IMPACT OF THE BELL ATLANTIC / TCI DEAL : CORPORATE STRATEGY : The Scramble Is On to Find New Partners--or Be Left in the Dust

The proposed merger of Bell Atlantic Corp. and Tele-Communications Inc. sharply increases pressure on telephone and media companies to find new partners or face being left out of the converging worlds of information, technology and entertainment.

“It’s clear that there will be just a few large, pace-setting survivors as we enter the next century,” said Richard Brown, vice chairman of Ameritech, the Chicago-based regional phone company, which remains unaligned. “And with every passing day, you feel like time is less and less your friend.”

In this quickening race, phone companies are increasingly tapping the vast financial resources supplied by monopoly ratepayers to invest in or buy cable companies outright. Though laden with debt, cable concerns offer superior technology for delivering video entertainment and services.

Thus, the long expected clash between the phone companies and cable operators--the two giants of the information age--may become a friendly hug.

Alliances between telephone and entertainment companies have proliferated since early this year, when Southwestern Bell, based in San Antonio, said it would buy two cable franchises in suburban Washington from Hauser Communications for $650 million.

Since then, all but two regional phone companies--Ameritech and Pacific Telesis, which serves California--have announced at least one alliance with a cable or media company.

US West in Denver said it would invest $2.5 billion in Time Warner. Nynex, the phone company serving New York and New England, earlier this month joined cable operator Viacom in its bid for movie maker Paramount Communications Inc., an arrangement that some analysts say Southwestern Bell is similarly contemplating.

BellSouth Corp. announced Wednesday in Atlanta that it intends to invest in Prime Cable’s 210,000-subscriber franchise in Las Vegas. The company is also said to be studying an investment in QVC Network Inc., the cable programmer that has launched a rival takeover bid for Paramount.

Telephone company takeovers of cable operators in the coming months could resemble the frenzied buying and selling of TV stations in the 1980s, when Wall Street became enamored with the cash flow potential of broadcasters.

“This significantly raises the value of cable TV systems around the country,” said Marc Nathanson, chief executive of Falcon Cable TV Systems, a Los Angeles-based cable operator with more than 1 million subscribers. “It clearly puts cable at the forefront of the new technologies.”

Partly fueling the latest frenzy are Wall Street investment banks, which stand to gain huge fees for advising buyers and sellers. One chief executive at a major cable company said he has received three unsolicited calls from investment bankers in recent weeks claiming to represent unidentified phone companies wanting to buy “whole cable companies, not just cable systems.”

Ameritech is now said to be considering an investment in Cablevision Systems Corp., a Woodbury, N.Y.-based cable operator serving 2 million subscribers, including, on Long Island, the country’s second-largest franchise. Cablevision shares rocketed $9.25, or 17%, to $63.625 on the American Stock Exchange.

None of the previous deals comes close to the one announced Wednesday by TCI and Bell Atlantic, the Philadelphia-based phone company serving the mid-Atlantic states. The latest merger would combine the nation’s second-largest regional phone company, which has an estimated 18.4 million phone lines, and the country’s largest cable operator, with an estimated 10 million customers scattered throughout every state and sizable holdings in several cable programming ventures.

Industry sources said Wednesday that Bell Atlantic originally was in negotiations to acquire Cablevision but that when talks broke down over price, one source said, Bell Atlantic began negotiating with TCI. A Cablevision spokeswoman did not return phone calls.

The Bell Atlantic/TCI merger is big, but the resulting company still would not rival AT&T;, which is roughly twice as large. Nevertheless, in this business, bigness seems to be the coming thing.

By the time the latest merger wave ends, some analysts predict that just a few giant families of integrated communications concerns will provide a new array of information, entertainment and communication services to businesses and consumers.

These families could include not only the telephone, cable and entertainment firms that are now scrambling to join forces, but computer makers, software companies and traditional publishers as well.

It will take years and significant changes in federal telecommunications regulations--and policies--before the mergers are completed. But many analysts argue that these alliances must be made because no single company has the money, the know-how or the content to bring the information highway to American homes and business.

“Staying independent is going to become more difficult and a less intelligent way to do business,” said analyst Sharon Armbrust of Paul Kagan Associates in Carmel.

Such predictions raise big questions. Will any communications or entertainment company remain independent or unaligned? How many of the seven Baby Bell regional phone companies divested a decade ago by American Telephone & Telegraph Co. will be left when the merger mania subsides? How long will it take before AT&T; and MCI, the nation’s top two long-distance carriers, buy into the emerging new industry?

Perhaps most significantly, how will customers and telephone ratepayers, whose funds help pay for these investments in media companies, fare under this emerging new order?

The pace of alliances and mergers is likely to increase in coming months, but not all potential players want immediately to join the fray. Pacific Telesis, with an estimated 14.5 million lines in California, is cautious about paying a premium now to buy entertainment programming when future legislation may assure it easy access to such fare.

Media Madness

Here’s how media and telecommunications stocks reacted to Wednesday’s merger announcement between Bell Atlantic Corp. and Tele-Communications Inc.

Wed. close Pct. Stock and change change Comcast A 39 5/8, +6 3/8 +19.2% Cablevision 63 5/8, +9 1/4 +17.0% Walt Disney 44 1/2, +4 3/4 +11.9% TCI 31 3/8, +3 +10.6% Viacom A 62 1/4, +5 5/8 +9.9% Bell Atlantic 65 7/8, +5 7/8 +9.8% 3DO 45 1/2, +3 1/2 +8.3% Turner Broad. A 27 1/2, +1 1/2 +5.8% QVC Network 57 1/2, +2 1/2 +4.5% Time Warner 44 7/8, +1 7/8 +4.4% CBS 285 1/8, +8 3/4 +3.2% Paramount Comm. 77 3/8, + 5/8 +0.8%

Times staff writer John Lippman contributed to this story.