COMCAST DEAL IS CABLE'S LARGEST; NO. 3 COMPANY ACQUIRES NO. 4.

Byline: Eric R. Quinones Associated Press

In the cable industry's biggest merger ever, Comcast Corp. is buying MediaOne Group Inc., trying to hasten the day when cable companies become media supermarkets offering TV, phone service and high-speed Internet hookups.

The $44.3 billion stock swap deal, announced Monday, would combine the No. 3 and No. 4 players in the country and is the latest in a string of mergers in the cable industry.

It would allow Comcast to nearly double its subscribers, although it still would remain third behind Time Warner Inc. and AT&T's cable division, the former Tele-Communications Inc. The new Comcast would have 11 million subscribers in 33 states.

That's cause for worry among consumer advocates, who decry the fact that cable rates have been rising well above the rate of inflation. Government rate regulations have been relaxed in recent years and will end March 31. That, critics fear, could allow these giant companies to raise rates even faster.

``We see the dramatic effect of relaxed public oversight and it will only continue now,'' said Gene Kimmelman, co-director of Consumers Union's Washington office.

Cable operators are scrambling to merge so they will have the financial clout and subscriber base to offer an ever-increasing number of channels and add new services such as telephones and Internet access, which are expected to become widely available in the next few years.

Cable TV's popularity continues to grow and the advent of digital TV promises room for even more channels. More than 77 percent of the nation's 98.1 million TV-viewing homes had cable last year, up from nearly 70 percent a year earlier.

``Cable is being thought of in a different way, and you must have largeness to be able to survive,'' said Barry Hyman, a media analyst at Ehrenkrantz King Nussbaum.

AT&T's $44 billion purchase of Tele-Communications was the biggest deal up until now. Earlier this month, Adelphia Communications Corp. announced it would buy Century Communications Corp. for $3.6 billion to become the nation's fifth-largest cable operator.

Cable companies defend their rate increases, saying they are needed to invest in new services.

Comcast chief executive Brian Roberts said Monday that the company already has disclosed it would raise rates 5 percent this year and that the merger will not change those plans.

The new Comcast will own cable systems throughout the eastern half of the United States, as well as California, Nevada, Colorado, New Mexico and Arizona. By the end of this year, 70 percent of Comcast's cable systems will be upgraded to handle two-way traffic and begin launching new services, Roberts said.

MediaOne is a spinoff of the western regional phone company US West Inc., which in late 1997 gave up on the idea that cable and phone providers could complement each other.

But the union of cable and phones has re-emerged as a key to the future of these companies. AT&T plans to offer telephone service through Tele-Communications' cables and it has forged an alliance with Time Warner to do the same.

Roberts said Comcast also is pursuing a telephone deal with AT&T.

In addition to cable systems, Philadelphia-based Comcast's interests include stakes in the E! Entertainment cable network, the QVC home shopping channel, the National Hockey League's Philadelphia Flyers and the National Basketball Association's Philadelphia 76ers.

MediaOne, based in Englewood, Colo., also has interests in wireless communications businesses outside the United States serving more than 3 million customers, but will explore selling those operations.

The combined companies generated more than $8 billion in revenue last year.

Under the deal, MediaOne shareholders would receive 1.1 Comcast shares for each of their own.

That sent MediaOne shares soaring $7.75, or 13 percent, to $68.50 on the New York Stock Exchange.

Comcast stock tumbled 9 percent, as often happens to an acquiring company in a stock swap. It fell $6.50 to $66.375 on the Nasdaq Stock Market.

The fall in Comcast stock decreased the value of the deal, originally pegged at $48.65 billion.

MediaOne's president, CEO and chairman, Charles Lillis, will become vice chairman of Comcast and join its board of directors, along with three additional MediaOne designees.

Comcast also will inherit MediaOne's nearly 25 percent stake in Time Warner Entertainment, the division that holds most of Time Warner's cable systems, the Warner Bros. studio and HBO. Time Warner said it supports the deal.

THE FACTS

The nation's largest cable system operators in number of subscribers, assuming the completion of Comcast Corp.'s acquisition of MediaOne Group Inc. and other pending transactions:

Time Warner Inc., 12.6 million

AT&T Corp., 12.5 million

Comcast Corp., 11 million

Adelphia Communications Corp., 4.7 million

Cox Communications Inc., 3.8 million

Source: Company reports

CAPTION(S):

Photo

PHOTO Comcast Corp. Chairman Ralph J. Roberts, at right, announces the acquisition of MediaOne.

Mitch Jacobson/Associated Press