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Quiet TCI Still Stirs Talk

Anaheim, Calif. -- At last year's Western Show,
Tele-Communications Inc. dominated the headlines, orchestrating a $4.5 billion,
industrywide order for up to 15 million advanced-digital set-tops.

This year, TCI kept relatively quiet, as it tries to close
its $48 billion merger with AT&T Corp. Its two top executives were on show panels here
last week, though, arguing forcefully that efforts by Internet-service providers to use
the deal as a wedge for opening access to cable networks was bad public policy that could
kill the merger and inhibit other MSOs from investing in plant upgrades.

And behind the scenes, executives close to the company were
buzzing about several AT&T-TCI maneuvers. One was AT&T's apparently imminent
deal to provide telephony over Time Warner Cable plant in a joint venture with the
second-largest MSO.

The other was the growing belief among some analysts --
based on information from TCI executives -- that AT&T now plans to shift residential
long-distance services away from AT&T Consumer Services Co. Consumer Services is the
unit that would include TCI's cable systems -- along with consumer wireless, local
telephone and Internet services -- after the merger closes.

Instead, all long-distance operations would remain under
the AT&T umbrella, along with assets intended to serve business customers, those
executives said.

Moving the consumer long-distance piece would shift about
three-quarters -- or $21.5 billion of the $28.3 billion total -- of 1999 revenue away from
the consumer unit, using a recently published estimate by Lehman Bros. Inc. The cable
revenue portion was estimated at about $5.3 billion.

Assets in the consumer unit are to be tied to a newly
created tracking stock, while the remaining assets would relate to the existing AT&T
shares, which trade under the symbol "T."

TCI and AT&T have been keeping mum about the tracking
stock and other details of the deal while a preliminary proxy statement is under review at
the Securities and Exchange Commission. A TCI spokeswoman had no comment on whether such a
change in the planned Consumer Services assets was in the works.

The assignment of AT&T assets is, of course, up to
AT&T, and the company has not commented on the issue. But one analyst, who was briefed
on the potential asset shift, cautioned that the move might be what TCI wants to do, but
that it might not necessarily be the way that AT&T decides to go.

If the consumer unit doesn't include long-distance,
it's possible that AT&T vice chairman John Zeglis would not become CEO of the
Consumer Services unit, analysts said. This would clear the way for TCI president and
chief operating officer Leo J. Hindery Jr. to be CEO of a unit that would be dominated by
cable operations, they added.

Hindery -- who signed a new, five-year employment contract
around the time when the merger was announced -- is currently in line to become president
of Consumer Services under Zeglis, the former corporate general counsel, who freely admits
that he has no cable-operating experience.

"Zeglis would probably stay at AT&T Corp. at that
point," Bear Stearns & Co. telecommunications analyst William Deatherage said,
referring to the apparent plan to move long-distance operations away from the consumer
unit. "Consumer Co. is a much smaller company at that point."

Keeping the long-distance business lines together would
avoid a complex allocation of costs related to assets that are all really part of the same
operation, Deatherage said. In contrast, the cable operations already stand alone, and the
consumer phone and high-speed-data services would run over that cable plant.

The consumer long-distance business also generates
earnings, and AT&T may prefer to keep the earnings generators together in the parent
company, leaving only higher-growing, cash-flow-measured businesses under the tracking
stock, one analyst said.

Meanwhile, the telephony deal that Time Warner Inc.
chairman Gerald Levin predicted would happen seems close to getting done.

Analysts said a report of a possible deal in The Los
Angeles Times
last week was accurate. Time Warner Cable -- which reaches 18 million
homes, including the Time Warner Entertainment systems that are partly owned by MediaOne
Group -- and AT&T would form a joint venture, of which Time Warner would own about 35
percent to 49 percent. AT&T would pay Time Warner an upfront fee, along with further
payments as subscribers are signed up.

Other cable operators are believed to be waiting to hear
the Time Warner deal's terms before striking their own agreements with AT&T. But
executives who have been briefed on the negotiations said the Time Warner terms will be
"better" than those offered to others, because of Time Warner's size and
the advanced nature of its upgrades.