Armstrong Eyes Deals, Battles Ruling

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Chicago -- The theme at this year's National Show was,
"Enter the Broadband Millennium," but it could have been, "Enter the New
Cable Elite."

This year's show saw a symbolic changing of the guard, as
new players like AT&T Corp. chairman C. Michael Armstrong and Microsoft Corp.
cofounder Paul Allen grabbed center stage.

Armstrong and AT&T dominated the proceedings --
understandably, as AT&T will be the largest cable operator in the country (16 million
subscribers) after absorbing MediaOne Group Inc.

Armstrong -- a former IBM Corp. executive who once ran
DirecTV Inc.'s parent company, Hughes Electronics Corp. -- declared in a keynote speech
that he was "proud to be a cable guy."

But the telco chairman showed that he still has a little
bit to learn, referring to Adelphia Communications Corp. as "Adelphi."

After the keynote, Armstrong and AT&T Broadband &
Internet Services president Leo J. Hindery Jr. spent much of a press conference damping
speculation about AT&T's intentions.

Hindery said AT&T had no intention of buying any more
large cable MSOs, for example.

And Armstrong said he has had no discussions about
partnering or merging with America Online Inc., which is pushing for the right to resell
cable's high-speed Internet access.

Armstrong also said the recent federal court ruling in
Portland, Ore., upholding municipalities' rights to require open access to cable-data
capacity as part of franchise transfers, would not hold up the MediaOne deal.

"The decision out of Portland will not affect MediaOne
progressing and closing," he said. "This [ruling] transfers the jurisdiction for
telecommunications policy from the federal level to the local level. We intend to close
with MediaOne."

Hindery, though, did allude to a possible restructuring of
the MediaOne-Time Warner Inc. Time Warner Entertainment partnership, which owns much of
Time Warner Cable's systems, Home Box Office and the Warner Bros. studio. He said a
separation of the cable and content assets could be acceptable to AT&T.

Armstrong also contended that the Federal Communications
Commission's ownership-attribution rules, which limit a cable operator's reach to 30
percent of cable homes, would not hinder the MediaOne deal. "We will work with the
FCC and we will comply with whatever the outcome is," he added.

In another meeting with reporters, Time Warner chairman
Gerald Levin said he was in "constant discussions" with AT&T, and that he,
too, would not be averse to separating TWE's content and cable assets. He restated Time
Warner's desire to remain a large MSO, though.

It was as a programmer that Levin, questioned by Cable News
Network anchor Jeff Greenfield during a general-session panel discussion, defended
Hollywood from the current political onslaught in the wake of school shootings.

Levin said much of the controversy was fueled by politics.
"We have basically obscene politics at work, drawing attention away from the issues
that are really important and that our industry has been highlighting -- the use of guns,
the importance of teachers, campaign-finance reform," he said.

"Why isn't anyone talking about those issues?"
Levin continued. "We need to distinguish between the political games being played and
the role of government."

On the same panel, Viacom Inc. chairman Sumner Redstone
bristled when Greenfield pressed him about cable's social responsibility.

"Every one of the companies here knows the difference
between the bottom line and social responsibility," Redstone said. "I don't
think we have anything to be ashamed about. I'm outraged by a lot of what we hear blaming
the media for what's going on. The same motion pictures that are distributed in the United
States are distributed in Canada and England, and the kids don't kill each other there as
a result of seeing these movies."

Their panel also had some light moments, though. Greenfield
asked the participants about Time Warner vice chairman Ted Turner's pronouncement at the
National Association of Broadcasters conference that there were already too many cable
channels, and that a moratorium was probably in order.

Redstone, looking directly at Levin, replied, "I think
he meant no new Turner channels," to much laughter.

Aside from that colloquy and FCC chairman William Kennard's
declaration that a national policy was needed on access to high-speed Internet networks,
most of the news at the show was revealed behind the scenes.

As always, the large publicly owned MSOs met with Wall
Street analysts in closed-door sessions. Several analysts came away from those
get-togethers saying that AT&T Broadband still plans to sign telephony deals involving
more than 70 million passed homes before the end of the year.

AT&T has a telephony venture pending with Time Warner,
which has been delayed by AT&T's proposed merger with TWE partner MediaOne. AT&T
also gave Comcast Corp. most-favored-nation status in a future telephony deal as a result
of that company agreeing to drop out of the bidding for MediaOne.

Comcast, however, will not cut a telephony deal until at
least two other major MSOs reach similar agreements with AT&T.

Cox Communications Inc. spokeswoman Ellen East said her
company was open to discussing a telephony deal with AT&T if it made sense for its
shareholders, but Cox is going it alone for now.

"Our stance hasn't changed," East added.
"AT&T recognizes the potential value of the phone business. We want to maximize
that value. At this point, we're doing really well [with telephony]."

Meanwhile, several analysts said they believe Cox -- which
owns more than 33 million AT&T shares from the sale of Teleport Communications Group
-- plans to announce a deal to sell some or all of that stock to AT&T Broadband in
exchange for cable systems. One analyst briefed by Cox gave such a deal a "better
than 50 percent" chance of happening.

AT&T Broadband spokeswoman LaRae Marsik said the
company would not comment on rumors.

Cox would not comment on discussions with AT&T, but a
source inside the company said Cox still wants the former Tele-Communications Inc. system
in Tulsa, Okla., which was supposed to be part of a joint venture that would also include
Cox's Oklahoma City system.

Other speculation had AT&T Broadband arranging a system
swap with Charter Communications, the St. Louis-based MSO controlled by Allen. Charter
could get AT&T Broadband systems in New England. Charter officials declined to comment
on rumors.

Many analysts expected swaps to be announced at the show,
and they continue to expect them after the show.

AT&T is apparently willing to shed many subscribers to
avoid regulatory hassles over its MediaOne acquisition. By the FCC's measure, AT&T's
various cable partnerships, the MediaOne systems and the TWE stake would push its reach to
more than 35 percent of cable homes.

AT&T already signed off on 46 percent-owned Falcon
Communications Inc.'s sale to Charter. And half-owned Bresnan Communications is weighing
offers from several suitors, with Charter considered the leading candidate.

PaineWebber Inc. vice president of equity research Tom
Eagan said, "The markets we expect to be rationalized include Los Angeles, Florida
and Detroit."

AT&T owns 25 percent of a Century Communications
Corp.-controlled joint venture in Los Angeles, and analysts think AT&T will sell that
stake to Adelphia, which is buying Century.

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