Bell Atlantic/TCI Merger Receives a Busy Signal

SOMETIMES ``convergence'' just means ``crash.''

That is what happened this week when Bell Atlantic Corporation and Tele-Communications Inc. (TCI) called off their merger. The $33 billion deal would have been the largest business combination in history and a dramatic example of how telephone companies and cable-television operators were trying to converge into a single industry.

On Wednesday night, however, the two companies (along with Liberty Media Corporation, which was also involved) announced that the deal was off. They cited market and regulatory uncertainties. The announcement came just one day after the Federal Communications Commission (FCC) mandated new cuts in the rates cable companies could charge their customers.

In the initial agreement, Bell Atlantic planned to buy TCI with its stock valued at $35 a share. At the time, Bell Atlantic was paying about 11.75 times the cash flow of TCI. That is generally the value given cable companies. But the new FCC rules made it more expensive for Bell Atlantic.

The government move will crimp TCI's cash flow. In announcing the breakdown of the merger, TCI called the new cuts ``excessively severe and harmful'' and said it is suspending $500 million - or one-half - of its capital spending for this year, pending further clarification of the FCC's regulations.

Another problem the merger faced was the decline in the value of Bell Atlantic's stock. ``We are, of course, disappointed,'' said Ray Smith, chairman of the Bell Atlantic in a press statement. ``But the unsettled regulatory climate made it too difficult for the parties to value the future today.'' However, the stock of an acquiring company typically goes down during a merger.

In the end, the proposed deal may have represented too fast a convergence for each of the companies. TCI and its cable competitors are still avidly pursuing partnerships with regional Bell companies.

Both sides see an important future in linking cable's ability to send video to the home with the telephone companies' ability to connect two people over a national network.

That could mean a future where consumers would order movies directly from their TV screens. But companies may well find ways to accomplish it without merger plans as grandiose as Bell Atlantic-TCI.