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DOWRY TOO SMALL, SO TCI, BELL ATLANTIC MARRIAGE OFF THERE WILL BE 'WHOLE LOT OF DATING GOING ON'

By Published on .

Tele-Communications Inc. and Bell Atlantic Corp.'s decision to call the whole thing off will change the way communications companies court and spark as they head down the information superhighway.

The $33 billion megamerger that would have been the largest ever in the communications industry crumbled last week amid a dispute over price.

As a result, TCI CEO John Malone and QVC Chairman Barry Diller could be among the first to resume dating after months apart.

Both are considered visionaries expected to play lead roles in the interactive media age. But each has fallen short in recent attempts to gain dominant positions.

While their failures could make other new-media architects more wary, it's unlikely to halt construction on the much-vaunted information superhighway. The message sent out by last October's announcement of the TCI-Bell Atlantic deal still stands: The time to prepare for the future is now.

The deal's collapse followed Viacom's victory over QVC earlier this month in the bidding war for Paramount Communications.

During the battle for Paramount, Mr. Malone-QVC's largest shareholder through his 50% stake in TCI's Liberty Media Corp. unit-was forced to step aside because of regulatory concerns. Had QVC prevailed, Liberty's stake in QVC would have been sold.

Now, Mr. Malone is free to do business with Mr. Diller and together they may accomplish what neither could do alone. They may join to pursue acquisition targets like Sony Corp.'s entertainment assets, the CBS or NBC TV networks, Matsushita Electric Industrial Co.'s MCA or even Time Warner.

"I think the world of Barry Diller and we were trying to do some big things together," Mr. Malone said during a conference call with the news media last week. "The government wouldn't let me."

Now, "I think there's a lot of great things we're going to be able to do with Barry. He has a wonderful vehicle in QVC."

Mr. Malone wouldn't elaborate, but one scenario that may remain in the distance is a merger of QVC and rival Home Shopping Network, which also counts Liberty as its largest shareholder.

"We think there should be no problem putting QVC and HSN together should we choose to do so, but that has proven to be an elusive task" in the past, Mr. Malone said, again citing regulatory pressures. "I am a little tired of elusive tasks right now."

The agreement for Bell Atlantic to acquire TCI had cleared major hurdles. But the Federal Communications Commission's move to roll back cable TV rates opened the door to a new round of negotiations, a threshold Mr. Malone was apparently unwilling to cross.

He believes the current regulatory environment is disrupting the cable industry and severely affecting its ability to invest in technology upgrades, but he indicated TCI is still exploring joint ventures with Bell Atlantic and reopening talks with others.

Bell Atlantic Chairman Raymond W. Smith is also believed to already be planning a partnership with another, smaller cable TV or programming entity. Company executives wouldn't comment.

"It's a big disappointment to us; the merger with TCI would have greatly accelerated what we're trying to do, but we're continuing with our strategy now through other approaches," said Larry Plumb, Bell Atlantic's director of video services.

Industry observers say cable TV and telephone companies will continue to seek each other out with an eye on the future. But they're more likely to combine strengths through strategic partnerships and joint ventures than mergers and acquisitions.

One model is US West's $2.5 billion investment in Time Warner Entertainment to build interactive TV systems. Both share technology and research but remain independent.

As for the failed Bell Atlantic-TCI deal, "I don't think it puts a question mark on alliances. I think it puts a cloud over marriages," said Bishop Cheen, senior analyst at Paul Kagan Associates. "There's still going to be a whole lot of dating going on."

John Reidy, media analyst with Smith Barney Shearson, agreed. "Clearly, everybody is taking a deep breath, [but] the truth of the matter is that things ... will move along, but you'll see a series of strategic partnerships and alliances rather than megadeals."

However, L. Mark Stone, managing director at AdMedia Corporate Advisors, a New York-based investment banking company, believes some cable and phone companies-Pacific Telesis Group is one example-may decide to proceed alone in offering customers interactive video services.

"I don't see any reason why [cable and phone companies] have to be together under one corporate entity to offer the services they are capable of offering," Mr. Stone said. "In the end, it's in everyone's interest to create home-to-home, high bandwidth communications."

And despite setbacks, Mr. Stone said Messrs. Malone and Diller remain forces to be reckoned with: "They both have a lot of cash, and there's no doubt they have a tremendous potential to influence how things are done."

Kate Fitzgerald contributed to this story.

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