WITH NEW PURCHASE, AT&T IS DIALING DIRECT; TELEPHONE GIANT FOLLOWS DETOUR TO LOCAL ACCESS.

Byline: Michael E. Kanell Cox News Service

AT&T's blockbuster bid to buy the nation's largest cable company may be a huge gamble, but it is a loud confirmation of the fact every communications company is now either hunter or game.

The deal to buy Tele-Communications Inc. in a stock swap worth about $48 billion will give AT&T a direct link to consumer homes, even as it pushes rivals to find their own partners and accelerate their own competing connections. The long-distance giant, which has floundered in several efforts at entering the $110 billion market for local service, finally has a strategy that detours around the lines controlled by the regional phone companies.

``This is the move we have been waiting for,'' said analyst Brian Adamik of the Yankee Group. ``There are only two lines to the home, and AT&T is aligning itself with that other wire.''

More than two years after passage of the Telecommunications Act, most consumers have no choice in local service and no new choices in long-distance. The law, touted as a way for industries to invade each other's territories, has instead spurred only a spate of mergers that did not cross industry lines - until now.

Unlike San Antonio-based SBC Communications, which has purchased three other local phone companies, AT&T cannot simply add lines to grow. While it has more than 70 million consumer customers, AT&T does not own any lines into their homes. To compete in local service, AT&T has been forced to choose between reselling service - which is not profitable - and constructing its own network - which is stunningly expensive.

AT&T recently spent $11 billion to buy Teleport Communications Group to beef up its ability to sell services to businesses. But owning a cable company gives AT&T a path to consumers. TCI has systems reaching 11 million homes and owns parts of companies that reach 10 million more.

When complete, a high-speed cable connection can offer a lightning-quick link to the Internet, along with television and phone service. Using its huge customer base and world-renowned brand name, AT&T should be able to market the new service to millions.

And while AT&T's purchase of TCI is bold, AT&T has stumbled before in making grand gestures. For example, the disastrous purchase of NCR, later reversed, which looked so promising on paper.

Moreover, the payoff from TCI is years away. By the time those upgrades are made, other technologies - such as wireless - could eclipse cable. Still, AT&T could not afford to wait, Allen said. ``You just don't know what's going to come crashing onto the scene, but you've got to do something.''

THE DEAL

AT&T will pay $32 billion in stock and assume TCI's $16 billion in debt upon the approval by stockholders and government regulators. Getting access to TCI's cable customers would be be a major step toward getting into local phone service and Internet-related busineses.

AT&T

With 90 million customers, AT&T is the United State's leading long-distance telephone carrier (ahead of MCI and Sprint). It had $51.32 billion in revenue and $4.47 billion in earnings last year. It has 128,000 employees.

TCI

One of the largest cable operators in the United States, servicing 14.4 million customers, TCI Inc. includes TCI Group, Liberty Media and TCI Ventures. It had $7.57 billion in revenue and a loss of $626 million in earnings last year. It has 31,500 employees.

--- Associated Press

REASON TO SMILE

John Malone, the tough-talking engineer who turned Tele-Communications Inc. into the world's second-largest cable company, may emerge from Wednesday's linkup with AT&T Corp. a fulfilled man.

He's certainly a lot wealthier.

AT&T's $45.8 billion stock-and-debt offer for TCI gives Malone, already a billionaire, another $4.4 billion, based on the shares he controls in TCI, and its Liberty Media and TCI Ventures units.

Perhaps more importantly, the deal is likely to solidify Malone's reputation as a cable industry innovator, allowing him to make good on his long-stated promise to deliver more than just run-of-the-mill programming to television viewers.

--- Bloomberg News

MOVERS, SHAKERS

How big is the AT&T-TCI merger? The announced deal affected the following companies as well:

Cablevision Systems Corp. closed at $76 Wednesday, up $14. Merrill Lynch & Co. analyst Jessica Reif Cohen called the company ``an obvious takeover candidate.''

Time Warner Inc. closed at $88.63, up $5.38. It is the parent company of Time Warner Cable, which has the largest number of U.S. cable subscribers.

At Home Corp. closed at $51.19 Wednesday, up $11.94. With its acquisition of TCI, AT&T will receive TCI's 39.1 percent stake in At Home, which provides Internet service.

Scientific Atlanta closed at $24.06 Wednesday, up $2.125. Scientific Atlanta makes the cable boxes that sit on top of tv sets.

Transcontinental Realty Investors Inc. closed at $16.31 Wednesday, up 31.25 cents. The Dallas-based real estate investment trust has the ticker symbol (TCI) many investors assume belongs to Tele-Communications Inc.

CAPTION(S):

2 Photos, Box

PHOTO (1--Color) AT&T Chairman Michael Armstrong, left, shakes hands with TCI head John Malone.

Kathy Willens/Associated Press

(2--Color) John Malone

BOX: MOVERS, SHAKERS (see text)