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1999: Year of the Deal; 2000: Year of the Delivery

The past year saw big deals and increased consolidation
fuel another nice run-up in cable stocks.

But while 1999's growth was fueled by mergers and
anticipation of new services, 2000 may be the year when Wall Street asks cable companies
to either put up or shut up.

The 10 publicly traded MSOs saw their stocks rise an
average of 30 percent in 1999. This includes three companies that have been public for
less than one year.

Removing those newcomers -- Charter Communications Inc.,
which raised $3.7 billion in its initial public offering; Insight Communications Co. Inc.,
which raised $600 million; and Classic Communications Inc., which raised $201.7 million --
actually bumps up the return rate to 41 percent.

While that is about one-half of the 80 percent jump cable
stocks enjoyed in 1998, it marks the third successive year during which they have showed
an increase.

CIBC Oppenheimer Corp. cable analyst John Corcoran
continues to have a positive outlook on cable stocks going forward. But he said continued
growth will be predicated on cable operators' ability to deliver new services and
consistent cash-flow increases.

"[The year] 2000 is really going to be the year of
execution," Corcoran said. "At some point, we're going to have to see some
performance. The street is looking for outstanding performance."

Corcoran sees cable stocks maintaining their current levels
at least into the first half of the year, but he then expects some correction in the
market later in the year.

"Wall Street will carry these guys into early
[2000]," Corcoran said, "but by midyear -- the third quarter or the fourth
quarter -- there are going to be some rocky moments."

SG Cowen Securities Corp. analyst Gary Farber is more
optimistic about cable stocks, adding that while execution will be expected, some MSOs are
already showing results.

"You still had a lot of deals being done at $4,000 to
$5,000 per subscriber, which shows that the valuations are still strong. Cable companies
had good penetration and good rollouts of new services, and they are continuing their
strategic investments. I still think these stocks can beat the market," Farber said.

He added that cable stocks have been on a three-year growth
run, and there is no reason to believe the ride is going to end anytime soon.

"There has been a fair amount of questioning ever
since Microsoft [Corp.] invested in the cable industry," Farber said. "That was
in 1997, and we've had [growth] year in and year out."

Farber said one particular area where cable is
well-positioned is in the delivery of interactive services to the television set.
"The TV set is an underleveraged in-home entertainment appliance, and these guys are
there," he added.

The two largest MSOs -- AT&T Broadband & Internet
Services and Time Warner Cable -- posted the smallest gains, with AT&T Corp. posting a
2 percent decline in its stock for the year. Of course, neither AT&T nor Time Warner
Inc. resembles a pure-play cable operator.

AT&T has been under fire lately because of regulatory
uncertainty regarding open access, slower-than-expected deployment of advanced services
and telephony and a concern by some analysts that it may have paid too much for its cable
acquisitions.

AT&T -- which shelled out roughly $110 billion for its
acquisitions of Tele-Communications Inc. and MediaOne Group Inc. -- has been stressing to
analysts that the true price for its cable properties, or the net of asset sales, is
closer to $54 billion.

Farber said one of the main growth engines for cable stocks
for the year was the continued dealmaking in the industry. While some thought the industry
would be hard-pressed to match the deal frenzy of 1998, that changed soon after 1999
began.

MSOs like Charter, which spent about $12 billion on
acquisitions in 1999, as well as Adelphia Communications Corp. and Comcast Corp., were all
major players in the deal arena.

Adelphia joined the fray early in the year with its March
purchase of FrontierVision Partners L.P. for $2.1 billion. By year's end, the company had
spent $11.6 billion on six acquisitions that added about 3.2 million subscribers, bringing
the company to 5.3 million customers.

Other big non-MSO deals during the year included DirecTV
Inc.'s purchase of PrimeStar Inc.'s assets for $1.8 billion and At Home Corp.'s $6.7
billion acquisition of Internet portal Excite Inc.

Wall Street also looked favorably on Adelphia's moves, as
its stock rose 34 percent on the year, closing at $63.88 Dec. 29, up $16.25 since Jan. 4,
1999.

But the MSO with the biggest bang was Comcast, which saw a
78 percent appreciation in its stock since last Jan. 4, closing at $52.88 Dec. 29.

Comcast spent the year cutting deals that doubled its
subscriber base from 4.6 million to 8.2 million on a pro forma basis.

Then there was the deal it didn't make, for MediaOne Group
Inc., which went to AT&T. Comcast came out of that with a $1.5 billion breakup fee, a
chit to buy 1.2 million subscribers from AT&T and "most-favored-nation"
status in a future telephony deal.

While the consolidation trend on the MSO level is expected
to wind down, it is only beginning in the equipment sector, starting with Gemstar
International Group Ltd.'s $9.2 billion play for TV Guide Inc. and Motorola Inc.'s $11
billion merger with General Instrument Corp.

The result was a major lift in their stock prices. Gemstar
finished the year up 392 percent, GI rose 137 percent, TV Guide rose 257 percent and
Motorola rose 125 percent.

The consolidation trend in the equipment sector also
affected stocks that investors saw as future acquisition targets, notably
Scientific-Atlanta Inc., which saw a gain of 139 percent in its stock price at the end of
the year.

But no sector reached the dizzying heights of interactive
television, where prices zoomed into the Internet realm as investors raced to pick the
company most likely to succeed.

One prime example is ACTV Inc., a New York-based
interactive-software company. ACTV, which was trading at a paltry $3.94 per share last
Jan. 4, closed at $48.25 Dec. 29, up 1,124 percent.

Corcoran said he expects the interactive sector to continue
its frenzied growth, but he cautioned that these companies will also be expected to
execute.

"You show me a stock that moved like [ACTV], and I'll
show you a stock that better be turning base metals into gold," Corcoran said. "
The super-high-quality names deserve the rich valuations. Is there a lot of air under
them? There could be. If these guys can't perform, watch out."