IMPACT OF THE BELL ATLANTIC / TCI DEAL : NEWS ANALYSIS : Bell Atlantic Finds Its Calling : Merger: Its deal with TCI could boost progress of interactive telecommunications.

Regional telephone company Bell Atlantic Corp.’s purchase of Tele-Communications Inc., the nation’s largest cable television system, takes a long step toward transforming what has been loosely called “multimedia” and “interactive communications” into the largest and probably most important industry of this decade.

But as usual with mammoth deals nowadays, Americans are properly skeptical. They see big money--at least $21 billion in this deal announced Wednesday--and big egos--John Malone, chief executive of TCI and Raymond Smith, chairman of Bell Atlantic--and wonder what’s in it for them as consumers and employees.

It’s a fair question. This deal, which will combine the computer with the telephone and television, is being compared to the empire building of another time--the battles of J.P. Morgan and Edward H. Harriman to span America with railroads, the struggle of Thomas Edison to wire America for the electric light. But those pioneers created industries and jobs--generations of new occupations, in fact.

Can this deal possibly do that? Don’t discount it, say experts; the union of Bell Atlantic and TCI is one for the ages. Not that the two companies together are guaranteed to do anything extraordinary or immediate. But their combining is a big indicator, communications and technology experts said Wednesday.

It points the way to the convergence of the $20-billion (annual revenue) cable industry with the $80-billion telephone industry and the $150-billion computer industry, along with information suppliers in the film and television, publishing and newspaper industries. It is an indicator of businesses to come and of changes in everyday life and customs.

Still, it will be debated for years whether such convergence results in lower prices--and more and better products--for consumers and a more efficient communications system for the nation.

“What it does is provide freedom for people,” Malone said of the envisioned system. He’s right in many ways: You as the information receiver will have control over the program’s content and be able to interact with it.

It’s common now to talk of movies on demand, and that small wonder will be available in the near future. But the new telephone systems will do more because they can both carry video and channel calls to individual customers. Individual instruction on demand will be available, virtually anywhere, for doctors and dentists, airline and auto mechanics.

In the next few years, televised information will go digital, meaning the picture will be broken down into information bits, transmitted and reconstituted for your viewing. What can be broken down can be amended. So you can communicate with your clothier, “videophonically” try on a dress or suit and make your own alterations for the clothier to implement.

If that sounds trivial, try the example another way. You are in contact with your physician, who can treat a digitized representation of your body, monitoring vital signs continuously as Houston’s manned space center does with astronauts.

Even houses will be designed differently once the “wire” for communications and entertainment is combined, said Paul Saffo, a research scientist at the Institute for the Future. All the possibilities of the “smart house”--individual climate control, cookery that takes instruction, servo-robots--can be made reality.

But to try to narrowly predict the services and businesses that will emerge from this convergence of communications would be folly. The shift in communications and technology that forms the background of Wednesday’s landmark deal started decades ago with the first deregulation of the telephone industry and the growth of the computer.

And future development of this new communications landscape will take many years and involve numerous twists. But that is no reason to doubt that it will happen. Remember that less than 50 years ago television itself was a wrestling sideshow, but it went on to create whole industries and to change America and the world.

Also, many analysts noted Wednesday, big questions about competition and regulation remain to be settled. If companies that own the wire into your house also own the content of information coming over that wire, is that a violation of antitrust law?

Moreover, telephone companies are required as a matter of public policy to offer universal service--everybody who wants a phone can have one for a basic charge. “Will the universal service concept now extend to cable? Regulators will have to update the rules,” said Peter Bernstein of Probe Research, a New Jersey telecommunications consulting firm.

Such questions will be settled at the government level and in private legal arrangements over the rest of this decade, as Bell Atlantic/TCI and all the other multimedia companies develop their businesses.

Implications for industries from computers to construction, from education to entertainment will be profound. “The computer industry will be a supplier of parts to this new communications industry--but those will be important parts,” said Richard Shaffer, head of Technologic Partners, a research and publishing firm.

There will be microprocessors in devices on top of the television set to control information traffic and keep records for billing. There will be supercomputers to store and catalogue films and programs and deliver them on demand to individual clients. Now we use buttons on our telephones, but within this decade we will use pictures, as in Microsoft’s Windows computer software, to make our choices.

What that all means is an enormous increase in business for computer, semiconductor and software companies. There will be a need for special devices to catalogue and bill for services. “It’s a full-employment act for the computer business” said one analyst.

But perhaps for no industry is change as certain as for the movies and television. The entry of the regional Bell operating phone companies into television promises to change the all-important distribution system.

In the not too distant future, the money brought in by hit movies will be shared not by theater owners but by telephone companies--large companies. One reason Bell Atlantic is the acquirer in this deal, said an analyst, “is that it has the resources--meaning money.” Bell Atlantic has almost $13 billion in annual sales and more than $5 billion in annual cash flow--profit plus depreciation. That’s many times the revenue and cash flow of TCI and of most companies in entertainment.

All the other regional Bell operating companies are comparable in size to Bell Atlantic and all can now be expected to look for ways to enter the industry, said analysts.

But is that bad for the film or television production business? Is this some kind of smash-up merger derby like the 1980s that will leave bread lines in Hollywood? Probably not, said telecommunications experts. The great expansion of information and entertainment services promised by Wednesday’s merger will greatly increase demand for film and video products--whether conventional movies and shows or lectures and two-way instruction programs.

“There will be growing business for companies that can generate new information and programming for the system,” said Technologic’s Shaffer. That means movie studios, TV networks, newspapers and publishing houses--industries that know how to produce, gather and process information.

Significantly, American Telephone & Telegraph Co., the giant whose breakup in 1984 was a landmark in the development of today’s diverse communications industry, does not plan to acquire a cable or information company. It wants to be a carrier for all the other information providers, for which it foresees great growth.

There were as many theories and predictions Wednesday as there were analysts. But one analyst suggested a way for both job seekers and investors to regard this emerging industry: “Look for the infrastructure,” he said. He meant look for who makes the shovels, not who pans the gold.

Just as retailers such as Mark Hopkins and railroaders such as Collis Huntington made more money in the California Gold Rush than those who panned for metal, so innovative providers of billing and catalogue services, of information packages and systems, and of wires and poles and telephone switching systems, will benefit from developments that will follow the Bell Atlantic/TCI deal.

All Roads Lead to Home

Phone lines, cable TV, satellite signals and other media carry information into the home, but in the future, they’ll carry vastly more and vie with one another to deliver some of the same things.

Radio: Reaches 99.9% of homes, not to mention cars. Future: CD-quality sound, digital readout of title and artist.

Broadcast television: Reaches into 36% of homes. Includes rudimentary home shopping. Future: Growth is hampered by regulations, as well as lack of broadcast spectrum for more channels.

Cable TV: Carries news and entertainment, including pay-per-view, into 62% of homes. Future: Many cable systems are replacing copper coaxial lines with fiber optics, which have vastly more capacity for interactive entertainment, shopping, education and other services over hundreds of new channels.

Satellite transmission: 3.5 million dishes in operation in the U.S., mostly comprised of “C” band technology which ranges in size from six to eight feet. Future: Satellite systems will offer 150 channels of super-sharp video and audio to customers equipped with an 18 inch satellite dish.

Telephone service: Provide voice, fax and data communcations on about 144 million lines. Future: Fiber optics and data compression techniques will allow a huge increase in data sent to homes over the phone lines.

Wireless: About 14.1 million cellular phones nationwide, increasing by 11,000 per day. Future: A single phone number will go with you anywhere, permitting the exchange of complex messages around the world.

Sources: Broadcasting & Television Yearbook 1993; Satellite Broadcasting and Communications Association; GM Hughes DirecTv; National Assn. of Broadcasters; U.S. Telephone Assn.; Cellular Telecommunications Industry Assn.

Researched by ADAM S. BAUMAN / Los Angeles Times

Biggest Mergers

The merger of Bell Atlantic Corp. and Tele-Communications Inc. announced Wednesday would be worth at least $21.4 billion, making it the second-largest in U.S. history in dollar value.

Here are the largest completed mergers and acquisitions:

Completion Rank Companies date 1 RJR Nabisco Inc./Kohlberg Kravis Roberts April 28, 1989 2 Warner Communications/Time Inc. Jan. 10, 1990 3 Kraft Inc./Philip Morris Inc. Dec. 7, 1988 4 Gulf Corp./Standard Oil Co. of California June 15, 1984 5 Squibb Corp./Bristol-Myers Co. Oct. 4, 1989 6 Getty Oil Co./Texaco Inc. Feb. 17, 1984 7 SmithKline Beckman Corp./Beecham Group July 26, 1989 8 NCR Corp./AT&T; Sept. 19, 1991 9 Standard Oil Co./British Petroleum July 7, 1987 10 Conoco Inc./DuPont Co. Sept. 30, 1981

Value Rank (billions) 1 $30.6* 2 14.1 3 13.4 4 13.4 5 12.1 6 10.1 7 7.9 8 7.9 9 7.9 10 7.6

*Includes assumption of debt

Source: Securities Data Corp.

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