Southwestern Looking to Enter Cable TV Race : Communications: Baby Bell nears agreement with Cox, Bass Group that would create third-largest system.

Southwestern Bell Corp., Cox Enterprises and the Robert M. Bass Group are close to an agreement that would create the nation’s third-largest cable TV company, industry sources said Thursday.

The deal would be the latest marriage between a cable TV operator and a telephone company as the major players in the telecommunications industry race to realign themselves to pave the way for an anticipated future of interactive television and hundreds of channels.

In a two-step deal, Southwestern Bell would trade stock for a 440,000-subscriber cable TV system in metropolitan Atlanta controlled by the Bass Group. Southwestern would then pool the system into a newly created joint venture with the big cable systems owned by Cox, sources said.

Southwestern Bell would also contribute cable systems in suburban Washington to the joint venture, sources said. It acquired those systems from Hauser Communications earlier this year. Neither Southwestern Bell nor Cox would comment on the deal. Representatives of the Bass Group, in Texas, could not be reached. Southwestern Bell fell 50 cents Thursday to close at $42.125 on the New York Stock Exchange.

Once considered somnolent, Atlanta-based Cox now owns 17 daily newspapers, including the Atlanta Journal & Constitution, and cable systems with 1.7 million subscribers. Those systems make Cox the sixth-largest U.S. cable TV operator.

In recent months, Cox has made some bold moves, including an agreement to invest $500 million toward QVC Network Inc.’s tender offer for Paramount Communications Inc. Earlier this year, Cox teamed up with Southwestern Bell to provide cable TV and phone service in Britain.

Cox, which had revenue of $2.5 billion last year, also owns 19 radio and TV stations.

By spinning off its cable TV systems, Cox may be able to retain ownership of WSB-TV in Atlanta as well as its Atlanta newspaper operation, one of which federal regulators otherwise would have forced it to divest.

But analysts said Cox could either seek a waiver from the Federal Communications Commission or structure the deal so that it would not be deemed to have controlling interest in the new cable company.

San Antonio-based Southwestern Bell provides telephone services to 13 million subscribers in Texas, Oklahoma, Missouri, Kansas and Arkansas. The company has been in discussions with the Bass Group regarding the Atlanta cable system for more than a year. Sources said the Baby Bell was close to an agreement to buy the system for $1.2 billion, but the deal fell apart and Southwestern Bell later bought the 225,000-subscriber Hauser systems near Washington for $650 million.

The Southwestern Bell-Cox joint venture would control a total of 2.3 million subscribers, making it the third-largest cable TV operator in the country behind Tele-Communications Inc. and Time Warner.

Over the last several months, Baby Bell and cable TV companies have been merging or forming strategic relationships at a dizzying pace. US West has agreed to acquire 25% of Time Warner Entertainment for $2.5 billion, and Nynex has agreed to invest $1.2 billion in Viacom Inc., parent company of MTV, as part of Viacom’s tender offer for Paramount.

In the biggest deal of all, TCI has agreed to merge with Bell Atlantic Corp. in a venture valued at roughly $30 billion.

Telephone companies have wired virtually every household in their service area and want to deliver the wide variety of program and information services controlled by the cable companies. The cable operators want to use their cable TV wires to go into the phone business, delivering voice, data and video over broad-band fiber-optic lines.

In a related development Thursday, Bell Atlantic and Teleport Communications Group said they will build fiber-optic networks to provide telecommunications services between New Jersey and New York. The agreement pits Philadelphia-based Bell Atlantic against Nynex, which provides phone service in New York.

Also, US West filed suit seeking the right to get into the cable business in the same areas where it sells phone service. US West followed a trail blazed by Bell Atlantic, which won that right in a recent federal ruling now under appeal. Ameritech Corp. said earlier this week that it too had gone to court seeking the privileges Bell Atlantic won.

Times staff writer Leslie Helm contributed to this story.

* TCI MAY BACK OUT: Giant cable system reconsiders investing in QVC’s offer for Paramount. D2.