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February 24, 1994


By CBR Staff Writer


In the biggest setback yet to the dreams of a seamless information superhighway, Bell Atlantic Corp and cable television operator Tele-Communications Inc announced very late on Wednesday to abandon their plans to merge. The bold initiative looked to be in trouble when the companies announced on Friday that they were renegotiating the terms of the merger because Bell Atlantic’s share price had fallen (CI No 2,358): the reason given for ending the engagement is that the US regulatory climate, in particular a decision by the Federal Communications Commission to order cable television companies to reduce their charges by 7% overall, had made it impossible to put a reliable value on Tele-Communications’ business going forward. Tele-Communications also said it was suspending $500m in capital spending – about half its planned investment this year – until it gets further clarification of the FCC rate decrease, which it called unwarranted, excessively severe and harmful. The planned reacquisition of its former progamme-maker Liberty Media Inc will however proceed. Tele-Communications says that while the two concluded that this was not the time to bring the companies together, they were discussing possible joint ventures to build full service networks, and joint investment in programming. Bell Atlantic said it would continue its foray into video services and competing with telephone firms outside its home region. The announcement will send shivers through all those that have bought the hype about the information superhighway and backed it with hard cash: little noticed but widespread doubts are beginning to be expressed, notably over how the required investment for services such as video on demand can be financed when a 10-minute long-distance phone call using a tiny sliver of bandwidth can cost the same $2.50 that people expect to pay to rent a video from the corner store: on that basis, an economic charge for receiving a full-length movie over the phone should run to hundreds of dollars. The news makes it certain that Viacom Inc will be seen as the loser in winning the bitter bidding battle for Paramount Communications Inc, and in another pointer that the high-water mark for enthusiasm over the digital superhighway may already have passed, here in London, daily newspaper publisher Telegraph Plc announced yesterday that it had abandoned any plans to diversify into the television market.

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