Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, May 18, 1993                   TAG: 9305180109
SECTION: BUSINESS                    PAGE: B7   EDITION: METRO 
SOURCE: Associated Press
DATELINE: NEW YORK                                LENGTH: Medium

FUTURISTIC CABLE SYSTEM HAS ITS FOOT IN THE DOOR

U S West and Time Warner Inc. announced a $2.5 billion plan to put interactive information, entertainment and telephone services at cable customers' fingertips.

It's the first such alliance between a former regional Bell System company and a conglomerate that owns cable television systems and sizable programming resources.

U S West, which operates in 14 Western states and is an expert in telecommunications technology and marketing ability, agreed to invest $2.5 billion in Time Warner Entertainment, the partnership that owns Time Warner's cable systems, HBO pay-TV service and Warner Bros. film studio.

The deal dispelled the notion that cable TV and telephone companies would be rivals in creating a national information superhighway to serve as the electronic delivery system for a wide range of interactive services.

"We're here this morning to announce that the real battle is . . . between the status quo and new choices," said Richard McCormick, chairman of U S West.

Time Warner Chairman Gerald Levin said there were few regulatory impediments to the deal. He expected it to close by year end.

Investor reaction was positive. Time Warner stock rose $1.50 a share to $35 on the New York Stock Exchange, and some analysts said they expected to see more deals between cable and telephone companies. U S West fell 37 1/2 cents a share to $40.62 1/2.

Ameritech, a U S West rival, cited the deal as more evidence that the federal government should eliminate barriers that limit telephone companies' ability to compete in information businesses.

But the citizens group Center for Media Education said the deal was disturbing and urged the Clinton administration to review it.

"Instead of telephone companies providing competition to the cable industry, what we are now seeing is the creation of a new generation of media monopolies," said Jeffrey Chester, its director.

James Quello, chairman of the Federal Communications Commission, said he didn't foresee any problems with the deal. He said it seemed like "it fulfills the administration's wish for an interactive superhighway into the home."

The deal was approved by the respective boards of U S West and Time Warner Sunday night, following a year of negotiations.

U S West, based near Denver, is one of the seven regional telephone operating companies created in the breakup of American Telephone & Telegraph Co.'s Bell System nearly a decade ago. It has 25 million customers in 14 states.

Time Warner, based in New York, is the nation's second-biggest cable system operator with 7.1 million customers in 36 states.

U S West has considerable experience in network switching, a technology needed to get requested services to individual customers. The technology also will help the partnership track transactions and bill more efficiently.

In exchange for its investment, U S West will get a 25.51 percent stake in the partnership. Time Warner's 87.5 percent interest will drop to 63.27 percent, and that of its Japanese partners, Toshiba Corp. and Itochu Corp., will fall to 11.2 percent. The Japanese companies supported the deal.

Time Warner has previously announced its plans to have the first interactive service in operation in 4,000 homes near Orlando, Fla., by early 1994. It hopes to have full-service networks in 25 major markets serving 85 percent of its customers by 1998.

The regional telephone companies are currently prohibited from owning cable TV systems in their areas, but Time Warner said there is little overlap between the areas that it and U S West serve.