Bell and Cox Hang Up on Joint Cable Venture : Communications: The $4.9-billion agreement to form a partnership collapses after the FCC votes to cut cable TV rates another 7%.

Southwestern Bell Corp. and Cox Cable Communications on Tuesday scrapped an agreement to form a $4.9-billion partnership to exploit cable TV, telephone and interactive opportunities, after failing to renegotiate the deal.

The two companies said the agreement collapsed after the Federal Communications Commission voted to cut cable rates 7% on top of a 10% rollback that went into effect last year. The decision, which will reduce cable company revenues, also threatens to unravel a flurry of other deals made between telephone companies and cable operators last year.

In February, cable TV giant Tele-Communications Inc. and Bell Atlantic Corp. scuttled a merger plan. Furthermore, a stock offering by Los Angeles-based Falcon Cable TV was suspended and an investment by Bell Canada in Jones Intercable is in renegotiation.

The new rate regulations also appear to have complicated other cable TV deals in the works, including the possible sale of Cablevision Systems Corp., which has been in conversations with Time Warner Inc., US West and GTE.

Analysts said the cancellation of the Southwestern Bell-Cox Cable deal is another blow to the vaunted information superhighway, which the companies touted as the reason for entering joint ventures at such a breakneck pace. In a related development on Tuesday, a federal judge ruled that American Telephone & Telegraph Co.’s proposed acquisition of McCaw Cellular Communications Inc. violates the landmark consent decree that broke up AT&T.;

The joint ventures and mergers between cable and telephone companies were designed to help facilitate the 500-channel future that would allow TV viewers to watch movies on demand, shop and bank from home as well as provide traditional telephone and data services. Now it could be several years before those services are available.

Some critics have maintained that the canceled mergers are in fact a hardball tactic by the powerful telephone and cable industries to strong-arm and embarrass the Clinton Administration into providing more support on telecommunications issues.

Although the Administration wants to foster the growth of new telecommunications by allowing the telephone companies into the cable TV business and vice versa, the FCC has acted to implement new cable TV legislation aimed at curbing rising cable rates.

FCC Chairman Reed Hundt rejected the claim that the regulatory agency was to blame for the failed joint venture. The recent FCC decision, he said, “in no way put an end to new ventures in the telecommunications area.” He noted that the failure to agree on a price in a “growing, developing industry” is “not unusual.”

Under the terms of the Southwestern Bell-Cox Cable deal, the two companies would have pooled their cable TV assets to become the country’s third-largest operator.

Privately owned Cox would have contributed its 21 cable systems valued at $3.3 billion, while Southwestern Bell would have supplied $1.6 billion in cash. The joint venture would have then been poised to go public or acquire additional cable TV systems.

Jim Kahan, Southwestern Bell’s senior vice president for strategic planning, said the FCC’s rate rollback “significantly hinders the ability of the partnership as initially structured to meet its growth and financial objectives. . . . We concluded that it’s unlikely the cable industry can generate the cash flow we expected.”

Cable TV companies complain that the rate rollback will substantially cut into their cash flows, which they need to cover debt repayments. Many cable TV companies are highly leveraged because they were sold in recent years or have borrowed money to upgrade their systems.

Nonetheless, both companies said they will continue to push forward independently despite the failed plan to merge their cable TV assets. Cox said it still plans to test-launch a “full service network” in Omaha, Neb., next July combining cable TV, telephone and other interactive services.

* MEGADEAL IN JEOPARDY: Judge rules AT&T;’s plan to buy McCaw violates consent decree. A1