No. 1 Cable Company Moves Into Fiber Optics : Communications: Tele-Communications sells theater unit; buys a 49.9% stake in a firm with fiber networks.

Tele-Communications Inc., the nation’s largest cable television operator, said Wednesday that it was selling its chain of movie theaters in a move that analysts said was a stronger shift into advanced communications services.

Tele-Communications, based in Englewood, Colo., said it would sell United Artists Entertainment Inc. to a Merrill Lynch leveraged buyout fund and the theater company’s managers for $680 million.

United Artists, which has no ties to the MGM/UA studio, is the nation’s biggest movie theater company.

On Tuesday, Tele-Communications agreed to buy a 49.9% stake in a venture that operates optical fiber networks in seven major cities. The stake in Teleport Communications Group Inc. was purchased from Merrill Lynch for undisclosed terms.

Analysts said Tele-Communications is eager to take future business from telephone companies.

“This continues to create a blurring of the roles of the telcos (telephone companies) and cable operations,” said PaineWebber’s Chris Dixon.

“Clearly Teleport is a significant opportunity for TCI to open new businesses. It underscores the business opportunities for cable operators as they expand into telephone and telecommunications,” Dixon said.

Analyst Michael Kupinski at A. G. Edwards & Sons noted that new technologies have expanded the data-carrying capacities of cable television systems. “Cable companies are starting to look like telephone companies,” he said.

United Artists operates 2,398 movie screens in the United States and Puerto Rico.

The chain of theaters was purchased from Tele-Communications by Merrill Lynch Capital Partners Inc.; Stewart Blair, former vice chairman and chief executive of United Artists, and other unnamed members of the theater company’s management.

Tele-Communications said 13.6% of the purchase price, or $92.5 million, would be paid with preferred stock from the buyer.

Tele-Communications’ shares gained 50 cents to $16.50 on the NASDAQ market.

Merrill Lynch Capital Partners is the general manager of two leveraged buyout funds that have institutional investors as limited partners.

Class-A shares in Tele-Communications, which has stakes in several cable services including American Movie Classics and Black Entertainment Television, were unchanged at $16 in over-the-counter trading.

Tele-Communications had been shopping around the United Artists unit since December, when it bought the part of the theater group in public hands through a stock swap, analysts said.

“Theaters were a very low-return business. It had strong cash flows but not strong growth. I did not view theaters as key to their strategy,” Kupinski said.