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LONDON-Lured by government encouragement of foreign investment, the ability to offer telephone services and densely populated markets, North American corporate communications giants such as Nynex Corp. and Tele-Communications Inc. are gambling billions now on a European cable TV gold rush later.

The U.K. is one of the least developed markets in Europe, with only 4% of the population receiving cable. But the picture is changing rapidly. To date, nearly $5 billion of private money has been invested in hardware with a further $3.5 billion earmarked for this year, according to the European trade group Cable Communications Association.

U.S. and Canadian companies control 85% of the nascent U.K. cable market, which is fully financed by the private sector. In several European countries, such as Germany, the Netherlands and Belgium, cable is largely funded by the public purse. In the U.K., companies such as Telewest (a 50-50 joint venture between TCI and U S West) and SBC CableComms (a joint venture 75% owned by Southwestern Bell and 25% by Cox International) lead the investment pack.

These two ventures control 22% and 13% of the cable market respectively, according to U.K. market researcher CIT Research. Other major players in European cable from across the Atlantic include Nynex, Bell Canada, Comcast and Le Groupe Videotron.

Liz Baker, manager of multiclient research at CIT here, said "a lot of money was needed to build cable [in the U.K.] because it's private, whereas in most European countries there's some element of governmental support. The Americans have money to spend."

There are other carrots attracting cable operators to the U.K. in particular. According to U.K. regulatory body the Independent Television Commission, the U.K. is unique in that cable operators are allowed to provide both telecommunications services and cable TV, which could more than double revenue for operators. Cable also provides the basis for interactive and pay-per-view services, both of which are expected to be active within the next 18 months.

Currently, nearly 1 million homes have been wired for cable in the U.K., compared with satellite dishes in nearly 3 million homes. Cable penetration is now 22% (as compared with 65% in the U.S.) and it will be "available to half the population by the end of '96" in the U.K., a CCA spokesman said.

Another country drawing interest from North American cable heavyweights is Spain, where the cable industry is in an embryonic state, with fewer than 700,000 homes receiving cable via outdated, rudimentary systems. With one of the highest rates of TV-watching in Europe, the densely populated country has attracted interest from 15 major consortiums including Bell Canada, Jones Intercable and Time Warner.

Spanish cable investment company Multitel estimates that 4 million of the country's 11.8 million TV households could be hooked up by 2002.

"Spain is an attractive market for cable," said Goldman Sachs International analyst Joe Ravitch here.

Rafael Lopez Dieguez, managing director for Bell Cable Media Espa¤a, said the company is conservatively calculating that 20% penetration is needed within seven years to make a profit.

Eastern Europe is another cable hot spot. Governments there are actively encouraging private investment with such incentives as tax breaks, because they realize the scope of investment needed to bring their infrastructure up to Western standards, CIT said.

To date, North American companies like Telewest, Time Warner and United International Holdings have all invested in Hungary. Polish restrictions on foreign ownership has limited foreign investment there. And CIT says Romania is easy to enter, with no maximum on foreign ownership, but the market is very fragmented with a number of small operators.

Deborah Klosky in Madrid contributed to this story.

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