TCI, Bell Atlantic call off mega-merger

The deal of the century is no more.

Bell Atlantic Corp. and Tele-Communications Inc. called off their planned $ 33 billion merger Wednesday, blaming the move on the Federal Communications Commission’s decision Tuesday to cut cable rates another 7%.

“Regulatory actions announced this week made reaching agreement on a transaction of this magnitude impossible,” said Bell Atlantic chairman Ray Smith.

TCI prez John Malone added that this was “not the time to bring our two companies together.”

Separately, TCI senior VP of policy and planning Bob Thomson told Daily Variety that the company would suspend $ 500 million in capital expenditures — half of which was already earmarked for the building of the superhighway — pending further clarification of the FCC’s new cable rate rules.

But the FCC said it would not be the fall guy. Shortly after the announcement of the failed merger, FCC chairman Reed Hundt and commissioner James Quello strongly disputed the claims by Bell Atlantic and TCI that regulatory uncertainties led to the decision to call off the merger.

Hundt said in a statement late Wednesday that the FCC decision announced Tuesday — to roll back cable rates an extra 7% –“did not in any way make the future of the cable industry more unsettled.”

“Our adoption of a comprehensive set of regulations clarifies the industry’s future,” the statement continued.

Quello echoed Hundt’s comments in a telephone interview. He said the two companies “cannot possibly blame this (the cancellation of the merger) on regulatory uncertainties. That’s almost too convenient. Our rules do not affect cable’s ability to expand or invest.”

Indeed, rumors that the deal was on the verge of collapse have surfaced several times since it was announced in October.

Also, TCI’s stock had plummeted roughly 27% since the deal was announced, following a similar plunge in Bell Atlantic shares. On Wednesday, TCI shares closed at $ 24.25, down 63 cents, and Bell Atlantic shares were off 63 cents to $ 52.63. The deal was called off after the stock market closed.

Last straw

“Because of the size and complexity of the deal, I’m sure there were plenty of issues,” said Jessica Reif, an Oppenheimer & Co. analyst. “The reregulation of the cable industry is the icing on the cake.”

There is also some speculation that Bell Atlantic realized it may not need TCI to bring it into the interactive multimedia age. The Baby Bell plans to roll out a full-service cable network in Alexandria, Va., in April that’s not a test, but the actual start of its interactive system. No cable company has gotten to that stage yet.

The merger of the telco and the cabler was a harbinger of things to come — a pairing of two behemoths in their respective industries and a sign those two industries were quickly becoming one.

Huge telephone companies had little experience distributing video signals and no experience operating in the entertainment industry. And the cable companies didn’t have the switching technology that phone companies mastered in connecting calls that would be necessary to transmit a virtually limitless number of channels to future cable subscribers.

Indeed, soon after the merger announcement, cable stocks soared on speculation of other such pairings. And some followed TCI and Bell Atlantic’s lead. Cox Cable linked with Southwestern Bell and Jones Intercable sold a stake to a Canadian telco. Comcast, Cablevision and Continental Cablevision also have been named as possible telco-merger candidates.

Vulnerable position

Rather than seeing the deal’s collapse as a sweeping indictment of cable-telco mergers, Reif said the size of the merger, both in dollars and in terms, made it especially vulnerable to the vagaries of the stock market and regulators.

“There are still plenty of cable deals,” Reif said.

No doubt speculation about Malone teaming up again with Barry Diller, head of the QVC home shopping network in which TCI initially invested, also will heat up.

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