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MediaOne's broadband success

The cable company, whose stock has been on a roll of late, may be one of the best "pure plays" in broadband.

One of the leading "pure plays" in broadband became a stand-alone company only two months ago: MediaOne Group.

As the buzz about the convergence of personal computers and television heightens, cable companies are entering the fray with high-speed Net access, as well as providing TV services, through their networks.

MediaOne is one such company, with a "pure" focus on this trend. In June, USWest split its two operating groups into separate companies. The Baby Bell's 14-state telephone business kept the USWest name, while its cable television and cable Net access arm became MediaOne Group. Since November 1995, the companies have been trading as two classes of USWest stock. MediaOne also has an Internet content business.

MediaOne's stock has been on a roll of late. Shares were trading at 47.625 at midday, close to the company's 52-week high. In addition, MediaOne today authorized the repurchase of up to 25 million shares.

"The share repurchase program reflects our confidence in our future," MediaOne chief executive Chuck Lillis said in a statement.

Last week, MediaOne posted a 24 percent increase in operating cash flow and a 12 percent increase in revenue from the like period a year ago.

Its domestic cable business already reaches 5 million customers in 17 states, including California, Florida, a small portion of New York, and other states in the Midwest and Northeast.

The company's MediaOne Express service MediaOne stock chart promises Internet access by cable modems at speeds up to 50 times faster than today's standard 28.8 Kbps dial-up connections through phone lines. The service now has about 41,000 subscribers.

MediaOne also is providing digital telephone service in Los Angeles and Atlanta. "We'll be rolling out at least one more market by the end of the year," MediaOne spokesman Dave Wood said.

Many analysts are bullish about MediaOne, despite the intense competition it faces. This week, Doug Shapiro, an analyst at Deutsche Bank Securities, raised his 1999 year-end price targets on the company, and on other cable companies as well. Shapiro hiked his 1999 price target for MediaOne to $65 per share from $48 per share.

"Although we expect cable stocks will continue to trade based on speculation about alliances and consolidation, we believe that, contrary to conventional wisdom, the stocks are far from fully valued fundamentally at current levels," he wrote.

In addition, some analysts already are touting MediaOne as a takeover target. "MediaOne is in a unique position as the only large [multi-systems operator] with no single control shareholder," Jessica Reif Cohen, an analyst with Merrill Lynch, wrote in a recently published note. "Its continued independence seems highly unlikely."

Indeed, MediaOne's spin-off from USWest came amid a flurry of investments and consolidation in the industry.

Microsoft co-founder Paul Allen has said that he believes in the power of coaxial cable and the possibilities for using it to deliver high-bandwidth data and video. Putting his money where his mouth is, he recently acquired Charter Communications so that he could merge it with Marcus Cable, a company he bought in April. The deal marked his largest personal investment outside of Microsoft to date. (Allen is an investor in CNET: The Computer Network, publisher of News.com.)

"We look at those situations as validation of the cable network and the ability to reach into the home," Wood said. "Other companies are obviously seeing that the HFC network is the network of choice for a variety of new products."

One of those companies could be Microsoft. The New York Post recently reported that the software giant's chief executive, Bill Gates, is interested in buying MediaOne Group.

Last year, Microsoft invested $1 billion in Comcast, one of the nation's largest cable operators. And phone giant AT&T bought cable provider Tele-Communications Incorporated for the hefty sum of $48 billion.

Wood would not comment on any takeover speculation, saying only: "At this point, we're not for sale. We're concentrating on expanding our services and tending to our own business."