Right now, it is somewhere between difficult and impossible to do a deal in the cable industry until it becomes clear what the rules are," said Steven Rattner, of the investment banking firm Lazard Freres.

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