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TCI deal may speed PC-TV marriage

The AT&T buyout is expected to help speed the convergence of PCs and TVs through increased infrastructure investment.

The proposed $48 billion merger between AT&T and Tele-Communications Incorporated is expected to help speed the convergence of PCs and TVs by increasing the size and speed of the infrastructure investment needed to transform analog technology into digital format.

If approved by regulatory agencies, the merger will create a new unit called AT&T Consumer Services. Its mission will be to "significantly accelerate" the upgrading of TCI's cable infrastructure, which will be used to provide digital phone, data, video services to consumers by the end of 1999, the companies said.

As a result, analysts say, consumers would be more likely to see a timely deployment of computer-like digital TV set-top boxes, partly because AT&T will assume $16 billion in debt from TCI.

"End users should be ecstatic today," said Daniel Briere, president of Telechoice, a communications industry research firm. "This moves up the deployment timetable for high bandwidth into the home considerably."

That optimism was seconded by Cynthia Brumfield, an analyst with media research firm Paul Kagan & Associates. "There is more cash freed up to put into capital improvements, which certainly will extend to the whole digital architecture," she said.

For PC companies, the day that low-cost information appliances will hook up to high-speed cable lines also moved up. Who chooses to jump in early in this market against consumer electronics companies like Sony could potentially determine who wins the large body of consumers that has previously been averse to the complicated world of personal computing.

TCI's tentacles
@Home: Controls stake in high-speed cable Net provider with Comcast and Cox.

TCI Music: Unit operates cable music provider Digital Music Express and online music site SonicNet.

TV Guide: Acquired interest in print and online listings venue from News Corporation.

Local phones: Offers limited service in Hartford, Connecticut; Arlington Heights, Illinois; and Fremont, California.

Other: Operates satellite company Primestar with other major cable operators. Pulled its $125 million investment out of MSN.

TCI and other cable companies are working on digital set-top boxes that would offer features such as video-on-demand, email service, and Internet browsing many times faster than today's dial-up modems. By July 1, 2000, these devices are going to be sold in retail stores instead of leased by the cable operators, opening up a potentially large and lucrative new market for PC vendors.

The other important component in the rollout of digital services See special coverage:
A giant awakens is the cable "head-end" equipment at the main offices. The stumbling block has been designing the ability to hook digitial set-tops up to a high-speed network. TCI has already spent half of an anticipated $1 billion on upgrading equipment at its central offices, so that these head-end systems can understand and receive data signals back from set-top boxes.

During a conference call this morning, TCI chief executive John Malone offered a real-life example of the benefits of PC-TV convergence. "Would you like to order Viagra while you're watching your favorite entertainment show? Push, point, and click."

The merger will probably fuel more consolidation among cable television and telephone providers as PC-TV convergence gets closer to reality. That likelihood was reflected on Wall Street, where today's announcement seemed to inspire confidence throughout the cable industry. Some analysts like Merrill Lynch soured on the Baby Bells--downgrading SBC Communications, Ameritech, and Bell Atlantic from "buy" to "accumulate"--but upgraded Cablevision to "buy" from "accumulate."

TCI recently told analysts that it expects only 26 percent of its subscribers will be served by plants capable of two-way communications at the end of 1998, compared to an industry average of 46 percent. But now, TCI is estimating it can reach its goal of 99 percent coverage by the end of 1999--10 to 20 percent faster than anticipated, according to Brumfield.

If all goes well, the result for consumers is that there could be broader deployment of digital set-tops a shorter time frame.

"You should expect to see TCI move more quickly toward deploying services through information appliances, [but] my fear is that AT&T will say, 'Let's stop and think about what we're doing,'" cautioned Sean Kaldor, analyst with International Data Corporation.

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