Telefónica, HTM&F Go Own Ways in Argentina

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Buenos Aires, Argentina -- The always-steamy Argentine
tango between Spain's Telefónica S.A. and Dallas-based investment fund Hicks, Muse, Tate
& Furst Inc. has drawn to a close.

Well, sort of: After months of embittered negotiations, the
two companies said last week that they would divide $4 billion in Argentine media and
telecommunications assets they jointly control.

In exchange for its 25.5 percent stake in Telefónica
Argentina S.A., HMT&F will gain majority control of CableVisión, Latin America's
leading MSO, as well as a 3 percent equity stake in Spain's Telefónica.

According to industry analysts, the deal could be a
potential boon for CableVisión, which can now position itself as a major competitor to
Telefónica in the country's rapidly growing Internet market. With HMT&F and partner
Liberty Media International firmly in control of CableVisión's 1.5 million subscribers,
the company's slow-growing Internet business is expected to take off.

CableVisión is also expected to apply for a telephony
license -- an effort that Telefónica opposed -- when further telecommunications-sector
deregulation arrives in November.

"This is a great deal for CableVisión because it
unshackles them strategically from Telefónica's agenda," BNP Capital Markets analyst
Bruce Stanforth said.

The $1,900 per subscriber that HMT&F paid for
Telefónica's 35.9 percent stake in CableVisión was cheap, he added, especially in the
wake of Microsoft Corp.'s recent $126 million investment in Brazilian MSO Globo Cabo S.A.

HMT&F partner Cesar Baez said the deal will pave the
road for CableVisión to eventually absorb the other 120,000 subscribers that HMT&F
holds independently in Argentina. "There's still a lot of wood to chop before we
decide how to expand CableVisión, but it's a great platform with which to develop our
regional cable strategy," he added.

Baez denied speculation that the MSO plans to go public, or
that it had reached a preliminary agreement with another telecommunications operator to
provide trunking services over its high-speed network.

The deal should also put pressure on CableVisión's
crosstown rival, Multicanal, to come up with a similar broadband strategy, Santander
Investment analyst David Taff said.

Accomplishing that goal was made easier by last week's
landmark $500 million investment by Goldman, Sachs & Co. in Multicanal's parent
company, privately held Grupo Clarín. "Goldman's investment should give Multicanal
access to the sort of global telco partner that it will need in order to stay even with a
revamped CableVisión," Taff said.

The most likely candidate to assume such a role, most
analysts believe, is Telefónica, which was an investor in Multicanal in the early 1990s.
Telefónica has put a premium on owning distribution assets in Argentina -- Latin
America's most developed cable market -- since forming a separate unit last year to
develop its diverse media holdings in the region.

Indeed, as a result of the breakup of HMT&F-controlled
CEI Citicorp Holdings S.A., Telefónica has inherited a network of leading broadcast-TV
and radio stations. Striking a partnership with an Argentine cable operator is its next
big challenge, analysts agreed.

Ironically, for two partners that have been anxious to part
ways for some time, HMT&F would also end up involved in such a deal by virtue of its
minority stake in Spain's Telefónica.

Baez claimed that the new partnership facilitated the
overall divorce, and it does not represent any speculative bet on Telefónica's future or
that of its assets. "It allows us to hold shares in a liquid company, instead of an
illiquid one, as was Cointel," the holding company that controls Telefónica
Argentina, he added.

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