COLLAPSE OF A MEGA-MERGER : TCI Resumes Deal-Fishing in Murky Waters

John C. Malone is back from his fishing trip.

The deal-hungry chief executive of Denver cable TV giant Tele-Communications Inc., who said he was “going fishing” at the outset of the proposed merger with Bell Atlantic Corp. four months ago, appeared to be in buoyant spirits Thursday at the prospect of being back on the prowl.

Malone had taken a back seat to Bell Atlantic Chairman Raymond W. Smith, who seemed to relish his new role in the spotlight. But while Smith kept an unusually low profile the day after the merger collapsed, Malone was hooked up with 90 reporters in a conference call from his headquarters outside Denver.

“I was used to being the ‘captain of the cable industry,’ ” Malone said. “For the last five months, I’ve been wearing a different hat and not answering the phone to a whole bunch of people that wanted to do things with us.”

The failed merger paves the way for TCI to pursue a wide range of options--including absorbing smaller cable systems that may now be available at bargain prices--but it also throws into question the rapid convergence of the cable TV and telephone industries.

The $33-billion TCI/Bell Atlantic marriage was supposed to be a model for how competing industries could work together to build the so-called information superhighway. But its failure points up the difficulties longtime adversaries may have in forging partnerships.

In an illustration of the fragile cable-telephone relationship, Malone said it was “particularly insulting” that some Baby Bells supported the federal regulations cutting cable TV rates in what he said was an effort to drive down the value of cable companies so that they could be bought at a discount.

“We represent the only real threat to the local telephony business,” Malone said. “Taking $15 billion of capital out of our industry, that’s a hell of an edge. I keep hearing that we’re a monopolist. These guys have been monopolists for 20 years!”

Bell Atlantic and US West were the exceptions among the Baby Bells. With cable companies facing rate reductions, though, some feel phone companies may get a leg up in the technology race now.

At a news conference in Philadelphia, Bell Atlantic said its goal of delivering programming hasn’t changed. But it said the failed merger will slow plans to offer cable TV outside its six-state service area.

One option for Bell Atlantic is to enter the market by purchasing small cable systems. Like TCI, the Baby Bell blamed the Federal Communications Commission for sinking the deal. But there were more than regulatory reasons.

Bell Atlantic’s stock slipped 20% over the four-month course of the merger talks, due to shareholder concerns. On Thursday, its stock jumped $1.75 to $54.50, as the threat of earnings dilution because of the proposed stock-swap deal evaporated. TCI shares traded as low as $21.25 before rebounding to close at $22.375, down $1.875 for the day.

Reflecting on the failed deal, some industry executives concluded that Malone had a severe case of “seller’s remorse.” At 52, he had spoken unconvincingly of slipping out of the spotlight. “I think he was of two minds,” one industry executive said. “Part of him said, ‘Get out, spend more time with your wife, go fishing’--and the other said, ‘Build, drive, kill!’ That side drove him to make the deal tougher and tougher” until it could not work.

Another cable TV executive concurred. “What he probably missed was the lack of action. He’s an action junkie. He would have had to behave himself for a year” until the deal closed.

Malone said he will continue to seek alliances for TCI. Indeed, joint ventures may be the preferred way to go between cable TV operators and telephone companies in the wake of the FCC’s action to further roll back cable TV rates.

While Malone refused to discuss specific options, he confirmed that he is back in conversations with QVC Network Inc. Chairman Barry Diller. Malone was one of Diller’s initial backers in QVC’s failed bid for Paramount Communications Inc.

“We are going to see more alliances,” said John Waller, president of Waller Capital Corp., a New York investment banking firm specializing in cable deals. “The fact that TCI and Bell Atlantic couldn’t reach an agreement doesn’t mean others won’t. These two industries need each other and want to get together.”

Waller and other industry executives maintain that the future between the two industries lies in alliances such as US West’s $2.5-billion investment for 25.5% of Time Warner Entertainment, the second-largest cable TV operator in the country.

The two companies are developing one of the first “full service networks” at a test site in Orlando, Fla., that will allow customers to combine the use of their telephone and cable TV service, as well as providing such features as movies on demand, home shopping and banking.

“We’re learning programming from them and they are able to pull resources from us to help with the telecommunications part of the business,” said Bob Fuehr, a vice president at US West.

Malone, who only a few months ago was predicting that a majority of consumers within five years would have access to the broad-band fiber-optic networks capable of delivering hundreds of channels and myriad interactive service into the home, is dampening expectations.

TCI said this week that it would slash its capital expenditure program by $500 million next year--half its planned spending--in the wake of the FCC’s rate rollback action. The cable company had previously announced an ambitious program to upgrade its 13 million customers to fiber-optic systems over the next several years.

However, Malone now says that while TCI customers--and by extrapolation the cable industry--may get additional services, it will take longer to receive two-way interactive and telephony service.

The cable industry estimates that the FCC rate rollback will cost nearly $3 billion annually in revenue. Based on the industry’s borrowing capacity, that would result in $15 billion less being available for capital expenditure to build high-tech cable systems.

“This has done more to push back the timetable of (an interactive digital world) than anything else,” HBO Chairman Michael Fuchs said. “The Bell Atlantic/TCI implosion shows that this convergence will not be an easy one.”

Times staff writer Kathryn Harris contributed to this report.