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To: BillyG who wrote (26995)	12/22/1997 12:54:00 PM
From: DiViT	Read Replies (1) \| Respond to of 50808

TCI To Create 'Third Leg' To Multibillion-Dollar Set - top Deal 12/22/97 Telecommunications Reports Copyright (c) 1997 Telecommunications Reports International, Inc. Tele-Communications, Inc.'s "Headend in the Sky" (HITS) affiliate expects "in the not-too-distant future" to sign another major equipment deal as a "third leg of the stool" to augment last week's multibillion-dollar agreement with NextLevel Systems, Inc. In a conference call with reporters Dec. 18, TCI Chairman John Malone said discussions were under way for another deal that would create a "second source" for digital set - top boxes. He said NextLevel "has great technology. . .but it doesn't hurt to have more technology." TCI reportedly has been talking to NextLevel rival Scientific-Atlanta, Inc., for set-tops, and to various microchip makers for internal components. Last week TCI said it had agreed to buy 6.5 million to 11.9 million of NextLevel's advanced digital set - top terminals over the next three to five years. The deal has yet to become a "definitive agreement"; a TCI spokeswoman described the current arrangement as a "letter of intent." She said it was unclear when a more binding contract might be signed. In any event, the action ended weeks of rumors that TCI or a TCI affiliate was on the verge of signing a major equipment deal, but it also put more pressure on several companies still vying to provide software and additional components for the boxes. A TCI spokeswoman, who declined to reveal the deal's value or list other HITS affiliates involved, put it this way: "What we have is a housing agreement. We still have a lot of furniture to buy." Last week's deal will create the "central nervous system" of the new advanced boxes, Mr. Malone said. He said once all of the software and additional hardware had been deployed, customers would be able to choose a "Cadillac" version of the terminals with full interactivity or a "Chevrolet" version with fewer features. He said customers eventually might choose to put a Cadillac on their main TV set and Chevrolets on secondary sets. "This is a family of products, not a single device," he explained. In conjunction with the TCI sale, NextLevel said it would change its name back to General Instrument Corp. (GI). In a reorganization earlier this year, GI had spun off its assets into three new companies (TR, Jan. 13; and Aug. 4, notes). NextLevel had been the entity designated to house GI's traditional core cable TV and satellite equipment businesses, and its telephony equipment operations. NextLevel now will spin off those businesses to a newly revived General Instrument Corp. As a result, NextLevel will become solely a provider of telephony equipment, and GI will be reborn with only its core businesses intact. At the same time, GI said it had signed deals with several other unnamed cable TV operators in connection with the TCI order, bringing the number of potential set - top sales to 15 million. Regarding HITS and its affiliates, GI and HITS would swap assets; no cash would change hands. The HITS service uplinks precompressed digital signals to a satellite and beams the signal back down to multichannel video service providers for a fee. TCI said all of its commitments in the GI deal were subject to "the signing of definitive agreements and all appropriate regulatory approvals." GI's boxes would comply with Cable Television Laboratories, Inc.'s "OpenCable" open architecture to ensure interoperability. CableLabs is completing its "OpenCable" specifications based on a "request for information" it issued earlier this year (TR, Nov. 10). Under terms of the set - top agreement, GI would acquire HITS' digital authorization business from TCI's National Digital Television Center in exchange for a 10% equity interest in GI. As a result, GI would offer HITS authorization services to cable TV operators. Digital authorization is the mechanism by which set-tops are activated and deactivated in the home, a TCI spokeswoman explained. According to GI, putting those functions in its hands would give cable TV operators "a secure platform to support widespread digital deployment." HITS, therefore, would retain control over all programming, digital compression, uplinking, and other aspects of the business. In addition, GI would grant nine unnamed HITS affiliates service warrants amounting to roughly a 16% interest in GI, with each HITS affiliate taking a stake "proportional to the number of devices ordered by each organization." GI would offer equity to HITS affiliates at $15 per share, which was the price at which the company opened trading Dec. 17-the day of the announcement. GI closed at 17 1/2 at day's end. The warrants, however, would be valid only regarding set - top orders shipped between 1998 and the year 2000, GI noted. In connection with the set - top deals, GI also announced "substantial job reductions" in its San Diego and Puerto Rico satellite TV facilities. And it said it would relocate its Chicago corporate headquarters to Horsham, Pa., where it has a cable TV facility.