TELE COMMUNICATIONS INC /CO/, S-3, 1997-01-15

TELE COMMUNICATIONS INC /CO/
S-3, 1997-01-15
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1

As filed with the Securities and Exchange Commission on January 15, 1997
REGISTRATION NO. 333-__________
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------------

FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

------------------------------

TELE-COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5619 DTC PARKWAY 84-1260157
(State or other jurisdiction of ENGLEWOOD, COLORADO 80111-3000 (I.R.S. Employer
incorporation or organization) (303) 267-5500 Identification No.)
</TABLE>
(Address, including zip code, and
telephone number, including area code,
of registrant's principal executive offices)

------------------------------

STEPHEN M. BRETT, ESQ.
TELE-COMMUNICATIONS, INC.
TERRACE TOWER II
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111-3000
(303) 267-5500
(Name, address, including zip code, and telephone
number, including area code, of agent for service)

------------------------------

Copies to:
<TABLE>
<S> <C>
ELIZABETH M. MARKOWSKI, ESQ. NORMAN D. SLONAKER, ESQ.
BAKER & BOTTS, L.L.P. BROWN & WOOD LLP
599 LEXINGTON AVENUE ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10022-6070 NEW YORK, NEW YORK 10048-0557
(212) 705-5000 (212) 839-5300
</TABLE>

------------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effective date of the registration
statement.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]

If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [ ]

If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
-----------

If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
--------------------

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [x]

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE (1) FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tele-Communications, Inc. Series A Telephony
Group Common Stock, par value $1.00 per share . $250,000,000.00 $75,758.00
========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================
<PAGE> 2
EXPLANATORY NOTE

This Registration Statement contains two forms of prospectuses, one to
be used in connection with an underwritten offering in the United States and
Canada (the "U.S. Prospectus"), and one to be used in connection with a
concurrent underwritten offering outside the United States and Canada (the
"International Prospectus" and, together with the U.S. Prospectus, the
"Prospectuses"). The Prospectuses are identical in all respects except for the
front cover page, the section entitled "UNDERWRITING" and the outside back
cover page.

The form of the U.S. Prospectus is included herein and the form of the
front cover page, "UNDERWRITING" section and outside back cover page of the
International Prospectus are included following the back cover page of the U.S.
Prospectus. Each of the pages for the International Prospectus included herein
is labeled "Alternate Page for International Prospectus."
<PAGE> 3

***************************************************************************
* *
* Information contained herein is subject to completion or amendment. *
* A registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may *
* not be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there by any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any State. *
* *
***************************************************************************

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 15, 1997
PROSPECTUS
____________ SHARES

TELE-COMMUNICATIONS, INC.

SERIES A TELEPHONY GROUP COMMON STOCK

______________________________

Of the _____ shares (the "Shares") of Tele-Communications, Inc.
Series A Telephony Group Common Stock, par value $1.00 per share (the "Series A
Telephony Group Common Stock"), offered hereby, _____ shares initially are
being offered in the United States and Canada by the U.S. Underwriters (as
defined herein) (the "U.S. Offering") and _____ shares initially are being
offered in a concurrent offering outside the United States and Canada by the
International Underwriters (as defined herein) (the "International Offering"
and, together with the U.S. Offering, the "Offerings"). The public offering
price and the underwriting discount per share are identical for both Offerings.
See "UNDERWRITING."

The Series A Telephony Group Common Stock is common stock of
Tele-Communications, Inc. ("TCI" or the "Company") and is intended to reflect
the separate performance of the Telephony Group of TCI. The Telephony Group
presently consists principally of (i) TCI's investments in the PCS Ventures (as
defined herein), including TCI's 30.0% partnership interest in the Sprint PCS
Partnerships (as defined herein), and (ii) TCI's approximately 31.1% equity
investment in the outstanding common stock of Teleport Communications Group
Inc.

Subject to certain conditions, TCI may at any time redeem all
outstanding shares of Telephony Group Common Stock (as defined herein) in
exchange for a proportionate interest in the shares owned by TCI of any one or
more Qualifying Subsidiaries (as defined herein) that hold all of the assets
and liabilities then attributed to the Telephony Group. Subject to certain
exceptions, if TCI disposes of all or substantially all of the properties and
assets of the Telephony Group (i.e., 80% on a current market value basis), TCI
will be required, at its option, either to (i) distribute to holders of the
Telephony Group Common Stock an amount in cash and/or securities or other
property equal to their proportionate interest in the Telephony Group Net
Proceeds (as defined herein) of such disposition, either by special dividend or
by redemption of all or part of the outstanding shares of Telephony Group
Common Stock, or (ii) convert each outstanding share of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock (as defined
herein) into a number (or fraction) of shares of Series A TCI Group Common
Stock and Series B TCI Group Common Stock (each, as defined herein),
respectively, equal in each case to 110% of the average daily ratio over the
ten-Trading Day Period (as defined herein) beginning on the 16th Trading Day
after consummation of the transaction of the Market Value (as defined herein)
of one share of Series A Telephony Group Common Stock to the Market Value of
one share of Series A TCI Group Common Stock. Further, TCI may in the sole
discretion of its Board of Directors (the "Board of Directors" or "Board") at
any time convert each outstanding share of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock into a number (or fraction) of
shares of Series A TCI Group Common Stock and Series B TCI Group Common Stock,
respectively, equal to the ratio of the value (as determined on the basis of
appraisals performed by investment banking firms) of one share of Telephony
Group Common Stock to the average Market Value of one share of Series A TCI
Group Common Stock.

Each share of Series A Telephony Group Common Stock is entitled to one
vote, and each share of Series B Telephony Group Common Stock is entitled to
ten votes, generally voting as one class with the TCI Group Common Stock, the
Liberty Media Group Common Stock and any Preferred Stock (each, as defined
herein) entitled to vote. Each share of Series B Telephony Group Common Stock
is convertible at the option of the holder into a share of Series A Telephony
Group Common Stock. No shares of Series B Telephony Group Common Stock have
been issued as of the date of this Prospectus.

TCI has filed an application for the quotation of the Series A
Telephony Group Common Stock on the Nasdaq National Market under the symbol
"___."

(continued on following page)

SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.

______________________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
======================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . . . . $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Total (3) . . . . . . . . . . . . . . . . . . . . . $ $ $
======================================================================================================================
</TABLE>

(1) TCI has agreed to indemnify the several U.S. Underwriters and International
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "UNDERWRITING."

(2) Before deducting estimated expenses of the Offerings of $ payable by
TCI.

(3) TCI has granted the U.S. Underwriters and the International Underwriters
options, exercisable within 30 days after the date hereof, to purchase up
to an aggregate of and additional shares of Series A
Telephony Group Common Stock, respectively, at the Price to Public per
share, less the Underwriting Discount, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to TCI will be $ , $
and $ , respectively. See "UNDERWRITING."

______________________________

The Series A Telephony Group Common Stock is being offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, and subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of certificates for the shares of Series A
Telephony Group Common Stock will be made in New York, New York, on or about
, 1997.

______________________________

MERRILL LYNCH & CO.

MORGAN STANLEY & CO.
INCORPORATED

CREDIT SUISSE FIRST BOSTON

SALOMON BROTHERS INC

______________________________

The date of this Prospectus is January , 1997.

<PAGE> 4
(continued from previous page)

The Series A Telephony Group Common Stock is one of six series of the
common stock, $1.00 par value per share, of TCI (collectively, the "Common
Stock"), the others being: Tele-Communications, Inc. Series B Telephony Group
Common Stock (the "Series B Telephony Group Common Stock" and, together with
the Series A Telephony Group Common Stock, the "Telephony Group Common Stock"),
Tele-Communications, Inc. Series A TCI Group Common Stock (the "Series A TCI
Group Common Stock"), Tele-Communications, Inc. Series B TCI Group Common Stock
(the "Series B TCI Group Common Stock" and, together with the Series A TCI
Group Common Stock, the "TCI Group Common Stock"), Tele-Communications, Inc.
Series A Liberty Media Group Common Stock (the "Series A Liberty Media Group
Common Stock"), and Tele-Communications, Inc. Series B Liberty Media Group
Common Stock (the "Series B Liberty Media Group Common Stock" and, together
with the Series A Liberty Media Group Common Stock, the "Liberty Media Group
Common Stock").

Dividends on the Telephony Group Common Stock will be payable when, as
and if declared by the Board of Directors out of the lesser of the assets of TCI
legally available therefor and the Telephony Group Available Dividend Amount (as
defined herein). TCI's historical policy of paying no cash dividends on the
Common Stock will also apply to the Telephony Group Common Stock. Any decision
to pay dividends in the future will depend on the financial condition, results
of operations and business requirements of TCI as a whole. In making a
determination to pay dividends in the future on the Telephony Group Common
Stock, the Liberty Media Group Common Stock or the TCI Group Common Stock, the
Board of Directors expects to follow a policy under which it will consider,
among other factors, the relative financial condition, results of operations and
business requirements of the Telephony Group, the TCI Group and the Liberty
Media Group (each, a "Group," and, collectively, the "Groups") and of TCI as a
whole. Upon any liquidation of TCI, holders of shares of the Telephony Group
Common Stock, the TCI Group Common Stock and the Liberty Media Group Common
Stock will be entitled to share a portion of the funds of TCI remaining for
distribution to holders of Common Stock based on the relative Market
Capitalization (as defined herein) of the Telephony Group Common Stock, the TCI
Group Common Stock and the Liberty Media Group Common Stock.

Prior to the Offerings, there has been no public market for the Series
A Telephony Group Common Stock. Since there has been no public market for the
Series A Telephony Group Common Stock, there can be no assurance as to the
degree to which the market price of the Series A Telephony Group Common Stock
will actually reflect the performance of the Telephony Group. In addition,
holders of Telephony Group Common Stock, as stockholders of TCI, will be
subject to all risks associated with an investment in TCI and all of its
businesses, assets, and liabilities. See "RISK FACTORS--CONSIDERATIONS
RELATING TO THE TELEPHONY GROUP COMMON STOCK." For a discussion of the factors
which were considered in determining the initial public offering price, see
"UNDERWRITING."

The Telephony Group presently consists of TCI's 100% equity interest
in TCI Telephony Services, Inc., a Delaware corporation and an indirect wholly
owned subsidiary of TCI ("TTS--Delaware"), its subsidiaries, their respective
assets, and all assets and liabilities of TCI and its subsidiaries to the
extent attributed to any of the foregoing assets, whether or not such assets or
liabilities are assets and liabilities of TTS--Delaware or any of its
subsidiaries (TTS--Delaware, together with its consolidated subsidiaries
(unless the context indicates otherwise), is referred to in this Prospectus as
"TCI Telephony"). The principal assets of TCI Telephony are its investments in
a series of partnerships formed to engage in the business of providing wireless
communications services, using the radio spectrum for broadband personal
communications services ("PCS"), to residential and business customers
nationwide under the "Sprint" brand (the "PCS Ventures"), and its investment in
Teleport Communications Group Inc., a Delaware corporation ("TCG" or
"Teleport"). The PCS Ventures include Sprint Spectrum Holding Company, L.P.
("Holdings") and MinorCo, L.P. (collectively, the "Sprint PCS Partnerships" or
"Sprint PCS"), and PhillieCo, L.P. ("PhillieCo"). The partners of each of the
Sprint PCS Partnerships (each, a "Partner" and, collectively, the "Partners")
are subsidiaries of Sprint Corporation ("Sprint"), Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox") and TCI (each, a "Parent" and,
collectively, the "Parents"). The partners of PhillieCo are subsidiaries of
Sprint, Cox and TCI. TCI, through TCI Telephony, has a 30% interest as a
partner in each of the Sprint PCS Partnerships and a 35.3% interest as a
partner in PhillieCo. TCG is a competitive local exchange carrier (or CLEC)
that offers a wide range of local telecommunications services in major
metropolitan markets nationwide, primarily to businesses, long distance
carriers and resellers, and wireless communications companies. TCI has a 31.1%
equity interest (which represents a 36.4% voting interest) in the outstanding
common stock of TCG. The Telephony Group also includes a 50% partnership
interest in Kansas City Fiber Network, L.P. and a 40% partnership interest in
NHT Partnership, which are competitive access providers serving the Kansas City
and Buffalo metropolitan areas, respectively.

The Telephony Group will also include such other assets and
liabilities of the TCI Group as the Board of Directors may in the future
determine to attribute to the Telephony Group and such other businesses, assets
and liabilities as TCI or any of its subsidiaries may in the future acquire for
the Telephony Group, as determined by the Board of Directors. It is currently
the intention of TCI that any businesses, assets and liabilities so attributed
to the Telephony Group in the future would be businesses, assets and
liabilities of, or related to, the interests of TCI and its subsidiaries in the
Telephony Business (as defined).

A subsidiary of the Sprint PCS Partnerships, Sprint Spectrum, L.P.
("Sprint Spectrum") (through which Sprint PCS conducts substantially all of its
operations other than the ownership of its 49% partnership interest in APC and
its 49% partnership interest in Cox-California (each, as defined herein)),
filed with the Securities and Exchange Commission (the "Commission") a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to which it completed an underwritten public
offering in August 1996 (the "Sprint Spectrum Registration Statement") and
since such offering has been subject to the information requirements of Section
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
pursuant to which it files reports and other information with the Commission
(under Commission file number 333-06609-01). The Sprint Spectrum Registration
Statement and such reports are available from the Commission in the manner
described below under "AVAILABLE INFORMATION." Information contained herein
regarding Sprint PCS is based upon, and is qualified in its entirety by
reference to, information contained in such filings and other publicly
available information.

Teleport is subject to the information requirements of the Exchange
Act and, in accordance therewith, files reports, proxy and information
statements and other information with the Commission (under Commission file
number 0-20913), all of which are available from the Commission in the manner
described below under "AVAILABLE INFORMATION." In addition, the Teleport Class
A Stock (as defined herein) is quoted on the Nasdaq National Market under the
symbol "TCGI." Information contained herein regarding Teleport is based upon,
and is qualified in its entirety by reference to, information contained in such
filings and other publicly available information.

______________________________

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES
A TELEPHONY GROUP COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS
OFFERING CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE
DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE SERIES A TELEPHONY GROUP COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULES 10B-6 AND 10B-7 UNDER THE SECURITIES EXCHANGE ACT OF
1934.

2
<PAGE> 5
AVAILABLE INFORMATION

TCI has filed with the Commission a registration statement on Form S-3
(together with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act, with respect to the Shares.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information
pertaining to the Shares and TCI, reference is made to the Registration
Statement. The Registration Statement, including any amendments, schedules and
exhibits filed or incorporated by reference as a part thereof, is available for
inspection and copying as set forth below. Statements contained herein or in
any document incorporated herein by reference concerning the provisions of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document. Each such
statement is qualified in its entirety by such reference.

TCI is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements, information
statements and other information with the Commission. Such reports, proxy
statements, information statements and other information (including the
Registration Statement) filed with the Commission by TCI can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511, and at Suite 1300, 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site on the Internet that contains reports, proxy and information statements
and other information regarding registrants (including TCI) that file
electronically with the Commission. The address of the Commission's Web site
is http://www.sec.gov. Reports, proxy statements, information statements and
other information concerning TCI can also be inspected at the offices of the
National Association of Securities Dealers, Inc., Reports Section, at 1735 K
Street, N.W., Washington, D.C. 20006.

INCORPORATION OF DOCUMENTS BY REFERENCE

The following documents have been filed by TCI with the Commission
under the Exchange Act and are hereby incorporated into this Prospectus by
reference and made a part hereof (Commission File No. 0-20421): (i) TCI's
Annual Report on Form 10-K for the year ended December 31, 1995; (ii) TCI's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 (as
amended on Form 10Q/A (Amendment No. 1)), June 30, 1996 and September 30,
1996; (iii) TCI's Current Reports on Form 8-K, dated February 9, 1996, June 19,
1996, July 2, 1996, August 5, 1996, September 3, 1996, September 11, 1996,
December 17, 1996 and __________, 1997; (iv) the financial statements and the
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations of the TCI Group as of and for the years ended
December 31, 1995, 1994 and 1993, and as of and for the nine months ended
September 30, 1996 and 1995 contained in Annex V to TCI's Proxy Statement dated
________, 1997; and (v) the description of the Telephony Group Common Stock
contained in TCI's Form 8-A Registration Statement filed on ________, 1997.

All documents filed by TCI with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the termination of the offering of the Shares described in this Prospectus
shall be deemed to be incorporated herein by reference and to be a part hereof
from the respective dates of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

TCI will provide without charge to each person to whom a Prospectus is
delivered, upon the written or oral request of such person, a copy of any or
all of the documents incorporated by reference herein, other than certain
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into the documents that this Prospectus incorporates). Such
requests should be addressed to Stephen M. Brett, Esq., Executive Vice
President and General Counsel, Tele-Communications, Inc., Terrace Tower II,
5619 DTC Parkway, Englewood, Colorado 80111-3000; telephone (303) 267-5500.

3
<PAGE> 6
PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus
or incorporated by reference herein. Capitalized terms used in this summary
and not otherwise defined have the meanings ascribed to them elsewhere in this
Prospectus. See Annex A--Index of Certain Defined Terms. In addition, certain
technical and other terms used in this Prospectus to describe the businesses of
the entities in which TCI Telephony has an interest are defined in Annex
B--Glossary of Selected Terms. As used herein, the terms "TCI" and the
"Company" mean Tele-Communications, Inc. and its consolidated subsidiaries,
unless the context indicates otherwise.

TCI

TCI, through its subsidiaries and affiliates, is principally engaged
in the construction, acquisition, ownership, and operation of cable television
systems and the provision of satellite-delivered video entertainment,
information and home shopping programming services to various video
distribution media, principally cable television systems. TCI also has
investments in cable and telecommunications operations and television
programming in certain international markets as well as investments in
companies and joint ventures involved in developing and providing programming
for new television and telecommunications technologies. TCI is a Delaware
corporation and was incorporated in 1994. TCI Communications, Inc. ("TCIC"), a
wholly-owned subsidiary of TCI, and its predecessors have been engaged in the
cable television business since the early 1950's.

On ____________, 1997, the shareholders of TCI approved an amendment
(the "Telephony Group Amendment") to the Restated Certificate of Incorporation
of TCI (as so amended, the "TCI Charter") to authorize two new series of Common
Stock, the Series A Telephony Group Common Stock and the Series B Telephony
Group Common Stock. The Telephony Group Common Stock is intended to reflect
the separate performance of the Telephony Group, which currently consists of
TCI's investments in certain entities engaged in the domestic wireline and
wireless telephony distribution and communications businesses. See "THE
TELEPHONY GROUP." Prior to the effectiveness of the Telephony Group Amendment,
all of the investments attributed to the Telephony Group were included in the
TCI Group. Following effectiveness of the Telephony Group Amendment, such
investments ceased to be included in the TCI Group. See "THE OTHER GROUPS."

THE TELEPHONY GROUP

The Telephony Group includes TCI's principal investments in the
domestic wireless and wireline telephony businesses (the "Telephony Business"),
consisting primarily of its investments, held through TCI Telephony, in the PCS
Ventures (Sprint PCS and PhillieCo) and in Teleport. Beyond the ownership of
these assets, TCI Telephony also has the right to acquire TCI's interests in
the ResTel Business and the WTCI Business (each, as defined below). The Board
currently intends the Telephony Group to be the principal vehicle for TCI's
telephony expansion strategies. See "RISK FACTORS--CONSIDERATIONS RELATING TO
THE TELEPHONY GROUP COMMON STOCK--POTENTIAL DIVERGENCE OF INTERESTS; NO
SPECIFIC PROCEDURES FOR RESOLUTION."

Sprint PCS is the largest broadband wireless provider in the United
States in terms of total licensed Pops (or population equivalents), with
licenses (including those owned by licensees that are affiliated or have agreed
to affiliate with Sprint PCS, including PhillieCo) to provide service in MTAs
(or metropolitan trading areas) covering over 190 million Pops (or population
equivalents). TCI Telephony believes that a seamless, nationwide presence
utilizing one technology and sold under the Sprint brand name will yield
competitive advantages for Sprint PCS. Sprint PCS's nationwide presence is not
only considerably larger than the next largest A/B Block PCS provider (AT&T
Corp. ("AT&T"), with 112 million Pops) but also significantly broader than the
largest U.S. cellular provider (again AT&T, with 79 million Pops), in each case
based on information filed with the Commission and without giving effect to the
purchase of any PCS license in the FCC's recently completed D, E and F Block PCS
Auctions. Sprint PCS is in the process of initiating wireless communications
services nationwide under the Sprint brand name and, as of January 10, 1997, had
seven markets operational. TCI Telephony's ownership interests in the PCS
Ventures represent the economic equivalent of, or attributable interest in,
53.2 million net Pops.

4
<PAGE> 7
Teleport, the largest CLEC (or competitive local exchange carrier) in
the United States as measured by route miles, offers a wide range of local
telecommunications services in major metropolitan markets nationwide, primarily
to businesses, long distance carriers and resellers, and wireless
communications companies. TCG believes that it offers these customers
technologically advanced local telecommunications services, as well as superior
customer service, flexible pricing and vendor and route diversity. TCI
Telephony has a 31.1% equity interest (representing a 36.4% voting interest) in
the outstanding common stock of Teleport. In addition, TCI Telephony also
holds a 50% partnership interest in Kansas City Fiber Network, L.P. and a 40%
partnership interest in NHT Partnership, which are CAPs serving the Kansas City
and Buffalo metropolitan areas, respectively.

Beyond its current investments, TCI Telephony has the right, but not
the obligation, to acquire TCI's developmental stage cable telephony business,
which provides wireline residential telephony services (i.e., conventional
telephone service or POTS and related services) via TCI's cable plant to
residential and small business customers in certain of the geographic areas
served by TCI's cable television systems (the "ResTel Business"). The right to
acquire the ResTel Business may be exercised by TCI Telephony in whole or in
part (by geographic area) and at any time or from time to time, as applicable,
provided that TCI Telephony is at the time of exercise a subsidiary of TCI and
TCI is then conducting such business. TCI Telephony is currently in the
process of studying the customer acceptance and economic attractiveness of the
ResTel Business. See "RESIDENTIAL TELEPHONY."

TCI Telephony also has the right to acquire TCI's interests in the
business, currently being conducted by TCI's indirect subsidiary, Western
Tele-Communications, Inc. ("WTCI"), of providing long-distance transport of
video, voice and data traffic and other telecommunications services primarily
to inter-exchange carriers on a wholesale basis using a digital broadband
microwave network located throughout a 14-state region in the western United
States (the "WTCI Business"). Such right may be exercised at any time,
provided that TCI Telephony is then a subsidiary of TCI and TCI is then
conducting such business, at a price based on the fair market value of such
business (as determined by the Board).

TCI Telephony believes that its various telephony investments are
complementary in several respects. To date, TCI Telephony believes that
Teleport and Sprint PCS have benefited from the existing cable infrastructure
and installed customer base of TCI and the other cable companies that have
invested in them. TCI believes that such existing cable infrastructure has
resulted in significantly reduced buildout costs and improved implementation
time for Teleport, and anticipates that the size of the installed base of
customers for both Sprint and the Partners that are cable companies (14 million
and 20 million customers, respectively), will be a key advantage to Sprint PCS
in its distribution and marketing efforts.

WIRELESS TELEPHONY

GENERAL

The Telephony Group's wireless telephony activities currently consist
of its interests in Sprint PCS and PhillieCo. Sprint PCS has announced its
intention to become a leading provider of wireless communications products and
services in the United States. Sprint PCS is the largest broadband wireless
personal communications services company in the United States in terms of total
licensed Pops, with licenses (including those owned by licensees that have
affiliated or have agreed to affiliate with Sprint PCS, including PhillieCo) to
provide service in 33 MTAs covering 190.9 million Pops (73% of the total United
States population) and including eight of the nation's ten largest MTAs.
Sprint PCS was the successful bidder for 29 PCS licenses in the A Block and B
Block PCS auction conducted by the Federal Communications Commission ("FCC")
which concluded in March 1995. Sprint PCS's 29 wholly-owned markets include,
among others, the New York City, San Francisco, Detroit, Dallas/Fort Worth and
Boston/Providence MTAs, and cover 150.3 million Pops. Additionally, Cox has
agreed to contribute to Sprint PCS, upon FCC approval which has been obtained,
a PCS license for the Omaha MTA that it separately purchased in the broadband
PCS auction that concluded in March 1995. In order to increase its Pop
coverage, Sprint PCS has affiliated and expects to continue to affiliate with
other PCS providers, including those in which Sprint PCS or affiliates of the
Partners have an interest. Each affiliated PCS service provider will be
included in Sprint PCS's national network and will use the Sprint brand name
pursuant to affiliation agreements.

5
<PAGE> 8
The table below presents the owned and affiliated Pops of Sprint PCS
after giving effect to such affiliation agreements:

<TABLE>
<CAPTION>
Direct or Indirect
1995 Ownership Interest Net Pops Attributed
Population in Attributed to Telephony to Telephony
Owned/Affiliated # of MTAs MTA(s) Group Group(1)
---------------- --------- ------------- ----------------------- -------------------
(millions) (millions)
<S> <C> <C> <C> <C>
Owned by Sprint PCS . . . . . . . . . 29 150.3 30.0% 45.1
Omaha (to be contributed to
Sprint PCS by Cox)(2) . . . . . . 1 1.7 30.0% .5
Affiliated:
APC (Baltimore/
Washington)(3) . . . . . . . 1 8.3 14.7% 1.2
Cox-California (Los
Angeles/San Diego)(4) . . . 1 21.5 14.7% 3.2
PhillieCo (Philadelphia)(5) . . 1 9.1 35.3% 3.2
-- ----- ----
Total . . . . . . . . . . 33 190.9 53.2
== ===== ====
</TABLE>
- ---------------
(1) Represents aggregate Pops covered by the PCS licenses held by the
applicable PCS licensee multiplied by the direct or indirect percentage
equity interest in such licensee attributed to the Telephony Group. The
number of Pops represented by PCS licenses is based upon the Donnelly
Marketing Service estimate of the December 31, 1995 population of a
geographic area. Such number is not necessarily indicative of the number
of Pops that are or will be served by the applicable licensee's PCS network
in such license area or the actual or expected number of customers using
such PCS network. In addition, the number of Pops attributed to the
Telephony Group is not intended to imply that TCI Telephony has any actual
ownership interest in or right to acquire such an interest in, or other
rights with respect to, such Pops or the applicable PCS license(s),
including upon liquidation or dissolution of the applicable PCS licensee.

(2) Contribution will be credited towards capital contributions required of
Cox under the Partnership Agreement to the same extent as if Cox had made
a cash contribution in an amount equal to the sum of (i) $995,564,
together with interest at the annual rate of 13.4% computed from November
17, 1994 through the date the Omaha license is contributed, plus (ii)
$4,062,400, together with interest at the annual rate of 13.4% computed
from June 30, 1995 through the date the Omaha license is contributed.

(3) Sprint PCS owns a 49% limited partnership interest in American PCS, L.P.
("APC"), which owns a PCS license for and operates a broadband PCS system
in the Baltimore/Washington, D.C. MTA and has entered into an affiliation
agreement with Sprint PCS.

(4) Sprint PCS owns a 49% limited partnership interest in Cox-California PCS,
L.P. ("Cox-California") which was formed to hold a PCS license for and
operates a broadband PCS system in the Los Angeles/San Diego MTA and has
entered into an affiliation agreement with Sprint PCS.

(5) Owned by subsidiaries of Sprint, TCI and Cox. Sprint PCS expects to sign
a services and affiliation agreement with PhillieCo.

Sprint PCS is implementing what it believes to be a state-of-the-art PCS
network using CDMA (or Code Division Multiple Access) technology which TCI
Telephony believes provides benefits relative to current analog cellular
systems. Sprint PCS believes that its digital technology will increase
capacity by seven to ten times, offer better call quality, and provide a wide
variety of advanced features, in each case compared to current analog cellular
systems. Sprint PCS initiated the commercial launch of its service in December
1996 in Fresno, California; Milwaukee, Wisconsin; Portland, Oregon; Spokane,
Washington; Albany and Syracuse, New York; and Pittsburgh, Pennsylvania.
Additional markets, including New York City, San Francisco, Dallas/Ft. Worth,
Boston, Miami, Minneapolis/St. Paul, Denver, Seattle and Kansas City, will be
launched on a market-by-market basis during 1997 and thereafter. The timing of
launch in individual markets will be determined by various factors, principally
zoning and microwave relocation, equipment delivery schedules, completion of
network testing and optimization and local market and competitive
considerations. Sprint PCS will require significant funds for development,
construction, testing and deployment of its PCS network.

6
<PAGE> 9
See "RISK FACTORS-- CONSIDERATIONS RELATING TO THE TELEPHONY GROUP'S
INVESTMENT IN SPRINT PCS--SUBSTANTIAL CAPITAL REQUIREMENTS."

APC launched its PCS service in November 1995 in the Baltimore/Washington
MTA and was the nation's first commercially operational PCS system. While it
is expected that APC will add a CDMA protocol, it is initially deploying GSM
technology (which is more mature than CDMA). As of July 1996, APC had
approximately 100,000 subscribers. Cox-California initiated the commercial
launch of its PCS service in San Diego in December 1996. The Cox-California
PCS system utilizes a combination of tower-based cell sites and micro-cell
sites that are attached to the cable plant of the local cable partner or
affiliate, which combination may offer certain advantages over the exclusive
utilization of tower-based cell sites. See "DESCRIPTION OF THE TELEPHONY
GROUP--WIRELESS TELEPHONY--NETWORK BUILDOUT."

PCS is the first all-digital wireless telecommunications service and will
be able to provide enhanced integrated services not currently offered by
traditional analog cellular providers. Sprint PCS has stated its belief that
the enhanced features and services, in conjunction with increased competition
within the industry, will contribute to the acceleration of growth in the
wireless telecommunications market. According to the Cellular
Telecommunications Industry Association (the "CTIA"), the number of cellular
telephone subscribers nationwide has grown from approximately 680,000 in 1986
to an estimated 34 million as of December 31, 1995. The Personal
Communications Industry Association (the "PCIA") estimates that the number of
cellular and PCS wireless services subscribers will be over 104 million by the
year 2005 and that PCS subscriptions will account for approximately 40 million
of such subscriptions.

To date, total financing commitments made to Sprint PCS are approximately
$10 billion. The Partners have agreed to contribute up to an aggregate of $4.2
billion of equity to Sprint PCS to the extent required by the annual budgets of
Sprint PCS through fiscal 1999 as approved by the Partners (or otherwise
approved by the Partners). As of December 31, 1996, approximately $3.0 billion
had been contributed to Sprint PCS, of which amount TCI Telephony had
contributed approximately $900 million. Sprint PCS's proposed business plan
currently contemplates that the remaining approximately $1.2 billion of such
equity contributions by the Partners (of which amount TCI Telephony's share is
approximately $360 million) will be made by the end of the second quarter of
1998 (although there can be no assurance that any additional capital will be
contributed by the Partners). Sprint PCS's subsidiary, Sprint Spectrum, has
obtained approximately $3.1 billion in secured vendor financing in the
aggregate from Lucent Technologies Inc. and Northern Telecom Inc. (together,
the "Vendors"), entered into a $2.0 billion secured credit facility with a
group of banks and received net proceeds of approximately $520 million from a
public offering of senior notes and senior discount notes (the "Sprint Spectrum
Notes") with a principal amount at maturity of $750 million. Assuming all of
such debt and equity financing amounts are made available to Sprint PCS, Sprint
PCS currently believes that such amounts would be sufficient to meet its
currently anticipated capital requirements (other than obligations in respect
of Sprint PCS's interest in APC and Cox-California) through the end of 1998
(based on Sprint PCS's current plans for its network buildout in its current
license areas). See "RISK FACTORS--CONSIDERATIONS RELATING TO THE TELEPHONY
GROUP'S INVESTMENT IN SPRINT PCS--SUBSTANTIAL CAPITAL REQUIREMENTS; HIGHLY
LEVERAGED CAPITAL STRUCTURE" and "--NETWORK BUILDOUT AND SYSTEM IMPLEMENTATION
RISKS."

WIRELINE TELEPHONY

The Telephony Group's wireline telephony activities currently consist
primarily of its investment in Teleport. Teleport offers a wide range of local
telecommunications services in major metropolitan markets nationwide. Teleport
competes with ILECs (or incumbent local exchange carriers) as "The Other Local
Phone Company"(SM) by providing high quality, integrated local
telecommunications services, primarily over fiber optic digital networks, to
meet the voice, data, and video transmission needs of its customers. TCG's
customers are principally telecommunications-intensive businesses, long
distance carriers and resellers, and wireless communications companies. While
Teleport's carrier business has continued to grow, in 1995 end user customers
accounted for approximately 62% of Teleport's revenues on a historical basis.
During 1995, Teleport's top 10 customers accounted for approximately 57% of
TCG's total

7
<PAGE> 10
revenues (on a pro forma basis assuming the reorganization of Teleport's
business in connection with its initial public offering in June 1996 (the "TCG
Reorganization") had occurred at the beginning of 1995). AT&T and Sprint each
accounted for more than 10% of such revenues, and no customer accounted for 15%
or more of such revenues.

For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. Teleport currently operates high-capacity
state-of-the-art digital networks in 53 metropolitan markets, including 17 of
the 20 largest metropolitan areas. Teleport operates networks in metropolitan
New York City/New Jersey, Los Angeles, Chicago, San Francisco, Boston, Detroit,
Baltimore/Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San
Diego, St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis,
Hartford and Omaha, and is developing networks in Atlanta, Birmingham,
Charlotte, Chattanooga, Cincinnati, Columbus (Ohio), Knoxville, Minneapolis/St.
Paul, Nashville, Orlando, Sacramento and Tampa. TCG has also agreed to acquire
the remaining direct and indirect equity interests in Eastern TeleLogic
Corporation, a CLEC in Philadelphia and in neighboring Camden, New Jersey, and
Wilmington, Delaware ("ETC"). As of September 30, 1996, Teleport's networks
spanned over 6,250 route miles, contained over 316,000 fiber miles and served
approximately 6,800 buildings. In addition, in February 1996 Teleport acquired
a minority investment in BizTel Communications, Inc., which through a
subsidiary holds licenses to provide telecommunications services utilizing 38
GHz digital milliwave transmission in 156 geographic areas in the United States
with a population of approximately 175 million people, including more than 80
of the 100 largest metropolitan areas and all of the markets where TCG
operates. The 38 GHz milliwave facilities can be used by TCG to economically
connect customers to its networks, to provide network redundancy, diverse
routing or quick temporary installations and to provide stand-alone facilities
where Teleport does not have networks.

On January 13, 1997, TCG announced that it would acquire CERFnet Services
Inc., a provider of Internet-related services to business and corporate clients
(including dial-up and dedicated Internet access, Web hosting and co-location
services, and Internet training), in exchange for approximately 2.1 million
shares of Teleport common stock (the "CERFnet Acquisition").

TCG has grown rapidly over the last several years, expanding its existing
networks, developing new networks and increasing its service offerings. On a
pro forma basis, after giving effect to the TCG Reorganization, Teleport's
revenues were approximately $184.9 million for 1995, and approximately $196
million for the nine months ended September 30, 1996, substantially all of
which were derived from the provision of local telecommunications services.

TCG estimates that total revenues from the local telecommunications market
in the United States were approximately $96 billion in 1995, based on 1988-1994
FCC statistics. In the past, competitive access providers, including Teleport,
were limited to serving only the dedicated services portion of this market,
which TCG estimates (based on such statistics) was approximately $5 billion in
1995, whereas the local switched services portion of this market for business
customers is estimated to have been approximately $55 billion. Teleport has
expanded into the switched services market in a number of states over the last
five years by constructing switched networks and obtaining the necessary
regulatory authorizations and interconnection arrangements. With the passage
of the Telecommunications Act of 1996 (the "1996 Act"), Teleport believes that
it is well positioned to address a significantly larger portion of the local
telecommunications market and to improve its operating margins in the switched
and dedicated services markets by expanding its networks, installing additional
high capacity digital switches and offering new products and services.

Teleport provides its customers with a wide array of local
telecommunications services, including basic local exchange telephone services,
enhanced switched services, dedicated services, high-speed switched data
services and video channel transmission services. Switched voice services
offered by Teleport use primarily high-capacity digital switches to route voice
transmissions anywhere on the public switched telephone network. TCG's
dedicated services, which include private line and special access services, use
high-capacity digital circuits to carry voice, data and video transmissions
from point-to-point in multiple configurations. Teleport provides its media
industry customers with point-to-point, broadcast-quality video channels for
video transmissions between two or more locations, including video link
services to all the major television networks as well as to other programmers.
Teleport also provides private network management and systems integration
services for businesses that require combinations of various dedicated and
switched telecommunications services.

Teleport uses technologies and network architectures which it believes are
state-of-the-art to develop a highly reliable infrastructure for delivering
high-speed, quality digital transmissions of voice, data and video

8
<PAGE> 11
telecommunications. The basic transmission platform consists primarily of
optical fiber equipped with high-capacity SONET equipment deployed in
self-healing rings. These SONET rings give TCG the capability of routing
customer traffic simultaneously in both directions around the ring thereby
eliminating loss of service in the event of damage to the fiber optic network.
Teleport extends SONET rings or point-to-point links from rings to each
customer's premises over its own fiber optic cable, unbundled facilities
obtained from ILECs (or incumbent local exchange carriers), microwave (including
38 GHz milliwave) transmission facilities and other technologies. TCG also
installs diverse building entry points where a customer's network security needs
require such redundancy. TCG then places necessary customer-dedicated or shared
electronic equipment at a location near or in the customer's premises to
terminate the link.

TCI Telephony currently owns 48,779,388 shares of Class B Common Stock of
Teleport ("Teleport Class B Stock"), each of which is entitled to ten votes per
share on each matter to be voted on by the holders of the common stock of
Teleport generally and each of which is convertible into one share of Class A
Common Stock of Teleport ("Teleport Class A Stock"). TCI Telephony also owns
an additional 1,011,528 shares of Teleport Class A Stock. Such shares of
Teleport Class B Stock and Teleport Class A Stock in the aggregate represent
approximately 31.1% of the outstanding common stock of Teleport and
approximately 36.4% of the aggregate voting power of such securities. In
addition, subsidiaries of Cox, Comcast and Continental Cablevision, Inc.
("Continental" or, together with TCI, Cox and Comcast, the "Cable
Stockholders") own shares of Teleport Class B Stock and Teleport Class A Stock
representing approximately 24.4%, 16.0% and 11.1%, respectively, of the
outstanding common stock of Teleport (representing approximately 29.1%, 19.1%
and 13.3%, respectively, of the aggregate voting power of such securities).
Such percentages do not reflect the 2,757,083 shares of Teleport Class A Stock
that are to be issued in connection with the acquisition by Teleport of
Comcast's indirect equity interest in ETC or the shares to be issued in the
CERFnet Acquisition. Based on the closing market price of the Teleport Class A
Stock of $32 1/2 on January 13, 1997 and 159,942,778 shares of Teleport common
stock outstanding as of January 13, 1997, the aggregate market value of
Teleport's outstanding common stock is approximately $5.2 billion.

TCG has benefited substantially from its relationships with the Cable
Stockholders, which are among the largest cable television companies in the
United States. Through such relationships, Teleport has been able to utilize
rights-of-way, obtain fiber optic facilities and share the cost of building new
fiber optic networks, thereby allowing Teleport to achieve significant economies
of scale and scope through capital efficiencies in extending its networks in a
rapid, efficient and cost-effective manner. Teleport believes that such
relationships with the Cable Stockholders have resulted in substantial costs
savings in the construction of its fiber optic networks (as compared to the cost
of constructing such networks through similar relationships with unrelated third
parties).

In addition to its interest in Teleport, the Telephony Group's wireline
telephony investments also include a 50% partnership interest in Kansas City
Fiber Network, L.P. and a 40% partnership interest in NHT Partnership, which
are CAPs serving the Kansas City and Buffalo metropolitan areas, respectively.

RESIDENTIAL TELEPHONY

As part of its evaluation of the customer acceptance and economic
attractiveness of the residential telephony opportunity utilizing upgraded
cable plant, TCI launched service commercially in Hartford, Connecticut, in
October 1996 and in Arlington Heights, Illinois, on January 14, 1997. TCI is
currently testing the provision of residential telephony service over its cable
plant in Freemont, California, and anticipates commercially launching the
service there in the first quarter of 1997. TCI currently expects that its
residential telephony service will be available to 260,000 homes in these three
markets in the aggregate by the end of the first quarter of 1997.

TCI is positioning its product as a high quality, yet lower cost
alternative to conventional telephone service provided by the ILEC. In
addition, TCI believes that the technology it is deploying in these markets can
support more reliable service offerings and more responsive customer service
than that of the ILEC. TCI currently expects that the residential telephony
service, if ultimately rolled out on a large-scale basis, would be sold both
directly to residential and small business customers as well as indirectly, via
wholesale offerings, to other local market entrants.

9
<PAGE> 12
market represents of the households technically capable of subscribing to the
service). Therefore, a key determinant of whether a residential strategy is
deployed will be TCI's evaluation of achievable penetration rate levels.

The method of determining the purchase price for the ResTel Business, and
the arrangements between the Telephony Group and the TCI Group for the use by
TCI Telephony of the TCI Group's underlying cable plant to conduct the ResTel
Business, have not yet been determined. In making such determinations, the
Board will consider, among other things, the TCI Group's aggregate investment
(historically and through any upgrade for two-way service) in the cable plant
that TCI Telephony would use to conduct the ResTel Business, the use of such
plant by TCI's various subsidiaries or Groups (e.g., for cable television,
telephony and Internet services), including the use by the Telephony Group of
the underlying plant for the ResTel Business and the use by the TCI Group of
the upgraded plant for other two-way services (such as Internet services and,
if developed in the future, interactive television services), and the ongoing
costs to maintain the plant. The purchase price and other arrangements between
the Groups determined by the Board may or may not reflect the terms and
conditions that either Group might have obtained in an arm's-length negotiation
with a third party. It is currently anticipated that if TCI Telephony
exercises its right to acquire the ResTel Business, it will enter into a
long-term agreement with TCI for the use of the cable plant via which it would
conduct the ResTel Business and for the payment by TCI Telephony of an
allocated share of the costs to maintain such plant. The portion of TCI's
investment in the plant that the Board determines to allocate to the Telephony
Group may be included in the purchase price for the ResTel Business or as a
usage fee pursuant to such long-term agreement.

If TCI Telephony exercises its right to acquire the ResTel Business in
whole or in part, payment of the purchase price may be in funds generated by the
Telephony Group (whether through external financings, future operations or sales
of assets), in funds borrowed from TCI or otherwise through the issuance of debt
or preferred equity securities by TCI Telephony to TCI or other potential
financing opportunities, provided, that the Board of Directors has determined
that the payment of such purchase price will not be made through an increase in
the Inter-Group Interest of the TCI Group in the Telephony Group. Whether or
not TCI Telephony will exercise its rights to acquire the ResTel Business (in
whole or in part) will depend upon a number of factors, including the
penetration rates for the service in the geographic area or areas in which the
service has been commercially launched, the cost of providing the service at the
penetration rate achieved in that area, the price to be paid by TCI Telephony
to acquire such business from the TCI Group and pursuant to its arrangements
with the TCI Group regarding the use of the cable plant, and the ability of TCI
Telephony to fund the continued development and ongoing operation of the ResTel
Business in that area.

WTCI

WTCI provides long-distance transport of video, voice and data traffic and
other telecommunications services primarily to inter-exchange carriers on a
wholesale basis using a digital broadband microwave network located throughout
a 14-state region in the western United States. WTCI's gross revenues for the
year ended December 31, 1995 were approximately $32 million, of which
approximately $24 million was attributable to wholesale carrier revenues. For
the nine months ended September 30, 1996, WTCI's gross revenues were
approximately $24 million, of which approximately $19 million was attributable
to wholesale carrier revenues.

THE OTHER GROUPS

The TCI Group currently consists of TCI's domestic cable and telephony
distribution and communications businesses (other than the investments
attributed to the Telephony Group), international cable, telephony and
programming businesses, technology/venture capital businesses, any other
businesses and assets not included in either the Liberty Media Group or the
Telephony Group, the Inter-Group Interest in the Telephony Group and any
Inter-Group Interest that may hereafter be created in the Liberty Media Group.
The common stockholders' equity value of TCI attributable to the Telephony
Group that, at any relevant time, is attributed to the TCI Group, and
accordingly, is not represented by outstanding Telephony Group Common Stock, is
referred to as the "Inter-Group Interest" of the TCI Group in the Telephony
Group. Until shares of Telephony Group Common Stock are first issued, the
Inter-Group Interest of the TCI Group in the Telephony Group will represent
100% of the common stockholders' equity value attributed to the Telephony Group.
As shares of Telephony Group Common Stock are issued and sold or distributed,
the percentage of the common stockholders' equity value of TCI attributable to
the Telephony Group that is or is intended to be reflected in the TCI Group
Common Stock will be reduced accordingly.

10
<PAGE> 13
The Liberty Media Group consists of TCI's businesses, and investments in
entities, that are engaged in the production, acquisition and distribution
through all available formats and media of branded entertainment, educational
and informational programming and software, including multimedia products, and
its investments in entities engaged in electronic retailing, direct marketing,
advertising sales relating to programming services, infomercials and
transaction processing, and the operation of UHF television stations.

THE OFFERINGS*

<TABLE>
<S> <C>
Series A Telephony Group Common Stock Offered:
U.S. Offering . . . . . . . . . . . . . . ___________ shares
International Offering . . . . . . . . . . ___________ shares
Total . . . . . . . . . . . . . . . . ___________ shares

Use of Proceeds . . . . . . . . . . . . . . . . The net proceeds of the
Offerings to the Telephony
Group, prior to the
deduction of expenses, are
estimated to be approximately
$______ million (or
approximately $_____ million if
the Underwriters'
over-allotment options are
exercised in full). All of the
net proceeds of the Offerings
will be reflected on the
combined financial statements
of the Telephony Group and will
be used to fund a portion of
the Telephony Group's
anticipated capital
requirements, principally to
fund its share of the capital
contributions it anticipates
will be required by the PCS
Ventures through 1998, and for
general corporate purposes.
TCI Telephony currently
estimates that its share of the
aggregate funding requirements
of its wireless and wireline
telephony investments
(including the PCS Ventures)
will be approximately $370
million for 1997 and $70
million for 1998. See "RISK
FACTORS--SUBSTANTIAL CAPITAL
REQUIREMENTS OF THE TELEPHONY
GROUP" and "Telephony Group
Management's Discussion and
Analysis of Financial Condition
and Results of Operations,
Years Ended December 31, 1995,
1994 and 1993--Liquidity and
Capital Resources" located
elsewhere in this Prospectus.

Nasdaq National Market Symbol . . . . . . . . . Application has been made for
the quotation of the Series A
Telephony Group Common Stock on
the Nasdaq National Market
under the symbol " ."
</TABLE>

* Assumes no exercise of the Underwriters' over-allotment options.

THE TELEPHONY GROUP COMMON STOCK

The following is a summary of certain selected terms of the Telephony
Group Common Stock, which description is qualified by reference to the more
complete description of such terms contained elsewhere in this Prospectus and
to the definitive terms of the Telephony Group Common Stock contained in the
TCI Charter, which is an exhibit to the Registration Statement of which this
Prospectus is a part. For additional information regarding the terms of the
Telephony Group Common Stock and the Inter-Group Interest of the TCI Group in
the Telephony Group, see "DESCRIPTION OF CAPITAL STOCK" and "INTER-GROUP
INTEREST IN THE TELEPHONY GROUP."

<TABLE>
<S> <C>
BUSINESSES . . . . . . . . . . . . . . . . . . The Telephony Group consists of
TCI's investments, through TCI
Telephony, in certain entities
engaged in the domestic
wireline and wireless telephony
distribution and

</TABLE>

11
<PAGE> 14
<TABLE>
<S> <C>
communications businesses,
principally its investments in
the PCS Ventures and in TCG.
TCI could determine to pursue
future business opportunities
through one Group instead of the
other Groups, or jointly through
more than one of the Groups.
See "MANAGEMENT AND ALLOCATION
POLICIES."

The Telephony Group Common Stock
is intended to reflect the
separate performance of the
Telephony Group. However,
holders of Telephony Group
Common Stock will be subject to
all of the risks associated with
an investment in TCI and all of
its businesses, assets and
liabilities. There is no
assurance as to the degree to
which the market value of the
Telephony Group Common Stock
will reflect the separate
performance of the Telephony
Group.

DIVIDENDS AND SHARE DISTRIBUTIONS . . . . . . TCI's historical policy of
paying no cash dividends on the
Common Stock will also apply to
the Telephony Group Common
Stock.

Dividends are payable out of the
lesser of assets of TCI legally
available therefor and the
Telephony Group Available
Dividend Amount. If dividends
on the Telephony Group Common
Stock are paid, equivalent per
share dividends will be
concurrently paid on both the
Series A Telephony Group Common
Stock and the Series B Telephony
Group Common Stock. For this
purpose, equivalent per share
dividends include, in the case
of distributions of securities,
either distributions of
identical securities or
distributions of securities
having differences in voting
rights and in certain related
rights (which differences are,
in the case of distributions of
securities of TCI or its
subsidiaries (including stock
dividends consisting of
Telephony Group Common Stock),
not greater than the
corresponding differences
between the Series A Telephony
Group Common Stock and the
Series B Telephony Group Common
Stock).

Subject to the foregoing
provisions, dividends may be
declared and paid on the TCI
Group Common Stock, the
Telephony Group Common Stock
and/or the Liberty Media Group
Common Stock in equal or unequal
amounts, notwithstanding the
relationship between the TCI
Group Available Dividend Amount,
the Telephony Group Available
Dividend Amount and the Liberty
Media Group Available Dividend
Amount, the respective amounts
of prior dividends paid on, or
liquidation rights of, the TCI
Group Common Stock, the
Telephony Group Common Stock or
the Liberty Media Group Common
Stock, or any other factor.

Any decision to pay dividends in
the future will depend on the
financial condition, results of
operations and business
requirements of TCI as a whole.
In making a determination
</TABLE>

12
<PAGE> 15
<TABLE>
<S> <C>
as to the allocation of any
future dividends between the TCI
Group Common Stock, the
Telephony Group Common Stock and
the Liberty Media Group Common
Stock, the Board of Directors
expects to follow a policy under
which it will consider, among
other factors, the relative
financial condition, results of
operations and business
requirements of the respective
Groups and of TCI as a whole.

DIVIDEND, REDEMPTION AND CONVERSION RIGHTS
APPLICABLE ON DISPOSITION OF TELEPHONY
GROUP ASSETS . . . . . . . . . . . . . . . . If TCI disposes of all or
substantially all of the
properties and assets of the
Telephony Group (defined as 80%
or more on a current market
value basis), other than in a
transaction in which TCI
receives primarily equity
securities of an entity engaged
or proposing to engage primarily
in a similar or complementary
business and other than in
connection with the disposition
of all or substantially all of
the properties and assets of
TCI, TCI is required, at its
option, either to (i) distribute
to holders of the Telephony
Group Common Stock an amount in
cash and/or securities or other
property equal to their
proportionate interest in the
Telephony Group Net Proceeds of
such disposition, either by
special dividend or by
redemption of all or part of the
outstanding shares of Telephony
Group Common Stock, or (ii)
convert each outstanding share
of Series A Telephony Group
Common Stock and Series B
Telephony Group Common Stock
into a number (or fraction) of
shares of Series A TCI Group
Common Stock or Series B TCI
Group Common Stock,
respectively, equal in each case
to 110% of the average daily
ratio over the ten-Trading Day
period beginning on the 16th
Trading Day after consummation
of the transaction of the Market
Value of one share of Series A
Telephony Group Common Stock to
the Market Value of one share of
Series A TCI Group Common Stock.
The proportionate interest in
the Telephony Group Net Proceeds
of a disposition that would be
distributed to holders of
Telephony Group Common Stock
would be based on the Telephony
Group Outstanding Interest
Fraction (a measure of the
percentage interest in the
Telephony Group represented by
outstanding shares of Telephony
Group Common Stock). Such a
partial redemption could be
effected pro rata among the
holders of such shares or by
such other method as may be
determined by the Board of
Directors to be equitable.

CONVERSION AT OPTION OF HOLDER . . . . . . . Shares of Series B Telephony
Group Common Stock are
convertible at any time, at the
option of the holder only, into
the same number of shares of
Series A Telephony Group Common
Stock.

CONVERSION AT OPTION OF TCI . . . . . . . . . TCI may, in the sole discretion
of its Board of Directors, elect
at any time to convert each
outstanding share of Telephony
Group Common Stock into a number
(or
</TABLE>

13
<PAGE> 16
<TABLE>
<S> <C>
fraction) of shares of TCI Group
Common Stock equal to the ratio
of the value (as determined on
the basis of appraisals
performed by investment banking
firms) of one share of Telephony
Group Common Stock to the
average Market Value over a
20-Trading Day period prior to
the date such appraisal process
is initiated of one share of
Series A TCI Group Common Stock.
In such a case, shares of Series
A Telephony Group Common Stock
would be converted into Series A
TCI Group Common Stock and
shares of Series B Telephony
Group Common Stock would be
converted into Series B TCI
Group Common Stock.

REDEMPTION IN EXCHANGE FOR
STOCK OF SUBSIDIARY . . . . . . . . . . . . . TCI could at any time, in the
sole discretion of the Board of
Directors, redeem (without
premium) all outstanding shares
of Telephony Group Common Stock
in exchange for a proportionate
interest in the outstanding
shares of any one or more
Qualifying Subsidiaries that
hold all of the assets and
liabilities attributed to the
Telephony Group. The percentage
of the stock of the Qualifying
Subsidiary or Qualifying
Subsidiaries owned by TCI that
is distributable in the
redemption would be based on the
Telephony Group Outstanding
Interest Fraction. In such a
case, the Board of Directors
could elect to distribute, with
respect to each such subsidiary,
either a single class of
subsidiary stock or two classes
of subsidiary stock having
relative voting rights and
differences in certain related
rights not greater than the
corresponding differences
between the Series A Telephony
Group Common Stock and the
Series B Telephony Group Common
Stock. A "Qualifying
Subsidiary" for this purpose is
a subsidiary of TCI that is
either wholly owned, directly or
indirectly, by TCI or in which
TCI's direct or indirect
ownership and voting interest is
sufficient to satisfy the
requirements of the Internal
Revenue Service (the "Service")
for a tax- free distribution of
TCI's interest in such
subsidiary to holders of
Telephony Group Common Stock.

VOTING RIGHTS . . . . . . . . . . . . . . . . The Series A Telephony Group
Common Stock will be entitled to
one vote per share and the
Series B Telephony Group Common
Stock will be entitled to ten
votes per share, voting as one
class with the TCI Group Common
Stock, the Liberty Media Group
Common Stock and any Preferred
Stock entitled to vote, except
to the extent separate class or
series votes are required by law
or the TCI Charter. The TCI
Charter does not provide for any
rights for the Telephony Group
Common Stock to vote separately
from the TCI Group Common Stock
and the Liberty Media Group
Common Stock.

LIQUIDATION . . . . . . . . . . . . . . . . . Holders of shares of Series A
Telephony Group Common Stock and
Series B Telephony Group Common
Stock will be entitled to share
(on an equal per share basis) a
portion of the funds of TCI
remaining for distribution to
its common stockholders based on
the average daily ratio over
</TABLE>

14
<PAGE> 17
<TABLE>
<S> <C>
a period of 20 Trading Days
prior to the announcement of the
liquidation event of the
aggregate Market Capitalization
of the Telephony Group Common
Stock to the aggregate Market
Capitalization of the TCI Group
Common Stock, the Telephony
Group Common Stock and the
Liberty Media Group Common
Stock.

INTER-GROUP INTEREST . . . . . . . . . . . . In connection with the
Offerings, the Board of
Directors has designated ______
shares of Telephony Group Common
Stock as the number of shares of
Telephony Group Common Stock
that, if issued, would represent
100% of the common stockholders'
equity value of TCI that is
attributable to the Telephony
Group prior to the Offerings,
all of which is presently
attributed to the TCI Group.
Such number of shares is the
initial Number of Shares
Issuable with Respect to the
Telephony Group Inter-Group
Interest, which is intended to
provide a measure of the
Inter-Group Interest of the TCI
Group in the Telephony Group on
a basis comparable to an
investment in shares of
Telephony Group Common Stock.
The Number of Shares Issuable
with Respect to the Telephony
Group Inter-Group Interest is
not represented by outstanding
shares of Telephony Group Common
Stock and has no voting rights.
Authorized but unissued shares
of Telephony Group Common Stock
in excess of the Number of
Shares Issuable with Respect to
the Telephony Group Inter- Group
Interest and any outstanding
shares of Telephony Group Common
Stock as of any relevant time
(such shares, the "Available
Shares") are available for
issuance as additional equity
for the Telephony Group. The
___ million shares of Series A
Telephony Group Common Stock to
be issued in the Offerings (___
million if the Underwriters'
over- allotment options are
exercised in full) will be
issued from the Available Shares
for the account of the Telephony
Group. As a result, immediately
after the Offerings, the
Telephony Group Outstanding
Interest Fraction will equal __%
(or __% if the Underwriters'
over-allotment options are
exercised in full) and the
Telephony Group Inter- Group
Interest Fraction will equal __%
(or __% if the Underwriters'
over-allotment options are
exercised in full). The sum of
the Telephony Group Outstanding
Interest Fraction and the
Telephony Group Inter-Group
Interest Fraction will always
equal 100%. At the time of any
additional issuance of Telephony
Group Common Stock, TCI will
identify the number of shares
issued for the account of the
TCI Group, if any, through a
reduction in the Number of
Shares Issuable with Respect to
the Telephony Group Inter-Group
Interest, the net proceeds from
which will be allocated to the
TCI Group, and the number of
shares issued from the Available
Shares for the account of the
Telephony Group, if any, the net
proceeds of which will be
allocated to the Telephony
Group.
</TABLE>

15
<PAGE> 18
<TABLE>
<S> <C>
At the discretion of the Board
of Directors, shares of
Telephony Group Common Stock
issued in respect of the TCI
Group's Inter-Group Interest in
the Telephony Group may be
issued in the form of shares of
Series A Telephony Group Common
Stock or Series B Telephony
Group Common Stock (subject to
there being a sufficient number
of authorized and unissued
shares of the applicable series
of Telephony Group Common
Stock).

The "Telephony Group Outstanding
Interest Fraction" represents
the percentage interest in the
common stockholders' equity
value of TCI attributable to the
Telephony Group that is
represented at any time by the
outstanding shares of Telephony
Group Common Stock and the
"Telephony Group Inter-Group
Interest Fraction" represents
the percentage interest in the
common stockholders' equity
value of TCI attributable to the
Telephony Group that is
attributed to the TCI Group.

See Annex C for illustrations of
the calculation of the TCI
Group's Inter-Group Interest in
the Telephony Group and the
effects of, among other things,
certain issuances of shares of
Telephony Group Common Stock,
including in connection with the
Offerings.
</TABLE>

16
<PAGE> 19
RISK FACTORS

Prior to making an investment decision, prospective purchasers should
consider all of the information set forth in this Prospectus and, in
particular, should evaluate the factors set forth in "RISK FACTORS."

FORWARD-LOOKING STATEMENTS

This Prospectus contains many forward-looking statements about, among other
things, the expected financial performance and anticipated capital requirements
of the PCS Ventures, the development and financing of the Sprint PCS network and
of Teleport's networks, the regulatory and competitive environment for the
wireline and wireless telecommunications business, the development of TCI's
ResTel Business and other matters. Such statements involve many risks and
uncertainties that could cause actual results to differ materially from such
statements, including, without limitation, those risks and uncertainties
described under the heading "RISK FACTORS."

17
<PAGE> 20
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

TELEPHONY GROUP

The following table supplementally sets forth selected historical combined
income statement data for the Telephony Group for each of the three fiscal
years in the period ended December 31, 1995 and for the nine-month periods
ended September 30, 1996 and 1995. Additionally, the following table
supplementally sets forth selected historical combined balance sheet data for
the Telephony Group as of September 30, 1996, December 31, 1995 and December
31, 1994. The selected financial data as of and for the nine months ended
September 30, 1996 are derived from unaudited financial statements which have
been prepared on the same basis as the audited financial information and, in
the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Telephony Group as of and for the
nine months ended September 30, 1996. The table sets forth pro forma combined
statement of operations and balance sheet data after giving effect to the
Offerings. The pro forma data do not purport to be indicative of the results
of operations or financial position that may be obtained in the future or that
actually would have been obtained had the Offerings occurred on the indicated
dates or as of the beginning of the indicated periods. The following
information is qualified in its entirety by, and should be read in conjunction
with, the combined financial statements and notes thereto of the Telephony
Group and with the consolidated financial statements and notes thereto of TCI
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Nine months ended September 30, Year ended December 31,
--------------------------------- ----------------------------------------------
Pro Pro
Forma Forma
1996 1996 1995 1995 1995 1994 1993
---------- ----------- -------- ------------- ----------- -------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Operating loss $ (464) (464) (233) (477) (477) (50) --
Share of losses of PCS
Ventures $ (78,358) (78,358) (10,841) (33,890) (33,890) (992) --
Share of losses of TCG $ (31,591) (31,591) (19,884) (29,975) (29,975) (19,366) (8,182)
Net loss $ (63,534) (63,534) (18,250) (38,954) (38,954) (11,771) (4,768)
Dividends on redeemable
preferred stock (1) (22,500) -- -- (30,000) -- -- --
---------- ----------- -------- ------------- ----------- -------- -------
Loss attributable to Telephony
Group common shareholders and
TCI Group
Inter-Group Interest $ (86,034) (63,534) (18,250) (68,954) (38,954) (11,771) (4,768)
========== =========== ======== ============= =========== ======== =======
Loss attributable to
Telephony Group common
shareholders per common
share (2) $ -- -- -- -- --
Weighted average shares of
Telephony Group Common
Stock outstanding (3) -- -- -- -- --
</TABLE>

<TABLE>
<CAPTION>
September 30, December 31,
----------------------------- ------------------------------
Pro Forma
1996 1996 1995 1994
------------ ---------- --------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Summary Balance Sheet Data:
Cash (4) $ -- -- --
Investment in PCS Ventures $ 816,355 816,355 689,062 37,930
Investment in TCG $ 294,148 294,148 244,012 197,424
Total assets $ 1,119,545 943,653 240,334
Redeemable preferred stock (5) $ 500,000 -- -- --
Combined equity (4, 5 and 6) $ 1,098,294 943,653 240,334
</TABLE>

18
<PAGE> 21
- ---------------
(1) Reflects dividends on the redeemable preferred stock discussed in note 5
below.

(2) Pro forma loss attributable to Telephony Group common shareholders per
common share was computed by dividing net loss attributable to Telephony
Group common shareholders (excluding any amounts attributable to the TCI
Group Inter-Group Interest in the Telephony Group) by the weighted average
shares of Telephony Group Common Stock outstanding.

(3) Reflects the issuance of shares of Series A Telephony Group Common Stock in
the Offerings as if such shares had been outstanding as of the beginning of
the period presented.

(4) Reflects the net proceeds from the Offerings of shares of Series A
Telephony Group Common Stock.

(5) Reflects the conversion, on December 1, 1996, by the TCI Group of $500
million of its interest in the Telephony Group into a 6% cumulative
compounding redeemable preferred stock of TCI Telephony which is
mandatorily redeemable by TCI Telephony on December 1, 2011 (the "TCI
Telephony Preferred Stock").

(6) The TCI Group has a contractual right to use up to $500 million of tax
benefits generated by the Telephony Group without charge from the Telephony
Group. Such right can be satisfied only through and to the extent of
future income tax benefits generated by the Telephony Group.

TELE-COMMUNICATIONS, INC.

The following table sets forth selected historical data for TCI for each of
the five fiscal years in the period ended December 31, 1995 and the nine-month
periods ended September 30, 1996 and 1995. The table also sets forth selected
unaudited pro forma balance sheet data for TCI as of September 30, 1996, giving
pro forma effect to TCI's distribution to the holders of the outstanding TCI
Group Common Stock of TCI Satellite Entertainment, Inc. (the "SatCo Spin-Off")
as if such transaction had occurred as of September 30, 1996, and
selected-unaudited pro forma statement of operations data for the year ended
December 31, 1995, giving pro forma effect to the SatCo Spin-Off, the
acquisition by TCI of all the common stock of a subsidiary of Viacom, Inc. (the
"VII Cable Acquisition") and the acquisition of a 51% ownership interest in
Cablevision S.A. and certain affiliated companies (the "Cablevision
Acquisition") and selected unaudited pro forma statement of operations data for
the nine months ended September 30, 1996, giving pro forma effect to the SatCo
Spin-Off and the VII Cable Acquisition as if the same had occurred prior to
January 1, 1995. The selected financial data as of and for the nine months
ended September 30, 1996 are derived from unaudited financial statements which
have been prepared on the same basis as the audited financial information and,
in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations of TCI as of and for the nine
months ended September 30, 1996. The pro forma financial data are not
necessarily indicative of the financial position or results of operations that
would have been obtained had the SatCo Spin-Off, the VII Cable Acquisition and
the Cablevision Acquisition been effective at or prior to such assumed dates,
or of the future results of operations of TCI. Additionally, such pro forma
statement of operations data reflects the effect of the Offerings. The pro
forma information does not purport to be indicative of the results or financial
position that may be obtained in the future or that actually would have been
obtained had the Offerings occurred on the indicated dates or as of the
beginning of the indicated periods. The following information is qualified in
its entirety by, and should be read in conjunction with, the consolidated
financial statements and notes thereto of TCI included elsewhere in this
Prospectus.

19
<PAGE> 22

<TABLE>
<CAPTION>
Nine months
ended September 30, Year ended December 31,
--------------------------- ---------------------------------------------------------
Pro Pro
Forma Forma
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- ------- ------- -------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenue $ 6,081 6,089 4,888 7,134 6,851 4,936 4,153 3,574 3,214
Operating, selling, general and
administrative expenses $ 4,278 4,383 3,378 4,964 4,865 3,138 2,295 1,937 1,784
Depreciation and amortization $ 1,129 1,150 985 1,445 1,372 1,108 911 764 756
Operating income $ 690 572 491 653 542 788 916 864 674
Earnings (loss) from:
Continuing operations $ (424) (438) (107) (212) (171) 62 (5) 8 (77)
Discontinued operations -- -- -- -- -- -- -- (15) (19)
------- ------- ------- ------- ------- ------- ------- ------- -------
(424) (438) (107) (212) (171) 62 (5) (7) (96)
Dividend requirements on preferred
stock (27) (27) (26) (34) (34) (8) (2) (15) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) attributable to
common shareholders and TCI
Group Inter-Group Interests $ (451) (465) (133) (246) (205) 54 (7) (22) (96)
======= ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) attributable to
common shareholders and TCI
Group Inter-Group Interest:
TCI Class A and Class B common
stock $ -- -- (71) -- (71) 54 (7) (22) (96)
TCI Group Series A and Series
B common stock (401) (501) (57) (150) (107) -- -- -- --
Liberty Media Group Series A
and Series B common stock 36 36 (5) (27) (27) -- -- -- --
Telephony Group Series A and
Series B common stock (86) -- -- (69) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
$ (451) (465) (133) (246) (205) 54 (7) (22) (96)
======= ======= ======= ======= ======= ======= ======= ======= =======

Primary earnings (loss) from
continuing operations attributable
to common shareholders per common
and common equivalent share:
TCI Class A and Class B common
stock $ -- -- (.11) -- (.11) .10 (.02) (.01) (.22)
TCI Group Series A and Series B
common stock $ -- (.75) (.09) -- (.16) -- -- -- --
Liberty Media Group Series A and
Series B common stock $ .22 .22 (.03) (.16) (.16) -- -- -- --
Telephony Group Series A and
Series B common stock (1) $ -- -- -- -- -- -- -- -- --

Primary weighted average common and
common equivalent shares
outstanding:
TCI Class A and Class B common
stock -- -- 648 -- 648 541 433 424 360
TCI Group Series A and Series B
common stock -- 665 656 -- 656 -- -- -- --
Liberty Media Group Series A and
Series B common stock 166 166 164 164 164 -- -- -- --
Telephony Group Series A and
Series B common stock (2) -- -- -- -- -- -- -- -- --
</TABLE>

20
<PAGE> 23
<TABLE>
<CAPTION>

September 30, December 31,
----------------- -----------------------------------------------
Pro
Forma
1996 1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 7,631 8,767 7,026 5,876 4,935 4,562 4,081
Franchise costs, net $15,137 15,137 12,230 9,444 9,197 9,300 8,104
Total assets (3) $ -- 30,575 25,130 19,276 16,527 16,315 15,169
Total debt $15,118 15,118 13,211 11,162 9,900 10,285 9,455
Stockholders' equity (3) $ -- 4,362 4,550 2,655 2,116 1,728 1,571
Shares outstanding (net of
treasury shares):
Class A common stock -- -- -- 491 403 382 370
Class B common stock -- -- -- 85 47 48 49
TCI Group Series A common
stock 584 584 572 -- -- -- --
TCI Group Series B common
stock 85 85 85 -- -- -- --
Liberty Media Group Series A
common stock 146 146 143 -- -- -- --
Liberty Media Group Series B
common stock 21 21 21 -- -- -- --
Telephony Group Series A
common stock (4) -- -- -- -- -- -- --
Telephony Group Series B
common stock -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Pro forma loss attributable to holders of Telephony Group Common Stock per
share was computed by dividing net loss attributable to Telephony Group
common shareholders (excluding any amounts attributable to the TCI Group
Inter-Group Interest) by the weighted average number of shares of Telephony
Group Common Stock outstanding.

(2) Reflects the issuance of shares of Series A Telephony Group Common Stock in
the Offerings as if such shares had been outstanding as of the beginning of
the periods presented.

(3) Reflects the net proceeds from the Offerings of shares of Series A
Telephony Group Common Stock.

(4) Reflects the issuance of shares of Series A Telephony Group Common Stock in
the Offerings.

21
<PAGE> 24
RISK FACTORS

PRIOR TO PURCHASING ANY SHARES OF SERIES A TELEPHONY GROUP COMMON
STOCK OFFERED HEREBY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS.

SUBSTANTIAL CAPITAL REQUIREMENTS OF THE TELEPHONY GROUP

The Partners of Sprint PCS have agreed to contribute up to an
aggregate of approximately $4.2 billion of equity to Sprint PCS from
inception through fiscal 1999 (of which TCI Telephony's share is approximately
$1.3 billion) if and to the extent required by annual budgets of Sprint PCS for
fiscal years in such period approved by the Partners or requested during such
period by the affirmative vote of general Partners with percentage interests in
Sprint PCS of 75% or more in the aggregate. As of December 31, 1996,
approximately $3.0 billion of such $4.2 billion had been contributed to Sprint
PCS, of which amount TCI Telephony had contributed approximately $900 million.
Sprint PCS's proposed business plan currently contemplates that the remaining
approximately $1.2 billion of such amount (of which TCI Telephony's share would
be approximately $360 million) would be contributed by the Partners by the end
of the second quarter of 1998 (although there can be no assurance that any
additional capital will be contributed by any or all of the Partners).

Further, in connection with certain debt financings by Sprint PCS's
subsidiary, Sprint Spectrum, TCI and the other Parents entered into a Capital
Contribution Agreement with Sprint Spectrum, of which the secured creditors in
such debt financings are beneficiaries, pursuant to which each Parent agreed to
make contributions, or cause contributions to be made, to Sprint Spectrum from
time to time upon the occurrence of certain events, up to a maximum aggregate
amount equal to (a) such Parent's percentage interest in Sprint PCS (as to each
Partner, its "Percentage Interest") of the sum of (i) $1.0 billion plus (ii)
the agreed value of certain property that Cox has agreed to contribute to
Sprint PCS (aggregating approximately $24 million as of December 31, 1996)
(the "Cox Contributed Property"), less (b) the sum of (i) the aggregate amount
of cash equity contributions made by such Parent (directly or indirectly) to
Sprint Spectrum and its subsidiaries (but not other affiliates of Sprint PCS,
including APC and Cox-California) subsequent to December 31, 1995 other than
pursuant to the Capital Contribution Agreement, (ii) such Parent's Percentage
Interest of the amount of the aggregate cash proceeds of equity capital
(subject to certain exclusions) obtained by Sprint Spectrum from sources other
than the Parents and their subsidiaries, and (iii) in the case of Cox, the
agreed value of the Cox Contributed Property. The liabilities of TCI under the
Capital Contribution Agreement have been attributed to the Telephony Group. The
events that would require such contributions to be made are (x) a determination
as of any date that the projected cash expenditures of Sprint Spectrum and its
subsidiaries during the three months following such determination exceeds the
cash, cash equivalents and borrowing availability of Sprint Spectrum and its
subsidiaries as of such determination date, plus their expected cash receipts,
other than from borrowings, during such three-month period, (y) a default in
the payment of any amount due under any of the agreements evidencing such debt
financing and other agreements evidencing secured indebtedness that Sprint
Spectrum may enter into in the future, and (z) the acceleration of Sprint
Spectrum's obligations under any of such agreements. During 1996,
approximately $500 million in cash was contributed directly or indirectly to
Sprint Spectrum (of which TCI Telephony had contributed approximately $150
million), thereby reducing the Parents' respective obligations under the
Capital Contribution Agreement by such amount and reducing TCI's obligation to
approximately $150 million as of December 31, 1996. Based on the currently
expected timing of additional contributions to Sprint PCS (including the
currently expected timing of Sprint PCS's expected capital contributions to APC
and Cox-California and to its subsidiaries other than Sprint Spectrum and its
subsidiaries), TCI does not expect that its obligations under the Capital
Contribution Agreement will result in the obligation to make any incremental
capital contributions to Sprint PCS in addition to TCI Telephony's pro rata
portion of the balance of the $4.2 billion that the Partners agreed to
contribute.

In addition to the contributions to the Sprint PCS Partnership
described above, as of December 31, 1996 TCI Telephony had made a total of
approximately $36 million in capital contributions to PhillieCo and expected to
make approximately $58 million in additional capital contributions to PhillieCo
prior to December 31, 1998. TCI Telephony also expects to make an aggregate
additional $16 million in capital contributions to Kansas City Fiber Network,
L.P. and NHT Partnership prior to December 31, 1998. TCI Telephony has no
obligation to contribute capital to or otherwise increase its investment in
Teleport.

Although the Telephony Group currently expects that a substantial
portion of the net proceeds of the Offerings will be used to fund additional
capital contributions to the PCS Ventures, the amount of such proceeds may not
be

22
<PAGE> 25
sufficient to fund all of the additional capital that TCI Telephony currently
expects the Partners may be required to contribute to the PCS Ventures. See
"--CONSIDERATIONS RELATING TO THE TELEPHONY GROUP'S INVESTMENT IN SPRINT
PCS--SUBSTANTIAL CAPITAL REQUIREMENTS; HIGHLY-LEVERAGED CAPITAL STRUCTURE."
TCI Telephony's ability to obtain sufficient equity or debt financing in order
for the Telephony Group to make its expected additional capital contributions
to the PCS Ventures and other entities in which it has investments will be
limited because TCI Telephony does not conduct any operations directly and does
not have any current source of revenues or cash flow for debt service. TCI
could raise capital for the Telephony Group by, among other things, engaging in
public offerings or private placements of Series A Telephony Group Common Stock
or through issuance of debt securities or preferred equity securities
attributed to the Telephony Group. The Telephony Group anticipates that for
the foreseeable future it will continue to be dependent upon funding from the
TCI Group and, to the extent available, from external sources. If the net
proceeds to the Telephony Group of the Offerings as well as the available
borrowings under a revolving loan facility that TCI has provided to TCI
Telephony (the "Revolving Credit Facility") are not sufficient to fund the
Telephony Group's capital requirements, no assurance can be given that TCI
Telephony will be able to obtain any required additional financing on terms
acceptable to it, or at all. See "Telephony Group Management's Discussion and
Analysis of Financial Condition and Results of Operations, Years Ended December
31, 1995, 1994 and 1993--Liquidity and Capital Resources" and the historical
combined financial statements, including the notes thereto, of the Telephony
Group included elsewhere in this Prospectus.

LIMITATIONS ON CONTROL OF SPRINT PCS AND TELEPORT; LIMITATIONS ON LIQUIDITY OF
INVESTMENTS

TCI Telephony has invested in Sprint PCS with three other Partners.
Although TCI Telephony has attempted to structure its investment in Sprint PCS
in a manner that allows it to participate in management decisions (including
through representation on the governing body of Sprint PCS (the "Partnership
Board") and the ability to block the taking of any action by the Partnership
Board with respect to certain matters), TCI Telephony is not able to control
the operations, strategies or financial decisions of the Sprint PCS
Partnerships without the concurrence of at least Sprint's and one of Comcast's
or Cox's representatives to the Partnership Board. Moreover, the ability of
TCI Telephony to pledge, sell or otherwise dispose of its interest in Sprint
PCS is limited by the provisions of the Amended and Restated Agreement of
Limited Partnership of Holdings (the "Partnership Agreement"). Accordingly,
TCI Telephony may not be able to cause Sprint PCS to make distributions when it
may have a need for such distributions, and TCI Telephony may not be able to
dispose of its interest in Sprint PCS in a timely manner if it wishes to for
financial or other reasons. For a summary of certain of TCI Telephony's rights
and obligations as a Partner of Sprint PCS. See "DESCRIPTION OF THE TELEPHONY
GROUP--GOVERNING AGREEMENTS --SPRINT PCS PARTNERSHIP AGREEMENT."

Based on the number of shares of Teleport Class B Stock held by TCI
Telephony and the other Cable Stockholders, TCI Telephony is currently entitled
under the applicable provisions of the stockholders agreement among the Cable
Stockholders and Teleport (the "Stockholders Agreement") to designate four
individuals for election to the Board of Directors of Teleport (out of a total
of thirteen directors). Thus, although TCI Telephony has the ability to
participate in the deliberations by, and the determinations of, the Board of
Directors of Teleport, TCI Telephony is not able to control the outcome of any
vote by the Teleport Board of Directors (or prevent the Teleport Board of
Directors from taking action with respect to any matter) without the
concurrence of at least three other members of the Teleport Board of Directors.
In addition, the Stockholders Agreement contains certain restrictions on the
ability of TCI Teleport to pledge, sell or otherwise dispose of its shares of
Teleport Class B Stock. See "DESCRIPTION OF THE TELEPHONY GROUP--GOVERNING
AGREEMENTS--THE TELEPORT STOCKHOLDERS AGREEMENT."

CONSIDERATIONS RELATING TO THE TELEPHONY GROUP'S INVESTMENT IN SPRINT PCS

CONSEQUENCES OF FAILURE TO MEET CAPITAL COMMITMENT; REMEDIES RELATING TO
ADVERSE ACTS

If TCI Telephony fails to make any portion of its required additional
capital contributions to Sprint PCS (other than an additional capital
contribution that TCI Telephony is entitled to decline to make under the
circumstances described under "DESCRIPTION OF THE TELEPHONY GROUP--GOVERNING
AGREEMENTS--THE SPRINT PCS PARTNERSHIP AGREEMENT"), and did not cure such
failure within the time periods specified in the Partnership Agreement, such
failure would constitute an Adverse Act and TCI Telephony would become an
Adverse Partner (each such term as defined in the Partnership Agreement). If
TCI Telephony were to become an Adverse Partner, it would lose its right to
appoint a representative to the Partnership Board and the Partnership Board, by
action of the representatives of the other Partners that are not Adverse
Partners, would be entitled to elect (i) to commence procedures to allow such
other Partners to purchase TCI Telephony's interest in Sprint PCS at a
discount (which purchase price in the case of a failure

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<PAGE> 26
to make a required capital contribution would be the lesser of 90% of the net
equity of TCI Telephony's interest in Sprint PCS and 80% of TCI Telephony's
prior capital contributions (less any distributions paid to TCI Telephony))
and/or (ii) to cause Sprint PCS to seek to obtain specific performance of TCI
Telephony's obligations or to sue for money damages. TCI Telephony could also
become an Adverse Partner through, among other things, the disposition of its
interest in Sprint PCS other than in accordance with the Partnership Agreement
or a material breach of a material covenant in the Partnership Agreement.

The failure by TCI Telephony to make its pro rata portion of any
additional capital contributions validly requested to be made to Sprint PCS
(whether or not required under the applicable provisions of the Partnership
Agreement) would result in a decrease in TCI Telephony's current 30% percentage
interest in Sprint PCS. Such dilution would be calculated on the basis of the
relative amount of capital contributions made by the Partners until an
aggregate of $5.0 billion had been contributed; thereafter, the dilution
formula would take into account the fair market value of each Partner's
interest in Sprint PCS. In the event TCI Telephony's Percentage Interest were
to decrease below the 8% minimum ownership requirement set forth in the
Partnership Agreement, TCI Telephony's interest in Sprint PCS would convert
into that of an "Exclusive Limited Partner" and TCI Telephony would lose the
right to designate a representative to the Partnership Board.

LIABILITY AS A GENERAL PARTNER

A subsidiary of TCI Telephony is a general Partner of each of the
Sprint PCS Partnerships and, as such, shares joint and several liability with
each other general Partner of the Sprint PCS Partnerships for all of the
liabilities and other obligations of Sprint PCS (other than any such
liabilities or obligations that expressly are non-recourse to the Partners).
Although each of the applicable agreements relating to the existing
indebtedness of Sprint Spectrum provides that the obligations of Sprint
Spectrum thereunder are non-recourse to the Partners of Sprint PCS, there can
be no assurance that such subsidiary of TCI Telephony will not be held liable
for other liabilities or obligations of Sprint PCS in the event that Sprint PCS
becomes insolvent or its assets are insufficient to meet its financial and
other obligations as they become due or that, if such subsidiary is held so
liable, that any such liabilities or other obligations will not have a material
adverse effect on the Telephony Group.

DEADLOCK EVENT

The Partnership Agreement provides that Sprint PCS will be dissolved
upon the failure of the general Partners of Holdings to resolve a "Deadlock
Event," which is deemed to occur (i) if the Partnership Board fails to approve
a proposed annual budget or business plan for two consecutive fiscal years or
(ii) if the position of chief executive officer remains vacant for 60 days
after a candidate has been proposed by at least two Partners having an
aggregate of at least 33% of the voting Percentage Interests. See "DESCRIPTION
OF THE TELEPHONY GROUP--GOVERNING AGREEMENTS--THE SPRINT PCS PARTNERSHIP
AGREEMENT". Upon the occurrence of a Deadlock Event, the general Partners
first are required for a period of 20 days to use their good faith efforts to
try to resolve the Deadlock Event. If the general Partners are unable to
resolve the matter, such matter will be referred to the chief executive
officers of the Parents. In the event the chief executive officers fail to
reach a resolution, the matter will be referred to a mediation service. If the
mediator and the general Partners fail to resolve the Deadlock Event, Sprint
PCS will be liquidated unless the Partnership Board, by a majority vote of 75%,
determines not to dissolve or the buy-sell arrangements contained in the
Partnership Agreement are employed. There can be no assurance that a Deadlock
Event will not occur or if such event does occur that resolution procedures
will be successful or that the Deadlock Event will not have a material adverse
effect on the value of TCI Telephony's interest in Sprint PCS. See
"DESCRIPTION OF THE TELEPHONY GROUP--GOVERNING AGREEMENTS--SPRINT PCS
PARTNERSHIP AGREEMENT."

As of January 13, 1997, the Partners had not yet approved an annual
budget or business plan for the fiscal year of Sprint PCS that commenced
January 1, 1997, although the Partners were continuing to discuss the terms and
provisions of such annual budget and business plan and the proposed terms and
conditions under which such budget and business plan may be approved. In the
event that no budget or business plan for Sprint PCS is approved for the fiscal
year that commenced January 1, 1997 and no such budget or business plan for the
fiscal year commencing January 1, 1998 is approved by January 1, 1998, a
Deadlock Event will be deemed to have occurred under the Partnership Agreement.
No assurance can be given that an annual budget or business plan will be
approved or that the failure of the Partners to approve such annual budget or
business plan, or the possible occurrence of a Deadlock Event, will not cause a
material disruption in the business and affairs of Sprint PCS or have a
material adverse effect on the business,

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financial condition or results of operations of Sprint PCS and, accordingly, on
the value of TCI Telephony's investment in the PCS Ventures.

RESTRICTIONS ON COMPETITIVE ACTIVITIES

Subject to certain exceptions, the Partnership Agreement restricts any
Partner and its controlled affiliates (including TCI Telephony and its
controlled affiliates) from bidding on, acquiring or, directly or indirectly,
owning, managing, operating, joining, controlling or financing, or
participating in the management, operation, control or financing of, or being
connected as a principal, agent, representative, consultant, beneficial owner
of an interest in any person or entity, or otherwise with, or use or permit its
name to be used in connection with, any Wireless Business (as defined in the
Partnership Agreement) that engages in the bidding for or acquisition of any
Wireless Business license or engages in any Wireless Business or provides,
offers, promotes or brands wireless communications services that use radio
spectrum for cellular, PCS, paging or other voice or data wireless services
("Wireless Exclusive Services"). In addition, unless approved by a unanimous
vote of the Partners and subject to certain provisions, at no time may any
Partner bid for or acquire a Wireless Business license if such bid or
acquisition would violate or cause Sprint PCS or any of the other Partners to
violate any rules of the FCC. In addition to certain other exceptions set
forth in the Partnership Agreement, and subject to certain limitations set
forth therein, a Partner or its controlled affiliate is permitted by the
Partnership Agreement to engage in a Wireless Business notwithstanding the
foregoing restrictions if such Partner first offers to Sprint PCS the
opportunity to engage in such Wireless Business in lieu of such Partner in
accordance with the required procedures set forth in the Partnership Agreement.

If TCI were to be presented in the future with opportunities to make
investments in other PCS service providers or other entities engaged in the
wireless telecommunications business or to otherwise engage in the wireless
telecommunications business, it would be subject to the restrictions of the
Partnership Agreement in pursuing any such opportunity (whether through the
Telephony Group or otherwise). As described under "--CONSIDERATIONS RELATING
TO THE TELEPHONY GROUP'S INVESTMENT IN TELEPORT--POSSIBLE COMPETITION FROM
CABLE STOCKHOLDERS," Teleport may not engage in the business of providing
certain wireless communications services (subject to certain exceptions)
without the affirmative vote of holders of a majority of the Teleport Class B
Stock until the earlier of June 2001 and the date on which the Teleport Class B
Stock ceases to represent at least 50% of the voting power of the outstanding
common stock of Teleport. If following the expiration of such provisions and
while TCI held an equity interest in TCG, TCG were to determine to engage in
the Wireless Business, TCI Telephony would be in breach of the covenants in the
Partnership Agreement described above (thereby becoming an Adverse Partner),
unless at that time and thereafter TCG was not a controlled affiliate of TCI
within the meaning of the Partnership Agreement and TCI had used its
commercially reasonable efforts (including voting its equity interest in
Teleport) to cause TCG either to offer to enter into an affiliation agreement
with Sprint PCS or not to engage in the Wireless Business. The foregoing
provisions will act as a deterrent to TCI's acquiring additional interests in
TCG that would result in its becoming a controlled affiliate of TCI.

Pursuant to an agreement with Sprint, the ability of TCI and its
controlled affiliates (including TCI Telephony) to offer or promote, act as a
sales agent for, or package certain of its cable television services with,
certain local or long distance telephony services offered under the brand of
certain ILECs and inter-exchange carriers (such as AT&T) other than Sprint is
restricted. Such agreement also limits the ability of TCI and its controlled
affiliates (including TCI Telephony) to make its cable plant available to such
ILECs and inter-exchange carriers for the provision of local telephony services
on an exclusive basis without making such facilities similarly available to
Sprint on comparable terms. Such agreement has a five-year term that commenced
January 31, 1996; however, under certain circumstances such agreement may
terminate on January 31, 1999.

DEVELOPMENT STAGE OF SPRINT PCS; OPERATING LOSSES

Sprint PCS is at an early stage of development and has only recently
commenced commercial PCS operations. Sprint PCS will require expenditures of
significant funds for development, construction, testing and deployment of its
PCS network. Such development, construction, testing and deployment of Sprint
PCS's network are expected to place significant demands on Sprint PCS's
managerial, operational and financial resources. Sprint PCS's future
performance will depend, in part, on Sprint PCS's ability to implement its
operational and financial systems, to expand its employee base and to train and
manage its employees, including engineering, customer support, marketing and
sales personnel. There can be no assurance that Sprint PCS will be able to
manage its operations successfully. Management's failure to

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guide and control growth effectively (including implementing adequate systems,
procedures and controls in a timely manner) could have a material adverse
effect on Sprint PCS (and on the value of TCI Telephony's interest therein).

As of September 30, 1996, Sprint PCS had incurred cumulative net
losses of approximately $260 million since its inception. It is expected that
Sprint PCS will continue to incur significant operating losses and to generate
significant negative cash flow from operating activities during the next
several years while it develops and constructs its PCS network and builds its
customer base. If and when Sprint PCS has successfully completed its network
buildout, Sprint PCS's operating profitability will depend upon many factors,
including, among others, its ability to market its products and services
successfully, achieve its projected market penetration, manage customer
turnover rates effectively and price its products and services competitively.
There can be no assurance that Sprint PCS will achieve or sustain operating
profitability or positive cash flow from operating activities in the future.
If Sprint PCS does not achieve and maintain operating profitability and
positive cash flow from operating activities on a timely basis, it may not be
able to meet its debt service requirements.

SUBSTANTIAL CAPITAL REQUIREMENTS; HIGHLY LEVERAGED CAPITAL STRUCTURE

The buildout of Sprint PCS's network and the marketing and
distribution of Sprint PCS's products and services will require substantial
capital. Sprint PCS currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (based on Sprint PCS's current plans for its network
buildout in its current license areas), but excluding any obligations in
respect of its interest in APC or Cox-California, will total approximately $8.9
billion (of which approximately $3.0 billion had been expended as of September
30, 1996). Sprint PCS will also require substantial additional capital for new
license acquisitions or investments in entities making new license acquisitions
(if any) and, after 1998, for coverage expansion, volume-driven network
capacity and other capital expenditures for existing and new license areas (if
any), working capital, debt service requirements and anticipated further
operating losses. Sprint Spectrum has obtained approximately $3.1 billion in
secured vendor financing, entered into a $2.0 billion secured credit facility
with a group of banks and received net proceeds of approximately $520 million
from the public offering of the Sprint Spectrum Notes. Due to its highly
leveraged capital structure, there can be no assurance that Sprint PCS will be
able to arrange additional financing to fund capital requirements until Sprint
PCS achieves positive operating cash flow or at all, or that such financing
will be available on a timely basis and on terms acceptable to Sprint PCS and
within limitations contained in the agreements governing its existing
indebtedness and any new financing arrangements. Following the receipt of any
such additional financing, there can be no assurance that Sprint PCS would be
able to generate sufficient funds to meet fixed charges or other obligations.
Sprint PCS will have certain commitments that must be funded in any event,
including capital commitments relating to its interests in APC and
Cox-California (including obligations to purchase the other partner's interest
therein under certain circumstances), lease obligations for cell and switch
sites, minimum purchase obligations under its procurement contracts and
amortization of the principal amount of its indebtedness. Actual amounts of
the funds required may vary materially from these estimates and additional funds
would be required in the event of significant departures from the current
business plan, new license acquisitions, unforeseen delays, cost overruns,
unanticipated expenses, regulatory changes, engineering design changes and other
technological risks. Sprint PCS currently has no operating income with which to
meet its capital requirements. Failure to obtain financing could result in the
delay or abandonment of Sprint PCS's development and expansion plans or the
failure to meet regulatory requirements. It also could impair Sprint PCS's
ability to meet its debt service requirements and could have a material adverse
effect on its business.

NETWORK BUILDOUT AND SYSTEM IMPLEMENTATION RISKS

In order for Sprint PCS to complete its PCS network and provide its
wireless communications products and services to customers on a nationwide
basis it must successfully (i) relocate microwave paths that may affect its
operations, (ii) lease, acquire or otherwise attain rights to a sufficient
number of cell sites for the location of its base station equipment (including
receipt of related zoning or other state and local regulatory approvals), (iii)
complete the RF (or radio frequency) design, including cell site design,
frequency planning and network optimization, for each of its markets, (iv)
complete the fixed network design, which encompasses engineering network
switching systems, radio systems, interconnecting facilities and systems and
operating support systems, (v) establish sufficiently broad population and
geographic coverage across the continental United States and (vi) develop and
implement sophisticated information systems. There can be no assurance that
these actions will be taken on a timely basis or on the cost basis assumed by
Sprint PCS or at all. Implementation of the network involves various risks and
contingencies, many of which are not within the control of Sprint PCS and all
of which could have a material adverse effect on the implementation of Sprint

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PCS's system should there be delays or other problems. See "DESCRIPTION OF THE
TELEPHONY GROUP--WIRELESS TELEPHONY--NETWORK BUILDOUT."

Sprint PCS's success in the implementation and operation of its system
is also subject to other factors beyond Sprint PCS's control. These factors
include, without limitation, changes in general and local economic conditions,
availability of equipment necessary to operate the PCS system, changes in
communications service rates charged by others, fluctuations in the supply and
demand for PCS and the commercial viability of PCS systems as a result of
competition with wireline and wireless operators in the same geographic area,
demographic changes that might affect negatively the potential market for PCS,
changes in federal and state regulation of PCS systems (including the enactment
of new statutes and the promulgation of changes in the interpretation or
enforcement of existing or new rules and regulations) and advancements in
technology that have the potential of rendering obsolete the technology and
equipment that Sprint PCS is using to construct its PCS system. There can be no
assurance that the occurrence of one or more of these factors will not have a
material adverse effect on Sprint PCS's financial condition and results of
operations and, accordingly, on TCI Telephony's interest in Sprint PCS.

On December 3, 1996, Sprint PCS announced a delay in the
launch of its PCS service in certain markets scheduled for launch in December
1996 that utilize infrastructure equipment provided by one of the two Vendors
resulting from deficiencies in the software used to provide certain
administrative and maintenance functionality for a component of the radio
network. While Sprint PCS believes that such Vendor and its supplier have made
substantial progress in resolving such deficiencies, as of January 13, 1997,
Sprint PCS had not launched its PCS service in any of such markets.

LACK OF COMPLETE NATIONWIDE FOOTPRINT

In order for Sprint PCS's subscribers to use their handsets in areas
outside Sprint PCS's network, another CDMA-based PCS provider must operate in
such area or the subscriber must have a dual-mode, dual-band handset which
would allow access to analog cellular or other digital cellular or PCS systems
and, in either case, Sprint PCS must have arrangements with such other cellular
or PCS providers permitting Sprint PCS's subscribers to access their respective
services. Sprint PCS currently does not have a license or any affiliation
agreement enabling it to provide coverage for 27% of the Pops in the United
States, including those in the following major cities and surrounding regions:
Atlanta, Charlotte, Chicago, Cincinnati, Cleveland, Columbus, El Paso, Houston,
Jacksonville, Knoxville, Memphis, Richmond and Tampa. Although there can be no
assurance that CDMA-based PCS providers will operate in these areas, Sprint PCS
may enter into affiliation agreements or contracts permitting subscribers to
utilize the services of a CDMA-based PCS provider in each of these areas. The
failure to obtain coverage for any or all such areas may significantly impair
Sprint PCS's ability to provide nationwide service to its customers, which may
discourage potential customers from subscribing or encourage existing customers
to cancel their subscriptions. The ability of Sprint PCS's subscribers to use
other providers' PCS services will be limited by certain technological
constraints as well as the current lack of availability of dual- mode,
dual-band handsets which would permit Sprint PCS's subscribers to utilize the
services of non-CDMA-based PCS providers. See "--TECHNOLOGY RISKS; AVAILABILITY
OF HANDSETS."

Pursuant to an agreement among the Partners, an affiliate of Sprint is
participating in the D and E Block PCS auctions currently being conducted by
the FCC for additional 10 MHz BTA PCS licenses. As of January 13, 1997, Sprint
was the leading bidder for licenses in approximately 140 BTAs covering an
aggregate of approximately 70 million additional Pops, none of which BTAs are
within any of the MTAs represented by the PCS licenses held by Sprint PCS,
Cox-California, APC or PhillieCo. In accordance with such agreement and the
Partnership Agreement, Sprint is required to offer to enter into an affiliation
agreement with Sprint PCS with respect to such BTA licenses pursuant to which
Sprint's PCS systems in such areas would be included in Sprint PCS's national
PCS network, although no assurance can be given that Sprint and Sprint PCS will
be able to reach a mutually acceptable agreement as to the terms of any such
affiliation agreement.

TECHNOLOGY RISKS; AVAILABILITY OF HANDSETS

CDMA technology has only recently been deployed in the United States
or internationally. Although Sprint PCS has selected CDMA technology because
Sprint PCS believes it will offer several advantages over other technologies,
CDMA may not provide the advantages expected by Sprint PCS. See "DESCRIPTION OF
THE TELEPHONY GROUP--WIRELESS TELEPHONY--CDMA TECHNOLOGY."

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CDMA is incompatible with other PCS technologies such as TDMA or GSM.
Although Sprint PCS believes that CDMA will become the dominant PCS technology
in North America, there can be no assurance that this will be the case. See
"DESCRIPTION OF THE TELEPHONY GROUP--WIRELESS TELEPHONY--CDMA TECHNOLOGY." In
order for Sprint PCS's subscribers to use single mode handsets in other PCS
markets (and vice versa), at least one PCS licensee in the other market must
deploy CDMA (as opposed to the other competing PCS technologies) and such
licensee must agree to allow Sprint PCS subscribers to utilize its network.
There can be no assurance that Sprint PCS will be able to reach satisfactory
agreements with such licensees. While several major PCS providers have
publicly announced that they intend to deploy CDMA-based PCS systems, there can
be no assurance that such providers will do so. To date, PrimeCo (as defined
herein) is the only PCS provider other than Sprint PCS that has commercially
deployed a 1900 MHz CDMA system in the United States.

Sprint PCS's network will not be compatible with existing analog
cellular networks. Sprint PCS's network operates at a different frequency and
uses a different technology than analog cellular systems. If Sprint PCS desires
to make roaming available, it would be required to provide dual-mode, dual-band
handsets, which are not currently available. Additionally, for Sprint PCS's
subscribers to access another provider's cellular system, that provider must
agree to allow Sprint PCS's subscribers to roam on its network. There can be no
assurance that such dual-mode, dual-band handsets will be available or that,
should Sprint PCS determine that it desires roaming agreements with other
providers, such agreements can be obtained on terms acceptable to Sprint PCS.

Currently, there are expected to be limited suppliers of CDMA
handsets. Although Sprint PCS has entered into agreements with two such
suppliers to purchase quantities of handsets it believes are sufficient to
satisfy the anticipated demand following the commencement of commercial
operations, there can be no assurance that these suppliers will be able to
manufacture and deliver the number of handsets ordered or that such supply will
in fact be sufficient to meet initial demand. Sprint PCS is currently
negotiating with other suppliers for the delivery of additional CDMA handsets
commencing in the third quarter of 1997. There can be no assurance, however,
that terms satisfactory to Sprint PCS will be reached with these suppliers or
that these suppliers will commence production or, if they do commence
production, that they will be able to deliver quality handsets in sufficient
quantities in a timely manner.

While Sprint PCS currently believes that dual-mode, dual-band handsets
that allow a user to access both PCS systems and cellular networks will be
commercially available in mid-1997 (although sufficient quantities may not be
commercially available until the first quarter of 1998), there can be no
assurance that such handsets can be manufactured successfully or that Sprint
PCS's subscribers will be able to obtain such handsets at competitive prices.
In addition, such dual-mode, dual-band handsets are expected to be more
expensive than single-mode handsets. Although Sprint PCS has been working
closely with its suppliers to develop high-quality dual-mode, dual-band
handsets, such handsets may fail to operate as expected. The lack of
interoperability or the comparatively higher cost of such handsets may impede
Sprint PCS's ability to attract current cellular subscribers or potential new
wireless communications subscribers.

ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS; REFINANCING RISKS

Sprint Spectrum has incurred and expects to incur substantial
indebtedness. See "--SUBSTANTIAL CAPITAL REQUIREMENTS; HIGHLY LEVERAGED
CAPITAL STRUCTURE." The agreements pursuant to which the existing indebtedness
was incurred contain, and any additional financing agreements may contain,
certain restrictive covenants. The restrictions contained in the existing
financing agreements affect, and in some cases limit or prohibit significantly,
among other things, the ability of Sprint PCS to incur additional indebtedness
(beyond specified amounts), make prepayments of certain indebtedness, pay
dividends, make investments, engage in transactions with equity holders and
affiliates, issue equity of subsidiaries, create liens, sell assets and engage
in mergers and consolidations. In addition to the restrictive covenants
described above, such financing agreements require Sprint Spectrum to maintain
certain financial ratios and to comply with other operating performance tests.
The failure of Sprint Spectrum to maintain such ratios or comply with such
tests would constitute events of default under such agreements (allowing the
creditors to accelerate the maturity of the indebtedness thereunder and may
limit the availability of funds under such agreements to amounts less than the
stated maximum committed amounts thereunder), notwithstanding the ability of
Sprint Spectrum to meet its debt service obligations.

Sprint Spectrum's ability to meet its debt service obligations will be
dependent upon the successful completion of Sprint PCS's planned PCS network
and Sprint Spectrum's future performance, which is subject to numerous factors,
many of which are beyond its control. See "--NETWORK BUILDOUT AND SYSTEM
IMPLEMENTATION RISKS." There can be no assurance that Sprint PCS can complete
construction of its wireless network or that, if completed, Sprint PCS will

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generate sufficient cash flow from operating activities to meet debt service,
capital expenditure and working capital requirements. Sprint Spectrum's
outstanding indebtedness may need to be refinanced at maturity. Sprint PCS's
ability to refinance such indebtedness will depend on, among other things, its
financial condition at the time, the restrictions in the instruments governing
its indebtedness and other factors, including market conditions, beyond the
control of Sprint PCS. In addition, in the event the completion of its wireless
network is delayed or Sprint PCS does not generate sufficient cash flow from
operating activities to meet debt service requirements, Sprint PCS may need to
seek additional financing. There can be no assurance that any such financing
or refinancing could be obtained on terms that are acceptable to Sprint PCS, if
at all. In the absence of such financing or refinancing, Sprint PCS could be
forced to dispose of assets in order to cover any shortfall in the payments due
on its indebtedness and such disposition may occur under circumstances that
might not be favorable to realizing the highest price for such assets.

LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT
CHANGE IN WIRELESS INDUSTRY

PCS systems have no significant operating history in the United
States, and there can be no assurance that operation of these systems will
become profitable. In addition, the extent of potential demand for PCS in
Sprint PCS's markets cannot be estimated with any degree of certainty. The
inability of Sprint PCS to establish PCS service or to obtain appropriate
equipment for its PCS system could have a material adverse effect on its
financial condition and results of operations. The wireless telecommunications
industry is experiencing significant technological change, as evidenced by the
increasing prevalence of digital upgrades in existing analog cellular systems,
evolving industry standards, ongoing improvements in the capacity and quality
of digital technology, shorter development cycles for new products and
enhancements and changes in end-user requirements and preferences. There is
also uncertainty as to the extent of customer demand as well as the extent to
which airtime and monthly access rates may continue to decline. As a result,
the future prospects of the industry and Sprint PCS and the success of PCS and
other competitive services remain uncertain.

COMPETITION

There is substantial competition in the wireless telecommunications
industry. In addition, Sprint PCS expects competition in the wireless
telecommunications business to intensify as a result of the entrance of new
competitors and the development of new technologies, products and services.
Each of the markets in which Sprint PCS competes will be served by other
two-way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of years,
currently serve a substantial subscriber base and have significantly greater
financial and technical resources than those available to Sprint PCS. Certain
of Sprint PCS's competitors are operating, or planning to operate, through
joint ventures and affiliation arrangements, wireless telecommunications
systems that encompass most of the United States. Principal PCS competitors in
Sprint PCS's markets include Aerial Communications, Inc., AT&T Wireless
Services, Inc. ("AT&T Wireless"), BellSouth Telecommunications, Inc.
("BellSouth"), Omnipoint Corporation, PCS PrimeCo L.P. ("PrimeCo") (the
partners of which are affiliates of AirTouch Communications, Inc. ("AirTouch"),
Bell Atlantic Corporation ("Bell Atlantic"), NYNEX Corporation ("NYNEX") and US
WEST, Inc. ("US WEST")), Pacific Bell Mobile Systems, Inc. and Western Wireless
Corporation. Sprint PCS also expects that existing cellular providers will
upgrade their systems and provide expanded and digital services to compete with
Sprint PCS's PCS system. Principal cellular providers in Sprint PCS's markets
include AirTouch, Ameritech Mobile Communications, Inc., AT&T Wireless, Bell
Atlantic NYNEX Mobile, BellSouth, GTE Mobilnet, Inc., Southwestern Bell Mobile
Systems and U.S. Cellular Corp.

Continuing technological advances in telecommunications and FCC
policies that encourage the development of new spectrum-based technologies make
it impossible to predict the extent of future competition. The FCC has adopted
rules that provide preferences, including discounted licenses, to companies
that develop new spectrum-based communications technologies without bidding in
FCC-sanctioned auctions. Such a preference may encourage the development of
new technologies that compete with cellular and PCS service. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum currently
reserved for government use. It is possible that some portion of the spectrum
that is reallocated will be used to create new land-mobile services or to
expand existing land-mobile services.

TCI Telephony anticipates that market prices for two-way wireless
services generally will decline in the future based upon increased competition.
Sprint PCS's ability to compete successfully will depend on, among other
things, its ability to complete the buildout of its wireless network and offer
its products and services to customers on a timely basis and on its ability to
anticipate and respond to various competitive factors affecting the industry,
including new services

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that may be introduced, changes in consumer preferences, demographic trends,
economic conditions and discount pricing strategies by competitors, all of
which could adversely affect Sprint PCS's operating margins and its ability to
meet its debt service requirements and the value of TCI Telephony's investment
in Sprint PCS. There can be no assurance that Sprint PCS will be able to
compete successfully in this environment or that new technologies and products
that are more commercially effective than Sprint PCS's technologies and
products will not be developed. See "DESCRIPTION OF THE TELEPHONY
GROUP--WIRELESS TELEPHONY--COMPETITION."

COMPETITION WITH PARTNERS

Comcast (through its controlled affiliates) owns cellular licenses and
operates a cellular telephone system which provides service in and around the
Philadelphia area, parts of New Jersey and parts of Delaware (the "Comcast
Service Area"). PhillieCo is expected to be in competition with Comcast's
cellular service, and with any PCS service offered under a PCS license that may
be acquired by Comcast, in certain markets in the Comcast Service Area. Due to
Comcast's general knowledge of Sprint PCS's strategies, PhillieCo and Sprint
PCS may be at a disadvantage compared to Comcast in such markets. As of
January 13, 1997, Comcast was the high bidder for twelve 10 MHz BTA PCS
licenses in the Comcast Service Area in the FCC's D and E Block PCS auction
covering an aggregate of approximately 10 million Pops.

GOVERNMENT REGULATION

The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC and, depending on the jurisdiction, state and local
regulatory agencies. In addition, the FCC, in conjunction with the Federal
Aviation Administration (the "FAA"), regulates tower marking and lighting.
There can be no assurance that either the FCC, the FAA or those state agencies
having jurisdiction over Sprint PCS's business will not adopt regulations or
take other actions that would adversely affect the business of Sprint PCS.

FCC licenses to provide PCS services are subject to renewal and
revocation. Sprint PCS's existing PCS licenses will expire in 2005. There may
be competition for the licenses held by Sprint PCS upon their expiration, and
there can be no assurance that Sprint PCS's licenses will be renewed. FCC rules
require all A and B Block PCS licensees to meet certain requirements including,
without limitation, coverage to one-third of the population of their service
area(s) within the first five years and to two-thirds of the population within
the first ten years of the award of a license. There can be no assurance that
Sprint PCS will be able to obtain the requisite coverage in each of its
licensed service areas. Failure to comply with these requirements could cause
revocation or forfeiture of Sprint PCS's licenses or the imposition of fines on
Sprint PCS by the FCC. See "DESCRIPTION OF THE TELEPHONY GROUP--GOVERNMENT
REGULATION--FEDERAL REGULATION."

RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE

Certain interest groups have requested that the FCC investigate claims
that wireless communications technology poses health concerns and causes
interference with hearing aids and other medical devices. One group studying
the matter, which group was founded with funds from the wireless industry, has
released results from the first phase of its study (which focused on worst case
(operation at full-power) interaction) that indicate that the three wireless
technologies tested, including CDMA, caused interference in some instances, but
not all, with hearing aids. Phase II of this research study is expected to be
completed by January 1997. In addition, the PCIA has been undertaking an
industry-wide study to gather information on possible PCS interference with
medical devices for all PCS protocols and results from researchers working
under the guidance of the Wireless Technology Research LLC ("WTR") indicate
that wireless telephones cause interference to some users of cardiac
pacemakers, and that the risk of clinically significant interference is greater
for pacemaker-dependent patients who use digital (as opposed to analog)
telephones. There can be no assurance that the findings of any of the
foregoing studies will not lead to additional governmental regulations that
will have an adverse effect on Sprint PCS.

Media reports have suggested that certain RF emissions from portable
cellular telephones might be linked to cancer. Concerns over the potential
health effects of RF emissions may have the effect of discouraging the use of
cellular telephones and other wireless communications services, including PCS,
which could have an adverse effect upon Sprint PCS and on the value of TCI
Telephony's investment therein. In August 1996, the FCC adopted revised
guidelines and methods for evaluating the environmental effects of RF
transmitters, including cellular and PCS antennas and telephones, based on
recommendations by several federal agencies, including the Environmental
Protection Agency

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("EPA") and the Federal Drug Administration ("FDA"). The new requirements are
generally more stringent than the requirements in effect prior to the FCC's
action.

CONSIDERATIONS RELATING TO THE TELEPHONY GROUP'S INVESTMENT IN TELEPORT

SIGNIFICANT CAPITAL REQUIREMENTS; OPERATING LOSSES

The capital expenditures of TCG associated with the acquisition,
installation, development and expansion of its existing and new
telecommunications networks are substantial, and a significant portion of these
expenditures generally are incurred before any revenues are realized. The
associated initial operating expenses, for these networks generally result in
negative cash flow from operating activities and operating losses until an
adequate customer base and revenue stream for such networks have been
established. TCI Telephony expects that TCG will continue to incur net losses
for the foreseeable future as it acquires, installs, develops and expands its
existing and new telecommunications networks. There can be no assurance that
Teleport will achieve or sustain profitability or generate sufficient positive
cash flow to service its debt.

The development and expansion of Teleport's existing and new networks
and services will require significant additional capital expenditures, which
Teleport expects to fund with available cash, internally generated cash flow,
the proceeds from existing and future credit facilities and other borrowings
(subject to compliance with the covenants contained therein), and the proceeds
from sales of additional debt and equity securities. TCG's ability to incur
long- term indebtedness is subject to the approval of the New York Public
Service Commission ("NYPSC") and the New Jersey Board of Public Utilities
("NJBPU").

There can be no assurance that TCG will be successful in generating
sufficient cash flow or raising debt or equity capital in sufficient amounts or
on terms acceptable to it. The failure to generate sufficient cash flow or to
raise sufficient funds may require Teleport to delay or abandon some or all of
its development and expansion plans, which could have a material adverse effect
on TCG's growth, its ability to compete in the telecommunications services
industry and its ability to service its debt.

SUBSTANTIAL LEVERAGE

As of September 30, 1996, TCG had approximately $997.5 million of
consolidated total debt and approximately $811.5 million of consolidated
stockholders' equity. The degree to which Teleport is leveraged could have a
material adverse effect upon Teleport. For example: (i) Teleport's ability to
obtain additional financing in the future for capital expenditures,
acquisitions, working capital or general corporate or other purposes may be
limited, (ii) a substantial portion of TCG's cash flow from operations will be
dedicated to the payment of the principal of, and interest on, its debt and
(iii) TCG's substantial leverage may make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and reduce its
flexibility in responding to changing business and economic conditions. In
addition, a failure to comply with the covenants and other provisions of its
debt instruments could result in events of default under such instruments,
which could permit acceleration of the debt under such instruments and in some
cases acceleration of debt under other instruments that contain cross-default
or cross-acceleration provisions.

RISKS OF EXPANSION

Teleport's continued expansion and development of its networks will
depend on, among other things, Teleport's ability to assess markets, design
fiber network backbone routes, install facilities, acquire rights-of-way and
building access, obtain any required governmental authorizations and permits
and implement interconnection with local exchange carriers, all in a timely
manner, at reasonable costs and on other acceptable terms and conditions.
Teleport's ability to manage this expansion effectively will require it to
continue to implement and improve its operational and financial systems and to
expand, train and manage its employee base. TCG's inability to expand its
existing networks or install new networks or manage effectively such expansion
and installation could have a material adverse effect upon its business
strategy, financial condition and results of operations. In addition, to the
extent that Teleport's expansion is carried out through acquisitions, there can
be no assurance that any desired acquisition could be made in a timely manner
on terms and conditions acceptable to Teleport or that any such acquisition
could be successfully integrated into Teleport's operations.

DEPENDENCE UPON INTERCONNECTION WITH ILECS; SUBSTANTIAL COMPETITION

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Teleport operates in an increasingly competitive environment.
Services substantially similar to those offered by Teleport are also offered by
the ILECs serving the metropolitan markets currently served or intended to be
served by Teleport. ILECs have long-standing relationships with their
customers, have financial and technical resources substantially greater than
those of Teleport, have the potential to subsidize services of the type offered
by Teleport from service revenues not subject to effective competition and
benefit from federal and state laws and regulations that, TCG believes,
generally favor the ILECs over CAPs and CLECs. Under certain circumstances,
the FCC and state regulatory authorities provide the ILECs with an ability to
lower selectively the price of certain services within the areas in which
Teleport operates. In addition, as a result of the 1996 Act and the FCC's
access charge reform initiatives, ILECs are likely to obtain additional pricing
flexibility with regard to services that compete with those offered by
Teleport. Increased price competition from ILECs could have a material adverse
effect on Teleport's financial condition and results of operations and,
accordingly, on TCI Telephony's investment therein. Also, under the 1996 Act,
ILECs formerly subject to restrictions on the provision of cable television
service and interLATA (interexchange) long distance services are no longer
restricted from entry into these businesses, subject to certain requirements in
the 1996 Act and rules and policies to be implemented by the FCC and the
states. When an RBOC (or Regional Bell Operating Company) obtains authority to
provide interLATA services, it will be able to offer customers local and long
distance telephone services. Given the market power the RBOCs currently
possess in the local exchange market, the ability to provide both local and
long distance services could further strengthen the RBOCs' already strong
competitive positions.

To the extent TCG interconnects with and uses the ILECs' networks to
service Teleport's customers, TCG is dependent upon the technology and
capabilities of the ILECs to meet certain telecommunications needs of
Teleport's customers and to maintain its service standards. TCG will become
increasingly dependent on interconnection with ILECs as switched services
become a greater percentage of Teleport's business. TCG has experienced
increasing difficulties in obtaining high quality, reliable and reasonably
priced service from certain ILECs over the last two years, and the
attractiveness of TCG's services to customers may be impaired as a result. The
1996 Act imposes interconnection obligations on ILECs, but there can be no
assurance that Teleport will be able to obtain the services it requires at
rates, and on terms and conditions, that permit Teleport to offer switched
services at rates that are both profitable and competitive.

In most of the metropolitan areas in which TCG operates, at least one
(and in many markets several) other CAPs or CLECs offer many of the same local
telecommunications services provided by Teleport, generally at similar prices.
Potential and actual new market entrants in the local telecommunications
services business include other CAPs and CLECs, ILECs entering new geographic
markets, cable television companies, electric utilities, long distance and
international carriers, microwave carriers, wireless telephone system operators
and private networks built by large end users, many of which may have
financial, personnel and other resources substantially greater than those of
TCG. In addition, the current trend of business combinations and alliances in
the telecommunications industry, including mergers between RBOCs and between
CLECs and IXCs, may create significant new competitors for Teleport.

The 1996 Act also will increase competition in the local
telecommunications business. The 1996 Act requires all local exchange
providers, including new entrants, to offer their services for resale and
requires ILECs to offer their network facilities on an unbundled basis. These
requirements potentially facilitate entry by new competitors without
substantial capital risk or investment. However, there can be no assurance
that any unbundled rates or facilities offered by ILECs to TCG will be
economically attractive or technically viable.

FEDERAL AND STATE REGULATION

Teleport is subject to federal and state regulation. In most states,
TCG is subject to certification and tariff filing requirements with respect to
intrastate services. In some instances, the certificate obtained by Teleport
in a particular state limits the services that it is permitted to provide in
that state. Teleport believes that these current restrictions on the services
that may be provided by it should be eliminated as a result of the 1996 Act,
which prohibits states from imposing legal restrictions that effectively
prohibit the provision of any telecommunications service. States will,
however, under the 1996 Act, retain authority to impose on Teleport and other
telecommunications carriers requirements to preserve universal service, protect
public safety, ensure quality of service and protect consumers. In addition,
state and local governments are permitted to manage public rights of way and to
require fair and reasonable compensation from telecommunications providers, on
a competitively neutral and non-discriminatory basis, so long as the
compensation required is publicly disclosed by the governmental entity. States
are also responsible under the 1996 Act for mediating and arbitrating
interconnection arrangements between CLECs and ILECs if the carriers fail to
agree on such arrangements.

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TCG is required to file tariffs for interstate access services with
the FCC, although such tariff requirements are less restrictive than those
imposed on ILECs offering similar services. As a result of an October 1996 FCC
ruling, federal tariff requirements have been lifted for domestic interstate,
interexchange services, and all such tariffs must be canceled by September 22,
1997. A petition for review of the FCC's decision to order mandatory (as
opposed to permissive) detariffing of such services is currently pending before
the U.S. Court of Appeals for the District of Columbia Circuit. In addition, a
number of parties have filed petitions with the FCC seeking reconsideration of
the Commission's decision. The tariff obligation remains applicable to any
interstate access and international services offered by TCG. These tariffs
must contain the rates, terms and conditions under which service is generally
available from TCG. Challenges by third parties to Teleport's tariff filings
or related contractual arrangements may cause TCG to incur substantial legal
and administrative expenses.

Under the 1996 Act, Teleport will become subject to certain federal
regulatory obligations when it provides local exchange service in a market.
All local exchange carriers, including CLECs, must interconnect with other
carriers, make their services available for resale by other carriers, provide
non-discriminatory access to rights-of-way, offer reciprocal compensation for
termination of traffic and provide dialing parity and telephone number
portability. In addition, the 1996 Act requires all telecommunications
carriers to ensure that their services are accessible to and usable by persons
with disabilities, and TCG and other CLECs are likely to be required to
contribute to the support of universal service programs provided for in the
1996 Act. While the FCC has not yet adopted final rules implementing the
universal service provisions of the 1996 Act, if the FCC adopts the
recommendations made by the Federal-State Joint Board in November 1996, TCG and
other CLECs will be required to contribute some portion of their gross revenues
from the sale of telecommunications services, less payments made to other
telecommunications carriers, to various universal service subsidy programs.

The 1996 Act contains other provisions that may be subject to FCC
rulemaking and judicial interpretation, including a provision that limits the
ability of a cable television operator and its affiliates to acquire more than
a 10% financial interest or any management interest in a LEC which provides
local exchange service in such cable operator's franchise area.

In addition, no assurance can be given that changes to current
regulations or the adoption of new regulations by the FCC or state regulatory
authorities or legislative initiatives would not have a material adverse effect
on TCG. See "DESCRIPTION OF THE TELEPHONY GROUP--GOVERNMENT REGULATION."

GOVERNMENTAL AND OTHER AUTHORIZATIONS

The development, expansion and maintenance of Teleport's networks will
depend on, among other things, its ability to obtain rights-of-way and any
other required governmental authorizations and permits, all in a timely manner,
at reasonable costs and on satisfactory terms and conditions. In some of the
cities or municipalities where TCG provides network services, it may pay
license or franchise fees, usually based on a percentage of gross revenues or a
per foot right-of-way fee. The 1996 Act permits municipalities to charge such
fees only if they are non-discriminatory, but there can be no assurance that
municipalities that presently favor a particular carrier, typically the ILEC,
will conform their practices to the requirements of the 1996 Act in a timely
manner or without a legal challenge or that any such legal challenges would be
successful. Furthermore, there can be no assurance that certain cities or
municipalities that do not now impose fees will not seek to impose fees, nor
can there be any assurance that, following the expiration of existing
franchises, fees will remain at their current levels or that the franchises
will be renewed. Some of Teleport's franchise agreements also provide for
increases or renegotiation of fees at intervals prior to the expiration
thereof.

In addition, TCG currently leases, and plans in the future to enter
into facility arrangements for, significant numbers of optical fibers from
cable television operators. There can be no assurance that municipalities
which regulate such cable television operators will not seek to impose
additional franchise fees or otherwise charge such cable television operators
(subject to reimbursement by TCG) in connection with such leases. There can
also be no assurance that such cable television systems or Teleport will be
able to obtain all necessary permits, licenses, conduit agreements or pole
attachment agreements from governmental authorities or private rights-of-way
providers necessary to effectuate such lease transactions. As a result, there
can be no assurance that TCG will be able to expand its existing networks or
develop new networks successfully, which would have a material adverse effect
on TCG's growth and financial condition and on TCI Telephony's interest in TCG.

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If any of Teleport's existing franchise, license or similar agreements
for a particular metropolitan area were terminated prior to their expiration
dates or not renewed and TCG were forced to remove its fiber or abandon its
network in place, such termination would have a material adverse effect on
Teleport's operations in that metropolitan area and could have a material
adverse effect on TCG and on TCI Telephony's interest in TCG.

DEPENDENCE ON SIGNIFICANT CUSTOMERS

Teleport has substantial business relationships with a few large
customers, including the major long distance carriers. During 1995, TCG's top
10 customers accounted for approximately 57% of TCG's total revenues on a pro
forma basis after giving effect to the TCG Reorganization. AT&T and Sprint
each accounted for more than 10% of such revenues, although no customer
accounted for 15% or more of such revenues. A significant reduction in the
level of services TCG performs for any of these customers could have a material
adverse effect on Teleport's results of operations or financial condition.
Most of Teleport's customer arrangements are subject to termination on short
notice and do not provide TCG with guarantees that service quantities will be
maintained at current levels, and there can be no assurance that such
arrangements will be continued at the same service quantity levels. TCG
believes that certain of the major long distance carriers are pursuing
alternatives to their current practices with regard to obtaining local
telecommunications services, including construction of their own facilities
and/or acquisitions of CLECs. This type of activity could accelerate as a
result of the 1996 Act, which limits the authority of states to impose legal
restrictions that have the effect of prohibiting a company, including an IXC
(or interexchange carrier), from providing any telecommunications service. In
addition, the 1996 Act requires ILECs to unbundle their network facilities and
to offer their services for resale by other companies at wholesale discounts.
Accordingly, long distance carriers are now or soon will be able to provide
local service by reselling the facilities or services of an ILEC, which may be
more cost-effective for an IXC than using the services of Teleport or another
CAP or CLEC. See "DESCRIPTION OF THE TELEPHONY GROUP--WIRELINE
TELEPHONY--CUSTOMERS AND MARKETING."

POSSIBLE COMPETITION FROM CABLE STOCKHOLDERS

All of the Cable Stockholders are in the telecommunications business
and may, now or in the future, provide services which are the same or similar
to those provided by TCG. No assurance can be given that the Cable
Stockholders will not compete with TCG in certain markets or in the provision
of certain telecommunications services. In this regard, TCG's Amended and
Restated Certificate of Incorporation provides that TCG may not provide certain
(i) wireless communications services (other than products and services
delivered via point-to-point microwave and milliwave transmissions) or (ii)
telecommunications services to residences until, in each case, the earlier of
June 2001 and the date on which the holders of Teleport Class B Stock no longer
represent at least 50% of the voting power of the outstanding common stock of
Teleport, without the affirmative vote of the holders of a majority of the
Teleport Class B Stock, subject to certain exceptions.

Continental has merged with US WEST, an ILEC and a competitor of
Teleport. In connection with such merger, US WEST and Continental agreed to
the entry of a federal antitrust consent decree (the "Final Judgment") which,
among other things, provides for the divestiture of Continental's interest in
TCG. Under the terms of the proposed Final Judgment, US WEST will be required
to divest a portion of Continental's interest in TCG sufficient to cause it to
own less than 10% of the outstanding shares of TCG common stock on or before
June 30, 1997, and to divest any remaining portion of its interest on or before
December 31, 1998. The proposed Final Judgment is currently pending before the
U.S. District Court for the District of Columbia, which is in the process of
reviewing and receiving public comment on the parties' proposed settlement,
pursuant to the requirements of the Antitrust Penalties and Procedures Act.

RAPID TECHNOLOGICAL CHANGES

The telecommunications industry has experienced and is expected to
continue to experience rapid and significant changes in technology. While TCG
believes that, for the foreseeable future, these changes will neither
materially affect the continued use of fiber optic cable or digital switches
and transmission equipment nor materially hinder Teleport's ability to acquire
necessary technologies, the effect of technological changes on Teleport's
business and operations cannot be predicted. Also, alternative technologies
may develop for the provision of services to customers. TCG may be required to
select in advance one technology over another; but it will be impossible to
predict with any certainty, at the time Teleport is required to make its
investment, which technology will prove to be the most economic, efficient or
capable of attracting customer usage.

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ENVIRONMENTAL MATTERS

In connection with its management of the Teleport satellite earth
station complex in Staten Island, New York, TCG monitors electromagnetic
radiation levels in the vicinity of the Teleport facility on a quarterly basis.
The quarterly monitoring reports provided to TCG indicate that the type and
level of electromagnetic radiation being emitted into publicly accessible areas
do not violate any laws, rules or regulations of which TCG is aware. In
addition, Teleport and its contractors are subject to various laws and
regulations governing hazardous or environmentally sensitive materials or
conditions which may occur in connection with the construction, installation,
operation or maintenance of Teleport's facilities. There can be no assurance
that hazardous materials or conditions, including electromagnetic radiation
emitted from the Teleport satellite earth station complex or any of TCG's other
facilities, might not expose Teleport to tort or other claims that could have a
material adverse effect on TCG.

CONSIDERATIONS RELATING TO THE TELEPHONY GROUP COMMON STOCK

STOCKHOLDERS OF ONE COMPANY; FINANCIAL EFFECTS ON ONE BUSINESS COULD
AFFECT OTHER BUSINESSES

Notwithstanding the attribution of assets, liabilities, equity and
items of income and expense among the Groups for the purpose of preparing the
combined financial statements of the Telephony Group, the TCI Group and the
Liberty Media Group, the change in the capital structure of TCI resulting from
the issuance of shares of Telephony Group Common Stock will not affect legal
title to such assets or responsibility for such liabilities of TCI or any of
its subsidiaries. Holders of Series A Telephony Group Common Stock will be
common stockholders of TCI and will be subject to risks associated with an
investment in TCI and all of its businesses, assets and liabilities.

The financial results of one Group that affect TCI's consolidated
results of operations or financial condition could affect the combined results
of operations or financial condition of the other Groups and the market price
of the Telephony Group Common Stock, the TCI Group Common Stock and the Liberty
Media Group Common Stock. In addition, any net losses of any Group, dividends
or distributions on, or repurchases of, the Telephony Group Common Stock, the
TCI Group Common Stock or the Liberty Media Group Common Stock, and dividends
on, or certain repurchases of, Preferred Stock, will reduce funds of TCI
legally available for the payment of dividends on the Telephony Group Common
Stock, the TCI Group Common Stock and the Liberty Media Group Common Stock. The
combined financial statements of the Telephony Group, the TCI Group and the
Liberty Media Group should be read in conjunction with the consolidated
financial statements of TCI.

LIMITED SEPARATE STOCKHOLDER RIGHTS; EFFECTS ON VOTING POWER

Holders of Telephony Group Common Stock do not have any legal rights
specifically related to the assets attributed to the Telephony Group or have
any right to vote on matters as a separate class, other than (i) as set forth
in the provisions relating to dividend and liquidation rights and requirements
for mandatory dividend, redemption or conversion of Telephony Group Common
Stock upon the disposition of all or substantially all of the properties and
assets of the Telephony Group as described under "DESCRIPTION OF CAPITAL
STOCK--COMMON STOCK--CONVERSION AND REDEMPTION" and (ii) separate voting rights
in limited circumstances as required by the General Corporation Law of the
State of Delaware (the "DGCL"). Separate meetings for the holders of Telephony
Group Common Stock will not be held.

Holders of Telephony Group Common Stock, TCI Group Common Stock,
Liberty Media Group Common Stock, and any Preferred Stock having general voting
rights, vote as one class on all matters coming before any meeting of
stockholders and do not have any separate class voting rights except in limited
circumstances as required by the DGCL. Under the DGCL, the holders of the
outstanding shares of a class are entitled to vote as a class upon a proposed
amendment to a corporation's certificate of incorporation, whether or not
entitled to vote on such amendment by the certificate of incorporation, if the
amendment would alter or change the powers, preferences or special rights of
such class so as to affect them adversely. For this purpose, if a proposed
amendment would alter or change the powers, preferences or special rights of
one or more series of any class so as to affect them adversely, but would not
so affect the entire class, then only the shares of the series so affected by
the amendment would be entitled to vote as a separate class on the amendment.
Accordingly, a proposed amendment the adverse effect of which on the powers,
preferences or rights of any series of Common Stock does not differ from its
adverse effect on the powers, preferences or rights of any other series of
Common Stock would not entitle such series to vote as a class separately from
the other series of Common Stock.

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Certain matters on which holders of Telephony Group Common Stock, TCI
Group Common Stock and Liberty Media Group Common Stock might vote together as
a single class could involve a divergence or the appearance of a divergence of
interests between the holders of such series of Common Stock. For example, the
TCI Charter does not require that a merger or consolidation of TCI requiring
the approval of TCI stockholders be approved by a separate vote of holders of
any series of Common Stock, and Delaware law requires such approval only in
certain circumstances. As a result, if holders of any one or more series of
Common Stock that possess the requisite voting power vote to approve the merger
or consolidation, then the merger or consolidation could be consummated even if
the holders of a majority of some other series of Common Stock vote against the
merger or consolidation. See "--POTENTIAL DIVERGENCE OF INTERESTS; NO SPECIFIC
PROCEDURES FOR RESOLUTION." Immediately following the Offerings, the combined
voting power of the Series A TCI Group Common Stock and Series B TCI Group
Common Stock would represent a majority of the voting power of all classes and
series entitled to vote in the election of directors.

The Series A Telephony Group Common Stock has one vote per share and
the Series B Telephony Group Common Stock has ten votes per share. The Series
A TCI Group Common Stock and Series A Liberty Media Group Common Stock have one
vote per share and the Series B TCI Group Common Stock and Series B Liberty
Media Group Common Stock have ten votes per share. See "DESCRIPTION OF CAPITAL
STOCK--COMMON STOCK--VOTING RIGHTS."

POTENTIAL DIVERGENCE OF INTERESTS; NO SPECIFIC PROCEDURES FOR RESOLUTION

The existence of the Telephony Group Common Stock may give rise to
occasions when the interests of the holders of Telephony Group Common Stock and
the holders of either TCI Group Common Stock or Liberty Media Group Common
Stock, or both, may diverge or appear to diverge. As further discussed below,
examples include, among others, determinations by the Board of Directors to (i)
convert each outstanding share of Telephony Group Common Stock into a fraction
of a share of TCI Group Common Stock, (ii) approve the disposition of all or
substantially all of the properties and assets of the Telephony Group, (iii)
allocate consideration to be received by holders of Common Stock in connection
with a merger or consolidation involving TCI among holders of different series
of Common Stock, (iv) allocate resources and financial support to or pursue
business opportunities or operational strategies through one Group instead of
one or more of the other Groups, (v) allocate the proceeds of issuances of
Telephony Group Common Stock either to the TCI Group in respect of a reduction
in its Inter-Group Interest in the Telephony Group or to the equity of the
Telephony Group, (vi) pay or omit dividends on the Telephony Group Common
Stock, the TCI Group Common Stock or the Liberty Media Group Common Stock, or
(vii) approve transactions involving the transfer of funds or assets from one
Group to one or more of the other Groups or make other operational or financial
decisions with respect to one Group that could be considered to be detrimental
to one or more of the other Groups. Other than as described under "MANAGEMENT
AND ALLOCATION POLICIES," no specific procedures have been adopted for
consideration of matters involving a divergence of interests among the holders
of Telephony Group Common Stock, TCI Group Common Stock and Liberty Media Group
Common Stock. Rather than develop additional specific procedures in advance,
the Board of Directors intends to exercise its judgment from time to time,
depending on the circumstances, as to how best to obtain information regarding
the divergence (or potential divergence) of interests, under what circumstances
to seek the assistance of outside advisers, whether a committee of the Board of
Directors should be appointed to address the matter and how to assess which
available alternative is in the best interests of TCI and all of its
stockholders. The Board of Directors believes the advantages of retaining
flexibility in determining how best to fulfill its responsibilities in such
circumstances as they may arise outweigh any perceived advantages from adopting
additional specific procedures in advance.

Optional Conversion of Telephony Group Common Stock into TCI Group
Common Stock. The Board of Directors may determine to convert each outstanding
share of Series A Telephony Group Common Stock into a fraction of a share of
Series A TCI Group Common Stock and each outstanding share of Series B
Telephony Group Common Stock into a fraction of a share of Series B TCI Group
Common Stock, in each case determined based upon the ratio of the value (as
determined on the basis of appraisals performed by investment banking firms) of
one share of Telephony Group Common Stock to the average Market Value over a
20-Trading Day period prior to the date such appraisal process is initiated of
one share of Series A TCI Group Common Stock. Such a conversion could be
effected at any time, including at a time when the value of one share of
Telephony Group Common Stock determined by appraisal differs significantly from
the market value of the Telephony Group Common Stock reflected in the trading
markets, or at a time when the Market Value of the TCI Group Common Stock used
in the determination of the conversion ratio reflects what might be considered
an overvaluation or undervaluation. Basing the conversion ratio on an
appraised value determination for the Telephony Group Common Stock and a
trading market valuation for the TCI Group Common

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Stock could result in the conversion ratio being significantly different from
that which would have resulted if the same measure were used for the valuation
of both the TCI Group Common Stock and the Telephony Group Common Stock. For
example, a conversion could be considered dilutive of the interests of the
holders of the Telephony Group Common Stock if the Market Value of the TCI
Group Common Stock is greater than the valuation of the TCI Group Common Stock
that would have resulted if a similar appraisal procedure to that used in the
determination of the value of the Telephony Group Common Stock were used. Such
a conversion would also have the effect of precluding holders of Telephony
Group Common Stock from retaining their investment in a security intended to
reflect separately the business of the Telephony Group.

Disposition of Group Assets. As long as the assets of a Group
continue to represent less than substantially all of the properties and assets
of TCI, the Board of Directors may approve sales and other dispositions of any
amount of the properties and assets of such Group without stockholder approval
because, under the DGCL and the TCI Charter, stockholder approval is required
only for a sale or other disposition of all or substantially all of the
properties and assets of TCI as a whole. The TCI Charter, however, contains
provisions which, in the event of a Disposition of all or substantially all of
the properties and assets of the Telephony Group in one transaction or a series
of related transactions, other than in a transaction in which TCI receives
primarily equity securities of an entity engaged or proposing to engage
primarily in a similar or complementary business, and other than in connection
with the disposition of all or substantially all of the assets of the entire
company, require TCI, at its option, either to (i) distribute by dividend or
redemption to the holders of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock an amount in cash and/or securities or other
property equal to their proportionate interest in the Net Proceeds of such
disposition or (ii) convert outstanding shares of Series A Telephony Group
Common Stock into a number (or fraction) of shares of Series A TCI Group Common
Stock and outstanding shares of Series B Telephony Group Common Stock into a
number (or fraction) of shares of Series B TCI Group Common Stock, equal in
each case to 110% of the average daily ratio of the Market Value of a share of
Series A Telephony Group Common Stock to the Market Value of a share of Series
A TCI Group Common Stock over a specified period following such Disposition.
The provisions of the TCI Charter do not require the Board of Directors to
select the option which would result in the distribution with the highest value
to the holders of the Telephony Group Common Stock or with the smallest effect
on the TCI Group Common Stock. The TCI Charter does not require TCI to take
such actions upon sales or other dispositions of less than substantially all of
the properties and assets of the Telephony Group or upon two or more unrelated
sales or other dispositions which together constitute the sale of substantially
all of the properties and assets of the Telephony Group. In addition, although
the TCI Charter contains comparable provisions relating to a disposition of all
or substantially all of the properties and assets of the Liberty Media Group,
the TCI Charter does not contain comparable provisions relating to a
disposition of all or substantially all of the properties and assets of the TCI
Group. See "DESCRIPTION OF CAPITAL STOCK--COMMON STOCK--CONVERSION AND
REDEMPTION." The appropriate disposition of proceeds in the latter case would
be subject to determination by the Board of Directors in accordance with the
TCI Charter, approved allocation policies and in the exercise of its fiduciary
duties. See "--FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS ARE TO ALL
STOCKHOLDERS REGARDLESS OF CLASS OR SERIES."

Allocation of Proceeds of Mergers or Consolidations . The TCI Charter
does not contain any provisions governing how consideration to be received by
TCI's stockholders in connection with a merger or consolidation involving TCI
(in which the Common Stock is to be converted into other securities, cash or
other property) is to be allocated among holders of Telephony Group Common
Stock, TCI Group Common Stock and Liberty Media Group Common Stock. In any
such merger or consolidation, the allocation of consideration would be
determined by the Board of Directors. See "--LIMITED SEPARATE STOCKHOLDER
RIGHTS; EFFECTS ON VOTING POWER."

Allocation of Resources and Financial Support; Pursuit of Business
Opportunities or Operational Strategies. The Board of Directors could from
time to time allocate resources and financial support to or pursue business
opportunities or operational strategies through one Group instead of the other
Groups. The decision to allocate resources and financial support to one Group
may adversely affect the ability of the other Groups to obtain funds sufficient
to implement their business strategies. If the ResTel Business is transferred
to the Telephony Group, both the Telephony Group and the TCI Group would be
using the same hybrid fiber-coaxial plant ("HFC Plant") to provide services to
potentially the same customers. In such circumstances, it would be likely that
the Board of Directors will be presented with opportunities that are not
clearly either "telephony" services or "cable television" services within the
traditional meaning of such terms and which could be pursued through either the
Telephony Group or the TCI Group, or jointly through both Groups. In addition,
the Board will have to decide what amounts will be charged to the Telephony
Group and paid to the TCI Group for the use of such HFC Plant, whether as the
price for the Telephony Group's exercise of

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its right to acquire the ResTel Business or as an ongoing usage charge
following such acquisition. See "PROSPECTUS SUMMARY--RESIDENTIAL TELEPHONY."
See "MANAGEMENT AND ALLOCATION POLICIES."

Allocation of Proceeds Upon Issuance of Telephony Group Common Stock.
All of the net proceeds of the Offerings will be allocated to the Telephony
Group. To the extent of the TCI Group's Inter-Group Interest in the Telephony
Group at the time of any sale of shares of Telephony Group Common Stock
subsequent to the Offerings, the Board of Directors would determine the
allocation of the proceeds of such sale between the TCI Group and the Telephony
Group. In such case, the Board of Directors could allocate up to 100% of the
net proceeds of the sale of Telephony Group Common Stock to the TCI Group or to
the Telephony Group, and such net proceeds would be reflected entirely on the
combined financial statements of the Group to which such proceeds were
allocated. Any such allocation of net proceeds to the TCI Group would reduce
its Inter-Group Interest in the Telephony Group.

No Assurance of Payment of Dividends. TCI has never paid cash
dividends on its Common Stock. The Board of Directors does not currently
intend to pay cash dividends on the Telephony Group Common Stock, the TCI Group
Common Stock or the Liberty Media Group Common Stock. Any dividends on the
Telephony Group Common Stock which may be declared by the Board of Directors
will be payable out of the lesser of (i) the funds of TCI legally available for
such purpose, which are determined on the basis of the entire company, and (ii)
the Telephony Group Available Dividend Amount. Such dividends are further
subject to the prior payment of dividends on outstanding shares of any class or
series of capital stock of TCI with preferential dividend provisions. Any net
losses of TCI (without regard to whether such losses arose from any specific
Group), and any dividends or distributions on, or repurchases of the Telephony
Group Common Stock, the TCI Group Common Stock or the Liberty Media Group
Common Stock, and dividends on, and certain repurchases of, Preferred Stock,
will reduce the funds of TCI legally available for payment of dividends on the
Telephony Group Common Stock, the TCI Group Common Stock and the Liberty Media
Group Common Stock. Subject to the limitations of the DGCL and the TCI
Charter, the Board of Directors may declare and pay dividends on the Telephony
Group Common Stock, the TCI Group Common Stock and the Liberty Media Group
Common Stock in equal or unequal amounts, or may decide not to declare and pay
such dividends, notwithstanding the relationship between the Telephony Group
Available Dividend Amount, the TCI Group Available Dividend Amount and the
Liberty Media Group Available Dividend Amount, the respective amounts of prior
dividends paid on, or liquidation rights of, the Telephony Group Common Stock,
the TCI Group Common Stock or the Liberty Media Group Common Stock or any other
factor. See "DESCRIPTION OF CAPITAL STOCK--COMMON STOCK--DIVIDENDS" and
"DIVIDEND POLICY."

Operational and Financial Decisions. The Board of Directors could
from time to time make operational and financial decisions that affect the
Groups disproportionately, such as transfers of funds or assets among the
Groups, the allocation of funds for capital expenditures, the determination to
expand into new areas and the allocation of resources and personnel that may be
suitable for more than one Group. See "MANAGEMENT AND ALLOCATION POLICIES."
The decision to provide funds to one Group may adversely affect the ability of
the other Groups to obtain funds sufficient to implement their business
strategies. For further discussion of potential divergence of interests
arising from financial decisions, see "--TRANSFER OF FUNDS AMONG GROUPS; EQUITY
CONTRIBUTIONS FROM THE TCI GROUP."

FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS ARE TO ALL STOCKHOLDERS
REGARDLESS OF CLASS OR SERIES

Under Delaware law, the Board of Directors has a duty to act with due
care and in the best interests of all TCI's stockholders, including the holders
of Telephony Group Common Stock, TCI Group Common Stock and Liberty Media Group
Common Stock. The existence of the Telephony Group Common Stock, the TCI
Group Common Stock and the Liberty Media Group Common Stock may give rise to
occasions when the interests of the holders of one or more series of Common
Stock and the holders of the other series of Common Stock may diverge or appear
to diverge. See "--POTENTIAL DIVERGENCE OF INTERESTS; NO SPECIFIC PROCEDURES
FOR RESOLUTION." The Board of Directors will address and resolve any issues
involving material divergence of interests between the holders of the separate
series of Common Stock.

Although TCI is not aware of any precedent concerning the manner in
which principles of Delaware law would be applied in the context of a capital
structure involving multiple classes or series of capital stock the rights of
which include terms designed to reflect the separate performance of specified
businesses, principles of Delaware law provide that a board of directors must
act in accordance with its good faith business judgment of the corporation's
best interests, taking into consideration the interests of all stockholders
regardless of class or series. Under these principles of Delaware law and the
"business judgment rule," a good faith determination made by a disinterested
and adequately

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<PAGE> 41
informed Board of Directors with respect to any matter having a disparate
impact upon the holders of Telephony Group Common Stock, the holders of TCI
Group Common Stock and the holders of Liberty Media Group Common Stock would be
a defense to any challenge to such determination made by or on behalf of any of
such groups of holders. Nevertheless, a Delaware court hearing a case
involving such a challenge may decide to apply principles of Delaware law other
than those discussed above, or may fashion new principles of Delaware law, in
order to decide such a case, which would be a case of first impression. There
may arise circumstances involving a divergence of interests in which the Board
of Directors is held to have properly discharged its responsibilities to act
with due care and in the best interests of TCI and all of its stockholders, but
in which holders of the Telephony Group Common Stock, the TCI Group Common
Stock or the Liberty Media Group Common Stock consider themselves to be
disadvantaged relative to the other series. In such a case, such holders would
not have any other remedy under Delaware law with respect to the circumstances
giving rise to the divergence of interests.

Disproportionate ownership interests of members of the Board of
Directors in the Telephony Group Common Stock, the TCI Group Common Stock and
the Liberty Media Group Common Stock or disparate values of the Telephony Group
Common Stock, the TCI Group Common Stock and the Liberty Media Group Common
Stock could create or appear to create potential conflicts of interest when
directors are faced with decisions that could have different implications for
different series. See "--POTENTIAL DIVERGENCE OF INTERESTS; NO SPECIFIC
PROCEDURES FOR RESOLUTION." Nevertheless, TCI believes that a director would
be able to discharge his or her fiduciary responsibilities even if his or her
interests in shares of Telephony Group Common Stock, TCI Group Common Stock and
Liberty Media Group Common Stock were disproportionate or had disparate values.

TRANSFER OF FUNDS AMONG GROUPS; EQUITY CONTRIBUTIONS FROM THE TCI GROUP

All debt incurred or preferred stock issued by TCI and its
subsidiaries following the issuance and sale by TCI of Telephony Group Common
Stock in the Offerings will be (unless the Board of Directors otherwise
provides) specifically attributed to and reflected on the combined financial
statements of the Group that includes the entity which incurred the debt or
issued the preferred stock or, in case the entity incurring the debt or issuing
the preferred stock is Tele-Communications, Inc., the TCI Group. The Board of
Directors could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be specifically
attributed to and reflected on the combined financial statements of one of the
other Groups to the extent that the debt is incurred or the preferred stock is
issued for the benefit of such other Group.

Generally, the Telephony Group is expected to require additional
advances from the TCI Group for some period of time. TCI has agreed to provide
the Revolving Credit Facility to TCI Telephony for a period commencing December
1, 1996 and ending December 31, 2001. Such facility would permit aggregate
borrowings at any one time outstanding of up to $500 million (subject to
reduction or increase as provided below), which borrowings would bear interest
at a rate per annum equal to The Bank of New York's prime rate (as in effect
from time to time) plus 1% per annum, payable quarterly. A commitment fee
equal to 3/8% per annum of the average unborrowed availability under the
Revolving Credit Facility will be payable by the Telephony Group to the TCI
Group on a quarterly basis. The maximum amount of borrowings permitted under
the Revolving Credit Facility will be reduced on a dollar-for-dollar basis (i)
by the amount of the first $300 million of net proceeds of any external debt or
equity financings attributed to the Telephony Group (including the net proceeds
of the Offerings) resulting in the reduction of the maximum amount

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<PAGE> 42
of such borrowings under the Revolving Credit Facility to an amount not less
than $200 million and (ii) below $200 million, if (but only to the extent that)
the net proceeds of any such external financings attributed to the Telephony
Group which are completed on or prior to December 1, 1998 exceed $600 million
(including the first $300 million of such proceeds referred to above). The
maximum amount of the borrowings permitted under the Revolving Credit Facility
will be increased on a dollar-for-dollar basis by the dollar amount of any
borrowings thereunder, the proceeds of which are used by the Telephony Group to
pay a portion of the exercise price for the purchase of all or part of the
ResTel Business from the TCI Group.

Except as described above with respect to the Revolving Credit
Facility, loans from one Group to another Group would bear interest at such
rates and have such repayment schedules and other terms as are established from
time to time by, or pursuant to procedures established by, the Board of
Directors. The Board of Directors expects to make such determinations, either
in specific instances or by setting generally applicable policies from time to
time, after consideration of such factors as it deems relevant, including,
without limitation, the needs of TCI, the use of proceeds by and
creditworthiness of the recipient Group, the capital expenditure plans and
investment opportunities available to each Group and the availability, cost and
time associated with alternative financing sources.

Although any increase in the TCI Group's Inter-Group Interest in the
Telephony Group resulting from an equity contribution by the TCI Group to the
Telephony Group or any decrease in such Inter-Group Interest resulting from a
transfer of funds from the Telephony Group to the TCI Group would be determined
by reference to the Market Value of the Series A Telephony Group Common Stock
as of the date of such transfer, such an increase could occur at a time when
such shares could be considered undervalued and such a decrease could occur at
a time when such shares could be considered overvalued.

MANAGEMENT AND ALLOCATION POLICIES SUBJECT TO CHANGE

The Board of Directors has adopted certain management and allocation
policies described herein with respect to cash management, corporate expenses
and inter-Group transactions, any and all of which could be modified or
rescinded by the Board of Directors, in its sole discretion, without the
approval of stockholders, although there is no present intention to do so. The
Board of Directors could also adopt additional policies depending upon the
circumstances. Any determination to modify or rescind such policies, or to
adopt additional policies, including any such decision that could have
disparate effects upon holders of Telephony Group Common Stock, TCI Group
Common Stock or Liberty Media Group Common Stock, would be made by the Board of
Directors as set forth under "--FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS ARE
TO ALL STOCKHOLDERS REGARDLESS OF CLASS OR SERIES." See "MANAGEMENT AND
ALLOCATION POLICIES."

ADDITIONAL RESPONSIBILITIES OF MANAGEMENT

Gerald Gaines and Robert Davenport, the President and Vice President,
Finance and Development, respectively, of TCI Telephony have responsibilities
relating to TCI's investments in the Telephony Business in addition to those
investments that have been attributed to the Telephony Group, including
responsibilities relating to the development and management of the ResTel
Business. There can be no assurance that such additional responsibilities will
not interfere with the ability of such persons to properly manage the conduct
of the business and affairs of the Telephony Group.

NO ASSURANCE AS TO MARKET PRICE

Prior to the Offerings, there has been no public market for shares of
the Series A Telephony Group Common Stock. Although the Shares have been
approved for quotation on the Nasdaq National Market in the United States,
there can be no assurance that an active trading market will develop or, if one
does develop, that it will be maintained. The initial offering price of the
Series A Telephony Group Common Stock offered hereby will be established by
negotiation between TCI and the representatives of the Underwriters. See
"UNDERWRITING." Factors such as fluctuation in the operating results,
business, financial condition or results of operations of the entities in which
the Telephony Group has interests (or other matters which affect the actual or
perceived value of such entities), announcements of technological innovations
or events affecting others in the telecommunications business, changes in
governmental regulations, developments in the Telephony Group's relationships
with its current or future strategic and financial partners and general market
conditions may have a significant effect on the market price of the Series A
Telephony Group Common Stock.

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The market prices of the Telephony Group Common Stock would be
determined in the trading markets and could be influenced by many factors,
including the combined results of the Telephony Group and the consolidated
results of TCI, Sprint PCS and Teleport (as well as other entities in which TCI
Telephony may have investments), as well as the performance of the Telephony
Group, Sprint PCS and Teleport (or such other entities) relative to investors'
expectations, trading volumes, regulatory environment and general economic and
market conditions. There can be no assurance as to the extent to which
investors would assign values to the Telephony Group Common Stock based on the
reported financial results or other measures of performance or prospects of the
Telephony Group, Sprint PCS and Teleport. Financial effects of the Groups that
affect TCI's consolidated results of operations or financial condition could
affect the market prices of the Telephony Group Common Stock, the TCI Group
Common Stock and the Liberty Media Group Common Stock. In addition, TCI cannot
predict the impact on the market price of the Telephony Group Common Stock of
certain terms of such securities, such as basing the consideration to be paid
if all or substantially all of the properties and assets of the Telephony Group
are sold in a Disposition on the Net Proceeds of such Disposition, the ability
of TCI to convert shares of Telephony Group Common Stock into TCI Group Common
Stock at a conversion ratio based on an appraised value determination for the
Telephony Group Common Stock and a trading market valuation for the TCI Group
Common Stock or the discretion of the Board of Directors to make various other
determinations with respect to the Groups and the separate series of Common
Stock. There is no assurance that the Series A Telephony Group Common Stock
will be included in any stock market index in which the Series A TCI Group
Common Stock is now included, or that the Series A TCI Group Common Stock will
continue to be included in such index. Not being included in an index could
adversely affect demand for the Telephony Group Common Stock or the TCI Group
Common Stock and, consequently, the market price thereof.

DISPROPORTIONATE VOTING RIGHTS

In the event that TCI were to issue the ___ million shares of
Telephony Group Common Stock representing the Inter-Group Interest of the TCI
Group in the Telephony Group (including the [75 million] authorized shares of
Series B Telephony Group Common Stock), whether by way of distribution to its
stockholders, in a public offering, to a third party or otherwise, such shares
would represent approximately __% of the total number of shares of Telephony
Group Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment options in the Offerings). Since the Series B Telephony Group
Common Stock is entitled to ten votes per share, while the Series A Telephony
Group Common Stock is only entitled to one vote per share, if the shares
representing such initial Inter-Group Interest were issued as Series B
Telephony Group Common Stock (to the extent of the amount of such series
authorized) and otherwise as shares of Series A Telephony Group Common Stock,
such shares would represent approximately __% of the voting power of shares of
Telephony Group Common Stock that would be outstanding in such event. Although
the Telephony Group Common Stock generally votes together as a single class
with the other series of Common Stock, and in any event the voting power of the
outstanding shares of Telephony Group Common Stock are likely to represent a
minority of the voting power of the outstanding shares of Common Stock, the
holder(s) of such shares of Telephony Group Common Stock issued in respect of
the Inter-Group Interest would be able to control the outcome of the vote of
any matter presented to a vote of the holders of the Telephony Group Common
Stock, voting separately as a series, without regard to the votes of the
holders of shares of Series A Telephony Group Common Stock issued in the
Offering.

POTENTIAL CONVERSION OF TELEPHONY GROUP COMMON STOCK

Solely at TCI's option, all of the outstanding shares of Telephony
Group Common Stock may be converted into TCI Group Common Stock upon the terms
described under "DESCRIPTION OF CAPITAL STOCK--COMMON STOCK--CONVERSION AND
REDEMPTION." TCI cannot predict the impact on the market prices of the
Telephony Group Common Stock or the TCI Group Common Stock of its ability to
effect any such conversion or the effect, if any, that the exercise by TCI of
this conversion right would have on the market price of the Telephony Group
Common Stock or the TCI Group Common Stock prevailing at such time. See
"--POTENTIAL DIVERGENCE OF INTERESTS; NO SPECIFIC PROCEDURES FOR
RESOLUTION--Optional Conversion of Telephony Group Common Stock into TCI Group
Common Stock."

POTENTIAL EFFECTS OF POSSIBLE DISPOSITION OF ASSETS OF THE TELEPHONY
GROUP

The terms of the Telephony Group Common Stock provide that if TCI were
to dispose of all or substantially all of the properties and assets of the
Telephony Group, other than in a transaction in which TCI receives primarily
equity securities of an entity engaged or proposing to engage primarily in a
similar or complementary business and other than in connection with the
disposition of all or substantially all of the assets of TCI, TCI would be
required, at its option, either to (i) distribute to holders of Telephony Group
Common Stock an amount equal to their proportionate

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interest in the Net Proceeds of such Disposition, either by special dividend or
by redemption of all or part of the outstanding shares of Telephony Group
Common Stock, or (ii) convert outstanding shares of Telephony Group Common
Stock into shares of the corresponding series of TCI Group Common Stock at a
conversion ratio based on 110% of the average daily ratio of the Market Value
of a share of Series A Telephony Group Common Stock to the Market Value of a
share of Series A TCI Group Common Stock over a specified period following such
Disposition. "Net Proceeds" means the proceeds of such Disposition after
payment of or provision for certain specified costs, including taxes to be paid
by TCI in respect of the Disposition or such dividend or redemption,
transaction costs and liabilities and other obligations (contingent or
otherwise, including obligations in respect of Preferred Stock) attributed to
the Telephony Group. If the Telephony Group were a separate independent
company and its shares were acquired by another person, certain of those costs,
including corporate and shareholder level taxes, might not be payable in
connection with such an acquisition. As a result, the consideration that would
be received by stockholders of such a separate independent company in
connection with such a stock acquisition might be greater than the Net Proceeds
that would be received by holders of Telephony Group Common Stock if all or
substantially all of the properties and assets of the Telephony Group were
sold. In addition, no assurance can be given that the Net Proceeds per share
of Telephony Group Common Stock to be received in connection with a Disposition
of all or substantially all of the properties and assets of the Telephony Group
will be equal to or more than the market value per share of Telephony Group
Common Stock prior to or after announcement of such Disposition. See
"--POTENTIAL CONVERSION OF TELEPHONY GROUP COMMON STOCK" and "--NO ASSURANCE AS
TO MARKET PRICE" above and "DESCRIPTION OF CAPITAL STOCK--COMMON
STOCK--CONVERSION AND REDEMPTION."

POSSIBLE FUTURE DILUTION FROM CERTAIN STOCK OPTIONS

Certain executive officers of TCIC have been granted options
aggregating to 2% of the common stockholders' equity value attributable to the
Telephony Group, which options converted into options to purchase an aggregate
of ___ shares of Series A Telephony Group Common Stock upon effectiveness of
the Telephony Group Amendment. The exercise of such options would result in an
increase in the number of outstanding shares of Telephony Group Common Stock
and, thus, result in dilution to holders of shares of Series A Telephony Group
Common Stock. See "MANAGEMENT--COMMON STOCK--CERTAIN STOCK OPTIONS."

LIMITATIONS ON POTENTIAL ACQUISITION OF A GROUP

If each Group were a separate publicly held corporation, any person
interested in acquiring such corporation without negotiation with management
could seek control of the outstanding stock of such corporation by means of a
tender offer or proxy contest. Although Telephony Group Common Stock is
designed to reflect the separate performance of the Telephony Group, a person
interested in acquiring only the Telephony Group without negotiation with TCI's
management would still be required to seek control of the voting power
represented by all of the outstanding capital stock of TCI, including the
Telephony Group Common Stock, the TCI Group Common Stock and the Liberty Media
Group Common Stock. See "DESCRIPTION OF CAPITAL STOCK--COMMON STOCK--VOTING
RIGHTS."

ABSENCE OF APPROVAL RIGHTS WITH RESPECT TO FUTURE ISSUANCES OF
AUTHORIZED SHARES

The authorized but unissued shares of capital stock would be available
for issuance from time to time by TCI at the sole discretion of the Board of
Directors for any proper corporate purpose. Such issuances could include
shares of Telephony Group Common Stock, as well as the issuance of such shares
upon the conversion or exercise of securities of TCI that are convertible into
or exercisable or exchangeable for such shares. The approval of the
stockholders of TCI will not be sought by TCI for the issuance of authorized
but unissued shares of Telephony Group Common Stock (or the reissuance of
previously issued shares that have been reacquired by TCI) or securities of TCI
that are convertible into or exercisable or exchangeable for such shares,
unless deemed advisable by the Board of Directors or required by applicable
law, regulation or Nasdaq National Market requirements.

ANTI-TAKEOVER CONSIDERATIONS

The DGCL, the TCI Charter and TCI's Bylaws contain provisions which
may serve to discourage or make more difficult a change in control of TCI
without the support of the Board of Directors or without meeting various other
conditions. TCI is subject to Section 203 of the DGCL, which, in general,
prohibits a "business combination" between a corporation and an "interested
stockholder" unless certain conditions are met. The TCI Charter and Bylaw
provisions which may discourage or make more difficult a change in control of
TCI include the requirement of a supermajority

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vote to approve specified actions, the authorization of TCI's Board of
Directors to issue additional shares of Series Preferred Stock in one or more
series and to fix and state the designations, powers, preferences,
qualifications, limitations, restrictions and relative rights of the shares of
each such series without further action by TCI's stockholders, certain
procedures required in connection with the nomination of directors of TCI and
the other provisions described under "DESCRIPTION OF CAPITAL
STOCK--ANTI-TAKEOVER CONSIDERATIONS." In addition, the existence of the
Telephony Group Common Stock will present complexities and could in certain
circumstances pose obstacles, financial and otherwise, to an acquiring person.
For example, a potential acquiror would have to take into consideration that
holders of different series of Common Stock might be more or less receptive to
the acquiror's proposal, that a tender offer would have to be structured so as
to take into account different prices at which shares of the different series
might be acquired, that a merger would require allocation of consideration
among the different series of Common Stock and the effects of actions TCI might
take such as causing a conversion of the Telephony Group Common Stock. The
provisions of the DGCL, the TCI Charter and TCI's Bylaws and the existence of
the Telephony Group Common Stock could, under certain circumstances, prevent
stockholders from profiting from an increase in the market value of their
shares as a result of a change in control of TCI by delaying or preventing such
change in control. See "DESCRIPTION OF CAPITAL STOCK--ANTI-TAKEOVER
CONSIDERATIONS."

USE OF PROCEEDS

The net proceeds of the Offerings to the Telephony Group, prior to the
deduction of expenses, are estimated to be approximately $____ million (or
approximately $____ million if the Underwriters' over-allotment options are
exercised in full). All of the net proceeds of the Offerings will be reflected
on the combined financial statements of the Telephony Group and will be used to
fund a portion of the Telephony Group's anticipated capital requirements,
principally to fund its share of the capital contributions it anticipates will
be required by the PCS Ventures through 1998, and for general corporate
purposes. TCI Telephony estimates that its share of the aggregate funding
requirements of its wireless and wireline telephony investments (including the
PCS Ventures) will be approximately $370 million for 1997 and $70 million for
1998. See "RISK FACTORS--SUBSTANTIAL CAPITAL REQUIREMENTS OF THE TELEPHONY
GROUP" and "Telephony Group Management's Discussion and Analysis of Financial
Condition and Results of Operations, Years ended December 31, 1995 and 1994 and
1993--Liquidity and Capital Resources" included elsewhere in this Prospectus.

43
<PAGE> 46
CAPITALIZATION OF TCI

The following table sets forth the unaudited consolidated
capitalization of TCI as of September 30, 1996 (i) as reported, (ii) as
adjusted to give pro forma effect to the SatCo Spin-Off as if such transaction
had occurred as of September 30, 1996, and (iii) as further adjusted to reflect
the Offerings. The following should be read in conjunction with TCI's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------
As
As Reported Pro Forma Adjusted
----------- -------------- ---------
(in millions)
<S> <C> <C> <C>
Debt $ 15,118 $ 15,118 $ 15,118

Minority interests in equity of
consolidated subsidiaries 1,585 1,585 1,585

Redeemable preferred stock 654 654 654

Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
subordinated debt securities of TCIC 1,000 1,000 1,000

Stockholders' equity:
Series A TCI Group Common Stock 685 685 685
Series B TCI Group Common Stock 85 85 85
Series A Liberty Media Group Common
Stock 146 146 146
Series B Liberty Media Group Common
Stock 21 21 21
Series A Telephony Group Common Stock -- --
Series B Telephony Group Common Stock -- -- --
Additional paid-in capital 4,308 3,851
Cumulative foreign currency
transaction adjustment (12) (12) (12)
Unrealized holding gains for
available-for-sale securities, net
of taxes 335 335 335
Accumulated deficit (892) (892) (892)
Treasury stock (314) (314) (314)
----------- -------------- ---------

Total stockholders' equity 4,362 3,905
----------- -------------- ---------

Total capitalization $ 22,719 $ 22,262 $
=========== ============== =========
</TABLE>

44
<PAGE> 47
CAPITALIZATION OF TELEPHONY GROUP

The following table sets forth the unaudited combined capitalization of
the Telephony Group at September 30, 1996, (i) as reported and (ii) as adjusted
to reflect the Offerings and the conversion of a portion of TCI Group's
interest in the Telephony Group into a redeemable preferred stock due from the
Telephony Group. The following should be read in conjunction with the
Telephony Group's combined financial statements and the notes thereto and with
TCI's consolidated financial statements and the notes thereto located elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
September 30, 1996
------------------------------
As Reported As Adjusted
----------- --------------
(in thousands)
<S> <C> <C>
Revolving Credit Facility (1) $ -- $ --
Redeemable preferred stock -- 500,000 (2)
Combined equity 1,098,294 (2)(3)(4)
----------- --------------
Total capitalization $ 1,098,294 $
=========== ==============
</TABLE>
- ---------------

(1) TCI has agreed to provide the Revolving Credit Facility to TCI Telephony
for a period commencing December 1, 1996 and ending December 31, 2001.
Such facility would permit borrowings at any one time outstanding of up
to $500 million (subject to reduction or increase as described below),
which borrowings would bear interest at a rate per annum equal to The
Bank of New York's prime rate (as in effect from time to time) plus 1%
per annum, payable quarterly. A commitment fee equal to 3/8% per annum
of the average unborrowed availability under the Revolving Credit
Facility will be payable by the Telephony Group to the TCI Group on a
quarterly basis. The maximum amount of borrowings permitted under the
Revolving Credit Facility will be reduced on a dollar-for-dollar basis
(i) by the amount of the first $300 million of net proceeds of any
external debt or equity financings attributed to the Telephony Group
(including the Offerings) resulting in the reduction of the maximum
amount of such borrowings under the Revolving Credit Facility to an
amount not less than $200 million and (ii) below $200 million, if (but
only to the extent that) the net proceeds of any such external
financings attributed to the Telephony Group which are completed on or
prior to December 1, 1998 exceed $600 million (including the first $300
million of such proceeds referred to above). The maximum amount of the
borrowings permitted under the Revolving Credit Facility will be
increased on a dollar-for-dollar basis by the dollar amount of any
borrowings thereunder, the proceeds of which are used by the Telephony
Group to pay a portion of the exercise price for the purchase of all or
part of the ResTel Business from the TCI Group.

(2) On December 1, 1996, the TCI Group converted $500 million of its
interest in the Telephony Group into the Telephony Preferred Stock.
Such preferred stock is mandatorily redeemable by TCI Telephony on
December 1, 2011.

(3) The TCI Group has a contractual right to use up to $500 million of tax
benefits generated by the Telephony Group without charge from the
Telephony Group. Such right can be satisfied only through and to the
extent of future income tax benefits generated by the Telephony Group.
See "MANAGEMENT AND ALLOCATION POLICIES".

(4) Reflects the net proceeds to the Telephony Group from the Offerings of
shares of Series A Telephony Group Common Stock.

45
<PAGE> 48
DIVIDEND POLICY

TCI has never paid dividends on its Common Stock. The Board of
Directors does not currently intend to pay dividends on the Telephony Group
Common Stock, the TCI Group Common Stock or the Liberty Media Group Common
Stock. However, the Board of Directors reserves the right to pay such
dividends at any time and from time to time out of funds legally available
therefor.

Any decision to pay dividends in the future will depend on the
financial condition, results of operations and business requirements of TCI as
a whole. Any future dividends on the Telephony Group Common Stock, the TCI
Group Common Stock and the Liberty Media Group Common Stock would be paid on
such basis as the Board of Directors determines, subject to the provisions
described under "DESCRIPTION OF CAPITAL STOCK--COMMON STOCK--DIVIDENDS." In
making its determination, the Board of Directors expects to follow a policy
under which it will consider, among other factors, the relative financial
condition, results of operations and business requirements of the respective
Groups and of TCI as a whole. See the consolidated financial information of
TCI, including the notes thereto, and the combined financial information of the
Telephony Group, including the notes thereto, appearing elsewhere in this
Prospectus.

For information concerning dividends on the Telephony Group Common
Stock, the TCI Group Common Stock and the Liberty Media Group Common Stock, see
"DESCRIPTION OF CAPITAL STOCK--COMMON STOCK--DIVIDENDS."

INTER-GROUP INTEREST IN THE TELEPHONY GROUP

In connection with the Offerings, the Board of Directors has designated
______ shares of Telephony Group Common Stock as the number of shares of
Telephony Group Common Stock that, if issued, would represent 100% of the
common stockholders' equity value of TCI that is attributable to the Telephony
Group prior to the Offerings, all of which is presently attributed to the TCI
Group. Such number of shares is the initial Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest, which is intended to
provide a measure of the Inter-Group Interest of the TCI Group in the Telephony
Group on a basis comparable to an investment in shares of Telephony Group
Common Stock. The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest is not represented by outstanding shares of
Telephony Group Common Stock and has no voting rights. Authorized but unissued
shares of Telephony Group Common Stock may be issued for the account of the TCI
Group, thereby reducing the Number of Shares Issuable with Respect to the
Telephony Group. In addition, a number of shares of Telephony Group Common
Stock equal to the number of Available Shares (or the number of authorized but
unissued shares of Telephony Group Common Stock in excess of the Number of
Shares Issuable with Respect to the Telephony Group Inter-Group Interest and
any outstanding shares of Telephony Group Common Stock) as of any relevant time
are available for issuance as additional equity for the Telephony Group.

The Shares sold in the Offerings will not include any shares attributed
to the Inter-Group Interest. The ___ million shares of Series A Telephony
Group Common Stock to be issued in the Offerings (___ million if the
Underwriters' over-allotment options are exercised in full) will be issued from
the Available Shares for the account of the Telephony Group. As a result,
immediately after the Offerings, the Telephony Group Outstanding Interest
Fraction will equal __% (or __% if the Underwriters' over-allotment options are
exercised in full) and the Telephony Group Inter-Group Interest Fraction will
equal __% (or __% if the Underwriters' over-allotment options are exercised in
full). The sum of the Telephony Group Outstanding Interest Fraction and the
Telephony Group Inter-Group Interest Fraction will always equal 100%.

At the time of any additional issuance of the Telephony Group Common
Stock, TCI will identify the number of shares issued for the account of the TCI
Group, if any, through a reduction in the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest, the net proceeds from
which will be allocated to the TCI Group, and the number of shares issued from
the Available Shares for the account of the Telephony Group, if any, the net

46
<PAGE> 49
proceeds of which will be allocated to the Telephony Group. Any shares issued
for the account of the TCI Group in reduction of the Number of Shares Issuable
with Respect to the Inter-Group Interest will not reduce the number of
Available Shares, and any shares issued from the Available Shares for the
account of the Telephony Group will not reduce the Number of Shares Issuable
with Respect to the Inter-Group Interest. For illustrations of the effects of
the issuance of shares of Telephony Group Common Stock, see Annex
C--Illustration of Certain Terms. The Board of Directors expects to make such
determination, in its sole discretion, after consideration of such factors as
it deems relevant, including, without limitation, the needs of TCI and the
Telephony Group, the relative levels of internally generated cash flow of the
Groups, the capital expenditure plans of and investment opportunities available
to the Groups, the long-term business prospects for the Groups and the
availability, cost and time associated with alternative financing sources. See
"RISK FACTORS--CONSIDERATIONS RELATING TO THE TELEPHONY GROUP COMMON STOCK--
FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS ARE TO ALL STOCKHOLDERS REGARDLESS
OF CLASS OR SERIES." In the discretion of the Board of Directors, shares of
Telephony Group Common Stock issued in respect of the TCI Group's Inter-Group
Interest in the Telephony Group may be issued in the form of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock (subject
to there being a sufficient number of authorized and unissued shares of the
applicable series of Telephony Group Common Stock).

TCI may from time to time, by action of the Board (i) offer shares of
Telephony Group Common Stock for cash in one or more public offerings, (ii)
issue shares of Telephony Group Common Stock as consideration for acquisitions
or investments, (iii) issue shares of Telephony Group Common Stock to employees
of TCI pursuant to employee benefit plans or otherwise as compensation, or (iv)
issue shares of Telephony Group Common Stock for any other proper corporate
purpose. So long as sufficient authorized shares are available, the timing,
sequence, size and terms of such transactions would be determined by the Board
of Directors, without further approval of the stockholders, unless deemed
advisable by the Board of Directors or required by applicable law, regulation
or Nasdaq National Market requirements. Shares may be issued from the
Available Shares at any time at prices that could dilute the value of the
outstanding shares of Telephony Group Stock, see Annex C--Illustration of
Certain Terms.

Following the filing of the Telephony Group Amendment, the investments
attributed to the Telephony Group ceased to be included in the TCI Group;
however, for all periods prior to the issuance of the Shares, the TCI Group
Common Stock is intended to reflect all of the common stockholders' equity
value of TCI attributed to the Telephony Group -- i.e., the Inter-Group
Interest of the TCI Group in the Telephony Group will be 100% -- in addition to
the separate performance of all businesses of TCI not included in the Liberty
Media Group or the Telephony Group. For periods following the issuance of the
Shares, TCI's equity in the share of losses of the entities in which the
investments attributed to the Telephony Group are held will be reflected in the
separate combined financial statements of the Telephony Group and will cease to
be reflected in the combined financial statements of the TCI Group, except to
the extent of the then Inter-Group Interest, as adjusted to reflect such
issuance, and as appropriate in accordance with generally accepted accounting
principles.

The TCI Group's Inter-Group Interest in the Telephony Group would be
increased if a subsequent transfer of cash or other property from the TCI Group
to the Telephony Group is specifically designated by the Board of Directors as
being made to increase such Inter-Group Interest (in contrast to transfers made
for other consideration such as transfers as loans or in purchase and sale
transactions) or if outstanding shares of Telephony Group Common Stock are
retired or otherwise cease to be outstanding following their purchase with
funds attributed to the TCI Group. Pursuant to the TCI Charter, the Telephony
Group is not permitted to create an interest in either the TCI Group or the
Liberty Media Group corresponding to the Inter-Group Interest, and the Liberty
Media Group is not permitted to create an interest in the Telephony Group or
the TCI Group corresponding to the Inter-Group Interest.

In general, if the TCI Group's Inter-Group Interest in the Telephony
Group is increased by a transfer of funds or other assets from the TCI Group to
the Telephony Group, the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest would be increased by an amount determined
by dividing the amount of funds or value of the assets transferred by the
Market Value of a share of Series A Telephony Group Common Stock as of the date
of such transfer. Any decrease in the Number of Shares Issuable with Respect
to the Telephony Group Inter-Group

47
<PAGE> 50
Interest resulting from a transfer of funds or other assets from the Telephony
Group to the TCI Group determined by the Board of Directors to be made in
respect of such a decrease would be similarly calculated. To the extent
outstanding shares of Telephony Group Common Stock are retired or otherwise
cease to be outstanding following their purchase with funds attributed to the
TCI Group, the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest would increase on a share-for-share basis. Shares of
Telephony Group Common Stock purchased with funds attributed to the TCI Group
which remain outstanding (as a result of being held by a subsidiary included in
the TCI Group) would not increase its Inter-Group Interest in the Telephony
Group but would represent an outstanding interest in the common stockholders'
equity value of TCI attributable to the Telephony Group. Similarly, shares of
Telephony Group Common Stock purchased with funds attributed to the Liberty
Media Group which remain outstanding would not create an interest in the
Telephony Group corresponding to the Inter-Group Interest, but would represent
an outstanding interest in the common stockholders' equity value of TCI
attributable to the Telephony Group. The Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest will also (a) be adjusted
from time to time as appropriate to reflect (i) subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of the
Telephony Group Common Stock, (ii) dividends or distributions payable in shares
of Telephony Group Common Stock to holders of Telephony Group Common Stock and
(iii) reclassifications of Telephony Group Common Stock and (b) be decreased by
the number of shares of Telephony Group Common Stock (i) issued upon conversion
or exercise of Convertible Securities that are not attributed to the Telephony
Group or (ii) issued by TCI as a dividend or distribution or by
reclassification or exchange to holders of TCI Group Common Stock.

The "Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest" means the number of shares of Telephony Group Common
Stock that could be issued or sold by TCI for the account of the TCI Group in
respect of its Inter-Group Interest in the Telephony Group. The "Telephony
Group Outstanding Interest Fraction" means the percentage interest in the
common stockholders' equity value of TCI attributable to the Telephony Group
that is represented at any time by the outstanding shares of Telephony Group
Common Stock, and the "Telephony Group Inter-Group Interest Fraction" means any
remaining percentage interest in the common stockholders' equity value of TCI
attributable to the Telephony Group that is attributed to the TCI Group and is
represented by the Inter-Group Interest. The sum of the Telephony Group
Outstanding Interest Fraction and the Telephony Group Inter-Group Interest
Fraction would always equal 100%. The full definitions of "Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest," "Telephony
Group Outstanding Interest Fraction" and "Telephony Group Inter-Group Interest
Fraction" are set forth in "DESCRIPTION OF CAPITAL STOCK."

The Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest is not represented by outstanding shares of Telephony
Group Common Stock and, therefore, would not be entitled to any voting rights.
In addition, outstanding shares of Telephony Group Common Stock that are held
by majority-owned subsidiaries of TCI (as to which TCI owns a majority of the
shares entitled to vote in the election of directors) would not, in accordance
with the DGCL, be entitled to vote on matters presented to stockholders or be
counted for quorum purposes. Accordingly, TCI does not have any voting rights
with respect to any Inter-Group Interest in the Telephony Group, and the
outcome of any vote of the Telephony Group Common Stock would be determined by
the holders of the outstanding shares of Telephony Group Common Stock
(excluding any shares held by such majority-owned subsidiaries of TCI).

For financial reporting purposes, shares of Telephony Group Common
Stock acquired by consolidated subsidiaries of TCI included in the TCI Group
which remain outstanding following such acquisition would be combined with the
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest and reported as the TCI Group's investment in the Telephony Group.
Any differences between such reported investment and the TCI Group's
Inter-Group Interest in the Telephony Group would be reconcilable by adding to
such Inter-Group Interest the number of outstanding shares of Telephony Group
Common Stock held by consolidated subsidiaries of TCI. Because these shares
would still be outstanding for purposes of the receipt of dividends and payment
of redemption or liquidation amounts, the TCI Group would obtain substantially
the same economic benefits from such outstanding shares as it would have
received had such shares been retired or otherwise ceased to be outstanding
following their purchase and added to the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest.

48
<PAGE> 51
Whenever additional shares of Telephony Group Common Stock are issued
or sold by TCI for the account of the TCI Group in respect of a reduction in
its Inter-Group Interest in the Telephony Group, the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest would decrease on a
share-for-share basis and the Telephony Group Inter-Group Interest Fraction
would decrease and the Telephony Group Outstanding Interest Fraction would
increase accordingly. If the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest is reduced to zero as a result of any
combination of one or more of such issuances or sales, shares of Telephony
Group Common Stock could no longer be issued or sold by TCI for the account of
the TCI Group unless a further Inter-Group Interest in the Telephony Group is
subsequently created. If the net proceeds of any issuance or sale by TCI of
Telephony Group Common Stock are allocated to the Telephony Group, the Number
of Shares Issuable with Respect to the Telephony Group Inter-Group Interest
would not be reduced, but the Telephony Group Inter-Group Interest Fraction
would decrease and the Telephony Group Outstanding Interest Fraction would
increase accordingly.

If the Board of Directors determines to issue or deliver shares of
Telephony Group Common Stock as a distribution on the TCI Group Common Stock,
such distribution would be treated as a distribution of shares issuable with
respect to the TCI Group's Inter-Group Interest in the Telephony Group, and as
a result, the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest would decrease by the number of shares distributed to the
holders of TCI Group Common Stock, resulting in a proportionate decrease in the
Telephony Group Inter-Group Interest Fraction and increase in the Telephony
Group Outstanding Interest Fraction.

If shares of Telephony Group Common Stock are retired or otherwise
cease to be outstanding following their purchase with funds attributed to the
TCI Group, the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest would increase on a share-for-share basis and the
Telephony Group Inter-Group Interest Fraction would increase and the Telephony
Group Outstanding Interest Fraction would decrease accordingly. If the
purchase of shares of Telephony Group Common Stock were made with funds
attributed to the Telephony Group, the Number of Shares Issuable with Respect
to the Telephony Group Inter-Group Interest would not be increased, but the
Telephony Group Inter-Group Interest Fraction would increase and the Telephony
Group Outstanding Interest Fraction would decrease accordingly. The Board of
Directors will, in its sole discretion, determine whether purchases of
Telephony Group Common Stock should be made with consideration attributed to
the TCI Group or the Telephony Group, by considering such factors as it deems
relevant, including, without limitation, the needs of TCI, the relative levels
of internally generated cash flow of the Groups, the capital expenditure plans
of the Groups, the investment opportunities available to the Groups, the
long-term business prospects for the Groups and the availability, cost and time
associated with alternative financing sources.

The Board of Directors could, in its sole discretion, determine from
time to time to have TCI contribute cash or other property of the TCI Group as
additional equity to the Telephony Group, which would increase the Number of
Shares Issuable with Respect to the Telephony Group Inter-Group Interest by the
number determined by dividing the amount of such cash or the fair value (as
determined by the Board of Directors) of such property by the Market Value of
one share of Series A Telephony Group Common Stock as of the date of such
contribution. In such event, the Telephony Group Inter-Group Interest Fraction
will increase and the Telephony Group Outstanding Interest Fraction will
decrease accordingly. The Board of Directors could, in its sole discretion,
also determine from time to time to transfer cash or other property of the
Telephony Group from the Telephony Group to the TCI Group in respect of a
reduction in its Inter-Group Interest in the Telephony Group, in which case the
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest would be decreased by the number determined by dividing the amount of
such cash or the fair value (as determined by the Board of Directors) of such
property by the Market Value of one share of Series A Telephony Group Common
Stock as of the date of such contribution. In such event, the Telephony Group
Inter-Group Interest Fraction would decrease and the Telephony Group
Outstanding Interest Fraction would increase accordingly. The Board of
Directors could, in its sole discretion, determine to make contributions or
other transfers referred to in this paragraph after consideration of such
factors as it deems relevant, including, without limitation, the needs of TCI,
the financing needs and objectives of the Groups, the investment objectives of
the Groups, the availability, cost and time associated with alternative
financing sources, prevailing interest rates and general economic conditions.

49
<PAGE> 52
In the event of any dividend or other distribution paid or distributed
in respect of the outstanding shares of Telephony Group Common Stock (other
than in shares of Telephony Group Common Stock, which will result in an
adjustment to the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest as described above), the TCI Group will be credited, and
the Telephony Group will be charged (in addition to the charge for such
dividend or other distribution paid upon outstanding shares), with an amount
equal to the product of (i) the aggregate amount of any dividend or other
distribution paid or distributed in respect of outstanding shares of Telephony
Group Common Stock (including any dividend of Net Proceeds from the Disposition
of all or substantially all of the assets and properties of the Telephony
Group, but excluding any dividend of shares of Telephony Group Common Stock),
times (ii) a fraction the numerator of which is the Telephony Group Inter-Group
Interest Fraction and the denominator of which is the Telephony Group
Outstanding Interest Fraction.

See Annex C for illustrations of the calculation of the TCI Group's
Inter-Group Interest in the Telephony Group and the effects thereon of
dividends on, and the sale or purchase of, shares of Telephony Group Common
Stock and contributions of cash or other property of the TCI Group to the
Telephony Group.

DESCRIPTION OF THE TELEPHONY GROUP

GENERAL

The Telephony Group presently consists of TCI's 100% equity interest in
TTS--Delaware, its subsidiaries, their respective assets, and all assets and
liabilities of TCI and its subsidiaries to the extent attributed to any of the
foregoing assets, whether or not such assets or liabilities are assets and
liabilities of TTS--Delaware or any of its subsidiaries. The principal assets
of TCI Telephony are its investments in the PCS Ventures, a series of
partnerships formed to engage in the business of providing wireless
communications services using the radio spectrum for broadband PCS to
residential and business customers nationwide under the "Sprint" brand, and its
investment in Teleport. The PCS Ventures include the Sprint PCS Partnerships
and PhillieCo. The Partners of each of the Sprint PCS Partnerships are
subsidiaries of Sprint, Comcast, Cox and TCI. The partners of PhillieCo are
subsidiaries of Sprint, Cox and TCI. TCI, through TCI Telephony, has a 30%
interest as a partner in each of the Sprint PCS Partnerships and a 35.3%
interest as a partner in PhillieCo. TCG, the largest CLEC in the United States
as measured by route miles, offers a wide range of local telecommunications
services in major metropolitan markets nationwide, primarily to businesses,
long distance carriers and resellers, and wireless communications companies.
TCI has a 31.1% equity interest (which represents a 36.4% voting interest) in
the outstanding common stock of TCG. The Telephony Group also includes a 50%
partnership interest in Kansas City Fiber Network, L.P. and a 40% partnership
interest in NHT Partnership, which are CAPs serving the Kansas City and Buffalo
metropolitan areas, respectively.

The Telephony Group will also include such other assets and liabilities
of the TCI Group as the Board of Directors may in the future determine to
attribute to the Telephony Group and such other businesses, assets and
liabilities as TCI or any of its subsidiaries may in the future acquire for the
Telephony Group, as determined by the Board of Directors. It is currently the
intention of TCI that any businesses, assets and liabilities so attributed to
the Telephony Group in the future would be businesses, assets and liabilities
of, or related to, the interests of TCI and its subsidiaries in the Telephony
Business.

TCI Telephony believes that its various telephony investments are
complementary in several respects. TCI Telephony believes that Teleport and
Sprint PCS have benefited from the existing cable infrastructure and installed
customer base of TCI and the other cable companies that have invested in them.
TCI believes that the existing cable infrastructure of the Cable Stockholders
has resulted in significantly reduced build out costs and improved
implementation time for Teleport, and anticipates that the size of the
installed base of customers for both Sprint and TCI, Comcast and Cox (the
"Cable Parents") (14 million and 20 million customers, respectively), will be a
key advantage to Sprint PCS in its distribution and marketing efforts.

50
<PAGE> 53
WIRELESS TELEPHONY

GENERAL

Sprint PCS initiated the commercial launch of its service in December
1996 in Fresno, California; Milwaukee, Wisconsin; Portland, Oregon; Spokane,
Washington; Albany and Syracuse, New York; and Pittsburgh, Pennsylvania. In
addition, APC launched its PCS service in November 1995, and Cox-California
commenced the commercial launch of its service in San Diego, California in
December 1996. Sprint PCS currently plans to launch in 58 additional markets,
including New York City, San Francisco, Dallas/Ft. Worth, Boston, Miami,
Minneapolis/St. Paul, Denver, Seattle and Kansas City, on a market-by-market
basis during 1997 and thereafter. When the foregoing phase of launch is
completed, Sprint PCS service will be available in 65 cities throughout the
United States, including 35 of the top 50 markets in the United States. The
timing of launch in individual markets will be determined by various factors,
principally zoning and microwave relocation, equipment delivery schedules,
completion of network testing and optimization and local market and competitive
considerations.

Sprint PCS will require significant funds for development,
construction, testing and deployment of its PCS network. The Partners of
Sprint PCS have agreed to contribute up to an aggregate of approximately $4.2
billion of equity to Sprint PCS from inception through fiscal 1999 (of which
TCI Telephony's share is approximately $1.3 billion) if and to the extent
required by annual budgets of Sprint PCS for fiscal years in such period
approved by the Partners or requested during such period by the affirmative
vote of general Partners with percentage interests in Sprint PCS of 75% or more
in the aggregate. As of December 31, 1996, approximately $3.0 billion of such
$4.2 billion had been contributed to Sprint PCS, of which amount TCI Telephony
had contributed approximately $900 million. Sprint PCS's proposed business
plan currently contemplates that the remaining approximately $1.2 billion of
such amount (of which TCI Telephony's share would be approximately $360
million) would be contributed by the Partners by the end of the second quarter
of 1998 (although there can be no assurance that any additional capital will
be contributed by the Partners). Sprint Spectrum has obtained approximately
$3.1 billion in secured vendor financing in the aggregate from the Vendors,
entered into a $2.0 billion secured credit facility with a group of banks and
received net proceeds of approximately $520 million from a public offering of
the Sprint Spectrum Notes. Assuming all of such debt and equity financing
amounts are made available to Sprint PCS, Sprint PCS currently believes that
such amounts would be sufficient to meet its currently anticipated capital
requirements (other than obligations in respect of Sprint PCS's interest in APC
and Cox-California) through the end of 1998 (based on Sprint PCS's current plans
for its network buildout in its current license areas). See "RISK
FACTORS--CONSIDERATIONS RELATING TO THE TELEPHONY GROUP'S INVESTMENT IN SPRINT
PCS--SUBSTANTIAL CAPITAL REQUIREMENTS; HIGHLY LEVERAGED CAPITAL STRUCTURE" and
"--NETWORK BUILDOUT AND SYSTEM IMPLEMENTATION RISKS."

Further, in connection with such debt financings by Sprint Spectrum,
TCI and the other Parents entered into a Capital Contribution Agreement with
Sprint Spectrum, of which the secured creditors in such debt financings are
beneficiaries, pursuant to which each Parent agreed to make contributions, or
cause contributions to be made, to Sprint Spectrum from time to time upon the
occurrence of certain events, up to a maximum aggregate amount equal to (a)
such Parent's Percentage Interest of the sum of (i) $1.0 billion plus (ii) the
agreed value of the Cox Contributed Property (aggregating approximately $24
million as of December 31, 1996), less (b) the sum of (i) the aggregate amount
of cash equity contributions made by such Parent (directly or indirectly) to
Sprint Spectrum and its subsidiaries (but not other affiliates of Sprint PCS,
including APC and Cox-California) subsequent to December 31, 1995 other than
pursuant to

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the Capital Contribution Agreement, (ii) such Parent's Percentage Interest of
the amount of the aggregate cash proceeds of equity capital (subject to certain
exclusions) obtained by Sprint Spectrum from sources other than the Parents and
their subsidiaries and (iii) in the case of Cox, the agreed value of the Cox
Contributed Property. The liabilities of TCI under the Capital Contribution
Agreement have been attributed to the Telephony Group. The events that would
require such contributions to be made are (x) a determination as of any date
that the projected cash expenditures of Sprint Spectrum and its subsidiaries
during the three months following such determination exceed the cash, cash
equivalents and borrowing availability of Sprint Spectrum and its subsidiaries
as of such determination date, plus their expected cash receipts, other than
from borrowings, during such three-month period, (y) a default in the payment
of any amount due under any of the agreements evidencing such debt financing
and other agreements evidencing secured indebtedness that Sprint Spectrum may
enter into in the future and (z) the acceleration of Sprint Spectrum's
obligations under any of such agreements. During 1996, approximately $500
million in cash was contributed directly or indirectly to Sprint Spectrum (of
which TCI Telephony had contributed approximately $150 million), thereby
reducing the Parents' respective obligations under the Capital Contribution
Agreement by such amount and reducing TCI's obligation to approximately $150
million as of December 31, 1996. Based on the currently expected timing of
additional contributions to Sprint PCS (including the currently expected timing
of Sprint PCS's expected capital contributions to APC and Cox-California and to
its subsidiaries other than Sprint Spectrum and its subsidiaries), TCI does not
expect that its obligations under the Capital Contribution Agreement will
result in the obligation to make any incremental capital contributions to
Sprint PCS in addition to TCI Telephony's pro rata portion of the balance of
the $4.2 billion that the Partners agreed to contribute. See "RISK
FACTORS--CONSIDERATIONS RELATING TO THE TELEPHONY GROUP'S INVESTMENT IN SPRINT
PCS--SUBSTANTIAL CAPITAL REQUIREMENTS; HIGHLY LEVERAGED CAPITAL STRUCTURE."

Sprint PCS believes that rapid growth in consumer and business demands
for wireless services, technological advances, increased customer expectations
for quality, convenience of use and deregulation are reshaping the
telecommunications market. In order to compete in this changing environment,
accelerate subscriber growth and increase customer retention, Sprint PCS
intends to offer customers integrated telecommunications packages and national
service offerings. The Parents and Sprint PCS expect to package Sprint PCS's
wireless services with other of the Parents' communications products and
services, including the local and long distance telecommunications services and
the cable-based entertainment services of Sprint and the Cable Parents.
Sprint PCS and the Parents will market PCS wireless products and services
nationally under the Sprint brand name through diverse distribution channels
including those of the Parents.

PCS is the first all-digital wireless service and will be able to
provide enhanced integrated services not currently offered by traditional
analog cellular providers. Sprint PCS believes that the enhanced features and
services, in conjunction with increased competition within the industry, will
contribute to the acceleration of growth in the wireless telecommunications
market. According to the CTIA, the number of cellular telephone subscribers
nationwide has grown from approximately 680,000 in 1986 to an estimated 34
million as of December 31, 1995. The PCIA estimates that the number of
cellular and PCS wireless services subscribers will be over 104 million by the
year 2005 and that PCS subscriptions will account for approximately 40 million
of such subscriptions.

POPULATION COVERAGE

Sprint PCS was the successful bidder for 29 PCS licenses in the A Block
and B Block PCS auction conducted by the FCC which concluded in March 1995.
Sprint PCS's 29 wholly-owned markets include, among others, the New York City,
San Francisco, Detroit, Dallas/Fort Worth and Boston/Providence MTAs, and cover
150.3 million Pops. Additionally, Cox has agreed to contribute to Sprint PCS,
upon FCC approval which has been obtained, a PCS license for the Omaha MTA
that it separately purchased in the broadband PCS auction that concluded in
March 1995.

In order to increase its Pop coverage, Sprint PCS has affiliated and
expects to continue to affiliate with other PCS providers, including those in
which Sprint PCS or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in Sprint PCS's national network and will use the Sprint brand name. Sprint
PCS owns a 49% limited partnership interest in APC, which owns a PCS license
for and

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operates a broadband PCS system in the Washington D.C./Baltimore MTA, which MTA
covers 8.3 million Pops. APC has affiliated with Sprint PCS and is marketing
its products and services under the Sprint brand name. APC launched its PCS
service in November 1995 and was the nation's first commercially operational
PCS system. As of July 1996, APC had approximately 100,000 subscribers. In
December 1996, Sprint PCS acquired a 49% limited partnership interest in Cox-
California, a partnership formed to hold a PCS license for the Los Angeles/San
Diego MTA covering 21.5 million Pops, and Cox-California agreed to affiliate
with Sprint PCS. Cox, which currently owns this license, has agreed to
contribute the license to Cox-California and will manage and control
Cox-California. Sprint PCS also expects to affiliate with, and provide various
services to PhillieCo, a limited partnership organized by and among
subsidiaries of Sprint, TCI and Cox that owns a PCS license for the
Philadelphia MTA covering 9.1 million Pops. TCI Telephony owns a 35.3%
partnership interest in PhillieCo, which interest is attributed to the
Telephony Group. Any reference herein to an "affiliate" does not necessarily
imply that Sprint PCS exercises, or has the power to exercise, control over the
management and policies of such entity.

The table below presents the owned and affiliated Pops of Sprint PCS
after giving effect to such affiliation agreements:

<TABLE>
<CAPTION>
Direct or Indirect
Ownership Interest Net Pops Attributed
1995 Population Attributed to to Telephony
Owned/Affiliated # of MTAs in MTA(s) Telephony Group Group(1)
---------------- --------- --------------- ------------------ -------------------
(millions) (millions)
<S> <C> <C> <C> <C>
Owned by Sprint PCS . . . . . . . . 29 150.3 30.0% 45.1
Omaha (to be contributed to Sprint
PCS by Cox)(2) . . . . . . . . . . 1 1.7 30.0% .5
Affiliated:
APC
(Baltimore/Washington)(3) 1 8.3 14.7% 1.2
Cox-California (Los
Angeles/San Diego)(4) . . 1 21.5 14.7% 3.2
PhillieCo (Philadelphia)(5) 1 9.1 35.3% 3.2
-- ----- ----
Total . . . . . . 33 190.9 53.2
== ===== ====
</TABLE>
- ---------------
(1) Represents aggregate Pops represented by the PCS licenses held by the
applicable PCS licensee multiplied by the direct or indirect
percentage equity interest in such licensee attributed to the Telephony
Group. The number of Pops represented by PCS licenses is based upon
the Donnelly Marketing Service estimate of the December 31, 1995
population of a geographic area. Such number is not necessarily
indicative of the number of Pops that are or will be served by the
applicable licensee's PCS network in such license area or the actual or
expected number of customers using such PCS network. In addition, the
number of Pops attributed to the Telephony Group is not intended to
imply that TCI Telephony has any actual ownership interest in or right
to acquire such an interest, or other rights with respect to, such Pops
or the applicable PCS license(s), including upon liquidation or
dissolution of the applicable PCS licensee.

(2) Contribution will be credited towards capital contributions required of
Cox under the Partnership Agreement to the same extent as if Cox had
made a cash contribution in an amount equal to the sum of (i) $995,564,
together with interest at the annual rate of 13.4% computed from
November 17, 1994 through the date the Omaha license is contributed,
plus (ii) $4,062,400, together with interest at the annual rate of
13.4% computed from June 30, 1995 through the date the Omaha license is
contributed.

(3) Sprint PCS owns a 49% limited partnership interest in APC, which owns a
PCS license for and operates a broadband PCS system in the
Baltimore/Washington D.C. MTA and has entered into an affiliation
agreement with Sprint PCS.

(4) Sprint PCS owns a 49% limited partnership interest in Cox-California
which was formed to hold a PCS license for and operates a broadband PCS
system in the Los Angles/San Diego MTA and has entered into an
affiliation agreement with Sprint PCS.

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<PAGE> 56
(5) Owned by subsidiaries of Sprint, TCI and Cox. Sprint PCS expects to
sign a services and affiliation agreement with PhillieCo.

TCI is also currently negotiating to acquire a minority equity interest
in a limited partnership that would operate a PCS system utilizing C block PCS
licenses for eight BTAs covering an aggregate of approximately 2.2 million Pops
as an affiliate of the Sprint PCS network, although no assurance can be given
that TCI will acquire such interest or that such partnership will enter into an
affiliation agreement with Sprint PCS.

Including its current affiliates, Sprint PCS has licenses (or
interests in licensees) and affiliate relationships in 33 MTAs covering nearly
191 million Pops (73% of the United States population.) There are 18 MTAs
currently not served by Sprint PCS's licenses and affiliations. Sprint PCS
continues to explore a number of possibilities to expand Pop coverage.
Opportunities exist for affiliations with or investments in other PCS providers
(including other affiliates of Sprint PCS) operating in territories not covered
by Sprint PCS's licenses. Likewise, the ability to exchange capacity or enter
into resale agreements with other providers or enter into roaming arrangements
with other providers' systems are options under consideration. There can be no
assurance, however, that Sprint PCS will be successful in expanding its Pop
coverage beyond that currently covered by existing licenses and existing and
expected affiliation agreements.

Pursuant to an agreement among the Partners, an affiliate of Sprint is
participating in the D and E Block PCS auctions currently being conducted by
the FCC for additional 10 MHz BTA PCS licenses. As of January 13, 1997, Sprint
was the high bidder for licenses in approximatey 140 BTAs covering an aggregate
of approximately 70 million additional Pops, none of which BTAs are within any
of the MTAs represented by the PCS licenses held by Sprint PCS, Cox-California,
APC or PhillieCo. In accordance with such agreement and the Partnership
Agreement, Sprint is required to offer to enter into an affiliation agreement
with Sprint PCS with respect to such BTA licenses pursuant to which Sprint's PCS
systems in such areas would be included in Sprint PCS's national PCS network,
although no assurance can be given that Sprint and Sprint PCS will be able to
reach a mutually acceptable agreement as to the terms of any such affiliation
agreement.

PRODUCTS AND SERVICES

With its all-digital national wireless network, Sprint PCS plans to
introduce a wide array of services and features that are designed to enhance
utility, provide consumers greater capabilities in call management and increase
usage for both outgoing and incoming calls.

OUTGOING CALLS

Features that encourage customers to make outgoing calls include:
improved call quality, advanced handsets, national consistency and
customer-driven local calling areas.

Improved Call Quality. The quality of the digital network continues
to approach that of wireline systems, which is expected to encourage increased
consumer usage.

Advanced Handsets. The advanced, menu-driven handsets are designed to
be more user friendly and will be equipped for a variety of enhanced features
and applications.

National Consistency. The consistency of product features across
Sprint PCS's network is expected to simplify use and ensure that handset
functions are similar in all markets.

Customer-Driven Local Calling Areas. The provision of customer-driven
local calling areas is designed for customers who frequently travel between
multiple regions.

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<PAGE> 57
INCOMING CALLS

Features that encourage customers to receive calls include: caller ID,
message management, including voicemail and integrated paging and improved
battery technology.

Caller ID. Sprint PCS's system is designed to cable the display of
the telephone number of the incoming caller on the customer's handset, allowing
the customer to decide to answer or decline the call or forward it to
voicemail.

Message Management. Features like voicemail with call screening, will
allow customers to listen while callers leave messages. The introduction of
integrated paging, expected by the end of 1997, will allow the handset to
signal receipt of an incoming messages and provide text messaging via the
handset.

Improved Battery Technology. With advances in battery technology,
longer lasting batteries will enable customers to leave their handsets on while
not in use, which will promote the receipt of incoming calls.

Sprint PCS believes that the market for wireless communications will
shift over time from today's traditional voice mobility applications which
supplement customers' wireline service to an environment in which wireless
begins to expand into the wireline market, both as a primary communications
device and as a means of providing advanced functionality. Sprint PCS has
announced its intention to develop products, services and features which will
serve to increase network utilization above historical cellular usage while
simultaneously containing costs.

EARLY PCS INDUSTRY EXPERIENCE

On November 15, 1995, APC launched the first commercial PCS operation
in the United States with the initiation of service in the Washington/Baltimore
MTA. Sprint PCS owns a 49% limited partnership interest in APC, which as of
July 1996 provided service coverage to an area containing approximately 5.9
million Pops, or approximately 71% of the Pops in the MTA. APC plans to
continue to expand the range of its geographic and population coverage.

APC's service is marketed under the Sprint brand name, and Sprint PCS
believes that it is positioned in the market as having excellent call clarity,
privacy and feature integration. In its market, APC is providing unique
product offerings which include: (i) no requirement for long-term service
contracts, which encourages customers to try the service; (ii) no charge for
the first minute of inbound calls, which encourages customers to give out their
PCS number and increases overall minutes of use; (iii) over-the-air-activation,
which, due to its simplicity, encourages customers to acquire the service; (iv)
off-the-shelf retail distribution; and (v) 24-hour-a-day customer service.
Under the current APC marketing plan, customers are required to pay, on
average, more to buy PCS handsets than for cellular handsets utilized by
traditional analog cellular systems; however, monthly and per minute service
charges are lower than those of incumbent cellular providers. APC is also
combining the Sprint trademark with significant levels of consumer advertising
and tie-ins with Sprint long distance telephone services.

As of July 1996, APC had approximately 100,000 subscribers. Customers
appear willing to pay more for handsets in exchange for higher quality service,
lower airtime rates and no long-term service contracts. In addition, customers
are using the PCS service for more minutes each month than traditional cellular
services and usage patterns differ from those of traditional analog cellular
users. In particular, customers use their PCS service throughout the day,
rather than primarily at commuting hours.

Sprint PCS recognizes that there are limitations to translating APC's
experience to Sprint PCS's nationwide markets. First, APC initially had only
two competitors whereas Sprint PCS may compete with four or five wireless
competitors in each MTA. Second, while APC intends to add a CDMA protocol, it
is initially deploying GSM technology which is a more mature technology than
CDMA. Third, the quality of existing cellular service in the
Washington/Baltimore MTA is inconsistent. In addition, the limited period of
APC's operations is also not necessarily

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a reliable indicator of future demand, revenue or the rate at which customers
may return handsets or deactivate their service.

CDMA TECHNOLOGY

Wireless digital signal transmission is accomplished through the use
of various frequency management technologies, or "protocols." The FCC has not
mandated a universal digital protocol for PCS systems. Currently, various
vendors have proposed three principal competing, incompatible protocols for use
in PCS systems: CDMA, GSM and TDMA (IS- 136).

The GSM protocol is an updated, up-banded version of the TDMA-based
protocol now in use in Europe. TDMA (IS- 136) is an up-banded version of the
TDMA-based digital cellular protocol now used by cellular operators in the
United States. CDMA is a first-generation technology that is just beginning to
be commercially deployed in the United States. Sprint PCS believes that the
CDMA protocol will be the most widely adopted PCS protocol in the United
States.

Sprint PCS has selected CDMA technology rather than the other
technologies because it believes it will have increased subscriber capacity,
higher quality of transmission and lower infrastructure and ongoing support
costs. Because of its allocation of voice channels, CDMA offers better voice
quality when compared to analog and other digital standards. CDMA systems are
expected to have more powerful error correction, less susceptibility to fading,
reduced interference and "soft" hand-offs resulting in fewer dropped calls. In
a "soft" hand-off, the mobile customer's handset establishes a connection with
a new cell before disconnecting with the current cell. As a result, fewer
calls are dropped compared to analog or TDMA/GSM networks that use a "hard"
hand-off (i.e., disconnecting the call from the current cell before connecting
it in the new cell).

Cells using CDMA are expected to achieve a greater radius of coverage
and require fewer cells for a given geographical coverage than newer TDMA/GSM
systems for PCS. Fewer cells should result in significant reductions in
overall capital requirements, lower ongoing maintenance and operating costs,
fewer cell sites to be acquired and greater flexibility in network design.
Because CDMA works by "digitizing" each call, which is then coded and
transmitted using spread spectrum across a 1.25 MHz channel, it is inherently
more secure than analog technologies.

Sprint PCS believes that CDMA has the capability to increase
subscriber capacity to as much as seven to ten times that of a typical analog
system. Additionally, CDMA technology has the ability to tolerate greater
amounts of interference than other digital protocols, which will permit the
system to temporarily increase call capacity in a particular cell thereby
reducing call blocking. Sprint PCS plans to offer advanced features such as
wireless data, paging and voice messaging while maintaining the marketing
flexibility to offer high volume packages without straining system capacity.

In addition to these PCS networks, traditional cellular providers may
use CDMA-based systems as a digital overlay to their existing analog systems in
order to improve and expand the range of services they provide. In mid-May,
AirTouch became the first cellular provider to deploy a CDMA-based digital
overlay on its cellular network. [AirTouch's CDMA-based service is currently
only available to selected high-usage customers in Los Angeles.]

NETWORK BUILDOUT

The buildout of the Sprint PCS network involves systems design,
acquisition of cell sites, equipment procurement, relocation of existing
microwave users, interconnection with other communications providers,
construction of cell sites, installation of switches, and implementation of
advanced management information and billing systems. A planning and
engineering team, comprised of approximately 1,500 engineering and operations
employees and thousands of independent contractors and consultants, is
designing and constructing the Sprint PCS network based on the regional
marketing and product requirements to meet the Sprint PCS's targets for
consistency, uniformity and reliability.

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The Cox-California PCS network is a combination of tower-based cell
sites and micro-cell sites that are attached to the cable plant of the local
cable partner or affiliate. The Cox-California PCS network is comprised of
more cell sites than existing cellular networks because of the extensive use of
micro-cell technology. The micro-cells cover less territory than a tower-based
cell site; however, Sprint PCS believes the cable-based PCS network will cost
less to deploy and offer greater coverage, lower handset power requirements
(encouraging the use of smaller batteries), packaging flexibility, greater
usage capacity and ease of construction and implementation than tower-based
cell sites.

Rollout Methodology. Sprint PCS's principal objective is to maximize
population coverage levels within targeted demographic segments and geographic
areas. Sprint PCS commenced commercial service in the fourth quarter of 1996
in seven markets and currently intends to expand market coverage to reach
approximately 60% of the Pops in its existing license areas in the aggregate by
the end of 1997. Thereafter, Sprint PCS will evaluate further coverage
expansion on a market-by-market basis, eventually targeting coverage of 80% of
the Pops in its existing license areas in the aggregate, thereby substantially
completing its planned network buildout. In developing its PCS network Sprint
PCS will consider, among other things, population and traffic density, FCC
coverage requirements and the ability to cluster groups of markets.

RF Design. The Vendors have completed and Sprint PCS has approved the
RF design for coverage of 60% of the Pops in the Sprint PCS's license areas in
the aggregate. This process includes cell site design, frequency planning and
network optimization for each of Sprint PCS's markets. RF engineering also
allocates voice channels and assigns frequencies to cell sites taking into
consideration both PCS and microwave interference issues.

Property Acquisition. Sprint PCS has employed 32 MTA directors
initially to manage the buildout process and subsequently to have
responsibility for operating the network. Property acquisition managers are
located within each MTA and are responsible for identifying and obtaining the
required property for buildout of the PCS network.

Sprint PCS has hired property acquisition firms for each MTA to assist
with acquisition, zoning, permitting and appropriate surveying. Sprint PCS
will attempt to minimize property acquisition activity through utilization of
the Parents' assets and cable infrastructure, where possible. The cell site
selection process will require the lease or acquisition of approximately 5,700
sites in 31 MTAs in connection with commencement of commercial operations of
its PCS network, many of which are likely to require Sprint PCS to obtain
zoning variances or other local governmental or third- party approvals or
permits. As of December 20, 1996, Sprint PCS had signed leases or options for
4,448 sites, of which 743 were pending zoning and 2,412 were zoned or ready for
construction. As of December 20, 1996, 1,157 sites had been constructed and
993 sites were under construction.

Construction and Installation. The equipment Vendors are overseeing
the deployment of the PCS network and are subcontracting the construction to
general construction contractors that employ local construction firms to build
the cell sites.

Microwave Relocation. To become operational, Sprint PCS must relocate
existing 2 GHz commercial microwave service users within its MTAs in order to
clear its spectrum. Sprint PCS has contracted with national vendors to assist
in microwave relocation process. Recently, the FCC adopted a microwave
relocation cost-sharing plan that limits permissible relocation costs and
outlines new procedures for the sharing of relocation costs where the
relocation of private microwave facilities benefits multiple broadband PCS
licensees. However, the FCC did not shorten the period for mandatory
negotiations between broadband PCS licensees and affected private microwave
licensees. See "--GOVERNMENT REGULATION."

Approximately 3,227 co-channel and adjacent-channel microwave paths
which may affect Sprint PCS's rollout need to be relocated by Sprint PCS, of
which approximately 600 are required in connection with the commencement of
commercial operations of its PCS network. As of December 20, 1996, 1,186
relocation agreements had been reached and 548 paths had been relocated.
Sprint PCS has entered into various cost-sharing arrangements that provide for
sharing among affected PCS license holders of expenses associated with
microwave-relocation.

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Interconnection. Sprint PCS's network will connect to the public
switched telephone network. Such interconnection is required to facilitate
originating and terminating traffic between Sprint PCS's facilities and both
the incumbent local exchange and long distance carriers. Sprint PCS is
negotiating, or intends to negotiate, interconnection agreements with telephone
companies operating or providing service in the areas where Sprint PCS is
deploying its PCS network. If agreements cannot be satisfactorily negotiated,
Sprint PCS intends to pursue arbitration to facilitate such agreements.

Roaming. Wireless service providers are able to offer service to
subscribers from other systems who are traveling in or through their service
area. Customers typically pay higher rates while "roaming" outside of their
home market. Roaming is made possible in today's analog cellular environment
by virtue of common frequency and signaling technology. PCS and analog
cellular systems operate on different frequencies and with different signaling
technologies.

Within its own network, Sprint PCS plans to offer "traveling" plans
for subscribers who use Sprint PCS's network outside of their home markets.
Features and services will operate identically across all of Sprint PCS's
markets. As a result, travelers will be encouraged to access the network
anytime and anywhere.

In areas where CDMA-based PCS service is not available, Sprint PCS may
offer a roaming option on the traditional analog cellular system via dual-mode,
dual-band handsets capable of transmitting over either cellular and PCS
frequencies. Access to cellular coverage is dependent on availability of
dual-mode, dual-band handsets, which Sprint PCS currently believes will become
commercially available in mid-1997 (although sufficient quantities may not be
commercially available until the first quarter of 1998). Sprint PCS has not
entered into any such agreements with any cellular providers nor can there be
any assurance that Sprint PCS will enter into any agreements. Cellular roaming
may not be a service option Sprint PCS chooses to offer.

Based upon public announcements by other PCS licensees and cellular
service providers, Sprint PCS estimates that CDMA technology will be employed
by both cellular and PCS service providers whose networks cover approximately
95% of the United States population (without giving effect to any D or E Block
BTA licenses that may be acquired by Sprint). While there can be no assurance
that CDMA technology will be deployed to the extent and within the time frames
proposed by the various service providers, it is Sprint PCS's belief that CDMA
will be the most widely used wireless digital protocol in the United States.
To date, PrimeCo is the only PCS provider other than Sprint PCS that has
commercially deployed a 1900 MHz CDMA system in the United States.

RELATIONSHIP WITH PARTNERS AND PARENTS

Sprint PCS's relationship with the Partners and the Parents is an
important aspect of its strategy for achieving its objective of becoming a
leading provider of wireless communications products and services in the United
States. In order to capitalize on the rapid growth in business and consumer
demand for a single provider of telecommunications services, Sprint PCS intends
to use its own marketing efforts, the marketing services of the Partners'
affiliates, existing distribution channels and customer relationships. Subject
to certain exceptions, the Partners and the Parents have agreed to cooperate
with Sprint PCS to cross-market Sprint PCS's wireless services with the long
distance, local telephone and cable-based entertainment services of the Parents
in order to accelerate subscriber-growth and increase retention rates while
improving overall customer satisfaction. Sprint PCS will promote its wireless
services using the Sprint brand among Sprint's 14 million long distance and
local telephone customers and the Cable Parents' 20 million cable television
customers.

Subject to certain conditions, Sprint PCS expects to enter into sales
agency agreements with the Partners for the co-marketing of wireless services,
local and long distance telephone services and the cable-based entertainment
services by Sprint and the Cable Parents. Sprint and the Cable Parents and
their respective subsidiaries (except for Comcast and its subsidiaries in the
Comcast Service Area) will be non-exclusive sales agents for Sprint PCS's
wireless

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services. Sprint PCS, in turn, will be a non-exclusive sales agent for those
services Sprint and the Cable Parents make available to Sprint PCS. Sprint PCS
has not entered into any such sales agency agreements with the Parents.

COMPETITION

General. The wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements and changes in consumer preferences and
expectations. Accordingly, TCI Telephony expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services.

Each of the markets in which Sprint PCS competes will be served by
other two-way wireless service providers, including cellular and PCS operators
and resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to Sprint PCS.
Certain of Sprint PCS's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States.

Sprint PCS also will face competition from other current or developing
technologies, such as paging, ESMR (or enhanced specialized mobile radio) and
satellite networks. In addition, as a result of advances in digital
technology, ESMR operators have begun to design and deploy digital mobile
networks that increase the channel capacity of ESMR systems to a level that may
be competitive with that of cellular systems. A limited number of ESMR
operators have recently begun offering short messaging, data services and
interconnected voice telephony services on a limited basis. Several ESMR
licensees have recently merged into one company and plan to build and operate
digital mobile networks in most major United States markets.

In addition, several entities have received and several others are
seeking FCC authorization to construct and operate global satellite networks to
provide domestic and international mobile communications services from
geostationary and LEO (or low earth orbit) satellites. While geostationary
orbiting satellites are subject to transmission delays inherent in high earth
orbit satellite communications, a mobile satellite system could reduce
transmission delays with LEO satellites and could augment or replace
communications with segments of land-based wireless systems. Based on current
technologies, however, satellite transmission services are not expected to be
competitively priced relative to Sprint PCS's product offering in its markets.
Sprint has an interest in a satellite-based mobile telecommunications business
entity.

Sprint PCS expects to compete with other communications technologies
that now exist, such as conventional mobile telephone service, ESMR systems and
paging services and with cellular and PCS resellers. In the future, cellular
service and PCS will also compete more directly with traditional landline
telephone service providers and with cable operators who expand into the
offering of traditional communications services over their cable systems. In
addition. Sprint PCS may face competition from technologies that may be
introduced in the future.

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TCI Telephony believes that market prices for two-way wireless
services generally will decline in the future based upon increased competition.
Sprint PCS will compete to attract and retain customers principally on the
bases of services and features, its customer service, the size and location of
its service areas and pricing. Sprint PCS's ability to compete successfully
will also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could
adversely affect Sprint PCS's operating margins.

Sprint PCS's PCS business will directly compete with several other PCS
providers in each of its PCS markets, including AT&T Wireless, BellSouth,
Omnipoint Corporation, Pacific Bell Mobile Services, Inc., PrimeCo and Western
Wireless Corporation. Sprint PCS also expects that existing analog wireless
service providers in the PCS markets, some of which have been operational for a
number of years and have significantly greater financial and technical
resources than those available to Sprint PCS, will upgrade their systems to
provide comparable services in competition with its PCS system. These cellular
competitors include AirTouch, AT&T Wireless, BellSouth, Ameritech Mobile
Communications, Inc., Bell Atlantic NYNEX Mobile, Southwestern Bell Mobile
Systems, GTE Mobilnet, Inc. and U.S. Cellular Corp.

Handsets used for CDMA-based PCS systems will not be automatically
compatible with cellular systems, and vice versa. Sprint PCS currently expects
dual-mode, dual-band telephones to be commercially available in mid-1997
(although sufficient quantities may not be commercially available until the
first quarter of 1998). Once such handsets are available, if Sprint PCS
decides to offer roaming services, subscribers may be able to roam by using the
existing cellular wireless system in other markets. Until then, this lack of
interoperability may impede Sprint PCS's ability to attract current cellular
subscribers or potential new wireless communication subscribers.

Initially, the cost to Sprint PCS of PCS handsets may not be
competitive with the cost to analog operators of analog cellular handsets.
While Sprint PCS believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which Sprint PCS can compete through Sprint PCS's handset
subsidies.

TRADEMARKS

Sprint is a registered trademark of Sprint Communications Company,
L.P. ("Sprint Communications"), a subsidiary of Sprint, and is licensed to
Sprint PCS on a royalty free basis pursuant to a trademark license agreement
between Sprint Communications and Sprint PCS. Sprint Communications may
terminate this agreement (i) upon the dissolution and winding up of Sprint PCS,
(ii) upon the bankruptcy of Sprint PCS, (iii) upon the failure of Sprint PCS to
perform in accordance with the material terms of the agreement or for a breach
of its representations and warranties or (iv) if Sprint PCS challenges Sprint's
rights to the Sprint trademark and the associated logo. Sprint PCS may
terminate the agreement (i) if Sprint Communications abandons or fails to
support its trademark and associated logo, (ii) upon the bankruptcy of Sprint
Communications, (iii) if Sprint conflicts with Sprint PCS's rights to use the
trademark and associated logo or (iv) if Sprint Communications breaches its
covenant to license the trademark and associated logo to additional licensees
in accordance with the terms of the agreement. Subject to certain conditions,
each of Sprint PCS and Sprint Communications may terminate the agreement if a
controlled affiliate of Sprint ceases to own any equity interest in Sprint PCS.
Within thirty days of termination, or, in certain circumstances on a specified
termination date, Sprint PCS's rights to use the trademark and associated logo
will cease.

WIRELINE TELEPHONY

GENERAL

The Telephony Group's wireline telephony activities currently consist
primarily of its investment in Teleport. Teleport, the largest CLEC in the
United States as measured by route miles, offers a wide range of local

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telecommunications services in major metropolitan markets nationwide. Teleport
competes with ILECs as "The Other Local Phone Company"(SM) by providing high
quality, integrated local telecommunications services, primarily over fiber
optic digital networks, to meet the voice, data, and video transmission needs
of its customers. TCG's customers are principally telecommunications-intensive
businesses, long distance carriers and resellers, and wireless communications
companies. TCG offers these customers what TCG believes to be technologically
advanced local telecommunications services, as well as superior customer
service, flexible pricing and vendor and route diversity.

For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. Teleport currently operates high capacity
state-of-the-art digital networks in 53 metropolitan markets, including 17 of
the 20 largest metropolitan areas. Teleport operates networks in metropolitan
New York City/New Jersey, Los Angeles, Chicago, San Francisco, Boston, Detroit,
Baltimore/Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle,
San Diego, St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis,
Hartford and Omaha, and is developing networks in Atlanta, Birmingham,
Charlotte, Chattanooga, Cincinnati, Columbus (Ohio), Knoxville, Minneapolis/St.
Paul, Nashville, Orlando, Sacramento and Tampa. TCG has also agreed to acquire
the remaining direct and indirect equity interests in ETC, a CLEC in
Philadelphia and in neighboring Camden, New Jersey and Wilmington, Delaware.
As of September 30, 1996, Teleport's networks spanned over 6,250 route miles,
contained over 316,000 fiber miles and served approximately 6,800 buildings.

TCG has grown rapidly over the last several years, expanding its
existing networks, developing new networks and increasing its service
offerings. On a pro forma basis, after giving effect to the TCG
Reorganization, Teleport's revenues were approximately $184.9 million for 1995,
and approximately $196 million for the nine months ended September 30, 1996,
substantially all of which were derived from the provision of local
telecommunications services.

TCG estimates that total revenues from the local telecommunications
market in the United States were approximately $96 billion in 1995, based on
1988-1994 FCC statistics. In the past, CAPs, including Teleport, were limited
to serving only the dedicated services portion of this market, which TCG
estimates (based on such statistics) were approximately $5 billion in 1995,
whereas the local switched services portion of this market for business
customers is estimated to have been approximately $55 billion. Teleport has
expanded into the switched services market in a number of states over the last
five years by constructing switched networks and obtaining the necessary
regulatory authorizations and interconnection arrangements. With the passage
of the 1996 Act, Teleport believes that it is well positioned to address a
significantly larger portion of the local telecommunications market and to
improve its operating margins in the switched and dedicated services markets by
expanding its networks, installing additional high capacity digital switches
and offering new products and services.

TCI Telephony currently owns 48,779,388 shares of Teleport Class B
Stock, each of which is entitled to ten votes per share on each matter to be
voted on by the holders of the common stock of Teleport generally and each of
which is convertible into one share of Teleport Class A Stock. TCI Telephony
also owns 1,011,528 shares of Teleport Class A Stock. Such shares of Teleport
Class B Stock and Teleport Class A Stock in the aggregate represent
approximately 31.1% of the outstanding common stock of Teleport and
approximately 36.4% of the aggregate voting power of such securities. In
addition, subsidiaries of Cox, Comcast and Continental own shares of Teleport
Class B Stock and Teleport Class A Stock representing approximately 24.4%,
16.0% and 11.1%, respectively, of the outstanding common stock of Teleport
(representing approximately 29.1%, 19.1% and 13.3%, respectively, of the
aggregate voting power of such securities). Such percentages do not reflect
the 2,757,083 shares of Teleport Class A Stock that are to be issued in
connection with the acquisition by Teleport of Comcast's indirect equity
interest in ETC or the shares to be issued in the CERFnet Acquisition.

TCG has benefited substantially from its relationships with the Cable
Stockholders, which are among the largest cable television companies in the
United States. Through such relationships, Teleport has been able to utilize
rights- of-way, obtain fiber optic facilities and share the cost of building
new fiber optic networks, thereby allowing Teleport to achieve significant
economies of scale and scope through capital efficiencies in extending its
networks in a rapid, efficient and cost-effective manner. Teleport believes
that such relationships with the Cable Stockholders have resulted

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in substantial cost savings in the construction of its fiber optic networks (as
compared to the cost of constructing such networks through similar relationships
with unrelated third parties).

In addition to its interest in Teleport, the Telephony Group also
includes a 50% partnership interest in Kansas City Fiber Network, L.P. and a
40% partnership interest in NHT Partnership, which are CAPs serving the Kansas
City and Buffalo metropolitan areas, respectively.

TELEPORT'S SERVICES

On January 13, 1997, TCG announced that it would acquire CERFnet
Services Inc., a provider of Internet-related services to business and
corporate clients (including dial-up and dedicated Internet access, Web hosting
and co-location services, and Internet training), in exchange for approximately
2.1 million shares of Teleport common stock.

CUSTOMERS AND MARKETING

Teleport's customers are principally telecommunications-intensive
businesses, long distance carriers and resellers, and wireless communications
companies. While Teleport's carrier business has continued to grow, in 1995
end user customers accounted for approximately 62% of Teleport's revenues on a
historical basis. During 1995, Teleport's top 10 customers accounted for
approximately 57% of TCG's total revenues on a pro forma basis (after giving
effect to the TCG Reorganization). AT&T and Sprint each accounted for more
than 10% of such revenues, and no customer accounted for 15% or more of such
revenues.

With a direct sales force in each of its markets, TCG targets the
large telecommunications-intensive businesses concentrated in the major
metropolitan markets served by its networks. Teleport's customers in these
markets include financial services firms, media and health care companies,
education and governmental institutions and an increasing number of small and
medium-sized business customers. In addition, TCG markets its services through
sales agents, landlords, advertisements, trade journals, media relations,
direct mail and participation in trade conferences.

TCG also targets long distance carriers and resellers, Internet
service providers and wireless telephone companies through its national sales
organization. Teleport has master services agreements (which generally set
forth technical standards, ordering processes, pricing methodologies and
service grade requirements, but do not guarantee any specified level of
business for TCG) with a significant number of the long distance carriers,
including eight of the largest. By providing long distance companies a local
connection to their customers, Teleport enables them to avoid complete
dependence on the ILECs for access and to obtain a high quality, reliable local
connection at a savings over the ILECs' charges. The national scope of
Teleport's local networks allows it to offer high volume business customers and
long distance carriers uniformity of services, pricing, quality standards and
customer service. In addition, Teleport has arrangements with other
telecommunications providers, including shared tenant services providers, cable
television companies and long distance carriers, to resell TCG's services.
Teleport believes that it has been and will continue to be one of the largest
providers of competitive local access services for long distance carriers.

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THE NETWORKS

Teleport uses technologies and network architectures which it believes
are state-of-the-art to develop a highly reliable infrastructure for delivering
high speed, quality digital transmissions of voice, data and video
telecommunications. The basic transmission platform consists primarily of
optical fiber equipped with high capacity SONET equipment deployed in
self-healing rings. These SONET rings give TCG the capability of routing
customer traffic simultaneously in both directions around the ring thereby
eliminating loss of service in the event of damage to the fiber optic network.
Teleport extends SONET rings or point-to-point links from rings to each
customer's premises over its own fiber optic cable, unbundled facilities
obtained from ILECs, microwave (including 38 GHz milliwave) transmission
facilities and other technologies. TCG also installs diverse building entry
points where a customer's network security needs require such redundancy. TCG
then places necessary customer-dedicated or shared electronic equipment at a
location near or in the customer's premises to terminate the link.

TCG serves its customers from one or more nodes or hubs strategically
positioned throughout its networks. The node houses the transmission and
switching equipment needed to interconnect customers with each other, the
interexchange carriers and other local exchange networks. Redundant
electronics, with automatic switching to the backup equipment in the event of
failure, protects against signal deterioration or outages. Continuous
monitoring of system components focuses on proactively avoiding problems rather
than just reacting upon failure.

TCG adds switched voice and data services to its basic fiber optic
transmission platform by installing sophisticated digital electronics at its
network nodes and at customer locations. TCG's advanced ISDN-capable digital
telephone switches are connected to multiple ILEC and long distance carrier
switches to provide TCG's customers access to every telephone in the local
market as well as across the country and around the world. Similarly, TCG
provides ATM switched and LAN multiplexers at the customer's premises and in
its nodes to provide high speed LAN interconnection services.

Teleport's strategy for adding customers is designed to maximize the
speed and impact of its marketing efforts while maintaining attractive rates of
return on capital invested to connect customers directly to its networks. To
initially serve a new customer, for example, TCG may use various transitional
links, such as reselling a portion of the ILEC's network and, where
appropriate, using alternative transmission services such as microwave,
including 38 GHz milliwave, transmission. Once the new customer's
communications volume and product needs are identified, Teleport may build its
own fiber optic connection between the customer's premises and its network to
accommodate (i) the customer's needs and (ii) Teleport's efforts to maximize
return on network investment.

In February 1996, Teleport acquired a minority investment in BizTel
Communications, Inc., which, through a wholly owned subsidiary, Biztel, Inc.
("BizTel"), holds FCC licenses to provide telecommunications service utilizing
38 GHz digital transmission in 156 geographic areas, which have a population of
approximately 175 million people, and including more than 80 of the largest 100
metropolitan markets and all markets where TCG operates. BizTel also has 102
licenses pending FCC approval in geographic areas which have a population of an
additional 44 million people. The 38 GHz milliwave facilities can be used by
TCG to economically connect customers to its networks, to provide network
redundancy, diverse routing or quick temporary installations and to provide
stand-alone facilities where Teleport does not have networks.

In determining which new markets to enter, Teleport carefully analyzes
the potential customer base and competitive conditions within the market.
Teleport's strategy to enter new markets is to build new facilities, entering
into fiber leases and other arrangements with cable television companies and
other carriers, acquire existing telecommunications providers and exploit new
technologies that have the potential to enhance network expansion (such as the
use of microwave radio facilities). Teleport also seeks to utilize
relationships with the Cable Stockholders or other cable television operators
who have an existing presence in the market and with which Teleport may be able
to develop a fiber optic network rapidly and efficiently. As a
facilities-based carrier, Teleport utilizes a variety of means to expand
geographically, including rights-of-way, easements, poles, ducts and conduits
that are available from cable television

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operators, ILECs, railways and subways, electric, gas and water utilities and
municipal, state and federal street and highway authorities. TCG plans to
continue making selected acquisitions of existing local telecommunications
networks in markets in which it has existing local telecommunications
operations or which are geographically proximate to such markets, as well as in
markets that are otherwise attractive to TCG.

COMPETITION

Teleport faces substantial competition in each of the metropolitan
areas it serves or plans to serve from entities that offer services similar to
those offered by TCG, including ILECs such as Ameritech Corporation, Bell
Atlantic, BellSouth, NYNEX, Pacific Telesis Group, SBC Communications Inc., US
WEST and GTE Corporation. Teleport believes that ILECs generally benefit from
their long-standing relationships with customers, substantial technical and
financial resources and federal and state regulations that could provide them
with increased pricing flexibility as competition increases. In addition, in
most of the metropolitan areas in which Teleport currently operates, at least
one, and sometimes several, other CAPs or CLECs offer substantially similar
services and substantially similar prices to those of Teleport. Other CLECs,
CAPs, cable television companies, electric utilities, long distance carriers,
microwave carriers, wireless telephone system operators and private networks
built by large end users may offer services similar to those offered by
Teleport.

Teleport believes that the 1996 Act will provide increased business
opportunities by opening all local markets to competition and requiring ILECs
to provide increased direct interconnection. However, under the 1996 Act, the
FCC and some state regulatory authorities may provide ILECs with increased
flexibility to reprice their services as competition develops and as ILECs
allow competitors to interconnect to their networks. In addition, some new
entrants in the local market may price certain services to particular customers
or for particular routes below the prices charged by Teleport for services to
those customers or for those routes, just as Teleport may itself underprice
those new entrants for other services, customers or routes. If the ILECs and
other competitors lower their rates and can sustain significantly lower prices
over time, this may adversely affect revenues of TCG if it is required by
market pressure to price at or below the ILECs' prices. If regulatory
decisions permit the ILECs to charge CAPs/CLECs substantial fees for
interconnection to the ILECs' networks or afford ILECs other regulatory relief,
such decisions could also have a material adverse effect on Teleport. However,
Teleport believes that the negative effects of the 1996 Act may be more than
offset by (i) the increased revenues available as a result of being able to
address the entire local exchange market, (ii) mutual reciprocal compensation
with the ILEC that results in TCG terminating its local exchange traffic on the
ILEC's network at little or no net cost to TCG, (iii) obtaining access to
off-network customers through more reasonably priced expanded interconnection
with ILEC networks and (iv) a shift by IXCs to purchase access services from
CAPs/CLECs instead of ILECS. There can be no assurance, however, that these
anticipated results will offset completely the effects of increased competition
as a result of the 1996 Act.

In addition, historically, Teleport has been able to build new
networks and expand existing networks in a more timely and economical manner
than most CAP or CLEC competitors through strategic arrangements such as
leasing fiber optic cable from cable operators that already possess
rights-of-way and have facilities in place. Teleport intends to use its
experience and presence in the telecommunications industry to further develop
and expand its existing telecommunications infrastructure.

POSSIBLE ACQUISITION OF RESTEL BUSINESS AND WTCI BUSINESS BY TELEPHONY GROUP

RESTEL BUSINESS

Beyond its current investments, TCI Telephony has the right, but not
the obligation, to acquire TCI's developmental stage ResTel Business, which
provides wireline residential telephony services (i.e., conventional telephone
service or POTS and related services) via TCI's cable plant to residential and
small business customers in certain of the geographic areas served by TCI's
cable television systems. The right to acquire the ResTel Business may be
exercised by TCI Telephony in whole or in part (by geographic area) and at any
time or from time to time, as

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applicable, provided that TCI Telephony is at the time of exercise a subsidiary
of TCI and TCI is then conducting such business. TCI Telephony is currently in
the process of studying the customer acceptance and economic attractiveness of
the ResTel Business.

As part of its evaluation of the customer acceptance and economic
attractiveness of the residential telephony opportunity utilizing upgraded
cable plant, TCI launched service commercially in Hartford, Connecticut in
October 1996 and in Arlington Heights, Illinois on January 14, 1997. TCI is
currently testing the provision of residential telephony service over its cable
plant in Fremont, California, and anticipates commercially launching the
service there in the first quarter of 1997. TCI currently expects that its
residential telephony service will be available to 260,000 homes in these three
markets in the aggregate by the end of the first quarter of 1997.

TCI is positioning its product as a high quality, yet lower cost
alternative to conventional telephone service provided by the ILEC. In
addition, TCI believes that the technology it is deploying in these markets can
support more reliable service offerings and more responsive customer service
than that of the ILEC. TCI currently expects the residential telephony
service, if ultimately rolled out on a large scale basis, would be sold both
directly to residential and small business customers as well as indirectly,
via wholesale offerings, to other local market entrants.

The cost per subscriber of the residential telephony business is
directly impacted by the penetration rate achieved in a particular market (with
the penetration rate being the percentage that the number of subscribers to the
service in such market represents of the households technically capable of
subscribing to the service). Therefore, a key determinant of whether a
residential strategy is deployed will be TCI's evaluation of achievable
penetration rate levels.

The method of determining the purchase price for the ResTel Business,
and the arrangements between the Telephony Group and the TCI Group for the use
by TCI Telephony of the TCI Group's underlying cable plant to conduct the
ResTel Business, have not yet been determined. In making such determinations,
the Board will consider, among other things, the TCI Group's aggregate
investment (historically and through any upgrade for two-way service) in the
cable plant that TCI Telephony would use to conduct the ResTel Business, the
use of such plant by TCI's various subsidiaries or Groups (e.g., for cable
television, telephony and Internet services), including the use by the
Telephony Group of the underlying plant for the ResTel Business and the use by
the TCI Group of the upgraded plant for other two-way services (such as
Internet services and, if developed in the future, interactive television
services), and the ongoing costs to maintain the plant. The purchase price and
other arrangements between the Groups determined by the Board may or may not
reflect the terms and conditions that either Group might have obtained in an
arms'-length negotiation with a third party. It is currently anticipated that
if TCI Telephony exercises its right to acquire the ResTel Business, it will
enter into a long-term agreement with TCI for the use of the cable plant via
which it would conduct the ResTel Business and for the payment by TCI Telephony
of an allocated share of the costs to maintain such plant. The portion of
TCI's investment in the plant that the Board determines to allocate to the
Telephony Group may be included in the purchase price for the ResTel Business
or as a usage fee pursuant to such long-term agreement.

If TCI Telephony exercises its right to acquire the ResTel Business in
whole or in part, payment of the purchase price may be in funds generated by the
Telephony Group (whether through external financings, future operations or sales
of assets), in funds borrowed from TCI or otherwise through the issuance of debt
or preferred equity securities by TCI Telephony to TCI or other potential
financing opportunities, provided, that the Board of Directors has determined
that the payment of such purchase price will not be made through an increase in
the Inter-Group Interest of the TCI Group in the Telephony Group. Whether or
not TCI Telephony will exercise its rights to acquire the ResTel Business (in
whole or in part) will depend upon a number of factors, including the
penetration rates for the service in the geographic area or areas in which the
service has been commercially launched, the cost of providing the service at the
penetration rate achieved in that area, the price paid by TCI Telephony to
acquire such business from the TCI Group and pursuant to its arrangements with
the TCI Group regarding the use of the cable plant, and the ability of TCI
Telephony to fund the continued development and ongoing operation of the ResTel
Business in that area.

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WTCI

TCI Telephony also has the right to acquire TCI's interests in WTCI
Business, which provides long-distance transport of video, voice and data
traffic and other telecommunications services primarily to inter-exchange
carriers on a wholesale basis using a digital broadband microwave network
located throughout a 14-state region in the western United States. Such right
may be exercised at any time, provided that TCI Telephony is then a subsidiary
of TCI and TCI is then conducting such business, at a price based on the fair
market value of such business (as determined by the Board). WTCI's gross
revenues for the year ended December 31, 1995 were approximately $32 million,
of which approximately $24 million was attributable to wholesale carrier
revenues. For the nine months ended September 30, 1996, WTCI's gross revenues
were approximately $24 million, of which approximately $19 million was
attributable to wholesale carrier revenues.

GOVERNING AGREEMENTS

THE SPRINT PCS PARTNERSHIP AGREEMENT

The following sets forth a summary of certain provisions of the
Partnership Agreement. The following discussion is qualified in its entirety
by reference to the definitive terms and provisions of the Partnership
Agreement, which is an exhibit to the Registration Statement of which this
Prospectus constitutes a part.

Capital Contributions

The Percentage Interest of the applicable subsidiary of each of
Sprint, TCI, Comcast and Cox that is a Partner of Sprint PCS is 40%, 30%, 15%
and 15%, respectively. Each Partner is required, subject to the limitations
described below, to make capital contributions ("Additional Capital
Contributions") in cash and, in the case of the Partner that is a subsidiary of
Cox, the Cox Contributed Property (consisting of the Omaha MTA PCS license and
an undivided fractional interest in the PCS license for the Los Angeles-San
Diego MTA that ultimately will be held by Cox- California), in an amount up to
its initial Percentage Interest times an amount equal to $4.2 billion plus the
agreed upon value of the Cox Contributed Property (together, the "Total
Mandatory Contributions").

The Partnership Board and, under certain circumstances, the Chief
Executive Officer, may request that the Partners make Additional Capital
Contributions of cash in any fiscal year to fund the needs of the Partnership
for the ensuing six months (or for such shorter period as may be determined by
the Partnership Board) as such needs are reflected in the applicable annual
budget approved by the Partnership Board or as otherwise determined by the
Partnership Board, in each case by the affirmative vote of representatives to
the Partnership Board of general Partners with 75% or more of the Percentage
Interest entitled to vote on such matter. Such contributions, in the
aggregate, may not exceed the cumulative amount of Additional Capital
Contributions contemplated in the annual budget for such fiscal year, unless
otherwise approved by the Partnership Board. In addition, for fiscal 1997,
such Additional Capital Contributions shall not exceed approximately $1.57
billion, which represents the product of 150% times the planned capital amount
for such fiscal year ($767 million), plus any portion of the planned capital
amount for 1996 for which Additional Capital Contributions was not requested
($419 million), unless otherwise approved by a unanimous vote of the
Partnership Board. The amount so requested from each Partner by the
Partnership Board or the Chief Executive Officer (subject in any event to the
approval by the Partnership Board of an annual budget and business plan for
such fiscal year), as the case may be, shall be equal to such Partner's pro
rata share of such Additional Capital Contribution based upon its initial
Percentage Interest.

No Partner may decline a request that is validly made in accordance
with the foregoing provisions to make an Additional Capital Contribution at any
time prior to December 31, 1999, except to the extent such Additional Capital
Contribution, when added to the aggregate amount of capital contributions made
by such Partner prior to the time of such Additional Capital Contribution,
exceeds such Partner's share of the Total Mandatory Contributions. After the
earlier of (i) December 31, 1999 or (ii) such time as the aggregate amount of
contributions made or requested to be made

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by the Partners first equals or exceeds the Total Mandatory Contributions (the
"Cut-Off Time"), such Partner may decline a request for an Additional Capital
Contribution during any fiscal year, provided that none of such Partner's
Representatives (as defined below) on the Partnership Board voted in favor of
the fiscal year's budget calling for such Additional Capital Contribution and
none of such Representatives voted in favor of requesting such Additional
Capital Contributions. In the event of a shortfall due to a partner declining
(a "Declining Partner") to make an Additional Capital Contribution, the Chief
Executive Officer will request that those Partners that made their requested
Additional Capital Contributions in full make Additional Capital Contributions
in an aggregate amount equal to the amount not contributed by the Declining
Partner. Each Partner that is willing to fund the shortfall may do so up to
100% of such shortfall and if the amount committed by all Partners agreeing to
fund the shortfall exceeds 100%, except as otherwise provided in the following
sentence, each such Partner will be entitled to contribute that amount equal to
the percentage of the shortfall equal to the ratio that such Partner's
Percentage Interest bears to the aggregate Percentage Interests of the Partners
electing to find such shortfall. If the Declining Partner is a Cable Partner,
and no Cable Partner's Percentage Interest is equal to or greater than Sprint's
Percentage Interest, the shortfall first shall be allocated among the Cable
Partners that committed to find the shortfall as if Sprint had not so
committed, until such time as at least one Cable Partner's Percentage Interest
is equal to Sprint's Percentage Interest, after which such shortfall shall be
allocated pro rata among all Partners that committed to fund such shortfall in
accordance with their respective Percentage Interests.

If any Partner declines a request for an Additional Capital
Contribution relating to the first $800 million of Additional Capital
Contributions requested after the Cut-Off Time (a "Second Tranche Call") and
the Partnership Board determines that the Partners' aggregate adjusted net
equity in the Partnership (i.e., the amount that would be available for
distribution to the Partners upon liquidation of Sprint PCS if its assets were
sold for their fair market value and its liabilities were paid or discharged in
full) is less than the aggregate amount of capital contributions previously
made by the Partners, the Partnership Board may elect to convert such Second
Tranche Call to a "Premium Call," pursuant to which the Partners, including the
Declining Partner, will be given another opportunity to make the Additional
Capital Contributions requested pursuant to such Second Tranche Call. If any
Partner then declines to make its Additional Capital Contribution, all amounts
contributed by the other Partners pursuant to such Second Tranche Call shall be
treated as "Premium Dollars," meaning that, for purposes of adjusting the
contributing Partners' Percentage Interests, each such dollar will be valued,
at an amount equal to (i) one dollar ($1.00) divided by (ii) the quotient of
(x) the aggregate, adjusted net equity of all Partners divided by (y) the sum
of all previously made capital contributions and thereby increasing the
dilutive impact of the failure to make such Additional Capital Contribution on
the Declining Partner's Percentage Interest.

In the event that any Partner fails to make all or any portion of an
Additional Capital Contribution (other than an Additional Capital Contribution
that such Partner is entitled to decline to make under the circumstances
described above), a penalty will accrue with respect to such unpaid amount at
the applicable floating rate from and including the date of the requested
Additional Capital Contribution until such unpaid amount and the penalty
imposed thereon are paid or until the period during which such Partner (a
"Delinquent Partner") may cure its failure to make such Additional Capital
Contribution has expired. In the event such Partner fails to make the
requested Additional Capital Contribution and to pay the related penalty within
ten days after the date such Additional Capital Contribution was due, the Chief
Executive Officer will request that each Partner that made its respective
Additional Capital Contribution in full make loans to the Partnership in an
aggregate amount equal to the amount of the Additional Capital Contribution
that such Delinquent Partner failed to make. The amount of the loan that each
such Partner shall be entitled to make will be determined in the same manner as
described above with respect to the Additional Capital Contributions that the
Partners are entitled to make with respect to a shortfall caused by a Declining
Partner. Any such Delinquent Partner may cure its default within 90 days from
the date of the above-referenced loans by transferring to an account of the
Partnership an amount equal to the sum of the unpaid amount and the penalty
imposed thereon. The failure of such Delinquent Partner to cure such default
would result in such Partner becoming a "Defaulting Partner" and would
constitute an Adverse Act (as defined), which would permit the Partnership
Board to elect (i) to commence procedures to allow the other Partners to
purchase such Defaulting Partner's interest in the Partnership at a discount or
(ii) to cause the Partnership to seek to obtain specific performance of such
delinquent Partner's obligations or to sue for money damages.

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A Partner that declines to make an Additional Capital Contribution as
permitted by the Partnership Agreement shall not be deemed to be a Delinquent
Partner or Defaulting Partner as a result thereof.

The Percentage Interests of the Partners will be adjusted from time to
time to reflect the failure of any Partner to make an Additional Capital
Contribution. Percentage Interests will be adjusted as follows: (i) with
respect to Additional Capital Contributions requested prior to the time that
the aggregate amount of capital contributions made or requested to be made
exceeds the Total Mandatory Contributions, Percentage Interests will be
adjusted to reflect the aggregate capital contributions made by each Partner
relative to the aggregate amount of capital contributions made by all Partners,
(ii) with respect to an Additional Capital Contribution that is converted to a
Premium Call, Percentage Interests shall be adjusted based upon the Premium
Dollars procedures described above, and (iii) with respect to an Additional
Capital Contribution requested after the time that the aggregate amount of
capital contributions made or requested to be made exceeds $5 billion,
Percentage Interests will be adjusted on a pro rata basis to give effect to
each Partner's adjusted net equity in Sprint PCS (taking into account the
Additional Capital Contribution made by such Partner in response to the request
for Additional Capital Contributions to which such adjustment of Percentage
Interests relates).

In the event that TCI Telephony fails to make an Additional Capital
Contribution to Sprint PCS at a time when the adjustment provisions described
in clauses (i) or (ii) of the previous paragraph are in effect, TCI Telephony's
Percentage Interest will be diluted by a greater amount than TCI Telephony's
interest would be diluted were such Additional Capital Contributions valued on
the basis of the adjusted net equity of each Partner's interest in Sprint PCS
(assuming that such adjusted net equity exceeded the aggregate capital
contributions by each applicable Partner to the Partnership).

Management

The general Partners of Sprint PCS conduct the business and affairs of
Sprint PCS and have all the powers of Sprint PCS except for those specifically
reserved to all of the Partners (general and limited) by the Delaware Revised
Uniform Limited Partnership Act or the Partnership Agreement. The general
Partners conduct such business and exercise such powers through their
representatives on the Partnership Board (the "Representatives"). The
Partnership Board currently has six voting Representatives, three of whom are
currently designated by Sprint and one of whom is currently designated by each
of the Cable Partners. The Chief Executive Officer is a non-voting member of
the Partnership Board. In the event that the Percentage Interests change, the
Partnership Agreement provides for different allocations of Representatives
among the Partners and, in certain situations, a change in the size of the
Partnership Board, provided, however, that Sprint will be entitled to designate
two Representatives as long as its Percentage Interest is at least 20%.

The Representative or Representatives designated by each general
Partner have voting power equal to the voting Percentage Interest of the
Partner appointing him or them. The voting Percentage Interest of a Partner is
the percentage corresponding to the fraction, the numerator of which is the
Percentage Interest of such Partner, and the denominator of which is the
Percentage Interest of each Partner that is entitled to designate a
Representative to the Partnership Board. Based on TCI Telephony's current
Percentage Interest in the Partnership, the TCI Telephony's Representative on
the Partnership Board has a 30% voting Percentage Interest. If general Partner
designates more than one Representative such Representatives are required to
vote the entire voting power held by such general Partner as a single unit.
Except for Partners that are controlled affiliates of the same Parent, none of
the Partners may enter into any agreements with any other Partner (or its
controlled affiliates) regarding the voting of their respective Representatives
on the Partnership Board.

If any Partner becomes an Adverse Partner through, among other things,
failure to make a required capital contribution, default, disposition of its
partnership interest other than in accordance with the Partnership Agreement or
a material breach of a material covenant (or if a Partner otherwise becomes an
Exclusive Limited Partner), such Partner shall forfeit the right to designate a
member of the Partnership Board, and any existing Representatives of such
Partner

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shall cease to be members of the Partnership Board, subject to the right of
such Adverse Partner to regain such right to designate a Representative to the
Partnership Board in certain circumstances. See "THE SPRINT PCS PARTNERSHIP
AGREEMENT--ADVERSE ACT."

Except as set forth below, all actions required or permitted to be
taken by the Partnership Board must be approved by the affirmative vote of
Representatives having voting power of 75% or more of the Percentage Interests
entitled to vote on such action (other than those required to abstain pursuant
to the terms of the Partnership Agreement) (a "Required Majority Vote"). As a
result, except as set forth below and based on TCI Telephony's current voting
Percentage Interest, no action may be taken by the Partnership Board without
the consent of the TCI Telephony's Representative (other than any action
regarding a matter with respect to which TCI Telephony is required to abstain
pursuant to the terms of the Partnership Agreement). The decision to convert a
Second Tranche Call to a Premium Call and certain related matters require the
affirmative vote of a simple majority of the voting Percentage Interests of all
Partners whose Representatives are not required to abstain, with the result
that, based on TCI Telephony's current voting Percentage Interest, the
Partnership Board could take action with respect to such matters regardless of
the vote of TCI Telephony's Representative. The unanimous vote of the
Partnership Board is required for specified matters including, but not limited
to, admission of new Partners or equity holders, actions that would result in
voluntary bankruptcy or the dissolution of Sprint PCS or any subsidiary,
approval of transactions which would subject Sprint PCS to certain restrictions
relating to FCC regulatory oversight, actions relating to the incurrence of
indebtedness that is recourse to the Partners, certain acquisitions and
dispositions of assets and the approval of a request for withdrawal by a
general Partner.

The unanimous consent of all of the Partners (including Partners that
are Exclusive Limited Partners, but excluding Partners required to abstain
pursuant to the terms of the Partnership Agreement) is required for the
engagement by Sprint PCS in businesses outside those specified in the
Partnership Agreement or the conducting of business by Sprint PCS or its
subsidiaries in the Philadelphia MTA, the loan or advancement by Sprint PCS or
any subsidiary of funds to, or the guarantee of any obligations of, a Partner
or any affiliate thereof, the making of any non-pro rata cash or in-kind
distributions to a Partner other than in accordance with the terms of the
Partnership Agreement, the approval of, amendment, modification or supplement
to, procedures relating to the winding up of the affairs of the Sprint PCS and,
subject to certain exceptions, the incurrence of any debt for loans made by a
Partner or affiliate thereof and any amendment, modification or supplement to
the Partnership Agreement. If any such action is not so approved solely due to
the failure of one or more Partners who is not entitled to representation on
the Partnership Board to consent, the Partnership Agreement provides means by
which the consenting Partners may purchase all of such non-consenting Partner's
interest.

The Partnership Board is responsible for appointing the senior
management of the Partnership and its subsidiaries and for establishing
policies and guidelines for the hiring of employees by the Partnership and its
subsidiaries. The Partnership Board may delegate authority to officers,
employees, agents and representatives as it deems appropriate and each
Representative may authorize by proxy another person to vote for such
Representative at a Partnership Board meeting. The Partnership Board has
delegated to the Chief Executive Officer the responsibility for appointing the
senior management of the Sprint PCS and its subsidiaries.

The Chief Executive Officer shall submit annually to the Partnership
Board, within 90 days of the start of a fiscal year, both a proposed budget for
the upcoming fiscal year and a proposed business plan covering such fiscal year
and the succeeding four fiscal years. The day-to-day business and operations
of the Sprint PCS and its subsidiaries shall be conducted in accordance with
the approved business plan and annual budget then in effect and the policies,
strategies and standards established by the Partnership Board.

Deadlocks

A "Deadlock Event" shall be deemed to have occurred if (i) after
failing to approve a proposed budget or proposed business plan for one fiscal
year, the Partnership Board has failed to approve a proposed budget or proposed

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business plan for the next succeeding fiscal year prior to the commencement of
such succeeding fiscal year, or (ii) the position of Chief Executive Officer is
vacant for a period of more than sixty (60) days after at least two Partners
with an aggregate of at least thirty-three percent (33%) of the voting
Percentage Interests have proposed a candidate to fill such vacancy.

Upon the occurrence of a Deadlock Event, the general Partners shall
first use their good faith efforts to resolve such matter in a mutually
satisfactory manner. If, after such efforts have continued for twenty (20)
days, no mutually satisfactory solution has been reached, the general Partners
shall resolve the Deadlock Event as provided below:

(i) The general Partners shall (at the insistence of any of them)
refer to the chief executive officers of their respective Parents for
resolution.

(ii) Should the chief executive officers of the Parents fail to
resolve the matter within ten (10) days after it is referred to them, each
general Partner (or any group of general Partners electing to act together)
shall prepare a brief (a "Brief"), which includes a summary of the issue, its
proposed resolution of the issue and considerations in support of such proposed
resolution, not later than ten (10) days following the failure of the chief
executive officers to resolve such dispute, and such Briefs shall be submitted
to such reputable and experienced mediation service as is selected by the
Partnership Board by Required Majority Vote or, failing such selection, by the
Chief Executive Officer (the "Mediator"). During a period of twenty (20) days,
the Mediator and the general Partners shall attempt to reach a resolution of
the Deadlock Event.

(iii) In the event that after such twenty (20) day period (or such
longer period as the Partnership Board may approve by Required Majority Vote),
the general Partners are still unable to reach resolution of the Deadlock Event
(such resolution to be evidenced by the requisite vote of the Partnership Board
with respect to the underlying matters), the Deadlock Event shall constitute a
Liquidating Event unless the Partnership Board determines by Required Majority
Vote not to dissolve. See "--THE SPRINT PCS PARTNERSHIP AGREEMENT--Liquidating
Events."

As of January 13, 1997, the Partners had not yet approved an annual
budget or business plan for the fiscal year of Sprint PCS that commenced
January 1, 1997, although the Partners were continuing to discuss the terms and
provisions of such annual budget and business plan and the proposed terms and
conditions under which such budget and business plan may be approved. In the
event that no budget or business plan for Sprint PCS is approved for the fiscal
year that commenced January 1, 1997 and no such budget or business plan for the
fiscal year commencing January 1, 1998 is approved by January 1, 1998, a
Deadlock Event will be deemed to have occurred under the Partnership Agreement.
No assurance can be given that an annual budget or business plan will be
approved or that the failure of the Partners to approve such annual budget or
business plan, or the possible occurrence of a Deadlock Event, will not cause
a material disruption in the business and affairs of Sprint PCS or have a
material adverse effect on the business, financial condition or results of
operations of Sprint PCS and, accordingly, on the value of TCI Telephony's
investment in the PCS Ventures.

Liquidating Events. Sprint PCS will be dissolved upon the earliest to
occur of (i) the sale of all or substantially all of the property of Sprint
PCS, (ii) a unanimous vote of the Partnership Board to dissolve, wind up, and
liquidate Sprint PCS in accordance with the terms of the Partnership Agreement,
(iii) the failure of the general Partners to resolve a Deadlock Event and (iv)
the withdrawal of a general Partner, the assignment by a general Partner of its
entire interest or any other event that causes a general Partner to cease to be
a general partner under the Partnership Act; provided, that upon the occurrence
of the events set forth in clause (iv) above, Sprint PCS will not be dissolved
or required to be wound up if (x) at the time of such event there is at least
one remaining general Partner, or (y) if there is not at least one remaining
general Partner, within 90 days after such event all remaining Partners agree
in writing to continue the business of Sprint PCS and to the appointment,
effective as of the date of such event, of one or more additional general
Partners.

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Upon the occurrence of the events described in clauses (ii), (iii) and
(iv) above, and subject to the satisfaction of certain conditions, the
Partnership Agreement provides for buy/sell arrangements pursuant to which a
multiple round auction will be conducted whereby the general Partner or group
of general Partners that submits the highest bid (on a per 1% Percentage
Interest basis) will purchase for cash all of the partnership interests of the
other Partners. In the event such procedures fail to cause the sale of such
partnership interests in accordance with the buy/sell provisions (including in
the event that no general Partner or group of general Partners submits a bid
equal to or greater than the aggregate adjusted net equity of the other
Partners' partnership interests (on a per 1% Percentage Interest basis)), the
Partnership Board shall be responsible for overseeing the dissolution and
winding up of Sprint PCS, shall cause Sprint PCS's property to be liquidated
and shall apply and distribute the proceeds therefrom in accordance with the
terms of the Partnership Agreement.

Restrictions on Transfer of Interests. The Partnership Agreement
generally restricts any transfer or other disposition of an interest in Sprint
PCS, whether directly or indirectly (including in a transaction as a result of
which a Partner ceases to be a subsidiary of its Parent), except as otherwise
permitted by the Partnership Agreement. Subject to certain restrictions, a
Partner may at any time transfer all or a portion of its interest (i) to any
controlled affiliate of such Partner, (ii) in connection with a Permitted
Transaction (as defined herein) involving such Partner, (iii) to the
administrator or trustee of such Partner to whom such interest is transferred
in an involuntary bankruptcy, (iv) pursuant to and in compliance with certain
sections of the Partnership Agreement, including sections relating to Adverse
Acts, rights of first refusal, tag-along rights and rights of first offer and
registration rights and buy-sell arrangements, and (v) with the prior written
consent of the other Partners.

"Permitted Transaction" with respect to a Partner means a transaction
or series of related transactions in which (i) such Partner ceases to be a
subsidiary of its Parent or such Partner transfers its partnership interest to
a Person that is not a controlled affiliate of such Partner and (ii) the new
corporate parent of such Partner or the corporate parent of the transferee of
such Partner's partnership interest after giving effect to such transaction, or
the last transaction in a series of related transactions, owns, directly and
indirectly through its controlled affiliates, all or a Substantial Portion of
the cable television system assets (in the case of a Cable Partner) or long
distance telecommunications business assets (in the case of Sprint) owned by
the Parent of such Partner, directly and indirectly through its controlled
affiliates, immediately prior to the commencement of such transaction or series
or transactions. A "Substantial Portion" means (x) in the case of a Cable
Partner, cable television systems serving 75% or more of the aggregate number
of basic subscribers served by cable television systems in the United States of
America (including its territories and possessions other than Puerto Rico)
owned by the Parent of such Cable Partner, directly and indirectly through its
controlled affiliates, and (y) in the case of Sprint, long distance
telecommunications business assets serving 75% or more of the aggregate number
of customers served by the long distance telecommunications business in the
United States of America (including its territories and possessions other than
Puerto Rico) owned by the Parent of Sprint, directly and indirectly through its
controlled affiliates.

After March 1, 2000, a Partner may transfer all or any portion of its
partnership interest to a person that is not a controlled affiliate of such
Partner (a "Purchaser") provided that such Partner first offers to sell such
partnership interest or portion thereof to the other Partners and provided that
such transfer would not constitute an Adverse Act. If such Purchaser, together
with its controlled affiliates, after any such transfer (including an indirect
transfer resulting in a Partner becoming a controlled affiliate of such
Purchaser) would own more than 55% of the Percentage Interests, then the
transfer will not be permitted unless such Purchaser offers to purchase the
entire interest of any other Partner wishing to sell its interest at a price
equal to the price paid by such Purchaser to such Partner in such transfer (or
the adjusted net equity of such other Partner(s) in the case of an indirect
transfer).

Competitive Activities

Subject to certain exceptions, the Partnership Agreement restricts any
Partner and its controlled affiliates from bidding on, acquiring or, directly
or indirectly, owning, managing, operating, joining, controlling or financing,
or participating in the management, operation, control or financing of, or
being connected as a principal, agent,

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representative, consultant, beneficial owner of an interest in any person or
entity, or otherwise with, or use or permit its name to be used in connection
with, any Wireless Business that engages in the bidding for or acquisition of
any Wireless Business license or engages in any Wireless Business or provides,
offers, promotes or brands Wireless Exclusive Services. Unless approved by a
unanimous vote of the Partners and subject to certain provisions, (i) within
the Philadelphia MTA, Sprint PCS is prohibited from engaging in any of the
activities listed in the preceding sentence, including bidding for or acquiring
any PCS licenses and (ii) no Partner or its controlled affiliate shall bid in a
PCS auction for any Wireless Business license, and at no time may any Partner
bid for or acquire a Wireless Business license if such bid or acquisition would
violate or cause Sprint PCS or the other Partners to violate any rules of the
FCC.

In addition to certain other exceptions and subject to certain
limitations set forth therein, pursuant to the Partnership Agreement a Partner
or its controlled affiliate may engage in a Wireless Business notwithstanding
the foregoing restrictions if such Partner first offers to Sprint PCS the
opportunity to engage in such Wireless Business in lieu of such Partner in
accordance with the required procedures set forth in the Partnership Agreement.
Subject to such provisions, TCI may in the future be presented with certain
opportunities to make investments in other PCS service providers or other
entities engaged in the wireless telecommunications business or to otherwise
engage in the wireless telecommunications business in competition with TCI
Telephony and/or Sprint PCS, although TCI currently expects that such future
opportunities would be allocated to the Telephony Group.

Sprint PCS shall be entitled to preliminary and permanent injunctive
relief, without the necessity of proving actual damages or posting any bond or
other security, to prevent any breach of the foregoing restrictions on
Competitive Activities, which rights shall be cumulative and in addition to any
other rights or remedies to which the Sprint PCS may be entitled.

Pursuant to an agreement with Sprint (the "Parents Agreement"), the
ability of TCI and its controlled affiliates (including TCI Telephony) to offer
or promote, act as a sales agent for, or package certain of its cable
television services with, certain local or long distance telephony services
offered under the brand of certain ILECs and inter-exchange carriers (such as
AT&T) other than Sprint is restricted. Such agreement also limits the ability
of TCI and its controlled affiliates (including TCI Telephony) to make its
cable plant available to such ILECs and inter- exchange carriers for the
provision of local telephony services on an exclusive basis without making such
facilities similarly available to Sprint on comparable terms. Such agreement
has a five year term that commenced January 31, 1996; however, under certain
circumstances such agreement may terminate on January 31, 1999. Each of
Comcast and Cox has also entered in a form of Parents Agreement with Sprint
containing equivalent restrictions.

Adverse Act

Definition. Under the Partnership Agreement, the term "Adverse Act"
means, with respect to any Partner, any of the following:

(i) such Partner becomes a Defaulting Partner;

(ii) such Partner disposes of all or any part of its Interest in
Sprint PCS except as required or permitted by the Partnership Agreement;

(iii) subject to certain exceptions, such Partner has committed a
material breach of any material covenant contained in the Partnership Agreement
or a material default on any material obligation provided for in the
Partnership Agreement and such breach or default continues for thirty (30)
days;

(iv) The bankruptcy of such Partner or the occurrence of any other
event which would permit a trustee or receiver to acquire control of the
affairs or assets of such Partner;

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(v) subject to certain exceptions, such Partner ceases to be a
subsidiary of its Parent without the unanimous written consent of the other
General Partners (other than in connection with a Permitted Transaction);

(vi) Such Partner has become an "affiliate" (as defined in the
Partnership Agreement) of certain interexchange telecommunications carriers;

(vii) The occurrence of any certain events with respect to such
Partner (A) that causes such Partner or the Partnership or any of its
subsidiaries to become a "BOC" or (B) that causes Sprint PCS or any of its
subsidiaries to become a "Bell Operating Company Affiliated Enterprise" or an
entity subject to any restriction or limitation under Section II of the
"Modified Final Judgment"; or

(viii) Such Partner otherwise causes a dissolution of Sprint PCS in
contravention of the terms of the Partnership Agreement (other than solely by
reason of the bankruptcy of such Partner).

Remedies. Subject to certain limitations, if an Adverse Act has
occurred with respect to any Partner, (x) in the case of an Adverse Act
specified in clause (vii) of the definition of such term, any general Partner
may elect or (y) in the case of any other Adverse Act, the Partnership Board
(with the Representatives of the affected Partner abstaining) may elect (i) to
cause Sprint PCS to commence the procedures specified for the purchase of the
Adverse Partner's interest in the Sprint PCS Partnerships at a discount (which
purchase price in the case of a Defaulting Partner would be the lesser of 90%
of the net equity of the interest of the applicable Partner and 80% of such
Partner's capital contributions (less any prior distributions to such
Partner)); or (ii) to cause Sprint PCS to seek to enjoin such Adverse Act or to
obtain specific performance of the Adverse Partner's obligations or damages in
respect of such Adverse Act. Subject to certain exceptions, the failure to
elect to pursue one of the available remedies with respect to an Adverse Act
within the time period specified in the Partnership Agreement will constitute a
waiver of such remedies with respect to such Adverse Act.

Business Relationships with Partners

The Partnership Agreement provides that the marketing channels of
Sprint PCS will include each of the Partners and certain of their affiliates.
Each of the Partners will be non-exclusive sales agents for Sprint PCS's
services and Sprint PCS will be a non-exclusive sales agent for those services
Sprint and the Cable Parents make available to Sprint PCS. Any commissions
payable as a result of the sales agency relationships between and among Sprint
PCS and the Partners are required to be no less favorable to the agent than
those for comparable agency arrangements with third parties. Subject to
certain exceptions, Sprint PCS's services will be offered, promoted and
packaged solely under the Sprint trademark and the logo used in connection
therewith. Other than the restrictions described above relating to Wireless
Exclusive Services, nothing in the Partnership Agreement precludes or prohibits
the Partners and their affiliates from marketing, selling or distributing their
own products and services.

The Partnership Agreement provides that each Partner and its
controlled affiliates and Sprint PCS (each a "Restricted Party"), shall cause
their respective officers and directors (in their capacity as such) to, and
shall take all reasonable measures to cause their respective employees,
attorneys, accountants, consultants and other agents and advisors
(collectively, and together with their respective officers and directors,
"Agents") to, keep secret and maintain in confidence all confidential and
proprietary information and data of Sprint PCS and the other Partners or their
affiliates disclosed to it (in each case, a "Receiving Party") in connection
with the formation of Sprint PCS and the conduct of Sprint PCS's business (the
"Confidential Information") and shall not, shall cause their respective
officers and directors not to, and shall take all reasonable measures to cause
their respective other Agents not to, disclose Confidential Information to any
person other than the Partners, their controlled affiliates and their
respective Agents that need to know such Confidential Information, or Sprint
PCS. Each Partner has also agreed that it shall not use the Confidential
Information for any purpose other than monitoring and evaluating its
investment, determining and performing its obligations and exercising its
rights under the Partnership Agreement. Sprint PCS and each Partner have also
agreed to take all reasonable measures necessary to prevent any unauthorized
disclosure of the Confidential Information by any

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of their respective controlled affiliates or any of their respective Agents.
The measures taken by a Restricted Party to protect Confidential Information
shall not be deemed unreasonable if the measures taken are at least as strong
as the measures taken by the disclosing party to protect such Confidential
Information. Subject to such confidentiality restrictions, Sprint PCS and its
subsidiaries shall grant each Partner and its controlled affiliates access to
technical information of Sprint PCS and its subsidiaries.

Subject to certain conditions, including without limitation, unanimous
approval of appropriate procedures, the Partnership Board may elect from time
to time to provide rights of first opportunity to provide various services to
Sprint PCS to various Partners or their affiliates. Pursuant to the
Partnership Agreement, each Partner has agreed to provide certain services to
Sprint PCS in connection with the operation of the network, including antenna
sites and/or strand mounting of RF and transmission equipment, transmission
facilities between cell sites and designated switching locations and provision
of primary power, standby power and maintenance. The provisions of any such
services by Comcast within the Philadelphia MTA and certain surrounding areas
in Pennsylvania, New Jersey, Delaware and Maryland is not required.

The Partnership Agreement also provides that the Partners and Sprint
PCS will coordinate, to the extent permitted by law and as is commercially
reasonable, their respective buying efforts from third party vendors.

Interested Party Transactions

Pursuant to the Partnership Agreement, any contract, agreement,
relationship or transaction between Sprint PCS or any of its subsidiaries, on
the one hand, and any Partner or any person in which a Partner (or any of its
Controlled Affiliates) has a direct or indirect material financial interest
(other than Sprint PCS, PhillieCo and their respective subsidiaries) or which
has a direct or indirect material financial interest in such Partner, on the
other hand (an "Interested Person"), shall be approved and all decisions with
respect thereto must be made (after full disclosure by the interested Partner
of all material facts relating to such matter) by the Partnership Board (with
the Representatives of the interested Partner(s) being absent from the
deliberations and abstaining from the vote with respect thereto) by the
requisite affirmative vote of the Representatives of the disinterested General
Partners. For purposes of the foregoing, a disinterested General Partner is a
General Partner that is not a party to, and does not have an Interested Person
that is a party to, the contract, agreement, relationship or transaction in
question.

Certain Additional Covenants

Each Cable Partner has agreed that for so long as such Cable Partner
is a Partner during the term of the Parents Agreement to which the Parent of
such Cable Partner is a party, neither it nor any of its controlled affiliates
will engage in any transaction or series of related transactions, other than a
Permitted Transaction, in which cable television system assets owned, directly
or indirectly, by the Parent of such Partner are transferred if, after giving
effect to such transaction or the last transaction in such series of related
transactions, the number of basic subscribers served by the cable television
systems in the United States of America (including its territories and
possessions other than Puerto Rico) owned by the Parent of such Partner,
directly and indirectly through its controlled affiliates, is equal to
twenty-five per cent (25%) or less of the number of basic subscribers served by
the cable television systems in the United States of America (including its
territories and possessions other than Puerto Rico) owned by the Parent of such
Partner, directly and indirectly through its controlled affiliates, before
giving effect to such transaction or the first transaction in such series of
related transactions.

Sprint has also agreed for so long as Sprint is a Partner during the
term of any Parents Agreement, neither it nor any of its controlled affiliates
will engage in any transaction or series of related transactions, other than a
Permitted Transaction, in which long distance telecommunications business
assets owned directly or indirectly by Sprint are transferred if, after giving
effect to such transaction or the last transaction in such series of related
transactions, the number of customers served by the long distance
telecommunications business in the United States of America (including its
territories and possessions other than Puerto Rico) owned by Sprint, directly
and indirectly through its

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controlled affiliates, is equal to twenty-five percent (25%) or less of the
number of customers served by the long distance telecommunications business in
the United States of America (including its territories and possessions other
than Puerto Rico) owned by Sprint, directly or indirectly through its
Controlled Affiliates, before giving effect to such transaction or the first
transaction in such series of related transactions.

Termination of Status as General Partner. A general Partner will
cease to be a general Partner (and, in the case of an event described in (iii)
or (iv) below, will become an "Exclusive Limited Partner") upon (i) the
permitted transfer of such Partner's entire interest as a Partner, (ii) the
unanimous vote of the Partnership Board approving a request by such general
Partner to withdraw, (iii) any Adverse Act with respect to such Partner or (iv)
such Partner's failure to satisfy an 8% minimum ownership requirement.

An Exclusive Limited Partner does not have any right or power to take
part in the management or control of Sprint PCS or its business and affairs or
to act for or bind Sprint PCS in any way. The Exclusive Limited Partners shall
have the right to vote only on the matters specifically reserved for the vote
or approval of Partners (including the Exclusive Limited Partners) set forth in
the Partnership Agreement.

Conversion to Corporate Form

In the event that the Partnership Board determines by a Required
Majority Vote that it is desirable or helpful for the business of Sprint PCS to
be conducted in a corporate rather than in a partnership form (for the purposes
of conducting a public offering or otherwise), the Partnership Board will cause
Sprint PCS to incorporate in Delaware. In connection with any incorporation of
Sprint PCS pursuant to the preceding sentence, the Partners will receive, in
exchange for their interests in the Sprint PCS Partnerships shares of capital
stock of such corporation having the same relative economic interests (defined
in terms of net equity) and other rights as such Partners hold at such time in
Sprint PCS as set forth in the Partnership Agreement. The relative number of
representatives on the board of directors of such corporation and relative
voting power of the outstanding equity interests of such corporation of each
general Partner shall be as nearly as practicable in proportion to the relative
voting Percentage Interests of the general Partners immediately prior to such
incorporation. At the time of such conversion, the Partners will enter into a
stockholders' agreement providing for (i) rights of first refusal and other
restrictions on transfer equivalent to those set forth in the Partnership
Agreement, provided that (x) the restrictions on transfer shall not apply,
following the initial public offering by the corporate successor to the Sprint
PCS Partnerships, to sales in broadly disseminated public offerings or sales in
accordance with Rule 144 under the Securities Act or Rule 145 under the
Securities Act (in accordance with the applicable provisions of Rule 144) (or
any successor to either of such Rules), in a transaction that satisfies the
manner of sale requirements of Rule 144 or Rule 145 (whether not applicable to
such sale) and (y) the "tag-along" rights described above shall not apply
following such conversion to corporate form, and (ii) an agreement to vote all
shares of capital stock held by them with respect to the election of directors
of the corporation so as to duplicate as closely as possible the management
structure of Sprint PCS.

Upon conversion to corporate form, the corporate successor to Sprint
PCS shall grant to each of the Partners preemptive rights with respect to
certain additional issuances of equity securities by such corporate successor
(subject to exceptions set forth in the Partnership Agreement) and certain
rights to require such successor to register under the Securities Act the
shares of capital stock received by the Partners in exchange for their
Interests. Such registration rights shall be as approved by a Required
Majority Vote of the Partnership Board.

After August 1, 2003, each Partner has the right to cause Sprint PCS
to convert to corporate form pursuant to the provisions described above if it
has determined to sell all or a portion of the stock it would receive for its
interest in Sprint PCS upon such conversion and the other Partners do not elect
to purchase such interest for its appraised value in accordance with the
applicable provisions of the Partnership Agreement.

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TELEPORT STOCKHOLDERS AGREEMENT

Subsidiaries of TCI, Cox, Comcast and Continental are parties to the
Stockholders Agreement with Teleport which provides for, among other things,
the corporate governance of Teleport, certain registration rights and certain
transfer restrictions relating to sales and conversions of shares of Teleport
Class B Stock. The Stockholders Agreement provides that at each annual meeting
of Teleport's stockholders at which directors are elected, the holders of the
Teleport Class B Stock will vote their shares in favor of nominees for director
to be designated as follows: (i) the holders of Teleport Class B Stock will
designate ten nominees (with the right of a holder of Teleport Class B Stock to
designate one or more nominees depending on the percentage of the Teleport
Class B Stock held by it), (ii) the Board of Directors of Teleport will
designate by unanimous consent the Chief Executive Officer of Teleport as a
nominee and (iii) the Board of Directors with the unanimous approval of the
holders of Teleport Class B Stock that have the right to designate nominees for
director shall designate two individuals who are neither employed by nor
affiliated with TCG or any holder of Teleport Class B Stock as nominees for
director. Under the Stockholders Agreement, a holder of Teleport Class B Stock
generally is entitled to designate one director nominee for each 9% of the
outstanding shares of Teleport Class B Stock held by it and its affiliates. As
a result of its merger with US WEST, the ability of Continental (or its
successor) to designate any directors is limited in accordance with the terms
of the Stockholders Agreement. Pursuant to the Stockholders Agreement, TCI
Telephony is currently entitled to designate four directors for election to the
Board of Directors of Teleport.

The Stockholders Agreement prohibits any transfer of Teleport Class B
Stock held by the parties thereto, unless expressly permitted under the terms
thereof. Parties to the Stockholders Agreement have certain rights of first
offer and rights of first refusal thereunder with respect to proposed sales of
the Teleport Class B Stock.

Each holder of Teleport Class B Stock has the right to sell all or a
part of its Teleport Class B Stock upon receiving a bona fide offer from an
unaffiliated third party, subject to giving notice to the other holders of
Teleport Class B Stock who have designated at least one director, which notice
shall contain an offer to sell such stock to such other holders of Teleport
Class B Stock on the terms and conditions set forth in the offer from the third
party. Subject to certain limitations, the non-selling holders of Teleport
Class B Stock have the right to purchase pro rata all, but not less than all,
of the Teleport Class B Stock offered. If the non-selling holders of Teleport
Class B Stock do not purchase all of the Teleport Class B Stock offered, the
offering holders of Teleport Class B Stock may sell the Teleport Class B Stock
to the third party on the terms contained in the offer made to the other
holders of Teleport Class B Stock. However, unless the amount of Teleport
Class B Stock is sufficient to entitle the transferee to designate a nominee
for director under the Stockholders Agreement (i.e., the total percentage of
Teleport Class B Stock that would be held by the transferee and certain of its
affiliates is at least nine percent) and the transferee agrees to become a
party to the Stockholders Agreement, any Teleport Class B Stock included in the
stock being sold must be converted to Teleport Class A Stock prior to such
transfer.

If any party desires to convert Teleport Class B Stock to Teleport
Class A Stock, it must first offer that stock to the other holders of Teleport
Class B Stock who have designated at least one director. If such other holders
do not elect to buy such stock, then such stock can be converted to Class A
Common Stock and sold by the selling stockholder free of restrictions under the
Stockholders Agreement.

Under the terms of the proposed Final Judgment, US WEST is required to
divest a portion of Continental's interest in TCG sufficient to cause it to own
less than 10% of the outstanding shares of TCG common stock on or before June
30, 1997, and to divest any remaining portion of its interest in TCG on or
before December 31, 1998. Such divestiture will be subject to the right of
first offer provisions of the Stockholders Agreement described above.

The parties to the Stockholders Agreement will have demand
registration rights on the following terms: (i) such parties collectively will
have the right to make one demand per year (with any such party having the
right to make such demand), (ii) the amount which can be sold pursuant to any
demand may be limited if the managing underwriter selected by Teleport with the
approval of the party to the Stockholders Agreement that has included the
largest number

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of shares in the registration advises Teleport that marketing factors require a
limitation of the number of shares to be underwritten and (iii) if the amount
determined pursuant to clause (ii) is less than the aggregate amount which such
parties want to sell in such offering, each such party will have the right to
sell its pro rata portion of the maximum amount; provided, however, that during
the period ending January 3, 2000, Continental will have a priority claim in
specified percentages of the amount specified in clause (ii) above and the
balance will be split proportionately among the other stockholders which are a
party to the Stockholders Agreement. The parties to the Stockholders Agreement
participating in the registration must reimburse Teleport for its out-of-pocket
expenses incurred in connection with any such demand registration.

TCI, Cox, Comcast and Continental currently own 37.2%, 29.8%, 19.5%
and 13.5%, respectively, of the outstanding Teleport Class B Stock.

The Stockholders Agreement will terminate when the aggregate voting
power of the Teleport Class B Stock represents less than 30% of the aggregate
voting power of all outstanding common stock of Teleport.

GOVERNMENT REGULATION

PCS INVESTMENTS

The wireless PCS activities of the PCS Ventures are subject to
regulation at the federal and, in certain respects, at the state and local
level. The FCC regulates the licensing, construction, operation, acquisition
and interconnection arrangements of wireless telecommunications systems in the
United States under the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 (the "Communications Act"). Pursuant to the
Communications Act, the FCC has promulgated a series of rules, regulations and
policies to (i) grant or deny licenses for PCS frequencies, (ii) grant or deny
PCS license renewals, (iii) rule on assignments and/or transfers of control of
PCS licenses, (iv) govern the interconnection of PCS networks with other
wireless and wireline carriers, (v) impose fines and forfeitures for violations
of any of the FCC's rules and (vi) regulate the technical standards of PCS
networks.

Federal Regulation

PCS Licensing. The FCC has established service areas for PCS
throughout the United States and its possessions and territories based upon the
Rand McNally market definition of 51 MTAs and 493 smaller BTAs. At least two
BTAs are contained within each MTA.

The FCC has allocated 120 MHz of radio spectrum in the 1850 to 1990
MHz band, divided into six separate spectrum blocks, for licensed broadband PCS
services. The A and B Blocks are 30 MHz each and are allocated to the 51 MTAs.
The FCC sponsored auctions for the A and B Blocks that ended in March 1995, and
the FCC granted the A and B Block licenses in June 1995.

The remaining blocks, C (30 MHz), D (10 MHz), E (10 MHz), and F (10
MHz), are allocated to the 493 BTAs. The C Block auctions ended on May 6,
1996. Sprint PCS did not participate in the C Block auctions or the ongoing F
Block auctions, as these licenses are available only to small businesses and
other designated entities. Sprint is currently participating in the FCC's
ongoing D and E Block auctions and is actively bidding on licenses for markets
where Sprint PCS does not currently have license coverage.

Eventually, a PCS license will be awarded for each block in every MTA
or BTA for a total of more than 2,000 licenses. The licenses in each block
collectively cover the United States and its territories. Therefore, any one
location may have up to six PCS service providers who own a license to serve
that location, in addition to the two incumbent cellular license holders. It
is expected that some or all of the PCS license holders who offer services will
be in competition with Sprint PCS.

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In November 1996, in response to Congressional directives, the FCC
proposed to create a new wireless communications service in the 2.3 GHz band
that would allow licensees to provide a broad range of wireless services,
potentially including PCS services. The FCC proposes to award these licenses
through competitive bidding. The FCC is currently in the process of reviewing
comments in response to its proposal.

The FCC recently revised its rules regarding spectrum aggregation
limits that may affect PCS licensees. The FCC currently prohibits a single
entity from having a combined attributable interest (20% or greater interest in
any license) in broadband PCS, cellular and SMR licenses totaling more than 45
MHz in any geographic area with significant overlap (i.e., 10 percent or more).
Certain of the commenters in the FCC's 2.3 GHz proceeding have proposed that
the current 45 MHz CMRS spectrum cap should be relaxed or eliminated.

Pioneer's Preference Program. Sprint PCS has a non-controlling equity
interest in APC, one of three recipients of an FCC broadband PCS Pioneer's
Preference license ("Pioneer's Preference") which effectively reduces the cost
of a license by awarding it outside of the auction process. Sprint PCS has
also acquired a 49% interest in Cox-California, which will hold a broadband PCS
Pioneer's Preference license awarded to Cox. Following several parties'
unsuccessful legal challenges in the United States Court of Appeals for the
District of Columbia Circuit to the FCC's awards of Pioneer's Preferences, the
FCC in March 1996 ruled that the Pioneer's Preference licensees must begin
making installment payments on their licenses. The FCC has determined that Cox
and APC, who were not required to participate in the PCS auctions, nonetheless
must pay, respectively, approximately $252 million, plus interest, for the Los
Angeles-San Diego MTA license and approximately $102 million, plus interest,
for the Washington, Baltimore MTA license over a five-year period.

Transfers and Assignments of PCS Licenses. Pursuant to the
Communications Act, the FCC must give prior approval to the assignment or
transfer of control of a PCS license. In addition, the FCC has established
transfer disclosure requirements that require licensees that assign or transfer
control of a PCS license within the first three years to file associated
contracts for sale, option agreements, management agreements or other documents
disclosing the total consideration that the applicant would receive in return
for the transfer or assignment of the license. Additional restrictions apply
to transfers of C and F Block PCS licenses. Non-controlling interests in an
entity that holds a PCS license or PCS networks generally may be bought or sold
without prior FCC approval.

Foreign Ownership Restrictions. The Communications Act restricts
foreign investment in and ownership of certain FCC radio licensees, including
PCS licensees. Non-United States citizens or their representatives, foreign
governments or their representatives, or corporations organized under the laws
of a foreign country may not own more than 20% of a common carrier PCS licensee
directly or more than 25% of the parent of a common carrier PCS licensee. If
it would serve the public interest, the FCC has the authority to permit the
parent of the licensee to exceed the 25% limit. However, the FCC lacks the
authority to permit a licensee itself to exceed the 20% limit on foreign
ownership. If an entity fails to comply with the foreign ownership
requirements, the FCC may order the entity to divest alien ownership to bring
the entity into compliance with the Communications Act. Other potential
sanctions include fines, a denial of renewal or revocation of the license.

Conditions on PCS Licenses. All PCS licenses are granted for 10-year
terms conditioned upon timely compliance with the FCC's buildout requirements.
Pursuant to the FCC's buildout requirements, all 30 MHz broadband PCS licensees
must construct facilities that offer coverage to one-third of the population of
their service area(s) within five years of their initial license grant(s) and
to two-thirds of the population within 10 years. Holders of 10 MHz PCS
licenses in the D, E, and F Blocks must provide coverage to one-quarter of the
population in their licensed area (or make a showing of "substantial service"
in their licensed area) within five years of their initial license grant.
Licensees that fail to meet the buildout requirements may be subject to license
forfeiture. Rule violations could result in license revocations, forfeitures
or fines.

PCS License Renewal. PCS licensees can renew their licenses for an
additional 10 years. PCS renewal applications are not subject to auctions.
However, under the FCC's rules, third parties may oppose renewal applications

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and/or file competing applications. If one or more competing applications are
filed, a renewal application will be subject to a comparative renewal hearing.
The FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is applicable
if the PCS renewal applicant has: (i) provided "substantial" service during
its license term; and (ii) substantially complied with all applicable FCC rules
and policies as well as the Communications Act. The FCC's rules define
"substantial" service as service that is sound, favorable and substantially
above the level of mediocre service that might minimally warrant renewal.

FCC Relocation Requirements. The spectrum allocated by the FCC for
PCS services is now occupied by existing microwave facilities. PCS licensees
must relocate such incumbent microwave facilities operating on the same
frequencies to avoid interference problems. The FCC's rules require the PCS
licensee to provide the microwave licensee with comparable facilities at the
PCS licensee's own expense and to ensure the facilities are "equal to or
superior to existing facilities." In order to encourage parties to negotiate
relocation agreements, the FCC's rules require, for existing licensees other
than public safety agencies, a two-year voluntary negotiation period followed
by a one-year mandatory negotiation period if voluntary negotiations fail.
Separate negotiation periods are applicable to public safety agencies, which
are entities dedicating a majority of their communications systems for police,
fire or emergency medical services operations involving safety of life and
property. The FCC's rules require public safety agencies to undertake a
three-year voluntary negotiation period followed by a two-year mandatory
negotiation period, if necessary. If an agreement is not reached, the
incumbent microwave licensee may be involuntarily relocated provided that the
PCS licensee pays for comparable facilities. The FCC recently revised its
microwave relocation rules to clarify permissible relocation costs that must be
assumed by PCS licensees during the mandatory period and to implement new
procedures for the sharing of relocation costs where the relocation of private
microwave facilities benefits multiple broadband PCS licensees. The FCC
currently is considering comments submitted in response to an April 1996
Further Notice of Proposed Rulemaking addressing various relocation issues,
including whether the Commission should shorten relevant voluntary negotiation
periods by one year and lengthen mandatory negotiation periods by one year for
PCS licensees in Blocks C through F.

The Telecommunications Act of 1996. As noted earlier, the 1996 Act is
designed to create a procompetitive, deregulatory national policy to accelerate
competitive development of telecommunications offerings, expand the
availability of telecommunications services to all segments of the public and
streamline regulation of the telecommunications industry by removing regulatory
burdens. A number of specific provisions of the 1996 Act are expected to
affect PCS service providers.

LEC/PCS Interconnection. Under the 1996 Act both the FCC and state
PUCs regulate the terms of interconnection between broadband PCS networks and
the networks of local exchange carriers. The FCC recently issued new
interconnection rules that generally require symmetrical reciprocal rates for
the transport and termination of local telecommunications traffic between a PCS
network and a local exchange carrier's network, i.e., the PCS provider and
local exchange carrier pay each other the same rate for transporting and
terminating local traffic that originates on the other's network. Under the
new rules, interconnection agreements negotiated between PCS providers and
local exchange carriers will be subject to state PUC approval. Local exchange
carrier rates for transport and termination of local traffic can be set on the
basis of (1) forward looking economic costs; (2) interim default proxies until
cost studies can be completed, set at no less than 0.2 ($0.002) and not more
than 0.4 ($0.004) cents a minute for end-office termination of local
telecommunications calls (the default ceiling for tandem switching is $0.0015
per minute, plus applicable charges for transport from the tandem switch to the
end office); or (3) bill-and-keep arrangements that allow the two carriers to
terminate each other's calls without charge. Bill-and-keep arrangements
require that local traffic is roughly balanced between the two networks and
that the PCS carrier has not shown that its costs exceed those of the local
exchange carrier's rates for transport and termination for local calls.
Interconnection agreements negotiated between PCS providers and local exchange
carriers are subject to state PUC approval.

The FCC order adopting the new rules is the subject of petitions for
review which are currently pending before the U.S. Court of Appeals for the
Eighth Circuit. In October 1996, the Court of Appeals issued an order staying
the pricing rules adopted by the FCC in its order, pending a final decision on
the pending appeals. Subsequently, the Court

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of Appeals issued an order lifting its stay to allow implementation of certain
of the FCC rules (i) providing for reciprocal compensation for the transport
and termination of local telecommunications traffic between LECs and other
carriers, including wireless PCS providers, (ii) barring LECs from charging
other carriers, including PCS providers, for terminating LEC-originated
traffic, and (iii) allowing CMRS providers to renegotiate without penalty
pre-existing interconnection agreements that do not provide for reciprocal
compensation. Implementation of the FCC pricing rules which remain subject to
the Court of Appeals stay order has been suspended until the Eighth Circuit
rules on the merits of the pending appeals.

PCS Provider Interconnection Obligations. Under the 1996 Act, all
telecommunications carriers, likely including broadband PCS providers, must
interconnect with other carriers, at least indirectly. The 1996 Act also
imposes a detailed list of obligations upon LECs including resale, number
portability, dialing parity, access to poles, ducts, conduits, and
rights-of-way and reciprocal compensation. Providers of CMRS, including PCS,
are not considered LECs under the 1996 Act, except to the extent that the FCC
finds that such classification is appropriate. To date, the FCC has refrained
from classifying CMRS providers as LECs for purposes of interconnection.

Review of Universal Service Requirements. Although the 1996 Act
contemplates that all telecommunications carriers providers will "make an
equitable and non-discriminatory contribution" to support the cost of providing
universal service, the FCC is authorized to exempt carriers if their
contribution would be de minimis. In November 1996, the Federal-State Joint
Board released its recommendations concerning implementation of the universal
service provisions of the 1996 Act. The Joint Board has recommended that all
providers of interstate telecommunications services, including wireless
services, shall be required to contribute to the support of federal universal
service programs, and that any telecommunications carrier, including cellular
or PCS providers, that meets the criteria for eligibility established in the
1996 Act, should be eligible to receive universal service support. The FCC is
currently in the process of reviewing public comments addressing the Joint
Board's recommendations. The FCC is required to adopt final rules implementing
the universal service provisions of the 1996 Act on or before May 8, 1997.

Wireless Facilities Siting. Under the 1996 Act, states and localities
cannot regulate the placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. In addition, so long as a wireless system complies with the FCC's
rules, the 1996 Act prohibits states and localities from using environmental
effects as a basis to regulate the placement, construction or operation of
wireless facilities.

Equal Access. Under the 1996 Act, wireless providers are not required
to provide equal access to common carriers for toll services. However, the FCC
is authorized to require unblocked access to toll carriers under appropriate
circumstances. To date, the FCC has not exercised this authority.

Disabled Access. In addition, the 1996 Act requires all
telecommunications carriers to ensure that their services are accessible to and
useable by persons with disabilities, if readily achievable. Pursuant to
Section 255 of the 1996 Act, the FCC is to work with the Architectural and
Transportation Barriers Compliance Board ("Access Board"), which is required
within 18 months of enactment (i.e., by August 8, 1997) to develop guidelines
for accessibility of telecommunications equipment and customer premises
equipment in conjunction with the Commission. In September 1996, the FCC
issued a Notice of Inquiry inviting comments addressing jurisdictional and
definitional issues, as well as implementation and enforcement issues, with
respect to the statutory obligations imposed on telecommunications services
providers and manufacturers under Section 255. The Commission's notice seeks
to develop a record to assist the Access Board in the development of equipment
accessibility guidelines, and also requests comments on related service
accessibility issues.

Other FCC Requirements. In June 1996, the FCC adopted rules
prohibiting broadband PCS providers from unreasonably restricting or
disallowing resale of their services or unreasonably discriminating against
resellers. Resale obligations will automatically expire five years after the
FCC has concluded its initial round of licensing of currently allocated
broadband PCS spectrum. The FCC is expected to conclude its initial licensing
round by early 1997. The FCC

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currently is considering whether wireless providers should be required to offer
unbundled communications capacity to resellers who intend to operate their own
switching facilities.

The FCC recently extended an existing rule to require broadband PCS
and other CMRS providers to provide "manual" roaming service that allows
customers of one wireless provider to obtain service while roaming in another
wireless provider's service area. Such customers must first establish a
service relationship with the host system, by, for example, supplying a valid
credit card number to the host system. In addition, the FCC is considering
whether broadband PCS and other CMRS providers should be required also to offer
"automatic" roaming agreements on a non- discriminatory basis that would allow
customers to roam by simply turning on their handsets in a host market.

In June 1996, the FCC adopted rules permitting broadband PCS networks
and other CMRS providers to provide wireless local loop and other fixed
services that would compete directly with the wireline services of LECs. The
FCC currently is considering comments submitted in response to a Further Notice
of Proposed Rulemaking, addressing the proper regulatory classification of
these fixed use offerings. In its Further Notice, the Commission proposed to
establish a presumption that CMRS licensees' fixed service offerings would be
regulated as CMRS and sought comment on what factors should be used to support
or rebut such a presumption. In June 1996, the FCC adopted rules requiring
broadband PCS and other CMRS providers to implement enhanced emergency 911
capabilities within 18 months after the effective date of the FCC's rules.

In December 1996, the FCC adopted proposed rules permitting geographic
partitioning and spectrum disaggregation for PCS licenses. Pursuant to the
Commission's order, broadband PCS licensees in the A, B, D, and E blocks may
partition their license areas and/or disaggregate their spectrum blocks at any
time to entities that meet certain minimum eligibility requirements, including
compliance with the foreign ownership limits imposed under Section 310(b) of
the Communications Act. In addition, the FCC has issued a rulemaking notice
seeking comment on whether to permit partitioning and disaggregation for
cellular and other wireless services, to the extent that such rules have not
already been proposed or adopted.

Sprint PCS may use common carrier point-to-point microwave and
traditional landline facilities to connect cell sites and to link them to their
respective main switching offices. The FCC will license separately these
microwave facilities and regulates the technical parameters and service
requirements of these facilities.

Other Federal Requirements. Wireless systems must comply with certain
FCC and FAA regulations regarding the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause wireless networks to become subject to regulation under
the National Environmental Policy Act.

The Communications Assistance for Law Enforcement Act of 1994 (CALEA),
requires all telecommunications carriers, including wireless carriers, as of
October 1998, to ensure that their equipment is capable of permitting the
government, pursuant to a court order or other lawful authorization, to
intercept any wire and electronic communications carried by the carrier to or
from its subscribers and to access certain "call-identifying information" that
is reasonably available to the carriers.

Radio Frequency Emission Concerns; Medical Device Interference. In
August 1996, the FCC adopted revised guidelines and methods for evaluating the
environmental effects of RF emissions from FCC-regulated transmitters,
including cellular and PCS antennas and telephones, based on recommendations by
several federal agencies, including the EPA and the FDA. The new requirements
are generally more stringent than the requirements in effect prior to the FCC's
action. In response to requests by PCIA and other affected industry groups,
the FCC recently issued an order extending the transition period for applicants
and station licensees to conform with the FCC's new requirements. For most
radio services, including CMRS, the old requirements will apply to station
applications filed prior to September 1, 1997; the new guidelines and methods
will apply to applications filed thereafter. The new guidelines and
requirements for evaluation of hand-held devices are already in effect. The
FCC is expected to issue a bulletin describing in greater detail the procedures
to be used in determining compliance with the new requirements. The FCC

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is currently considering petitions for reconsideration seeking further
clarification of the compliance obligations of wireless carriers.

State/Local Regulation

Section 332(c)(1) of the Communications Act, as amended, generally
bars state entry or rate regulation of commercial mobile services, including
PCS. States may petition the FCC for authority to regulate rates for such
services, which authority is to be granted upon a demonstration by the state
that market forces are inadequate to protect subscribers from unjust and
unreasonable rates or rates that are unjustly or unreasonably discriminatory.
Section 332 does not prohibit a state from regulating the other terms and
conditions for commercial mobile services provided within their jurisdiction,
in a manner consistent with the provisions of the Communications Act, as
amended by the 1996 Act.

In addition, Section 253 of the Communications Act, provides that
states and local governments can manage public rights of way and require
compensation for the use of such rights of way by telecommunications carriers,
including PCS providers, so long as the compensation is fair and reasonable,
imposed on a competitively neutral and non- discriminatory basis, and publicly
disclosed by the governmental entity.

The FCC currently is considering several petitions requesting action
by the FCC preempting state and local requirements which impose financial
obligations on wireless providers that allegedly violate the provisions of
Sections 253 and 332 of the Communications Act. In one proceeding, the
petitioner, Western PCS Corporation ("Western"), alleges that the state of
Oregon's proposed imposition of ad valorem tax of the amount paid by Western
for its B Block PCS license for the Portland, Oregon MTA constitutes an
unlawful barrier to entry in violation of Sections 253 and 332(c) of the Act.
In a separate proceeding, the FCC has under consideration a request by US WEST
for a determination that two ordinances adopted by the City of Roseville,
Minnesota, imposing franchise and permit requirements and related payment
obligations on certain providers of wireless services, are inconsistent with
and preempted by Section 253 and 332(c). Both petitions have been the subject
of public comment, and are awaiting action by the FCC. In addition, the FCC
currently is considering a number of other requests for federal preemption of
various state and local requirements which allegedly constitute unlawful
barriers to entry, discrimination, or other violations of the Communications
Act, as amended.

Since the enactment of the 1996 Act, Sprint PCS has been involved in
twenty legal proceedings concerning tower sites. Eight of those lawsuits, six
in the State of New York, one in Pennsylvania and one in Florida, involved the
imposition of moratoria on the processing or approval of permits for wireless
telecommunication towers or denial of applications for permits and have been
resolved favorably either by issuance of the permit, processing of applications
or the moratorium being lifted. Of the twelve pending and active proceedings,
Sprint PCS is the plaintiff in seven lawsuits against municipalities
challenging the imposition of moratoria or denial of its application for a
permit to erect a tower. Four of these lawsuits are in the State of New York;
the other three are in the states of Colorado, Tennessee and Washington.
Sprint PCS is a defendant in an action commenced in Alabama state court by a
neighboring landowner alleging that the erection of a tower on private property
constitutes a nuisance; the property is not subject to zoning regulations. In
addition, Sprint PCS and its landlord, a town, are co-defendants in an action
brought by a county water authority in the New York Supreme Court contending
that Sprint PCS's lease with the town is invalid because the water authority,
not the town, is the proper lessor. It is also intervening in three appeals by
neighboring landowners who seek to reverse zoning decisions in Sprint PCS's
favor, all three of which matters are pending in the Pennsylvania Court of
Common Pleas. There can be no assurance that such litigation, and similar
actions taken by others seeking to block actions necessary for the construction
of the Sprint PCS Network in other locations, will not, in the aggregate, have
a material adverse effect on Sprint PCS and TCI Telephony's interest therein.

On December 16, 1996, the CTIA filed a Petition for Declaratory Ruling
with the FCC, seeking preemption of moratoria regulation imposed by state and
local governments with regard to the siting of telecommunications facilities.
In its Petition, CTIA asserts that federal preemption is authorized under
Sections 253 and 332(c) of the

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Communications Act, as amended, and pursuant to Section 704(c) of the 1996 Act.
The FCC is currently in the process of reviewing and receiving comments from
interested parties addressing CTIA's Petition.

WIRELINE TELEPHONY ACTIVITIES

The wireline telephony activities in which the Telephony Group has an
interest, principally through its investment in TCG, are subject to regulation
at the federal, state, and local level. Nationally, the recent trend has been
for federal and state legislators and regulators to permit and promote
additional competition in the local telecommunications industry. However,
because these developments require numerous implementation actions by the FCC,
individual state regulatory commissions, and federal and state courts, and are
subject to particular legal, political and economic conditions, it is not
possible to predict the extent to which or the pace at which such
liberalization will occur.

Federal Regulation

Telecommunications Act of 1996. The 1996 Act prohibits state and
local governments from enforcing any law, rule or legal requirement that
prohibits or has the effect of prohibiting any person from providing any
interstate or intrastate telecommunications service. This provision of the
1996 Act should enable TCG to provide a full range of local telecommunications
services in any state. States retain jurisdiction under the 1996 Act to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of telecommunications services and
safeguard the rights of consumers. States also are responsible for mediating
and arbitrating interconnection arrangements between CLECs and ILECs if
voluntary arrangements are not reached. As discussed below, the precise
jurisdictional responsibilities of the FCC and the states are currently being
litigated. In any event, the degree of state regulation of local
telecommunications services may be substantial.

Interconnection/Access Arrangements. The 1996 Act imposes a number of
access and interconnection requirements on all local exchange carriers,
including CLECs, with additional requirements imposed on ILECs. The 1996 Act
requires CLECs and ILECs to first attempt to resolve interconnection issues
through negotiation for at least 135 days. During these negotiations, the
parties may submit disputes to state regulators for mediation and, after the
negotiation period has expired, the parties may submit outstanding disputes to
state regulators for arbitration.

The 1996 Act provides a detailed list of items which are subject to
these interconnection negotiations, as well as a detailed set of duties for all
affected carriers. All local exchange carriers, including CLECs, have a duty
to (i) not unreasonably limit the resale of their services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, (iv) provide access to poles, ducts, conduits, and rights-of-way,
and (v) establish reciprocal compensation arrangements for the transport and
termination of telecommunications. In addition to those general duties of all
LECs, ILECs have additional duties to (i) interconnect at any technically
feasible point and provide service equal in quality to that provided to their
customers or the ILEC itself, (ii) provide unbundled access to network elements
at any technically feasible point, (iii) offer retail services at wholesale
prices for the use of competitors, (iv) provide reasonable public notice of
changes in the network or the information necessary to use the network and (v)
provide for physical collocation. The 1996 Act further includes various
provisions addressing the pricing of certain of these services.

On August 8, 1996, the FCC released both a First Report and Order and
a Second Report and Order and Memorandum Opinion and Order in its CC Docket No.
96-98 (collectively the "Interconnection Orders") establishing new policies and
rules implementing the local interconnection and access provisions of the 1996
Act. On September 27, 1996, the FCC issued an Order on Reconsideration of the
First Report and Order in CC Docket No. 96-98, in which it added a non-usage
sensitive charge to the rate for unbundled switching and clarified that, as a
practical matter, an IXC may not lease unbundled switching for the provision of
exchange access service only. Although the new rules were scheduled to become
effective on September 30, 1996, numerous parties to the rulemaking filed
petitions for review of the First Report and Order, and the U.S. Court of
Appeals for the Eighth Circuit ("Court of Appeals") on October 15,

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1996 issued a stay pending resolution of the pending appeals of the pricing
and"pick and choose" rules established in the FCC's order. The stay will defer
effectiveness of the FCC's pricing rules and the "pick and choose" rule, which
allows CLECs to receive the benefit of the most favorable provisions contained
in an ILEC's agreements with other carriers, until the Court of Appeals issues
a decision in the appeal. On November 12, 1996, the Supreme Court rejected
applications to vacate the stay filed by the United States and intervenors in
support of the United States. The appeals of the FCC's First Report and Order
have been fully briefed, and oral argument is scheduled to occur on January 17,
1997. Petitions for review have also been filed challenging certain aspects of
the FCC's Second Report and Order in CC Docket No. 96-98, in which the FCC
adopted rules implementing other local competition provisions adopted in the
1996 Act. The specific provisions addressed in the Second Report and Order
require all local exchange carriers to provide dialing parity to competing
providers of telephone exchange and toll services, as well as
non-discriminatory access to telephone numbers, operator services, directory
assistance, and directory listings, direct the FCC to create or designate one
or more impartial entities to administer telecommunications numbering and to
make such numbers available on an equitable basis, and require all ILECs to
provide reasonable public notice of changes in the information necessary for
the transmission or routing of services using the ILEC's facilities or
networks, as well as any other changes that would affect the interoperability
of those facilities and networks. All petitions for review of the FCC's Second
Report and Order have been consolidated for hearing in the U.S. Court of
Appeals for the Eighth Circuit. The Court of Appeals has established a
briefing schedule in these appeals which provides for the submission of initial
briefs on February 14, 1997. Oral argument is scheduled to occur in mid-April
1997. In addition, a number of parties have filed petitions with the FCC,
asking the FCC to reconsider and revise portions of the Interconnection Orders.

The Interconnection Orders establish a framework of minimum national
rules designed to enable state public service commissions ("State PSCs") and
the FCC to begin implementing many of the local competition provisions of the
Act. The FCC's Interconnection Orders represent the first part of a trilogy of
actions that the Commission contends will promote competition in the local
telecommunications market. The second part involves reform of the system for
funding and providing universal service support (as described hereafter). The
FCC has indicated that the third part of the trilogy of actions consists of
further reform of its rules for establishing interstate interexchange access
charges. The FCC has stated that a competitive telecommunications market
requires that access charges be moved to more economically efficient levels.
In a combined Report and Order and Notice of Proposed Rulemaking released on
December 24, 1996, the FCC adopted certain changes and proposed further changes
in the interstate access charge system. In its Report and Order, the FCC
removed restrictions on ILECs' ability to lower access prices and relaxed the
regulation of new switched access services in those markets where there are
other providers of access services. If this increased pricing flexibility is
not effectively monitored by federal regulators, it could have a material
adverse effect on TCG's ability to compete in providing interstate access
services. In its Notice of Proposed Rulemaking, the FCC proposed rules to
reform the interstate access charge rate structure. The FCC also proposed to
bring interstate access rate levels more in line with costs either by granting
ILECs levels of increased pricing flexibility upon demonstrations of increased
competition (or potential competition) in relevant markets or by mandating
lower rates regardless of the level of competition (or through some combination
of the two approaches). Although it is impossible to predict the outcome of
the upcoming access charge reform proceeding, TCG believes that it is likely
that the planned reform of the FCC's access charge rules ultimately will result
in a significant restructuring of the rates for ILEC interstate switched access
services, and a significant increase in pricing flexibility for ILECs.

In its First Report and Order in CC Docket No. 96-98, the FCC
prescribed certain minimum points of interconnection necessary to permit
competing carriers to choose the most efficient points at which to interconnect
with the ILECs' networks. In addition, FCC also adopted a minimum list of
unbundled network elements that ILECs must make available to competitors upon
request. The FCC also set forth a methodology for states to use in
establishing rates for interconnection and the purchase of unbundled network
elements, pursuant to a forward-looking economic cost pricing methodology,
based on the ILEC's Total Element Long-Term Incremental Cost ("TELRIC") of
providing a particular network element, plus a reasonable share of
forward-looking joint and common costs. The FCC also established a methodology
for states to use when applying the Telecommunications Act's "avoided cost
standard" for setting wholesale prices with respect to retail services. The
rules implementing these methodologies have been stayed by the Court of
Appeals, and these pricing issues have been left for state PSCs to resolve
while the stay remains in effect.

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The 1996 Act requires that charges by LECs for the transport and
termination of local traffic delivered to them by competing LECs provide for
the mutual and reciprocal recovery by each carrier of a reasonable
approximation of the additional costs associated with the transport and
termination on each carrier's network facilities of calls that originate on the
network facilities of the other carrier. The FCC concluded that state PSCs,
during arbitrations, should set symmetrical prices based on the LECs' TELRIC
cost of providing the service. The FCC established a default range of
$0.002-$0.004 per minute for end office termination for states which have not
conducted a TELRIC cost study. The FCC found significant evidence in the
record in support of the lower end of the ranges. In addition, the FCC found
that additional reciprocal charges could apply to termination through a tandem
switch. The default ceiling for tandem switching is $0.0015 per minute, plus
applicable charges for transport from the tandem switch to the end office.
However, since the Court of Appeals has stayed these pricing rules, state PSCs
are free to establish different rates for transport and termination for
interconnection agreements within their jurisdiction while the stay remains in
place.

The FCC also has amended its rules to implement the pole attachment
provisions of the 1996 Act. Specifically, the FCC established procedures for
non-discriminatory access by telecommunications carriers to poles, ducts,
conduits, and rights-of-way owned by utilities or LECs. The Interconnection
Orders include several specific rules as well as a number of more general
guidelines designed to facilitate the negotiation and mutual performance of
fair, pro-competitive access agreements without the need for regulatory
intervention. Additionally, an expedited dispute resolution procedure is
provided when good faith negotiations fail.

TCG is unable to predict whether the new rules and policies described
above will be further revised by the FCC on reconsideration or set aside by the
Court of Appeals, or whether another federal court will find some or all
portions of the 1996 Act to be unconstitutional.

The ILECs have a statutory duty to negotiate arrangements for
interconnection and access with CLECs to network elements in good faith. The
RBOCs, in particular, must satisfy certain "checklist" requirements designed to
facilitate the development of facilities-based competition for business and
residential users in order to enter the long distance markets within their
regions. TCG has been able to reach negotiated agreements with NYNEX for New
York, with Pacific Telesis for California, and with BellSouth for its entire
region. TCG was required to seek arbitration with the RBOCs and with SNET to
obtain interconnection agreements in its other states. TCG's arbitrations are
largely at an end and its interconnection agreements are either final or
nearing final regulatory approval. During the pendency of the negotiation and
contract approval process, TCG is able to operate under either interim
interconnection agreements or interim state regulatory policies and rules.

As noted above, TCG itself, in those states in which it is a CLEC, is
subject to five obligations under the 1996 Act. Specifically, TCG must (i) not
unreasonably limit the resale of its services, (ii) provide number portability
if technically feasible, (iii) provide dialing parity to competing providers,
(iv) provide access to poles, ducts, conduits, and rights-of-way and (v)
establish reciprocal compensation arrangements for the transport and
termination of telecommunications.

BOC Provision of InterLATA Services. The 1996 Act establishes
procedures under which a BOC can provide interLATA services within its
telephone service area under certain circumstances, with the FCC's approval.
The petitioning BOC must show either (i) that it has entered into a
state-approved interconnection agreement with one or more companies which
provide local exchange service to business and residential customers
exclusively or predominantly over such company's own facilities, or (ii) in
instances where no such provider has requested access and interconnection by
three months before the date on which the RBOC submits its application to the
FCC, that a statement of the terms and conditions on which the company
generally offers to provide such access and interconnection has been approved
or permitted to take effect by the relevant state commission. On January 2,
1997, Ameritech filed the first BOC application to provide in-region, interLATA
service, requesting authority to provide such service, through a separate
affiliate, in the State of Michigan. Under the 1996 Act, the FCC is required
to approve or deny the requested authorization within 90 days following its
receipt of such an application. The ability of the BOCs to provide interLATA
services will enable them to provide customers with a full range of local and
long distance telecommunications services.

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The provision of interLATA services by BOCs may reduce the market share of the
major long distance carriers, which are among TCG's largest customers, but TCG
believes it will also encourage IXCs to use TCG's and other CLECs' services
instead of BOC services wherever possible.

Universal Service. The 1996 Act requires the FCC to establish an
explicit mechanism for subsidizing service to rural areas, low-income
customers, schools and libraries. Although the details will be determined by
the FCC and state commissions as a general rule, all carriers will be required
to contribute, and carriers that serve eligible customers will be able to
receive subsidies. This subsidy mechanism may provide an additional source of
revenue to those ILECs and CLECs willing and able to provide service to markets
that traditionally have been considered less desirable, either because of the
high cost of providing service or the limited revenues that might be available.

Pursuant to Section 254(a)(1) of the 1996 Act, the FCC is required to
institute a Federal-State Joint Board for the purpose of recommending a revised
universal service funding program to the FCC. In March 1996, the FCC
established such a Joint Board and sought public comment on issues relating to
the implementation of a new or reformed system of universal service support.
The 1996 Act requires that all interstate telecommunications carriers,
including TCG, contribute to the funding effort on an equitable and
non-discriminatory basis, in an amount sufficient to preserve and advance
universal service pursuant to a specific or predictable universal service
funding mechanism. Under the 1996 Act, carriers providing intrastate services,
including TCG, also may be required to contribute, on an equitable and non-
discriminatory basis, to the support of state programs for the preservation and
enhancement of universal service. On November 8, 1996, the Joint Board
released its Recommended Decision for universal service reform. In the
Recommended Decision, the Joint Board recommended that the FCC establish a new
subsidy regime for services provided to qualifying schools and libraries. The
Joint Board recommended the adoption of a cap of $2.25 billion for the program.
The Joint Board also recommended the expansion of federal subsidies to
low-income consumers of telecommunications services. In addition, the 1996 Act
requires the FCC to adopt a subsidy scheme for the provision of
telecommunications services to rural health care providers. The Joint Board
recommends that the FCC require all providers of interstate telecommunications
services, including in all likelihood TCG, to pay for this and other subsidy
programs, based on their gross revenue from the sale of telecommunications
services minus payments made to other telecommunications carriers. The FCC is
currently in the process of reviewing public comments addressing the Joint
Board's recommendations. The FCC must establish final rules implementing the
universal service provisions of the 1996 Act by May 8, 1997.

Disabled Access. The 1996 Act requires all telecommunications
carriers to ensure that their services are accessible to and useable by persons
with disabilities, if readily achievable. Pursuant to Section 255 of the 1996
Act, the FCC is to work with the Access Board, which is required to develop
guidelines for accessibility of telecommunications equipment and customer
premises equipment in conjunction with the FCC. In September 1996, the FCC
issued a Notice of Inquiry inviting comments addressing jurisdictional and
definitional issues, as well as implementation and enforcement issues, with
respect to the statutory obligations imposed on telecommunications services
providers and manufacturers under Section 255. The FCC's notice seeks to
develop a record to assist the Access Board in the development of equipment
accessibility guidelines, and also requests comments on related service
accessibility issues.

Other 1996 Act Provisions. The 1996 Act contains other provisions
that potentially could affect TCG's business, which may be subject to FCC
rulemaking and judicial interpretation, including a provision that limits the
ability of a cable television operator and its affiliates to acquire more than
a 10% financial interest or any management interest in a LEC which provides
local exchange service in such cable operator's franchise area.

Additional Federal Regulation. Through a series of regulatory
proceedings, the FCC has established different levels of regulation for
"dominant carriers" and "nondominant carriers." For domestic interstate
telecommunications purposes, only the ILECs are classified as dominant
carriers, and all other carriers are classified as nondominant carriers.
Nondominant carriers, such as TCG, were required to file tariffs for interstate
long distance and access services and periodic reports with the FCC concerning
their interstate circuits and deployment of network facilities. As a result of

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a recent FCC rulings, the reporting requirements for non-dominant domestic
interstate carriers have been eliminated and the tariff obligations of long
distance carriers have been lifted for their domestic interstate, interexchange
services, and all such tariffs must be cancelled by September 22, 1997. The
tariff obligation remains applicable to any interstate access or international
services offered by TCG.

A petition has been filed with the FCC asking that it permit CAPs to
dispense with filing of FCC tariffs, at the option of the carrier. The FCC has
not as yet taken any substantive action on the petition, and TCG has no
information as to when the FCC is likely to act, and whether, even if the
petition is granted, such "permissive detariffing" will be extended to embrace
CLECs as well as CAPs. If the petition is granted and such "permissive
detariffing" is extended to embrace CLEC operations, it will improve TCG's
ability to adjust interstate prices and will reduce its interstate regulatory
compliance costs. The petition does not, however, affect TCG's state public
utility commission tariff requirements.

Whether or not it is subject to a tariff filing requirement, TCG must
offer its interstate services on a non- discriminatory basis, at just and
reasonable rates and subject to the complaint provisions of the Communications
Act. For its current offering of interstate services as a nondominant carrier,
TCG is not subject to rate of return or price cap regulation by the FCC and may
install and operate digital facilities for the transmission of interstate
communications without prior FCC authorization. Under the 1996 Act, TCG may
become subject to additional federal regulatory obligations when it provides
local exchange service in a market, such as the access and interconnection
requirements that are imposed on all local exchange providers. See
"--Telecommunications Act of 1996."

Other Federal Requirements. The Communications Assistance for Law
Enforcement Act of 1994 (CALEA), requires all telecommunications carriers, as
of October 1998, to ensure that their equipment is capable of permitting the
Government, pursuant to a court order or other lawful authorization, to
intercept any wire and electronic communications carried by the carrier to or
from its subscribers and to access certain "call-identifying information" that
is reasonably available to the carriers. Section 229 of the Communications act
directs the FCC to prescribe such rules as are necessary to implement the
requirements of CALEA.

State Regulation

Most state public utility commissions require carriers that wish to
provide local and other jurisdictionally intrastate common carrier services to
be authorized to provide such services. TCG's operating subsidiaries and
affiliates are authorized to provide local exchange services in Arizona,
California, Colorado, Connecticut, the District of Columbia, Florida, Illinois,
Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Jersey, New York,
Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Virginia, Washington,
and Wisconsin. TCG has applications for local exchange authority pending in
Indiana and Missouri, where it currently holds intrastate private line
authority.

TCG works continuously to expand its intrastate service authority to
cover additional jurisdictions and additional services, a process which
Teleport believes will be simpler following the enactment of the 1996 Act,
which prohibits states from imposing any legal requirement that prohibits or
has the effect of prohibiting any company from providing any telecommunications
service. The FCC is required to preempt any state or local requirements to the
extent necessary to enforce the provisions of the 1996 Act. States remain
free, however, to impose competitively neutral requirements necessarily to
preserve and advance universal service (consistent with the universal service
provisions of the 1996 Act), protect the public safety and welfare, ensure the
continued quality of telecommunications services, and safeguard the rights of
consumers. In addition, state and local governments are permitted to manage
public rights of way and to require fair and reasonable compensation from
telecommunications providers, on a competitively neutral and non-discriminatory
basis, so long as the compensation required is publicly disclosed by the
governmental entity.

TCG typically is not subject to price regulation or to rate of return
regulation for its intrastate services. In most states, TCG is required to
file tariffs setting forth the terms, conditions and prices for its intrastate
services. In some jurisdictions, the tariff can list a rate range or set
prices for intrastate services. TCG may be subject to additional

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regulatory burdens in some states, such as quality of service requirements and
universal service contributions. TCG's ability to incur long-term indebtedness
is subject to the approval of the NYPSC and the NJBPU. In addition, the state
public utility commissions are actively involved in the mediation and
arbitration of disputes between ILECs and TCG and other CLECs concerning local
interconnection and access arrangements. See "--FEDERAL REGULATION--The
Telecommunications Act of 1996."

Local Government Authorizations

TCG may be required to obtain from municipal authorities street
opening and construction permits and other rights of way to install and expand
its digital networks in certain cities. In some cities, TCG's affiliates or
subcontractors may already possess the requisite authorizations to construct or
expand TCG's networks.

In some of the metropolitan areas where TCG provides network services,
TCG pays license or franchise fees based on a percent of gross revenues. There
can be no assurance that municipalities that do not currently impose fees will
not seek to impose fees in the future, nor is there any assurance that,
following the expiration of existing franchises, fees will remain at their
current levels. Under the 1996 Act, such fees must be "fair and reasonable,"
applied on a "competitively neutral and non-discriminatory basis," and be
"publicly disclosed" by the relevant governmental entity. There can be no
assurance, however, that municipalities that currently favor the ILECs will
conform their practices in a timely manner or without legal challenges by the
TCG, or another CAP or CLEC. In September 1996, TCG filed suit in federal
district court alleging that the City of Dearborn, Michigan acted in an
unlawful and discriminatory manner in imposing a fee of 4% of TCG's gross
revenues for its use of public rights of way, which fee is not imposed on the
local ILEC (Ameritech Michigan), in violation of applicable state law and
Section 253(c) of the Communications Act. TCG's suit is currently awaiting
trial in the U.S. District Court for the Eastern District of Michigan (Southern
Division). In addition, in July 1996, a subsidiary of TCG, Teleport
Communications New York ("TCNY"), filed suit in federal district court in
Newark, New Jersey, alleging that an ordinance adopted by the Township of
Bloomfield, New Jersey, imposing a fee of $.50 per linear foot per year for the
right to use a public right of way, is unlawfully discriminatory, in violation
of the federal constitution and Section 253(c) of the Communications Act. TCNY
has filed a motion for summary judgment, which is currently awaiting action by
the U.S. District Court for the District of New Jersey.

If any of TCG's existing franchise or license agreements for a
particular metropolitan area were terminated prior to its expiration date and
TCG were forced to remove its fiber optic cables from the streets or abandon
its network in place, even with compensation, such termination could have a
material adverse effect on TCG's operations in that metropolitan area and could
have a material adverse effect on TCI Telephony's investment in TCG.

Teleport Communications, a wholly owned subsidiary of TCNY, and The
City of New York entered into a Franchise Agreement, dated as of May 2, 1994
(the "New York Franchise"), pursuant to which The City of New York granted to
Teleport Communications the non-exclusive right for a term of fifteen years to
provide Telecommunications Services (as defined in the New York Franchise) in
The City of New York. In addition to other payments specifically required by
the New York Franchise, the New York Franchise requires that Teleport
Communications pay to The City of New York as an annual franchise fee an amount
based on a percentage of Teleport Communications' gross revenues. TCG is
restricted under the terms of the New York Franchise from providing cable
service or mobile telecommunications services in The City of New York. TCG has
recently entered into discussions with The City of New York regarding the
possible amendment of the New York Franchise.

TCI RESIDENTIAL TELEPHONY BUSINESS

The residential telephony activities undertaken by TCI (including in
the states of California, Connecticut, and Illinois) are subject to regulation
at the federal, state and local level. In general, the regulatory framework
applicable to TCI's ResTel Business is substantially similar to that applicable
to TCG, as described above.

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In providing local wireline telephony services to residential
customers, TCI is subject to the requirements imposed on all local exchange
carriers under the 1996 Act with respect to interconnection and access to
poles, ducts, conduits, and rights-of-way. TCI's interconnection and access
arrangements with ILECs also are governed by the provisions of the 1996 Act
which impose additional obligations on ILECs in their dealings with other
carriers, and provide for mediation and arbitration by the states, where
appropriate arrangements are not reached through private negotiations. TCI's
local telephony affiliates in Connecticut, Illinois and California either have
negotiated interconnection agreements or are in arbitration for permanent
interconnection arrangements with the ILEC's in their market areas. TCI
Telephony Services of California, Inc. has negotiated interconnection
agreements with Pacific Bell. TCI Telephony Services of Connecticut, Inc. has
negotiated interconnection agreements with Southern New England Telephone
Company ("SNET") and is in arbitration with NYNEX and Woodbury Telephone
Company. TCI Telephony Services of Illinois, Inc. has negotiated
interconnection agreements with Ameritech. Such affiliates may also undertake
to interconnect with other ILECs in the event they expand their networks. In
addition, TCI's ResTel Business will be affected by actions taken by the FCC
and the States pursuant to other provisions of the 1996 Act, as described
above, including (but not limited to) the universal service provisions
contained in Section 254 of the 1996 Act. As has been noted, pursuant to these
provisions, all telecommunications carriers providing interstate services,
including interstate access services, generally will be required to contribute
to the support of various universal service subsidy programs. TCI's ResTel
Business may be required to contribute to the support of state universal
service programs as well. TCI's residential telephony activities also will be
affected by the FCC's access charge reform initiatives, which are likely to
result in a significant restructuring of rates for ILEC interstate switched
access services and additional pricing flexibility for ILECs.

TCI's interstate access services and any international service which
it may provide currently remain subject to federal tariffing obligations.
While state and local governments are barred from enforcing legal requirements
that prohibit or have the effect of prohibiting any person from providing inter
or intrastate telecommunications services, states retain authority to impose
certification requirements, tariff obligations, and other regulations that do
not have such effect, in order to preserve universal service, protect public
safety and welfare, insure continued quality of service, and protect consumers.
TCI's local telephone affiliates have been granted certificate authority to
provide local exchange telephone service in each of California, Connecticut and
Illinois.

Each TCI local telephone affiliate has approved CLEC tariffs on file
at its respective state commission, outlining service offerings, rates, and
other requirements. The tariff of TCI Telephony Services of California, Inc.
has been conditionally approved, pending a further compliance filing
anticipated in mid- to late February 1997. In addition, TCI must operate its
ResTel Business in compliance with applicable state and local regulations with
respect to the use of public rights of way, including prior authorization and
fee requirements, to the extent that such regulations are consistent with the
provisions of the 1996 Act and other applicable law.

MANAGEMENT

TCI TELEPHONY

The following table sets forth information concerning certain members
of senior management of the TCI Telephony:

<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Gerald W. Gaines . . . . . . . . . . . . . . 40 President of TCI Telephony
Robert R. Davenport . . . . . . . . . . . . . 37 Vice President of TCI Telephony, Finance
and Development
</TABLE>

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Gerald W. Gaines has been the President of TCI Telephony (and its
predecessors) and Senior Vice President of TCIC since October 1994. Prior to
joining TCI Telephony and TCIC, Mr. Gaines founded GCG, Inc., a management
services firm serving the telecommunications industry since 1991. From 1986 to
1991, Mr. Gaines served as a senior-level executive of US WEST Inc., as
President and Chief Executive Officer for US West Service Link. Mr. Gaines has
been TCI's Representative to the Partnership Board of Sprint PCS since March
1995 and is a director of Teleport.

Robert R. Davenport has been Vice President, Finance and Development of TCI
Telephony (and its predecessors) since September 1995. From June 1992 to
September 1995, Mr. Davenport served as Managing Partner of RD Partners, LLC, a
private investment firm focused on leveraged equity investments. Prior to
founding RD Partners, LLC, Mr. Davenport was Senior Vice President of Corporate
Development and Treasurer of Intellicall, Inc., a New York Stock Exchange
communications company, from September 1990 to May 1992, and also served as
Chief Financial Officer from November 1991 to May 1992. Mr. Davenport also
served as Director of Corporate Development for TLC Beatrice International
Holdings, Inc., and was an investment banker for more than five years with CS
First Boston and Lehman Brothers.

SPRINT PCS

The following table sets forth information concerning certain members of
senior management of Sprint PCS:

<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Andrew Sukawaty . . . . . . . . . . . . . . . 42 Chief Executive Officer and President of
Sprint PCS

Arthur A. Kurtze . . . . . . . . . . . . . . 52 Chief Technology Officer of Sprint PCS

Bernard A. Bianchino . . . . . . . . . . . . 48 Chief Business Development Officer of
Sprint PCS

Robert M. Neumeister, Jr. . . . . . . . . . 47 Chief Financial Officer of Sprint PCS
</TABLE>

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Andrew Sukawaty was appointed Chief Executive Officer and President of
Sprint PCS in September 1996. Prior to joining Sprint PCS, Mr. Sukawaty was
Chief Executive Officer of NTL, the British diversified broadcast transmission
and communications company, since 1994. From 1989 to 1994, he was Chief
Operating Officer of Mercury One-2-One, the British company which started the
world's first PCS service in the U.K. in 1993. Prior to joining Mercury
One-2-One, Mr. Sukawaty held numerous positions for US WEST, including: Chief
Operating Officer of US WEST Paging, President of Coastel, a cellular
communications company, and Vice President and branch manager for US WEST
Cellular. He also held marketing positions with AT&T and Northwestern Bell
Telephone Company.

Arthur A. Kurtze was appointed Chief Technology Officer of Sprint PCS in
June 1995. From March 1993 to June 1995, Mr. Kurtze was Senior Vice
President--Operations for Sprint's Local Telecommunications Division. Prior to
joining Sprint, Mr. Kurtze was Executive Vice President in charge of strategic
planning and corporate development for Centel Corp. Mr. Kurtze joined Centel
in 1972 and served in various positions there, including Vice President of
Centel Communications Co., Vice President--Staff of Centel Business Systems,
Vice President--Market Planning for Centel Corp., Group Vice President of
Centel Cable Television Co. and Senior Vice President--Planning and Technology.

Bernard A. Bianchino was appointed Chief Business Development Officer of
Sprint PCS in September 1995. Most recently, Mr. Bianchino was Executive Vice
President, General Counsel and External Affairs for Qwest Communications
Corporation. He served as Vice President--Law, General Business for Sprint
from 1992 to 1994 and as General Attorney, Vice President and Associate General
Counsel for US Sprint Communications Company from 1986 to 1992. From 1978 to
1986, Mr. Bianchino was counsel to a number of affiliates of Exxon Corporation
in its Enterprises Group, including Reliance Comm/Tec (now RELTEC) and Exxon
Office Systems. Prior to joining Exxon, he was an attorney with the United
States Department of Energy.

Robert M. Neumeister, Jr. was named Chief Financial Officer of Sprint PCS
in September 1995. Prior to joining Sprint PCS, Mr. Neumeister served in
various capacities at Northern Telecom Ltd., which he joined in 1978. In June
1991, Mr. Neumeister was named Vice President of Finance and Information
Services for Northern Telecom--Canada. He continued with Northern Telecom as
Senior Vice President and Chief Financial Officer of Motorola Nortel
Communications, Co., Vice President of Finance--Americas, Vice
President--Broadband Networks, Customer Network Solutions and Vice President of
Finance.

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TELEPORT

The following table sets forth information concerning certain members of
senior management of Teleport:

<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Robert Annunziata . . . . . . . . . . . . . . 48 Chairman, President, Chief Executive
Officer and Chief Operating Officer
of Teleport

John A. Scarpati . . . . . . . . . . . . . . 45 Senior Vice President and Chief Financial
Officer of Teleport

Robert C. Atkinson . . . . . . . . . . . . . 45 Senior Vice President of Teleport, Legal,
Regulatory and External Affairs

Alf T. Hansen . . . . . . . . . . . . . . . . 54 Senior Vice President of Teleport
National Operations

Stuart A. Mencher . . . . . . . . . . . . . . 57 Senior Vice President of Teleport,
National Sales and Marketing
</TABLE>

Robert Annunziata has been Chairman of the Board of Teleport since
1990 and President and Chief Executive Officer since 1985. Before 1985, Mr.
Annunziata had been Senior Vice President and Chief Operating Office since
1983. He has been a director of Teleport since 1984. He has 29 years of
experience in the telecommunications industry, including 17 years in a variety
of operations and marketing positions with AT&T. He has served as President of
the World Teleport Association ("WTA") from 1987 to 1991 and remains a WTA
director. He currently serves on the New York State Governor's Advisory Board
on Telecommunications and the New York City Mayor's Alliance for International
Business.

John A. Scarpati has been Senior Vice President and Chief Financial
Officer of Teleport since March 1990. Mr. Scarpati has held various executive
officer positions since joining Teleport in August 1984, including Vice
President, Chief Financial Officer, Treasurer and Controller. Mr. Scarpati is
a director of Comcast CAP of Philadelphia, Inc. and BizTel Communications, Inc.
He was a director of Teleport in 1991.

Robert C. Atkinson has been Senior Vice President of Teleport--Legal,
Regulatory and External Affairs since February 1990. Prior to that, he had
been Vice President--Regulatory and External Affairs since 1985. Before
joining Teleport, Mr. Atkinson held various business development, regulatory
and government relations positions at ITT World Communications, Inc., Satellite
Business Systems, GTE Sprint and RCA Global Communications, Inc. He was a
founder and first President of the Association for Local Telecommunications
Services, the CAP/CLEC trade association.

Alf T. Hansen has been Senior Vice President of Teleport--National
Operations since February 1993. Prior to that, he had been Vice
President--National Operations since March 1990 and Vice President--Engineering
and Operations since March 1989. Prior to joining Teleport, Mr. Hansen worked
at AT&T for 22 years in various managerial positions.

Stuart A. Mencher has been Senior Vice President of Teleport--National
Sales and Marketing since February 1994. Prior to that, he had been Senior
Vice President of Teleport--New York Operations since February 1993 and Vice
President and General Manager of TCNY since June 1992. From June 1991 until
May 1992, Mr. Mencher worked

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as an independent consultant in the international telecommunications industry.
From March 1987 to January 1990, Mr. Mencher served as a Senior Vice President
of MCI Telecommunications Corp., primarily responsible for sales and marketing,
and, from February 1990 to May 1991, he served as Senior Vice President of the
U.S. Distribution Division of Motorola/Codex Corp. Prior to joining MCI
Telecommunications Corp., Mr. Mencher served in a variety of senior sales and
marketing executive positions with AT&T Information Systems following almost
sixteen years of sales and marketing executive experience with IBM's Data
Processing Division.

CERTAIN STOCK OPTIONS

Effective December 1, 1996, two executive officers of TCIC were each
granted options (the "Executive Options") representing 1.0% of the equity value
of the Telephony Group. Upon the effectiveness of the Telephony Group
Amendment, each such option converted into an option to purchase a number of
shares of Series A Telephony Group Common Stock equal to 1% of the initial
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest (or ___ shares of Series A Telephony Group Common Stock for each such
option). The issuance of any shares pursuant to such options will be made
from the Available Shares (and will not reduce the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest). As a result, the
issuance of any shares pursuant to such options will also result in a
corresponding increase in the Telephony Group Outstanding Interest Fraction and
a corresponding decrease in the Telephony Group Inter-Group Interest Fraction.
Thus, the exercise of such options would dilute the common stockholders equity
value of the Telephony Group attributable to the outstanding shares of
Telephony Group Common Stock and to the Inter-Group Interest of the TCI Group
in the Telephony Group on a pro rata basis. The aggregate exercise price for
each such option, which will be payable to TCI Telephony, is equal to 1% of
(i) TCI's cumulative investment in the Telephony Group as of December 1, 1996,
adjusted for a 6% per annum interest factor from the date each such investment
was made to the date of such exercise, less the sum of (ii) $500 million
(representing the aggregate initial liquidation price of the TCI Telephony
Preferred Stock) and (iii) the amount of the tax benefits generated by the
Telephony Group (up to $500 million) as and when used by the TCI Group. Such
executive officers were also each granted similar options representing 1% of
the equity value of the ResTel Business. Any exercise by one of such executive
officers of all or part of one of such options (as to either the Telephony
Group or the ResTel Business) must be accompanied by the exercise by such
executive officer of a pro rata portion of the other such option. All of such
options vest and become exercisable in five equal annual installments
commencing February 1, 1997 and expire on February 1, 2006.

MANAGEMENT AND ALLOCATION POLICIES

Following the Offerings, TCI will prepare consolidated financial
statements of TCI and combined financial statements of the Telephony Group, the
TCI Group and the Liberty Media Group. The combined financial statements of
each Group, taken together and after giving effect to inter-Group eliminations,
would effectively comprise all the accounts reflected as consolidated financial
statements of TCI. The combined financial statements of each Group will
principally reflect the combined financial position, results of operations and
cash flows of the businesses included therein. Consistent with the TCI Charter
and applicable policies, the Group financial information could also include
allocated portions of individual assets and liabilities that are not separately
identified with the operations of a specific Group. Notwithstanding
allocations of assets and liabilities for the purpose of preparing Group
combined financial statements, holders of each series of Common Stock will
continue to be subject to risks associated with an investment in TCI and all of
its businesses, assets and liabilities. See "RISK FACTORS--CONSIDERATIONS
RELATING TO THE TELEPHONY GROUP COMMON STOCK--STOCKHOLDERS OF ONE COMPANY;
FINANCIAL EFFECTS ON ONE BUSINESS COULD AFFECT OTHER BUSINESSES."

Following the Offerings, cash management, taxes and allocation of
principal corporate activities among the Groups will be based upon methods that
management of TCI believes to be reasonable and would be reflected in the
respective Group financial information as follows:

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(i) All debt incurred or preferred stock issued by TCI
and its subsidiaries would (unless the Board of Directors otherwise
provides) be specifically attributed to and reflected on the combined
financial statements of the Group that includes the entity which
incurred the debt or issued the preferred stock or, in case the entity
incurring the debt or issuing the preferred stock is
Tele-Communications, Inc., the TCI Group. The Board of Directors
could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be
specifically attributed to and reflected on the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such
other Group. As described above, the TCI Telephony Preferred Stock
and indebtedness under the Revolving Credit Facility are attributable
to the Telephony Group.

(ii) All financial impacts of issuances of shares of
Telephony Group Common Stock the proceeds of which are attributed to
the Telephony Group will be to such extent reflected in the combined
financial statements of the Telephony Group, and all financial impacts
of issuances of shares of Telephony Group Common Stock the proceeds of
which are attributed to the TCI Group in respect of a reduction in the
TCI Group's Inter-Group Interest in the Telephony Group will be to
such extent reflected in the combined financial statements of the TCI
Group. Financial impacts of dividends or other distributions on
Telephony Group Common Stock will be attributed entirely to the
Telephony Group, except that dividends or other distributions on the
Telephony Group Common Stock will (if at the time there is an
Inter-Group Interest in the Telephony Group) result in the TCI Group
being credited, and the Telephony Group being charged (in addition to
the charge for the dividend or other distribution paid in the
outstanding shares of Telephony Group Common Stock), with an amount
equal to the product of the aggregate amount of such dividend or other
distribution paid or distributed in respect of outstanding shares of
Telephony Group Common Stock and a fraction the numerator of which is
the Telephony Group Inter-Group Interest Fraction and the denominator
of which is the Telephony Group Outstanding Interest Fraction.
Financial impacts of repurchases of Telephony Group Common Stock the
consideration for which is charged to the Telephony Group will be to
such extent reflected in the combined financial statements of the
Telephony Group, and financial impacts of repurchases of Telephony
Group Common Stock the consideration for which is charged to the TCI
Group will be to such extent reflected in the combined financial
statements of the TCI Group and will result in an increase in the TCI
Group's Inter-Group Interest in the Telephony Group.

(iii) To the extent cash needs of one Group exceed cash
provided by such Group, one of the other Groups may transfer funds to
such Group. The TCI Group has provided and will continue to provide
centralized cash management functions under which cash receipts of
certain entities attributed to the other Groups are remitted to the
TCI Group and certain cash disbursements of the other Groups will be
funded by the TCI Group on a daily basis. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board of Directors, in the case of a transfer from the TCI Group
to the Telephony Group, reflected as the creation of, or increase in
the TCI Group's Inter-Group Interest in the Telephony Group or, in the
case of a transfer from the Telephony Group to the TCI Group,
reflected as a reduction in the TCI Group's Inter-Group Interest in
the Telephony Group. There are no specific criteria for determining
when a transfer will be reflected as borrowings or as an increase or
reduction in an Inter-Group Interest. The Board of Directors expects
to make such determinations, either in specific instances or by
setting generally applicable policies from time to time, after
consideration of such factors as it deems relevant, including, without
limitation, the needs of TCI, the financing needs and objectives of
the Groups, the investment objectives of the Groups, the availability,
cost and time associated with alternative financing sources,
prevailing interest rates and general economic conditions. Generally,
it is expected that entities included in the Telephony Group will
require additional advances from the TCI Group for some period of
time. TCI has agreed to provide the Revolving Credit Facility to TCI
Telephony for a period commencing December 1, 1996 and ending December
31, 2001 that would permit aggregate borrowings at any one time
outstanding of up to $500 million (subject to reduction or increase as
provided below), which borrowings would bear interest at a rate per
annum equal to The Bank of New York's prime rate (as in effect from
time to time) plus 1% per annum, payable quarterly. A commitment fee
equal to 3/8% per annum of the average unborrowed availability under
the Revolving Credit

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Facility will be payable by the Telephony Group to the TCI Group on a
quarterly basis. The maximum amount of borrowings permitted under the
Revolving Credit Facility will be reduced on a dollar-for-dollar basis
(i) by the amount of the first $300 million of net proceeds of any
external debt or equity financings attributed to the Telephony Group
(including the Offerings) resulting in the reduction of the maximum
amount of such borrowings under the Revolving Credit Facility to an
amount not less than $200 million and (ii) below $200 million, if (but
only to the extent that) the net proceeds of any such external
financings attributed to the Telephony Group which are completed on or
prior to December 1, 1998 exceed $600 million (including the first
$300 million of such proceeds referred to above). The maximum amount
of the borrowings permitted under the Revolving Credit Facility will
be increased on a dollar-for-dollar basis by the dollar amount of any
borrowings thereunder, the proceeds of which are used by the Telephony
Group to pay a portion of the exercise price for the purchase of all
or part of the ResTel Business from the TCI Group.

(iv) Except as described above with respect to the
Revolving Credit Facility, loans from one Group to another Group would
bear interest at such rates and have such repayment schedules and
other terms as are established from time to time by, or pursuant to
procedures established by, the Board of Directors. The Board of
Directors expects to make such determinations, either in specific
instances or by setting generally applicable policies from time to
time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, the use of proceeds
by and creditworthiness of the recipient Group, the capital
expenditure plans of and the investment opportunities available to
each Group and the availability, cost and time associated with
alternative financing sources.

(v) In the event of a transfer of funds or other assets
from the TCI Group to the Telephony Group that the Board of Directors
has determined to reflect as increasing the TCI Group's Inter-Group
Interest in the Telephony Group, the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest would be increased
by an amount determined by dividing the amount of funds or the value
of the assets transferred by the Market Value of a share of Series A
Telephony Group Common Stock as of the date of such transfer, and the
Telephony Group Inter-Group Interest Fraction would be increased and
the Telephony Group Outstanding Interest Fraction would be decreased
accordingly. In the event of a transfer of funds or other assets from
the Telephony Group to the TCI Group that the Board of Directors has
determined to reflect as a decrease in the TCI Group's Inter-Group
Interest in the Telephony Group, the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest would be decreased
by an amount determined by dividing the amount of funds or the value
of the assets transferred by the Market Value of a share of Series A
Telephony Group Common Stock as of the date of such transfer and the
Telephony Group Inter-Group Interest Fraction would be decreased and
the Telephony Group Outstanding Interest Fraction would be increased
accordingly.

(vi) The combined balance sheets of a Group would reflect
its net loans to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups would
reflect interest income or expense, as the case may be, associated
with such loans or borrowings and the respective combined statements
of cash flows of the Groups would reflect changes in the amounts of
loans or borrowings deemed outstanding. In the historical financial
information included in this Prospectus, net borrowings of the
Telephony Group have been included as a component of the Telephony
Group's combined equity. Subsequent to the date of such financial
statements, a portion of such net borrowings was converted into a $500
million investment in the TCI Telephony Preferred Stock. The balance
of such net borrowings through November 30, 1996 will continue to be
reflected as a component of the Telephony Group's combined equity.
Amounts borrowed by the Telephony Group from another Group on and
subsequent to December 1, 1996 (including pursuant to the Revolving
Credit Facility), will be reflected on the Telephony Group's financial
statements as indebtedness to the applicable lender.

(vii) Certain corporate general and administrative costs
(including, but not limited to, certain corporate, legal, finance,
accounting, tax, data processing, employee benefit and insurance
costs) will be charged to both the Telephony Group and the Liberty
Media Group at rates set at the beginning of each year

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<PAGE> 98
based on projected utilization for that year. The balance of such
costs would be reflected on the combined financial statements of the
TCI Group. The utilization-based charges would be set at levels that
management believes to be reasonable and that would approximate the
costs that the Telephony Group and the Liberty Media Group would incur
for comparable services on a stand-alone basis. Assuming shares of
Telephony Group Common Stock had first been issued on January 1,
1996, TCI estimates that such costs of the Telephony Group would have
aggregated approximately $548,000 for the nine months ended September
30, 1996. Certain other corporate general and administrative costs
related specifically to management of a Group would be allocated
entirely to such Group. The scope of the services charged to the
Telephony Group and Liberty Media Group on an allocated basis could
be adjusted from time to time depending on the extent to which it is
determined that services should instead be performed directly by
employees of entities included in such Group. See
"MANAGEMENT--CERTAIN STOCK OPTIONS."

(viii) If additional assets are transferred to the Telephony
Group from the TCI Group, there may be additional services that the
TCI Group would then provide to the Telephony Group. For example, if
the ResTel Business is transferred to the Telephony Group, the TCI
Group may provide installation, sales and customer services to the
Telephony Group in addition to rights of use of TCI's upgraded cable
distribution plant. The charges for any such services would be
negotiated at the time and taken into account in the determination of
the purchase price for the ResTel Business.

(ix) Federal income taxes and certain state and local
taxes would be paid on a consolidated basis. However, pursuant to a
tax sharing agreement, federal income taxes are calculated, with
certain adjustments, on a separate return basis for each Group
(applying provisions of the Code and related regulations as if such
Group filed a separate consolidated return for federal income tax
purposes). Based upon these separate calculations, an allocation of
tax liabilities is made such that each separate Group is responsible
to TCI for its gross share of TCI's consolidated federal income tax
liabilities, such gross share being determined without regard to (a)
tax benefits that are attributable to TCI or the other Groups or (b)
certain tax benefits that are attributable to a Group but that are
taken into account in determining TCI's consolidated federal income
tax benefit carryovers. Similarly, TCI is responsible to each Group
for tax benefits attributable to such Group and actually used by TCI
in determining its consolidated federal income tax liability.
Notwithstanding the foregoing, TCI and TCI Telephony have agreed that
TCI may use up to $500 million of tax benefits generated by the
Telephony Group in determining its consolidated federal income tax
liability, without providing a credit to the Telephony Group in such
amount. Tax attributes, including but not limited to net operating
losses, investment tax credits, alternative minimum tax net operating
losses, alternative minimum tax credits, deferred intercompany gains
and tax basis in assets, would be inventoried and tracked for each
Group. In addition, pursuant to such tax sharing agreement, state and
local income taxes are calculated on a separate return basis for each
Group (applying provisions of state and local tax law and related
regulations as if the Group were a separate unitary or combined group
for tax purposes), and TCI's combined or unitary tax liability is
allocated between the Groups based upon such separate calculation.
TCI has retained the right to file all returns, make all elections and
control all audits and contests.

(x) The Board of Directors expects to determine, either
in specific instances or by setting generally applicable policies from
time to time, whether to allocate resources and financial support to
or pursue business opportunities or operational strategies through one
Group or one or more of the other Groups, after consideration of such
factors as it deems relevant.

Notwithstanding the policies described above, determinations with
respect to the transfer of funds from one Group to one of the other Groups
would be made at the discretion of the Board of Directors, except to the extent
that TCI is contractually obligated to make a transfer of funds to an entity
included in a Group. Nothing in the foregoing policies (as opposed to any such
contractual obligation) obligates the Board of Directors to cause a Group to
provide funds to one of the other Groups if the Board of Directors determines
that it is in the best interests of TCI not to do so.

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The above management and allocation policies could be modified or
rescinded by the Board of Directors, in its sole discretion, without approval
of stockholders, although there is no present intention to do so. The Board of
Directors could also adopt additional policies depending upon the
circumstances. The Board of Directors intends that any determination it might
make to modify or rescind such policies, or to adopt additional policies,
including any such decision that could have disparate effects upon holders of
different series of Common Stock, would be made by the Board of Directors as
set forth under "RISK FACTORS--CONSIDERATIONS RELATING TO THE TELEPHONY GROUP
COMMON STOCK--FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS ARE TO ALL
STOCKHOLDERS REGARDLESS OF CLASS OR SERIES."

DESCRIPTION OF CAPITAL STOCK

The following description of certain terms of the Telephony Group
Common Stock, the TCI Group Common Stock and the Liberty Media Group Common
Stock, and the outstanding classes and series of Preferred Stock does not
purport to be complete and is qualified in its entirety by reference to the TCI
Charter (including the applicable Certificate of Designation with respect to
each outstanding series of Series Preferred Stock).

GENERAL

The TCI Charter currently provides that TCI is authorized to issue
3,602,375,096 shares of capital stock, including (i) 3,550,000,000 shares of
Common Stock, of which 1,750,000,000 shares are designated Series A TCI Group
Common Stock, 150,000,000 shares are designated Series B TCI Group Common
Stock, 750,000,000 shares are designated Series A Liberty Media Group Common
Stock, 75,000,000 shares are designated Series B Liberty Media Group Common
Stock, 750,000,000 shares are designated Series A Telephony Group Common Stock
and 75,000,000 shares are designated Series B Telephony Group Common Stock and
(ii) 52,375,096 shares of preferred stock ("Preferred Stock"), of which 700,000
shares are designated Class A Preferred Stock, par value $0.01 per share (the
"Class A Preferred Stock"), 1,675,096 shares are designated Class B 6%
Cumulative Redeemable Exchangeable Junior Preferred Stock, par value $.01 per
share (the "Class B Preferred Stock") and 50,000,000 shares are designated as
Series Preferred Stock, par value $.01 per share (the "Series Preferred
Stock"), issuable in series. Of the Series Preferred Stock, 80,000 shares are
designated as Convertible Preferred Stock, Series C (the "Series C Preferred
Stock"), 1,000,000 shares are designated as Convertible Preferred Stock, Series
D (the "Series D Preferred Stock"), 400,000 shares are designated as Redeemable
Convertible Preferred Stock, Series E (the "Series E Preferred Stock"), 500,000
shares are designated Convertible Redeemable Participating Preferred Stock,
Series F (the "Series F Preferred Stock"), 7,259,380 shares are designated as
Redeemable Convertible TCI Group Preferred Stock, Series G (the "Series G
Preferred Stock"), and 7,259,380 shares are designated as Redeemable
Convertible Liberty Media Group Preferred Stock, Series H (the "Series H
Preferred Stock").

As of October 31, 1996, 579,395,742 shares of Series A TCI Group
Common Stock, 84,663,501 shares of Series B TCI Group Common Stock, 227,819,597
shares of Series A Liberty Media Group Common Stock (after giving effect to the
distribution on January 14, 1997 of one share of Series A Liberty Media Group
Common Stock for each two shares of Series A Liberty Media Group Common Stock
held of record and one share of Series A Liberty Media Group Common Stock for
each two shares of Series B Liberty Media Group Common Stock held of record
(the "Liberty Stock Distribution")) and 21,191,669 shares of Series B Liberty
Media Group Common Stock (in each case net of shares held in treasury) had been
issued and were outstanding and 100,524,365 shares of Series A TCI Group Common
Stock were held by subsidiaries of TCI. As of that date, 119,320,915 shares of
Series A TCI Group Common Stock and 31,263,022 shares of Series A Liberty Media
Group Common Stock (after giving effect to the Liberty Stock Distribution) were
reserved for issuance upon conversion, exchange or exercise of outstanding
convertible or exchangeable securities and options. In addition, TCI has
reserved a number of shares of Series A TCI Group Common Stock equal to the
number of shares of Series B TCI Group Common Stock outstanding and a number of
shares of Series A Liberty Media Group Common Stock equal to the number of
shares of Series B Liberty Media Group Common Stock outstanding, in either case
for issuance upon conversion, at the option of the holder, of the Series B TCI
Group Common Stock and the Series B Liberty Media Group Common Stock,
respectively. Additionally, subsidiaries of TCI own shares

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of TCI's Series F Preferred Stock which are convertible into 358,323,046 shares
of Series A TCI Group Common Stock in the aggregate.

COMMON STOCK

CERTAIN DEFINITIONS

As used in this Prospectus, the following terms have the meanings
specified below:

"Appraisal Date", with respect to any determination of the Telephony
Group Private Market Value or the Liberty Media Group Private Market Value
shall mean the last day of the calendar month preceding the month in which the
Selection Date occurs.

"Appraiser" means each of the First Appraiser, the Second Appraiser
and the Mutually Designated Appraiser.

"Committed Acquisition Shares" means (i) the shares of Series A
Liberty Media Group Common Stock that TCI had, prior to the distribution of the
Liberty Media Group Common Stock on August 10, 1995 (the "Liberty Media Group
Distribution"), agreed to issue, but as of such record date had not issued, and
(ii) the shares of Series A Liberty Media Group Common Stock that are issuable
upon conversion, exercise or exchange of Convertible Securities that TCI had,
prior to the record date for the Liberty Media Group Distribution, agreed to
issue, but as of such record date had not issued, in each case including
obligations of TCI to issue shares of TCI's Class A Common Stock, par value
$1.00 per share (which has been redesignated Series A TCI Group Common Stock),
which as a result of the Liberty Media Group Distribution, constitute
obligations to issue, among other securities, Series A Liberty Media Group
Common Stock or Convertible Securities which are convertible into or
exercisable or exchangeable for Series A Liberty Media Group Common Stock;
provided, however, that Committed Acquisition Shares will not include any
shares of Liberty Media Group Common Stock issuable upon conversion, exercise
or exchange of Pre-Distribution Convertible Securities. The type and amount of
Committed Acquisition Shares issuable will be appropriately adjusted to reflect
subdivisions and combinations of the Series A Liberty Media Group Common Stock
and dividends or distributions of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock to holders of Series A
Liberty Media Group Common Stock and other reclassifications of the Series A
Liberty Media Group Common Stock, in each case occurring (or the record date
for which occurs) after the Liberty Media Group Distribution. The shares of
Series A Liberty Media Group Common Stock issuable upon conversion of the
Series H Preferred Stock will constitute Committed Acquisition Shares.

"Company Earnings (Loss) Attributable to the Liberty Media Group", for
any period, shall mean the net earnings or loss of the Liberty Media Group for
such period determined on a basis consistent with the determination of the net
earnings or loss of the Liberty Media Group for such period as presented in the
combined financial statements of the Liberty Media Group for such period,
including income and expenses of TCI attributed to the operations of the
Liberty Media Group on a substantially consistent basis, including without
limitation, corporate administrative costs, net interest and income taxes.

"Company Earnings (Loss) Attributable to the TCI Group", for any
period, shall mean the net earnings or loss of the TCI Group for such period
determined on a basis consistent with the determination of the net earnings or
loss of the TCI Group for such period as presented in the combined financial
statements of the TCI Group for such period, including income and expenses of
TCI attributed to the operations of the TCI Group on a substantially consistent
basis, including without limitation, corporate administrative costs, net
interest and income taxes.

"Company Earnings (Loss) Attributable to the Telephony Group", for any
period, shall mean the net earnings or loss of the Telephony Group for such
period determined on a basis consistent with the determination of the net
earnings or loss of the Telephony Group for such period as presented in the
combined financial statements of the Telephony Group for such period, including
income and expenses of TCI attributed to the operations of the Telephony

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Group on a substantially consistent basis, including without limitation,
corporate administrative costs, net interest and income taxes.

"Convertible Securities" means any securities of TCI (other than any
series of Common Stock) that are convertible into, exchangeable for or evidence
the right to purchase any shares of any series of Common Stock, whether upon
conversion, exercise, exchange, pursuant to antidilution provisions of such
securities or otherwise.

"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets
or stock or otherwise) of properties or assets.

"First Appraiser" means, with respect to any determination of the
Telephony Group Private Market Value or the Liberty Media Group Private Market
Value, an investment banking firm of recognized national standing selected by
TCI to make such determination.

"Higher Appraised Amount" means, with respect to any determination of
the Telephony Group Private Market Value or the Liberty Media Group Private
Market Value, the higher of the respective final views of the First Appraiser
and the Second Appraiser as to such private market value.

The "Inter-Group Interest" of the TCI Group in the Telephony Group or
the Liberty Media Group means any common stockholders' equity value of TCI
attributable to the Telephony Group or the Liberty Media Group, as the case may
be, that is not represented by outstanding shares of Telephony Group Common
Stock or the Liberty Media Group Common Stock, as the case may be. The TCI
Group's Inter-Group Interest in the Telephony Group is represented by the
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest and the TCI Group's Inter-Group Interest in the Liberty Media Group is
represented by the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest.

The "Liberty Media Group" means as of any date of determination
thereof:

(i) the interest of TCI or any of its subsidiaries in
Liberty Media Corporation or any of its subsidiaries (including any
successor thereto by merger, consolidation or sale of all or
substantially all of its assets, whether or not in connection with a
Related Business Transaction) and their respective properties and
assets;

(ii) all assets and liabilities of TCI or any of its
subsidiaries to the extent attributed to any of the properties or
assets referred to in clause (i) of this sentence, whether or not such
assets or liabilities are assets and liabilities of Liberty Media
Corporation or any of its subsidiaries (or a successor as described in
clause (i) of this sentence);

(iii) all assets and properties contributed or otherwise
transferred to the Liberty Media Group from the TCI Group; and

(iv) the interest of TCI or any of its subsidiaries in the
businesses, assets and liabilities acquired by TCI or any of its
subsidiaries for the Liberty Media Group, as determined by the Board
of Directors;

provided that (a) from and after any dividend or other distribution with
respect to any shares of Liberty Media Group Common Stock (other than a
dividend or other distribution payable in shares of Liberty Media Group Common
Stock, with respect to which adjustment will be made as described in clause (i)
of the definition of "Number of Shares Issuable with Respect to the Liberty
Media Group Inter-Group Interest," or in other securities of TCI attributed to
the Liberty Media Group for which provision will be made as described in the
penultimate sentence of this definition), the Liberty Media Group will no
longer include an amount of assets or properties equal to the aggregate amount
of such kind of assets or properties so paid in respect of shares of Liberty
Media Group Common Stock multiplied by a fraction the

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numerator of which is equal to the Liberty Media Group Inter-Group Interest
Fraction in effect immediately prior to the record date for such dividend or
other distribution and the denominator of which is equal to the Liberty Media
Group Outstanding Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and (b) from and after any
transfer of assets or properties from the Liberty Media Group to the TCI Group,
the Liberty Media Group will no longer include the assets or properties so
transferred. If TCI pays a dividend or makes any other distribution with
respect to shares of Liberty Media Group Common Stock payable in securities of
TCI attributed to the Liberty Media Group other than Liberty Media Group Common
Stock, the TCI Group will be deemed to hold an amount of such other securities
equal to the amount so distributed multiplied by the fraction specified in
clause (a) of this definition (determined as of a time immediately prior to the
record date for such dividend or other distribution), and to the extent
interest or dividends are paid or other distributions are made on such other
securities so distributed to the holders of Liberty Media Group Common Stock,
the Liberty Media Group will no longer include a corresponding ratable amount
of the kind of assets paid as such interest or dividends or other distributions
in respect of such securities so deemed to be held by the TCI Group. TCI may
also, to the extent any such other securities constitute Convertible Securities
which are at the time convertible, exercisable or exchangeable, cause such
Convertible Securities deemed to be held by the TCI Group to be deemed to be
converted, exercised or exchanged (and to the extent the terms of such
Convertible Securities require payment or delivery of consideration in order to
effect such conversion, exercise or exchange, the Liberty Media Group will in
such case include an amount of the kind of properties or assets required to be
paid or delivered as such consideration for the amount of the Convertible
Securities deemed converted, exercised or exchanged as if such Convertible
Securities were outstanding), in which case such Convertible Securities will no
longer be deemed to be held by the TCI Group or attributed to the Liberty Media
Group.

The "Liberty Media Group Inter-Group Interest Fraction" means a
fraction the numerator of which is the Number of Shares Issuable with Respect
to the Liberty Media Group Inter-Group Interest and the denominator of which is
the sum of such Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest and the aggregate number of shares of Liberty Media
Group Common Stock outstanding.

"Liberty Media Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the Liberty
Media Group, an amount, if any, equal to the gross proceeds of such Disposition
after any payment of, or reasonable provision for, (a) any taxes payable by TCI
in respect of such Disposition or in respect of any resulting dividend or
redemption pursuant to clause (i) or (ii), respectively, of the first paragraph
under "--Conversion and Redemption--Mandatory Dividend, Redemption or
Conversion of Liberty Media Group Common Stock" (or which would have been
payable but for the utilization of tax benefits attributable to the TCI Group
or the Telephony Group), (b) any transaction costs, including, without
limitation, any legal, investment banking and accounting fees and expenses and
(c) any liabilities and other obligations (contingent or otherwise) of, or
attributed to, the Liberty Media Group, including, without limitation, any
indemnity or guarantee obligations incurred in connection with the Disposition
or any liabilities for future purchase price adjustments and any preferential
amounts plus any accumulated and unpaid dividends and other obligations
(without duplication of amounts allocated for the satisfaction of TCI's
obligations with respect to Pre-Distribution Convertible Securities and
Committed Acquisition Shares issuable which are included in the determination
of the Adjusted Liberty Media Group Outstanding Interest Fraction) in respect
of Preferred Stock attributed to the Liberty Media Group. For purposes of this
definition, any properties and assets of the Liberty Media Group remaining
after such Disposition shall constitute "reasonable provision" for such amount
of taxes, costs and liabilities (contingent or otherwise) as can be supported
by such properties and assets. To the extent the proceeds of any Disposition
include any securities or other property other than cash, the Board of
Directors shall determine the value of such securities or property, including
for the purpose of determining the equivalent value thereof if the Board of
Directors determines to pay a dividend or redemption price in cash or
securities or other property as provided in the penultimate paragraph under
"--CONVERSION AND REDEMPTION --Mandatory Dividend, Redemption or Conversion of
Liberty Media Group Common Stock".

The "Liberty Media Group Outstanding Interest Fraction" means a
fraction the numerator of which is the aggregate number of shares of Liberty
Media Group Common Stock outstanding and the denominator of which is the

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sum of such aggregate number of shares of Liberty Media Group Common Stock
outstanding and the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest.

"Lower Appraised Amount", with respect to any determination of the
Telephony Group Private Market Value or the Liberty Media Group Private Market
Value, the lower of the respective final views of the First Appraiser and the
Second Appraiser as to such private market value.

"Market Capitalization" of any class or series of capital stock of TCI
on any Trading Day shall mean the product of (i) the Market Value of one share
of such class or series on such Trading Day and (ii) the number of shares of
such class or series outstanding on such Trading Day.

"Market Value" of any class or series of capital stock of TCI on any
day shall mean the average of the high and low reported sales prices regular
way of a share of such class or series on such day (if such day is a Trading
Day, and if such day is not a Trading Day, on the Trading Day immediately
preceding such day) or in case no such reported sale takes place on such
Trading Day the average of the reported closing bid and asked prices regular
way of a share of such class or series on such Trading Day, in either case on
the Nasdaq National Market, or if the shares of such class or series are not
quoted on such Nasdaq National Market on such Trading Day, the average of the
closing bid and asked prices of a share of such class or series in the
over-the-counter market on such Trading Day as furnished by any New York Stock
Exchange member firm selected from time to time by TCI, or if such closing bid
and asked prices are not made available by any such New York Stock Exchange
member firm on such Trading Day, the market value of a share of such class or
series as determined by the Board of Directors; provided that for purposes of
determining the ratios described under "--Conversion and Redemption--Conversion
of Telephony Group Common Stock at the Option of TCI", "--Conversion of
Liberty Media Group Common Stock at the Option of TCI", "--Mandatory Dividend,
Redemption or Conversion of Telephony Group Common Stock", and "--Mandatory
Divided, Redemption or Conversion of Liberty Media Group Common Stock" and as
described under "--LIQUIDATION RIGHTS," (a) the "Market Value" of any share of
any series of Common Stock on any day prior to the "ex" date or any similar
date for any dividend or distribution paid or to be paid with respect to such
series of Common Stock shall be reduced by the fair market value of the per
share amount of such dividend or distribution as determined by the Board of
Directors and (b) the "Market Value" of any share of any series of Common Stock
on any day prior to (i) the effective date of any subdivision (by stock split
or otherwise) or combination (by reverse stock split or otherwise) of
outstanding shares of such series of Common Stock or (ii) the "ex" date or any
similar date for any dividend or distribution with respect to any such series
of Common Stock in shares of such series of Common Stock shall be appropriately
adjusted to reflect such subdivision, combination, dividend or distribution;
and provided, further, that to the extent that any assets or properties of the
TCI Group are transferred to the Telephony Group prior to there being any
shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock issued and outstanding, the Market Value of a share of Series A
Telephony Group Common Stock shall be as determined in good faith by the Board
of Directors for purposes of determining the increase in the Number of Shares
Issuable in Respect of the Telephony Group Inter-Group Interest.

"Mutually Appraised Amount", with respect to any determination of the
Telephony Group Private Market Value or the Liberty Media Group Private Market
Value, the determination by the Mutually Designated Appraiser of such private
market value.

"Mutually Designated Appraiser" shall mean, if required with respect
to any determination of the Telephony Group Private Market Value or the
Liberty Media Group Private Market Value, the investment banking firm of
recognized national standing jointly designated by the First Appraiser and the
Second Appraiser to make such determination.

The "Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest" is currently zero and will from time to time be

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(i) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A Liberty Media Group Common Stock and
dividends or distributions of shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock to holders
of Series A Liberty Media Group Common Stock and other
reclassifications of Series A Liberty Media Group Common Stock,

(ii) decreased (but not to less than zero) by (a) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or sold by TCI after the Distribution other than
Committed Acquisition Shares, the proceeds of which are attributed to
the TCI Group, (b) the aggregate number of shares of Series A Liberty
Media Group Common Stock issued or delivered upon conversion, exercise
or exchange of Convertible Securities (other than Pre-Distribution
Convertible Securities and Convertible Securities which are
convertible into or exercisable or exchangeable for Committed
Acquisition Shares), the proceeds of which are attributed to the TCI
Group, (c) the aggregate number of shares of Liberty Media Group
Common Stock issued or delivered by TCI as a dividend or distribution
to holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock, (d) the aggregate number of shares of Liberty Media
Group Common Stock issued or delivered upon the conversion, exercise
or exchange of any Convertible Securities (other than Pre-Distribution
Convertible Securities and Convertible Securities which are
convertible into or exercisable or exchangeable for Committed
Acquisition Shares) issued or delivered by TCI after the Distribution
as a dividend or distribution or by reclassification or exchange to
holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock and (e) the aggregate number of shares of Series A
Liberty Media Group Common Stock (rounded, if necessary, to the
nearest whole number), equal to the aggregate fair value (as
determined by the Board of Directors) of assets or properties
attributed to the Liberty Media Group that are transferred from the
Liberty Media Group to the TCI Group in consideration of a reduction
in the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest, divided by the Market Value of one share
of Series A Liberty Media Group Common Stock as of the date of such
transfer, and

(iii) increased by (a) the aggregate number of any shares
of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock which are retired or otherwise cease to be
outstanding following their purchase with funds attributed to the TCI
Group, (b) a number (rounded, if necessary, to the nearest whole
number), equal to the fair value (as determined by the Board of
Directors) of assets or properties theretofore attributed to the TCI
Group that are contributed to the Liberty Media Group in consideration
of an increase in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter- Group Interest, divided by the Market Value
of one share of Series A Liberty Media Group Common Stock as of the
date of such contribution and (c) the aggregate number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock into or for which Convertible Securities are deemed
to be converted, exercised or exchanged pursuant to the last sentence
of the definition of "TCI Group."

TCI will not issue or sell shares of Series B Liberty Media Group Common Stock
in respect of a reduction in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest. Whenever a change in the Number of
Shares Issuable with Respect to the Liberty Media Group Inter-Group Interest
occurs, TCI will prepare and file a statement of such change with the Secretary
of TCI.

"Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest" shall initially be _____ shares of Telephony Group Common
Stock, which may be issued as shares of Series A Telephony Group Common Stock
or Series B Telephony Group Common Stock and represents 100% of the common
stockholders' equity value of TCI attributable to the Telephony Group prior to
the Offerings, as determined by the Board of Directors, and shall from time to
time thereafter, as applicable, be

(i) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A Telephony Group Common Stock and Series B
Telephony

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Group Common Stock and dividends or distributions of shares of Series
A Telephony Group Common Stock or Series B Telephony Group Common
Stock to holders of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and other reclassifications of the Series
A Telephony Group Common Stock and Series B Telephony Group Common
Stock,

(ii) decreased (but not to less than zero) by (i) the
aggregate number of shares of Series A Telephony Group Common Stock or
Series B Telephony Group Common Stock issued or sold by TCI the
proceeds of which are attributed to the TCI Group, (ii) the aggregate
number of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock issued or delivered upon conversion,
exercise or exchange of Convertible Securities, the proceeds of which
are attributed to the TCI Group, (iii) the aggregate number of shares
of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock issued or delivered by TCI as a dividend or distribution
to holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock, (iv) the aggregate number of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock
issued or delivered upon the conversion, exercise or exchange of any
Convertible Securities issued or delivered by TCI as a dividend or
distribution or by reclassification or exchange to holders of Series A
TCI Group Common Stock and Series B TCI Group Common Stock and (v) the
aggregate number of shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock (rounded, if necessary, to
the nearest whole number), equal to the aggregate fair value (as
determined by the Board of Directors) of assets or properties
attributed to the Telephony Group that are transferred from the
Telephony Group to the TCI Group in consideration of a reduction in
the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest, divided by the Market Value of one share of
Series A Telephony Group Common Stock as of the date of such transfer,
and

(iii) increased by (i) the aggregate number of any shares
of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock which are retired or otherwise cease to be outstanding
following their purchase with funds attributed to the TCI Group, (ii)
a number (rounded, if necessary, to the nearest whole number), equal
to the fair value (as determined by the Board of Directors) of assets
or properties, theretofore attributed to the TCI Group that are
contributed to the Telephony Group in consideration of an increase in
the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest, divided by the Market Value of one share of
Series A Telephony Group Common Stock as of the date of such
contribution and (iii) the aggregate number of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock
into or for which Convertible Securities are deemed to be converted,
exercised or exchanged pursuant to the last sentence of the definition
of "TCI Group."

Whenever a change in the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest occurs, TCI shall prepare and file a
statement of such change with the Secretary of TCI.

"Pre-Distribution Convertible Securities" means Convertible Securities
that were outstanding on the record date for the Liberty Media Group
Distribution and were, prior to such date, convertible into or exercisable or
exchangeable for shares of TCI's Class A Common Stock, par value $1.00 per
share (which has been redesignated Series A TCI Group Common Stock).

"Qualifying Subsidiary" shall mean a Subsidiary of TCI in which (x)
TCI's ownership and voting interest is sufficient to satisfy the requirements
of the Service for a tax free distribution of TCI's interest in such Subsidiary
to the holders of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock or (y) TCI owns, directly or indirectly, all of the issued
and outstanding capital stock.

"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Telephony Group or the
Liberty Media Group , as the case may be, in which TCI receives as proceeds of
such Disposition primarily equity securities (including, without limitation,
capital stock, convertible securities,

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partnership or limited partnership interests and other types of equity
securities, without regard to the voting power or contractual or other
management or governance rights related to such equity securities) of the
purchaser or acquiror of such assets and properties of the Telephony Group or
the Liberty Media Group, as the case may be, any entity which succeeds (by
merger, formation of a joint venture enterprise or otherwise) to such assets
and properties of the Telephony Group or the Liberty Media Group, as the case
may be, or a third party issuer, which purchaser, acquiror or other issuer is
engaged or proposes to engage primarily in one or more businesses similar or
complementary to the businesses conducted by the Telephony Group or the Liberty
Media Group, as the case may be, prior to such Disposition, as determined in
good faith by the Board of Directors.

"Second Appraiser" means, with respect to any determination of the
Telephony Group Private Market Value or the Liberty Media Group Private Market
Value, an investment banking firm of recognized national standing selected by
the Independent Committee (as defined herein) to make such determination.

"Selection Date", with respect to any determination of the Telephony
Group Private Market Value or the Liberty Media Group Private Market Value,
shall mean the date upon which the Second Appraiser for such determination is
selected by the Independent Committee.

The "TCI Group" means as of any date of determination thereof:

(i) the interest of TCI or any of its subsidiaries in all
of the businesses in which TCI or any of its subsidiaries (or any of
their predecessors or successors) is or has been engaged, directly or
indirectly, and the respective assets and liabilities of TCI or any
of its subsidiaries, other than any businesses, assets or liabilities
of the Liberty Media Group or the Telephony Group;

(ii) a proportionate interest in the businesses, assets
and liabilities of the Liberty Media Group equal to the Liberty Media
Group Inter-Group Interest Fraction as of such date and a
proportionate interest in the businesses, assets and liabilities of
the Telephony Group equal to the Telephony Group Inter-Group Interest
Fraction as of such date;

(iii) from and after any dividend or other distribution
with respect to shares of Liberty Media Group Common Stock (other than
a dividend or other distribution payable in shares of Liberty Media
Group Common Stock, with respect to which adjustment will be made as
described in clause (i) of the definition of "Number of Shares
Issuable with Respect to the Liberty Media Group Inter-Group
Interest," or in other securities of TCI attributed to the Liberty
Media Group, for which provision will be made as described in the
second sentence of this definition), an amount of assets or properties
theretofore included in the Liberty Media Group equal to the aggregate
amount of such kind of assets or properties so paid in respect of such
dividend or other distribution with respect to shares of Liberty Media
Group Common Stock multiplied by a fraction the numerator of which is
equal to the Liberty Media Group Inter-Group Interest Fraction in
effect immediately prior to the record date for such dividend or other
distribution and the denominator of which is equal to the Liberty
Media Group Outstanding Interest Fraction in effect immediately prior
to the record date for such dividend or other distribution;

(iv) from and after any dividend or other distribution
with respect to shares of Telephony Group Common Stock (other than a
dividend or other distribution payable in shares of Telephony Group
Common Stock, with respect to which adjustment will be made as
described in clause (i) of the definition of "Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest, or
in other securities of TCI attributed to the Telephony Group, for
which provision will be made as described in the penultimate sentence
of this definition), an amount of assets or properties theretofore
included in the Telephony Group equal to the aggregate amount of such
kind of assets or properties so paid in respect of such dividend or
distribution with respect to shares of Telephony Group Common Stock
multiplied by a fraction the numerator of which is equal to the
Telephony Group Inter-Group Interest Fraction in effect immediately
prior to the record date for such

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dividend or other distribution and the denominator of which is equal
to the Telephony Group Outstanding Interest Fraction in effect
immediately prior to the record date for such dividend or other
distribution; and

(v) any assets or properties transferred from the Liberty
Media Group or the Telephony Group to the TCI Group;

provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group or the Telephony
Group, the TCI Group will no longer include such assets or properties so
contributed or transferred (other than pursuant to its interest in the
businesses, assets and liabilities of the Liberty Media Group or the Telephony
Group, as applicable, described in clause (ii) above). If TCI pays a dividend
or makes any other distribution with respect to shares of Liberty Media Group
Common Stock payable in other securities of TCI attributed to the Liberty Media
Group, the TCI Group will be deemed to hold an amount of such other securities
equal to the amount so distributed multiplied by the fraction specified in
clause (iii) of this definition (determined as of a time immediately prior to
the record date for such dividend or other distribution), and to the extent
interest or dividends are paid or other distributions are made on such other
securities so distributed to holders of Liberty Media Group Common Stock, the
TCI Group will include a corresponding ratable amount of the kind of assets
paid as such interest or dividends or other distributions in respect of such
securities so deemed to be held by the TCI Group. If TCI pays a dividend or
makes any other distribution with respect to shares of Telephony Group Common
Stock payable in other securities of TCI attributed to the Telephony Group, the
TCI Group will be deemed to hold an amount of such other securities equal to
the amount so distributed multiplied by the fraction specified in clause (iv)
of this definition (determined as of a time immediately prior to the record
date for such dividend or other distribution), and to the extent interest or
dividends are paid or other distributions are made on such other securities so
distributed to holders of Telephony Group Common Stock, the TCI Group will
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distribution in respect of such securities so
deemed to be held by the TCI Group. TCI may also, to the extent any such other
securities constitute Convertible Securities which are at the time convertible,
exercisable or exchangeable, cause such Convertible Securities deemed to be
held by the TCI Group to be deemed to be converted, exercised or exchanged (and
to the extent the terms of such Convertible Securities require payment or
delivery of consideration in order to effect such conversion, exercise or
exchange, the TCI Group will in such case no longer include an amount of the
kind of properties or assets required to be paid or delivered as such
consideration for the amount of the Convertible Securities deemed converted,
exercised or exchanged as if such Convertible Securities were outstanding), in
which case such Convertible Securities will no longer be deemed to be held by
the TCI Group or attributed to the Liberty Media Group or Telephony Group, as
applicable.

"Telephony Group" shall mean, as of any date that any shares of
Telephony Group Common Stock have been issued and continue to be outstanding:

(i) the interest of TCI or of any of its subsidiaries in
TTS-Delaware or any of its subsidiaries (including any successor
thereto by merger, consolidation or sale of all or substantially all
of its assets, whether or not in connection with a Related Business
Transaction) and their respective properties and assets,

(ii) all assets and liabilities of TCI or any of its
subsidiaries to the extent attributed to any of the properties or
assets referred to in clause (i) of this sentence, whether or not such
assets or liabilities are assets and liabilities of TCI Telephony or
any of its subsidiaries (or a successor as described in clause (i) of
this sentence),

(iii) all assets and properties contributed or otherwise
transferred to the Telephony Group from the TCI Group, and

(iv) the interest of TCI or any of its subsidiaries in the
businesses, assets and liabilities acquired by TCI or any of its
subsidiaries for the Telephony Group, as determined by the Board of
Directors;

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provided that (i) from and after any dividend or other distribution with
respect to any shares of Telephony Group Common Stock (other than a dividend or
other distribution payable in shares of Telephony Group Common Stock, with
respect to which adjustment shall be made as provided in clause (i) of the
definition of "Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest," or in other securities of TCI attributed to the
Telephony Group for which provision shall be made as set forth in the
penultimate sentence of this definition), the Telephony Group shall no longer
include an amount of assets or properties equal to the aggregate amount of such
kind of assets or properties so paid in respect of shares of Telephony Group
Common Stock multiplied by a fraction the numerator of which is equal to the
Telephony Group Inter-Group Interest Fraction in effect immediately prior to
the record date for such dividend or other distribution and the denominator of
which is equal to the Telephony Group Outstanding Interest Fraction in effect
immediately prior to the record date for such dividend or other distribution
and (ii) from and after any transfer of assets or properties from the Telephony
Group to the TCI Group, the Telephony Group shall no longer include the assets
or properties so transferred. If TCI shall pay a dividend or make any other
distribution with respect to shares of Telephony Group Common Stock payable in
securities of TCI attributed to the Telephony Group other than Telephony Group
Common Stock, the TCI Group shall be deemed to hold an amount of such other
securities equal to the amount so distributed multiplied by the fraction
specified in clause (i) of this definition (determined as of a time immediately
prior to the record date for such dividend or other distribution), and to the
extent interest or dividends are paid or other distributions are made on such
other securities so distributed to the holders of Telephony Group Common Stock,
the Telephony Group shall no longer include a corresponding ratable amount of
the kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group. TCI may
also, to the extent any such other securities constitute Convertible Securities
which are at the time convertible, exercisable or exchangeable, cause such
Convertible Securities deemed to be held by the TCI Group to be deemed to be
converted, exercised or exchanged (and to the extent the terms of such
Convertible Securities require payment or delivery of consideration in order to
effect such conversion, exercise or exchange, the Telephony Group shall in such
case include an amount of the kind of properties or assets required to be paid
or delivered as such consideration for the amount of the Convertible Securities
deemed converted, exercised or exchanged as if such Convertible Securities were
outstanding), in which case such Convertible Securities shall no longer be
deemed to be held by the TCI Group or attributed to the Telephony Group.

"Telephony Group Inter-Group Interest Fraction," as of any date, shall
mean a fraction the numerator of which is the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest as of such date and the
denominator of which is the sum of (a) such Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest as of such date and (b) the
aggregate number of shares of Telephony Group Common Stock outstanding as of
such date.

"Telephony Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the Telephony
Group, an amount, if any, equal to the gross proceeds of such Disposition after
any payment of, or reasonable provision for, (a) any taxes payable by TCI in
respect of such Disposition or in respect of any resulting dividend or
redemption pursuant to clause (i) or (ii), respectively, of the first paragraph
under "--CONVERSION AND REDEMPTION--Mandatory Dividend, Redemption or
Conversion of Telephony Group Common Stock" (or which would have been payable
but for the utilization of tax benefits attributable to the TCI Group or the
Liberty Media Group), (b) any transaction costs, including, without limitation,
any legal, investment banking and accounting fees and expenses and (c) any
liabilities and other obligations (contingent or otherwise) of, or attributed
to, the Telephony Group, including, without limitation, any indemnity or
guarantee obligations incurred in connection with the Disposition or any
liabilities for future purchase price adjustments and any preferential amounts
plus any accumulated and unpaid dividends and other obligations in respect of
Preferred Stock attributed to the Telephony Group. For purposes of this
definition, any properties and assets of the Telephony Group remaining after
such Disposition shall constitute "reasonable provision" for such amount of
taxes, costs and liabilities (contingent or otherwise) as can be supported by
such properties and assets. To the extent the proceeds of any Disposition
include any securities or other property other than cash, the Board of
Directors shall determine the value of such securities or property, including
for the purpose of determining the equivalent value thereof if the Board of
Directors determines to pay a dividend or

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redemption price in cash or securities or other property as provided in the
third paragraph under "--CONVERSION AND REDEMPTION--Mandatory Dividend,
Redemption or Conversion of Telephony Group Common Stock".

"Telephony Group Outstanding Interest Fraction," as of any date, shall
mean a fraction the numerator of which is the aggregate number of shares of
Telephony Group Common Stock outstanding on such date and the denominator of
which is the sum of (a) such aggregate number of shares of Series A Telephony
Group Common Stock outstanding on such date and (b) the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest as of such
date.

VOTING RIGHTS

Holders of Series A TCI Group Common Stock, Series A Telephony Group
Common Stock and Series A Liberty Media Group Common Stock are entitled to one
vote for each share of such stock held, and holders of Series B TCI Group
Common Stock, Series B Telephony Group Common Stock and Series B Liberty Media
Group Common Stock, in each case, are entitled to ten votes for each share of
such stock held, on all matters presented to such stockholders. Except as may
otherwise be required by the laws of the State of Delaware or, with respect to
any class of Preferred Stock or any series of such a class, in the TCI Charter
(including any resolution or resolutions providing for the establishment of
such class or series pursuant to authority vested in the Board of Directors by
the TCI Charter), the holders of TCI Group Common Stock, the holders of
Telephony Group Common Stock, the holders of Liberty Media Group Common Stock
and the holders of each class or series of Preferred Stock, if any, entitled to
vote thereon will vote as one class for all purposes.

None of the holders of Series A TCI Group Common Stock, Series B TCI
Group Common Stock, Series A Telephony Group Common Stock, Series B Telephony
Group Common Stock, Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock have any rights to vote as a separate class or
series on any matter coming before the stockholders of TCI, except with respect
to certain limited class and series voting rights provided under the DGCL.
Under the DGCL, the approval of the holders of a majority of the outstanding
shares of any class of capital stock of a corporation, voting separately as a
class, is required to approve any amendment to the charter that would alter or
change the powers, preferences or special rights of the shares of such class so
as to affect them adversely, provided that, if any amendment would alter or
change the powers, preferences or special rights of one or more series of the
class so as to affect them adversely, but would not so affect the entire class,
then only the shares of the series so affected by the amendment would be
entitled to vote thereon separately as a class.

DIVIDENDS

Subject to the prior payment of dividends on, and other rights of, any
of the outstanding shares of Preferred Stock, dividends may be paid as
determined by the Board of Directors (i) on the TCI Group Common Stock out of
the lesser of (x) the TCI Group Available Dividend Amount and (y) funds of TCI
legally available therefor under the DGCL, (ii) on the Telephony Group Common
Stock out of the lesser of (x) the Telephony Group Available Dividend Amount
and (y) funds of TCI legally available therefor under the DGCL, and (iii) on
the Liberty Media Group Common Stock out of the lesser of (x) the Liberty Media
Group Available Dividend Amount and (y) funds of TCI legally available therefor
under the DGCL. Under the DGCL the amount of the funds of TCI legally
available for the payment of dividends on any series of Common Stock is
determined on the basis of the entire corporation and not just the TCI Group,
the Telephony Group or the Liberty Media Group. Consequently, the amount of
legally available funds will be reduced by the amount of any net losses of the
TCI Group, the Telephony Group or the Liberty Media Group and any dividends or
distributions on, or repurchases of, the TCI Group Common Stock, the Telephony
Group Common Stock or the Liberty Media Group Common Stock, if any, and any
dividends or distributions on, or repurchases of, the TCI Group Common Stock,
the Telephony Group Common Stock or the Liberty Media Group Common Stock, if
any, and dividends on, or certain repurchases of, Preferred Stock. Certain
loan agreements to which certain subsidiaries of TCI are parties or are subject
contain restricted payment provisions that limit the amount of dividends, other
than stock dividends, that those companies may pay. Future loan agreements may
also contain similar restrictions and limits.

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The "TCI Group Available Dividend Amount," as of any date, means
either (i) the excess of (a) an amount equal to the total assets of the TCI
Group less the total liabilities (not including preferred stock) of the TCI
Group as of such date over (b) the aggregate par value of, or any greater
amount determined to be capital in respect of, all outstanding shares of TCI
Group Common Stock and each class or series of Preferred Stock attributed to
the TCI Group or (ii) in case there is no such excess, an amount equal to the
Company Earnings (Loss) Attributable to the TCI Group (if positive) for the
fiscal year in which such date occurs and/or the preceding fiscal year. The
"Company Earnings (Loss) Attributable to the TCI Group," for any period, means
the net earnings or loss of the TCI Group for such period determined on a basis
consistent with the determination of the net earnings or loss of the TCI Group
for such period as presented in the combined financial statements of the TCI
Group for such period, including income and expenses of TCI attributed to the
operations of the TCI Group on a substantially consistent basis, including,
without limitation, corporate administrative costs, net interest and income
taxes. The TCI Group Available Dividend Amount is intended to be similar to
the amount that would be legally available for the payment of dividends on the
TCI Group Common Stock under the DGCL if the TCI Group were a separate Delaware
corporation. There can be no assurance that there will be a TCI Group
Available Dividend Amount.

The "Telephony Group Available Dividend Amount," as of any date, means
the product of the Telephony Group Outstanding Interest Fraction and either (i)
the excess of (a) an amount equal to the total assets of the Telephony Group
less the total liabilities (not including preferred stock) of the Telephony
Group as of such date over (b) the aggregate par value of, or any greater
amount determined to be capital in respect of, all outstanding shares of
Telephony Group Common Stock and each class or series of Preferred Stock
attributed to the Telephony Group or (ii) in case there is no such excess, an
amount equal to the Company Earnings (Loss) Attributable to the Telephony Group
(if positive) for the fiscal year in which such date occurs and/or the
preceding fiscal year. The "Company Earnings (Loss) Attributable to the
Telephony Group," for any period, means the net earnings or loss of the
Telephony Group for such period determined on a basis consistent with the
determination of the net earnings or loss of the Telephony Group for such
period as presented in the combined financial statements of the Telephony Group
for such period, including income and expenses of TCI attributed to the
operations of the Telephony Group on a substantially consistent basis,
including, without limitation, corporate administrative costs, net interest and
income taxes. The Telephony Group Available Dividend Amount is intended to be
similar to the amount that would be legally available for the payment of
dividends on the Telephony Group Common Stock under the DGCL if the Telephony
Group were a separate Delaware corporation. There can be no assurance that
there will be a Telephony Group Available Dividend Amount.

The "Liberty Media Group Available Dividend Amount," as of any date,
means the product of the Liberty Media Group Outstanding Interest Fraction and
either (i) the excess of (a) an amount equal to the total assets of the Liberty
Media Group less the total liabilities (not including preferred stock) of the
Liberty Media Group as of such date over (b) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding shares
of Liberty Media Group Common Stock and each class or series of Preferred Stock
attributed to the Liberty Media Group or (ii) in case there is no such excess,
an amount equal to the Company Earnings (Loss) Attributable to the Liberty
Media Group (if positive) for the fiscal year in which such date occurs and/or
the preceding fiscal year. The "Company Earnings (Loss) Attributable to the
Liberty Media Group," for any period, means the net earnings or loss of the
Liberty Media Group for such period determined on a basis consistent with the
determination of the net earnings or loss of the Liberty Media Group for such
period as presented in the combined financial statements of the Liberty Media
Group for such period, including income and expenses of TCI attributed to the
operations of the Liberty Media Group on a substantially consistent basis,
including, without limitation, corporate administrative costs, net interest and
income taxes. The Liberty Media Group Available Dividend Amount is intended to
be similar to the amount that would be legally available for the payment of
dividends on the Liberty Media Group Common Stock under the DGCL if the Liberty
Media Group were a separate Delaware corporation. There is no assurance that
there will be a Liberty Media Group Available Dividend Amount.

Except for dividends declared or paid as described below under
"--SHARE DISTRIBUTIONS" and "--CONVERSION AND REDEMPTION--Mandatory Dividend,
Redemption or Conversion of Liberty Media Group Common Stock," any dividends
paid on the Series A TCI Group Common Stock or the Series B TCI Group Common
Stock will be paid only

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on both series, in equal amounts per share; any dividends paid on the Series A
Telephony Group Common Stock or the Series B Telephony Group Common Stock will
be paid only on both series, in equal amounts per share; and any dividends paid
on the Series A Liberty Media Group Common Stock or the Series B Liberty Media
Group Common Stock will be paid only on both series, in equal amounts per
share.

The Board of Directors, subject to the provisions described above and
under "--SHARE DISTRIBUTIONS" below, has the authority and discretion to
declare and pay dividends on the TCI Group Common Stock, the Telephony Group
Common Stock or the Liberty Media Group Common Stock in equal or unequal
amounts, notwithstanding the relationship between the TCI Group Available
Dividend Amount, the Telephony Group Available Dividend Amount and the
Liberty Media Group Available Dividend Amount , the respective amounts of prior
dividends declared on, or liquidation rights of, the TCI Group Common Stock,
the Telephony Group Common Stock or the Liberty Media Group Common Stock or any
other factor.

At the time of any dividend or other distribution on the outstanding
shares of Telephony Group Common Stock (including any dividend of Net Proceeds
from the Disposition of all or substantially all of the properties and assets
of the Telephony Group as described under "--CONVERSION AND
REDEMPTION--Mandatory Dividend, Redemption or Conversion of Telephony Group
Common Stock"), the TCI Group will (if at such time there is an Inter-Group
Interest in the Telephony Group) be credited, and the Telephony Group will be
charged (in addition to the charge for the dividend or other distribution paid
or distributed in respect of outstanding shares of Telephony Group Common
Stock), with an amount equal to the product of (i) the aggregate amount of such
dividend or distribution paid or distributed in respect of outstanding shares
of Telephony Group Common Stock times (ii) a fraction the numerator of which is
the Telephony Group Inter-Group Interest Fraction and the denominator of which
is the Telephony Group Outstanding Interest Fraction.

At the time of any dividend or other distribution on the outstanding
shares of Liberty Media Group Common Stock (including any dividend of Net
Proceeds from the Disposition of all or substantially all of the properties and
assets of the Liberty Media Group as described below under "--CONVERSION AND
REDEMPTION--Mandatory Dividend, Redemption or Conversion of Liberty Media Group
Common Stock"), the TCI Group will (if at such time there is an Inter-Group
Interest in the Liberty Media Group) be credited, and the Liberty Media Group
will be charged (in addition to the charge for the dividend or other
distribution paid or distributed in respect of outstanding shares of Liberty
Media Group Common Stock), with an amount equal to the product of (i) the
aggregate amount of such dividend or distribution paid or distributed in
respect of outstanding shares of Liberty Media Group Common Stock times (ii) a
fraction the numerator of which is the Liberty Media Group Inter-Group Interest
Fraction and the denominator of which is the Liberty Media Group Outstanding
Interest Fraction.

See Annex C--Illustration of Certain Terms for illustrations of the
calculation of the Telephony Group Inter-Group Interest Fraction and the
effects of dividends on shares of Telephony Group Common Stock.

SHARE DISTRIBUTIONS

Distributions on TCI Group Common Stock. If at any time after the
Liberty Media Group Distribution and the initial issuance of shares of
Telephony Group Common Stock a distribution is to be made with respect to the
TCI Group Common Stock in TCI Group Common Stock, Telephony Group Common Stock,
Liberty Media Group Common Stock, or any other securities of TCI or any other
person (a "share distribution"), such share distribution will be declared and
paid only as follows:

(i) a share distribution consisting of shares of Series A
TCI Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock) to holders of Series A TCI Group Common Stock and Series B TCI
Group Common Stock, on an equal per share basis; or consisting of
shares of Series B TCI Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock)

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to holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock, on an equal per share basis; or consisting of shares of
Series A TCI Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI Group
Common Stock) to holders of Series A TCI Group Common Stock and, on an
equal per share basis, shares of Series B TCI Group Common Stock (or
like Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B TCI Group Common Stock) to holders
of Series B TCI Group Common Stock;

(ii) a share distribution consisting of shares of Series A
Telephony Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A Telephony
Group Common Stock) to holders of Series A TCI Group Common Stock and
Series B TCI Group Common Stock, on an equal per share basis; or
consisting of shares of Series B Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series B Telephony Group Common Stock) to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock,
on an equal per share basis; or consisting of shares of Series A TCI
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock) to holders of Series A TCI Group Common Stock and, on an equal
per share basis, shares of Series B Telephony Group Common Stock (or
like Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B Telephony Group Common Stock) to
holders of Series B TCI Group Common Stock; provided that the sum of
(A) the aggregate number of shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock to be so issued (or
the number of such shares which would be issuable upon conversion,
exercise or exchange of any Convertible Securities to be so issued)
and (B) the number of shares of Series A Telephony Group Common Stock
that are subject to issuance upon conversion, exercise or exchange of
any Convertible Securities then outstanding that are attributed to the
TCI Group is less than or equal to the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest; and

(iii) a share distribution consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
Liberty Media Group Common Stock) to holders of Series A TCI Group
Common Stock and Series B TCI Group Common Stock, on an equal per
share basis; provided that the sum of (A) the aggregate number of
shares of Series A Liberty Media Group Common Stock to be so issued
(or the number of such shares which would be issuable upon conversion,
exercise or exchange of any Convertible Securities to be so issued)
and (B) the number of shares of such series that are subject to
issuance upon conversion, exercise or exchange of any Convertible
Securities then outstanding that are attributed to the TCI Group
(other than Pre-Distribution Convertible Securities and other than
Convertible Securities convertible into or exercisable or exchangeable
for Committed Acquisition Shares) is less than or equal to the Number
of Shares Issuable with Respect to the Liberty Media Group Inter-Group
Interest;

(iv) a share distribution consisting of any class or
series of securities of TCI or any other person other than TCI Group
Common Stock, Telephony Group Common Stock or Liberty Media Group
Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of TCI Group Common Stock,
Telephony Group Common Stock or Liberty Media Group Common Stock),
either on the basis of a distribution of identical securities, on an
equal per share basis, to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock or on the basis of a distribution
of one class or series of securities to holders of Series A TCI Group
Common Stock and another class or series of securities to holders of
Series B TCI Group Common Stock, provided that the securities so
distributed (and, if the distribution consists of Convertible
Securities, the securities into which such Convertible Securities are
convertible or for which they are exercisable or exchangeable) do not
differ in any respect other than their relative voting rights and
related differences in designation, conversion, redemption and share
distribution provisions, with holders of shares of Series B TCI Group
Common Stock receiving the class or series having the higher relative
voting rights (without regard to whether such rights differ to a
greater or lesser extent than

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the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Series A TCI Group Common Stock and the Series B TCI Group Common
Stock), provided that if the securities so distributed constitute
capital stock of a subsidiary of TCI, such rights will not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Group Common Stock and the Series B TCI Group
Common Stock, and provided in each case that such distribution is
otherwise made on an equal per share basis.

TCI will not reclassify, subdivide or combine the Series A TCI Group
Common Stock without reclassifying, subdividing or combining the Series B TCI
Group Common Stock, on an equal per share basis, and TCI will not reclassify,
subdivide or combine the Series B TCI Group Common Stock without reclassifying,
subdividing or combining the Series A TCI Group Common Stock, on an equal per
share basis.

Distributions on Telephony Group Common Stock. If at any time a share
distribution is to be made with respect to the Telephony Group Common Stock,
such share distribution will be declared and paid only as follows (or as
described under the caption "--CONVERSION AND REDEMPTION" with respect to the
redemptions and other distributions referred to therein):

(i) a share distribution consisting of shares of Series A
Telephony Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A Telephony
Group Common Stock) to holders of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock, on an equal per share
basis; or consisting of shares of Series B Telephony Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B Telephony Group Common Stock) to
holders of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, on an equal per share basis; or
consisting of shares of Series A Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A Telephony Group Common Stock) to holders of
Series A Telephony Group Common Stock and, on an equal per share
basis, shares of Series B Telephony Group Common Stock (or like
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series B Telephony Group Common Stock) to holders of
Series B Telephony Group Common Stock; and

(ii) a share distribution consisting of any class or
series of securities of TCI or any other person other than as
described in the immediately preceding clause (i) and other than TCI
Group Common Stock or Liberty Media Group Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares
of TCI Group Common Stock or Liberty Media Group Common Stock), either
on the basis of a distribution of identical securities, on an equal
per share basis, to holders of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock or on the basis of a
distribution of one class or series of securities to holders of Series
A Telephony Group Common Stock and another class or series of
securities to holders of Series B Telephony Group Common Stock,
provided that the securities so distributed (and, if the distribution
consists of Convertible Securities, the securities into which such
Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Series B Telephony Group Common Stock receiving the class
or series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A
Telephony Group Common Stock and the Series B Telephony Group Common
Stock), provided that if the securities so distributed constitute
capital stock of a subsidiary of TCI, such rights will not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A Telephony Group Common Stock and the Series B
Telephony Group Common Stock, and provided in each case that such
distribution is otherwise made on an equal per share basis.

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TCI will not reclassify, subdivide or combine the Series A Telephony
Group Common Stock without reclassifying, subdividing or combining the Series B
Telephony Group Common Stock, on an equal per share basis, and TCI will not
reclassify, subdivide or combine the Series B Telephony Group Common Stock
without reclassifying, subdividing or combining the Series A Telephony Group
Common Stock, on an equal per share basis.

Distributions on Liberty Media Group Common Stock. If at any time a
share distribution is to be made with respect to the Liberty Media Group Common
Stock, such share distribution will be declared and paid only as follows (or as
described under "--CONVERSION AND REDEMPTION" with respect to the redemptions
and other distributions referred to therein):

(i) a share distribution consisting of shares of Series A Liberty
Media Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of
Series A Liberty Media Group Common Stock) to holders of
Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock, on an equal per share basis; or
consisting of shares of Series B Liberty Media Group Common
Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B Liberty
Media Group Common Stock) to holders of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock, on an equal per share basis; or consisting of shares of
Series A Liberty Media Group Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for
shares of Series A Liberty Media Group Common Stock) to
holders of Series A Liberty Media Group Common Stock and, on
an equal per share basis, shares of Series B Liberty Media
Group Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Series B
Liberty Media Group Common Stock) to holders of Series B
Liberty Media Group Common Stock; and

(ii) a share distribution consisting of any class or series of
securities of TCI or any other person other than as described
in the immediately preceding clause (i) and other than TCI
Group Common Stock or Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Group Common Stock,
Series B TCI Group Common Stock, Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock), either
on the basis of a distribution of identical securities, on an
equal per share basis, to holders of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock or on the basis of a distribution of one class or series
of securities to holders of Series A Liberty Media Group
Common Stock and another class or series of securities to
holders of Series B Liberty Media Group Common Stock, provided
that the securities so distributed (and, if the distribution
consists of Convertible Securities, the securities into which
such Convertible Securities are convertible or for which they
are exercisable or exchangeable) do not differ in any respect
other than their relative voting rights and related
differences in designation, conversion, redemption and share
distribution provisions, with holders of shares of Series B
Liberty Media Group Common Stock receiving the class or series
having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than
the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions
between the Series A Liberty Media Group Common Stock and the
Series B Liberty Media Group Common Stock), provided that if
the securities so distributed constitute capital stock of a
subsidiary of TCI, such rights will not differ to a greater
extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution
provisions between the Series A Liberty Media Group Common
Stock and the Series B Liberty Media Group Common Stock, and
provided in each case that such distribution is otherwise made
on an equal per share basis.

TCI will not reclassify, subdivide or combine the Series A Liberty
Media Group Common Stock without reclassifying, subdividing or combining the
Series B Liberty Media Group Common Stock, on an equal per share basis,

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and TCI will not reclassify, subdivide or combine the Series B Liberty Media
Group Common Stock without reclassifying, subdividing or combining the Series A
Liberty Media Group Common Stock, on an equal per share basis.

CONVERSION AND REDEMPTION

Conversion at the Option of the Holder. Each share of Series B TCI
Group Common Stock is convertible, at the option of the holder thereof, into
one share of Series A TCI Group Common Stock. Each share of Series B Telephony
Group Common Stock is convertible, at the option of the holder thereof, into
one share of Series A Telephony Group Common Stock. Each share of Series B
Liberty Media Group Common Stock is convertible, at the option of the holder
thereof, into one share of Series A Liberty Media Group Common Stock. Any
such conversion may be effected by surrendering the certificate or certificates
representing the Series B TCI Group Common Stock, the Series B Telephony Group
Common Stock or the Series B Liberty Media Group Common Stock, as the case may
be, to be converted, duly endorsed, at the office of TCI or its transfer agent,
together with a written notice that such holder elects to convert all or a
specified number of the shares represented by such certificate or certificates
and stating the name or names in which such holder desires the certificate or
certificates deliverable upon conversion to be issued. If so required by TCI,
any certificate for shares surrendered for conversion will be accompanied by
instruments of transfer, in form satisfactory to TCI, duly executed by the
holder of such shares or the duly authorized representative of such holder.
Such conversion will be deemed to have been made at the close of business on
the date of receipt by TCI or any such transfer agent of the certificate or
certificates, notice and, if required, instruments of transfer referred to
above, and the person or persons entitled to receive the Series A TCI Group
Common Stock, the Series A Telephony Group Common Stock or the Series A Liberty
Media Group Common Stock, as the case may be, issuable on such conversion will
be treated for all purposes as the record holder or holders of such Series A
TCI Group Common Stock, Series A Telephony Group Common Stock or Series A
Liberty Media Group Common Stock on that date. Shares of Series A TCI Group
Common Stock are not convertible into shares of Series B TCI Group Common
Stock; shares of Series A Telephony Group Common Stock are not convertible into
shares of Series B Telephony Group Common Stock; and shares of Series A Liberty
Media Group Common Stock are not convertible into shares of Series B Liberty
Media Group Common Stock.

Conversion of Telephony Group Common Stock at the Option of TCI. The
Board of Directors may at any time declare that (i) all of the outstanding
shares of Series A Telephony Group Common Stock will be converted into a number
(or fraction) of fully paid and nonassessable shares of Series A TCI Group
Common Stock equal to the Telephony Group Optional Conversion Ratio, and (ii)
all of the outstanding shares of Series B Telephony Group Common Stock will be
converted into a number (or fraction) of fully paid and nonassessable shares of
Series B TCI Group Common Stock equal to the Telephony Group Optional
Conversion Ratio.

For these purposes, the "Telephony Group Optional Conversion Ratio"
means the quotient (calculated to the nearest five decimal places) obtained by
dividing (x) the Telephony Group Common Stock Per Share Value by (y) the
average Market Value of one share of Series A TCI Group Common Stock over the
20-Trading Day period ending on the Trading Day preceding the Appraisal Date.
The Telephony Group Common Stock Per Share Value will equal the quotient
obtained by dividing the Telephony Group Private Market Value by the Adjusted
Outstanding Shares of Telephony Group Common Stock, which will be determined in
the manner provided below.

The "Telephony Group Private Market Value" means an amount equal to
the private market value of the Telephony Group as of the Appraisal Date. In
the event that TCI determines to establish the Telephony Group Private Market
Value, TCI shall designate the First Appraiser and a committee of the Board of
Directors all of whose members are independent directors as determined under
the Nasdaq National Market rule (the "Independent Committee") shall designate
the Second Appraiser. Not later than 20 days after the Selection Date, the
First Appraiser and the Second Appraiser will each determine its initial view
as to the private market value of the Telephony Group as of the Appraisal Date
and will consult with one another with respect thereto. Not later than the
30th day after the Selection Date, the First Appraiser and the Second Appraiser
will each have determined its final view as to such private market value. The

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Higher Appraised Amount is not more than 120% of the Lower Appraised Amount,
the Telephony Group Private Market Value (subject to any adjustment described
in the second succeeding paragraph) will be the average of those two amounts.
If the Higher Appraised Amount is more than 120% of the Lower Appraised Amount,
the First Appraiser and the Second Appraiser will agree upon and jointly
designate the Mutually Designated Appraiser to determine such private market
value. The Mutually Designated Appraiser will not be provided with any of the
work of the First Appraiser and the Second Appraiser. The Mutually Designated
Appraiser will, no later than the 20th day after the date the Mutually
Designated Appraiser is designated, determine the Mutually Appraised Amount,
and the Telephony Group Private Market Value (subject to any adjustment
described in the second succeeding paragraph) will be (i) if the Mutually
Appraised Amount is between the Lower Appraised Amount and the Higher Appraised
Amount, (a) the average of (1) the Mutually Appraised Amount and (2) the Lower
Appraised Amount or the Higher Appraised Amount, whichever is closer to the
Mutually Appraised Amount, or (b) the Mutually Appraised Amount, if neither the
Lower Appraised Amount nor the Higher Appraised Amount is closer to the
Mutually Appraised Amount, or (ii) if the Mutually Appraised Amount is greater
than the Higher Appraised Amount or less than the Lower Appraised Amount, the
average of the Higher Appraised Amount and the Lower Appraised Amount. For
these purposes, if any such investment banking firm expresses its final view of
the private market value of the Telephony Group as a range of values, such
investment banking firm's final view of such private market value will be
deemed to be the midpoint of such range of values.

Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value of
the Telephony Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's-length transaction, if it
were acquiring the Telephony Group, as if the Telephony Group were a publicly
traded non-controlled corporation and the purchaser was acquiring all of the
capital stock of such corporation and without consideration of any potential
regulatory constraints limiting the potential purchasers of the Telephony Group
other than that which would have existed if the Telephony Group were a publicly
traded non-controlled entity.

Following the determination of the Telephony Group Private Market
Value, the investment banking firms whose final views of the private market
value of the Telephony Group were used in the calculation of the Telephony
Group Private Market Value will determine the Adjusted Outstanding Shares of
Telephony Group Common Stock together with any further appropriate adjustments
to the Telephony Group Private Market Value resulting from such determination.
The "Adjusted Outstanding Shares of Telephony Group Common Stock" means a
number, as determined by such investment banking firms as of the Appraisal
Date, equal to the sum of the number of shares of Telephony Group Common Stock
outstanding, the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest, and the number of shares of Telephony Group Common Stock
issuable upon the conversion, exercise or exchange of those Convertible
Securities the holders of which would derive an economic benefit from
conversion, exercise or exchange of such Convertible Securities which exceeds
the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Telephony Group Common Stock Per Share Value"
means the quotient obtained by dividing the Telephony Group Private Market
Value by the Adjusted Outstanding Shares of Telephony Group Common Stock,
provided that if such investment banking firms do not agree on the
determinations provided for in this paragraph, the Telephony Group Common Stock
Per Share Value will be the average of the quotients so obtained on the basis
of the respective determinations of such firms.

If TCI determines to convert shares of Series A Telephony Group Common
Stock into Series A TCI Group Common Stock and shares of Series B Telephony
Group Common Stock into Series B TCI Group Common Stock at the Telephony Group
Optional Conversion Ratio, such conversion will occur on a conversion date on
or prior to the 120th day following the Appraisal Date. If TCI determines not
to undertake such conversion, TCI may at any time thereafter undertake to
reestablish the Telephony Group Common Stock Per Share Value as of a subsequent
date.

Any such conversion would dilute the interests of holders of TCI Group
Common Stock and would preclude holders of Telephony Group Common Stock from
retaining their interest in a security reflecting separately the business of
the Telephony Group.

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See Annex C--Illustration of Certain Terms for an illustration of the
conversion of Telephony Group Common Stock into TCI Group Common Stock at the
Telephony Group Optional Conversion Ratio.

Conversion of Liberty Media Group Common Stock at the Option of TCI.
The Board of Directors may at any time declare that (i) all of the outstanding
shares of Series A Liberty Media Group Common Stock will be converted into a
number (or fraction) of fully paid and nonassessable shares of Series A TCI
Group Common Stock equal to the Liberty Media Group Optional Conversion Ratio,
and (ii) all of the outstanding shares of Series B Liberty Media Group Common
Stock will be converted into a number (or fraction) of fully paid and
nonassessable shares of Series B TCI Group Common Stock equal to the Liberty
Media Group Optional Conversion Ratio.

For these purposes, the "Liberty Media Group Optional Conversion
Ratio" means the quotient (calculated to the nearest five decimal places)
obtained by dividing (x) the Liberty Media Group Common Stock Per Share Value
by (y) the average Market Value of one share of Series A TCI Group Common Stock
over the 20-Trading Day period ending on the Trading Day preceding the
Appraisal Date. The Liberty Media Group Common Stock Per Share Value will
equal the quotient obtained by dividing the Liberty Media Group Private Market
Value by the Adjusted Outstanding Shares of Liberty Media Group Common Stock,
which will be determined in the manner described below.

The "Liberty Media Group Private Market Value" means an amount equal
to the private market value of the Liberty Media Group as of the Appraisal
Date. In the event that TCI shall determines to establish the Liberty Media
Group Private Market Value, TCI shall designate the First Appraiser and shall
designate the Second Appraiser and the Independent Committee. Not later than
20 days after the Selection Date, the First Appraiser and the Second Appraiser
will each determine its initial view as to the private market value of the
Liberty Media Group as of the Appraisal Date and will consult with one another
with respect thereto. Not later than the 30th day after the Selection Date,
the First Appraiser and the Second Appraiser will each have determined its
final view as to such private market value. If the Higher Appraised Amount is
not more than 120% of the Lower Appraised Amount, the Liberty Media Group
Private Market Value (subject to any adjustment described in the second
succeeding paragraph) will be the average of those two amounts. If the Higher
Appraised Amount is more than 120% of the Lower Appraised Amount, the First
Appraiser and the Second Appraiser will agree upon and jointly designate the
Mutually Designated Appraiser to determine such private market value. The
Mutually Designated Appraiser will not be provided with any of the work of the
First Appraiser and the Second Appraiser. The Mutually Designated Appraiser
will, no later than the 20th day after the date the Mutually Designated
Appraiser is designated, determine the Mutually Appraised Amount, and the
Liberty Media Group Private Market Value (subject to any adjustment described
in the second succeeding paragraph) will be (i) if the Mutually Appraised
Amount is between the Lower Appraised Amount and the Higher Appraised Amount,
(a) the average of (1) the Mutually Appraised Amount and (2) the Lower
Appraised Amount or the Higher Appraised Amount, whichever is closer to the
Mutually Appraised Amount, or (b) the Mutually Appraised Amount, if neither the
Lower Appraised Amount nor the Higher Appraised Amount is closer to the
Mutually Appraised Amount, or (ii) if the Mutually Appraised Amount is greater
than the Higher Appraised Amount or less than the Lower Appraised Amount, the
average of the Higher Appraised Amount and the Lower Appraised Amount. For
these purposes, if any such investment banking firm expresses its final view of
the private market value of the Liberty Media Group as a range of values, such
investment banking firm's final view of such private market value will be
deemed to be the midpoint of such range of values.

Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value of
the Liberty Media Group as of the Appraisal Date based upon the amount a
willing purchaser would pay to a willing seller, in an arm's-length
transaction, if it were acquiring the Liberty Media Group, as if the Liberty
Media Group were a publicly traded non-controlled corporation and the purchaser
was acquiring all of the capital stock of such corporation and without
consideration of any potential regulatory constraints limiting the potential
purchasers of the Liberty Media Group other than that which would have existed
if the Liberty Media Group were a publicly traded non-controlled entity.

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Following the determination of the Liberty Media Group Private Market
Value, the investment banking firms whose final views of the private market
value of the Liberty Media Group were used in the calculation of the Liberty
Media Group Private Market Value will determine the Adjusted Outstanding Shares
of Liberty Media Group Common Stock together with any further appropriate
adjustments to the Liberty Media Group Private Market Value resulting from such
determination. The "Adjusted Outstanding Shares of Liberty Media Group Common
Stock" means a number, as determined by such investment banking firms as of the
Appraisal Date, equal to the sum of the number of shares of Liberty Media Group
Common Stock outstanding, the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest, the number of Committed Acquisition
Shares issuable, the number of shares of Liberty Media Group Common Stock
issuable upon the conversion, exercise or exchange of all Pre-Distribution
Convertible Securities and the number of shares of Liberty Media Group Common
Stock issuable upon the conversion, exercise or exchange of those Convertible
Securities (other than Pre-Distribution Convertible Securities and other than
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares) the holders of which would
derive an economic benefit from conversion, exercise or exchange of such
Convertible Securities which exceeds the economic benefit of not converting,
exercising or exchanging such Convertible Securities. The "Liberty Media Group
Common Stock Per Share Value" means the quotient obtained by dividing the
Liberty Media Group Private Market Value by the Adjusted Outstanding Shares of
Liberty Media Group Common Stock, provided that if such investment banking
firms do not agree on the determinations provided for in this paragraph, the
Liberty Media Group Common Stock Per Share Value will be the average of the
quotients so obtained on the basis of the respective determinations of such
firms.

If TCI determines to convert shares of Series A Liberty Media Group
Common Stock into Series A TCI Group Common Stock and shares of Series B
Liberty Media Group Common Stock into Series B TCI Group Common Stock at the
Liberty Media Group Optional Conversion Ratio, such conversion will occur on a
conversion date on or prior to the 120th day following the Appraisal Date. If
TCI determines not to undertake such conversion, TCI may at any time thereafter
undertake to reestablish the Liberty Media Group Common Stock Per Share Value
as of a subsequent date.

Mandatory Dividend, Redemption or Conversion of Telephony Group Common
Stock. Upon the Disposition in one transaction or a series of related
transactions by TCI and its subsidiaries of all or substantially all of the
properties and assets of the Telephony Group to any one or more persons,
entities or groups (other than (a) in connection with the Disposition by TCI of
all of TCI's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
TCI, (b) a dividend, other distribution or redemption in accordance with any
provision described under "--Redemption of Telephony Group Common Stock in
Exchange for Stock of Subsidiary" "--DIVIDENDS," "--SHARE DISTRIBUTIONS," or
"--LIQUIDATION RIGHTS," (c) to any person, entity or group which TCI, directly
or indirectly, after giving effect to the Disposition, controls or (d) in
connection with a Related Business Transaction), TCI is required, on or prior
to the 85th Trading Day following the consummation of such Disposition, to
either:

(i) subject to the limitations described above under
"--DIVIDENDS," declare and pay a dividend in cash and/or securities or
other property (other than a dividend or distribution of Common Stock)
to the holders of the outstanding shares of Telephony Group Common
Stock equally on a share for share basis (subject to the provisions
described in the last sentence of the third paragraph under this
caption "--Mandatory Dividends, Redemption or Conversion of Telephony
Group Common Stock," in an aggregate amount equal to the product of
the Telephony Group Outstanding Interest Fraction as of the record
date for determining the holders entitled to receive such dividend and
the Telephony Group Net Proceeds;

(ii) provided that there are assets of TCI legally
available therefor and the Telephony Group Available Dividend Amount
would have been sufficient to pay a dividend in lieu thereof as
described in clause (i) of this paragraph, then:

(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the
Telephony Group, redeem all outstanding shares of Series A
Telephony Group Common

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Stock and Series B Telephony Group Common Stock in exchange
for cash and/or securities or other property (other than
Common Stock) in an aggregate amount equal to the product of
the Telephony Group Outstanding Interest Fraction as of the
date of such redemption and the Telephony Group Net Proceeds,
such aggregate amount to be allocated (subject to the
provisions described in the last sentence of the third
paragraph under this caption) to shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock
in the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Telephony Group Common
Stock and each share of Series B Telephony Group Common Stock
is the same); or

(B) if such Disposition involves substantially
all (but not all) of the properties and assets of the
Telephony Group, apply an aggregate amount of cash and/or
securities or other property (other than Common Stock) equal
to the product of the Telephony Group Outstanding Interest
Fraction as of the date shares are selected for redemption and
the Telephony Net Proceeds of such Disposition to the
redemption of outstanding shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock, such
aggregate amount to be allocated (subject to the provisions
described in the last sentence of the third paragraph under
this caption) to shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock in the ratio
of the number of shares of each such series outstanding, and
the number of shares of each such series to be redeemed to
equal the lesser of (x) the whole number nearest the number
determined by dividing the aggregate amount so allocated to
the redemption of such series by the average Market Value of
one share of Series A Telephony Group Common Stock during the
ten-Trading Day period beginning on the 16th Trading Day
following the consummation of such Disposition and (y) the
number of shares of such series outstanding (so that the
amount of consideration paid for the redemption of each share
of Series A Telephony Group Common Stock and each share of
Series B Telephony Group Common Stock is the same); or

(iii) convert (A) each outstanding share of Series A
Telephony Group Common Stock into a number (or fraction) of fully paid
and nonassessable shares of Series A TCI Group Common Stock and (B)
each outstanding share of Series B Telephony Group Common Stock into a
number (or fraction) of fully paid and nonassessable shares of Series
B TCI Group Common Stock, in each case equal to 110% of the average
daily ratio (calculated to the nearest five decimal places) of the
Market Value of one share of Series A Telephony Group Common Stock to
the Market Value of one share of Series A TCI Group Common Stock
during the ten-Trading Day period referred to in clause (ii)(B) of
this paragraph.

For these purposes, "substantially all of the properties and assets of
the Telephony Group" means a portion of such properties and assets that
represents at least 80% of the then-current market value (as determined by the
Board of Directors) of the properties and assets of the Telephony Group as of
such date. The Related Business Transaction exception would enable TCI to
enter into transactions in which the properties or assets of the Telephony
Group may be considered to be "disposed of" in exchange for equity securities
of an entity engaged or proposing to engage in similar or complementary
business areas to those of the Telephony Group while maintaining the capital
structure and delineation of business groups of the Telephony Group.

TCI may elect to pay the dividend or redemption price referred to in
clause (i) or (ii) of the first paragraph under "--Mandatory Dividend,
Redemption or Conversion of Telephony Group Common Stock" either in the same
form as the proceeds of the Disposition were received or in any other
combination of cash or securities or other property (other than Common Stock)
that the Board of Directors determines will have an aggregate market value on a
fully distributed basis, of not less than the amount of the Telephony Group Net
Proceeds. If the dividend or redemption price is paid in the form of
securities of an issuer other than TCI, the Board of Directors may determine
either to (i) pay the dividend or redemption price in the form of separate
classes or series of securities, with one class or series of such securities to
holders of Series A Telephony Group Common Stock and another class or series of
securities to holders

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of Series B Telephony Group Common Stock, provided that such securities (and,
if such securities are convertible into or exercisable or exchangeable for
shares of another class or series of securities, the securities so issuable
upon such conversion, exercise or exchange) do not differ in any respect other
than their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions with holders of shares
of Series B Telephony Group Common Stock receiving the class or series having
the higher relative voting rights (without regard to whether such rights differ
to a greater or lesser extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution provisions
between the Series A Telephony Group Common Stock and the Series B Telephony
Group Common Stock), provided that if such securities constitute capital stock
of a subsidiary of TCI, such rights will not differ to a greater extent than
the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A Telephony
Group Common Stock and the Series B Telephony Group Common Stock, and otherwise
such securities will be distributed on an equal per share basis, or (ii) pay
the dividend or redemption price in the form of a single class of securities
without distinction between the shares received by the holders of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock.

At the time of any dividend made as a result of a Disposition referred
to above, the TCI Group will be credited, and the Telephony Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of Telephony Group Common Stock), with an amount equal to
the product of (i) the aggregate amount paid in respect of such dividend times
(ii) a fraction the numerator of which is the Telephony Group Inter-Group
Interest Fraction and the denominator of which is the Telephony Group
Outstanding Interest Fraction.

The option to convert the Telephony Group Common Stock into TCI Group
Common Stock in the event of a Disposition provides TCI with additional
flexibility by allowing TCI to deliver consideration in the form of shares of
TCI Group Common Stock rather than cash or securities or other properties.
This alternative could be used, for example, in circumstances when TCI did not
have sufficient legally available assets under the DGCL to pay the full amount
of an otherwise required dividend or redemption or when TCI desired to retain
such proceeds.

If less than substantially all of the properties and assets of the
Telephony Group were disposed of by TCI in one transaction (even if an
additional transaction were consummated at a later time in which additional
properties and assets of the Telephony Group were disposed of by TCI, which,
together with the properties and assets disposed of in the first transaction,
would have constituted substantially all of the properties and assets of the
Telephony Group at the time of the first transaction), TCI would not be
required to pay a dividend on, redeem or convert the outstanding shares of
Telephony Group Common Stock, unless such transactions constituted a series of
related transactions. The second transaction, however, could trigger such a
requirement if, at the time of the second transaction, the properties and
assets disposed of in such transaction constituted at least substantially all
of the properties and assets of the Telephony Group at such time. If less than
substantially all of the properties and assets of the Telephony Group were
disposed of by TCI, the holders of the Telephony Group Common Stock would not
be entitled to receive any dividend or have their shares redeemed or converted
for TCI Group Common Stock, although the Board of Directors could determine, in
its sole discretion, to pay a dividend on the Telephony Group Common Stock in
an amount related to the proceeds of such Disposition.

See Annex C--Illustration of Certain Terms for an illustration of the
dividend on or redemption or conversion of Telephony Group Common Stock
following the Disposition of all or substantially all of the properties and
assets of the Telephony Group.

Mandatory Dividend, Redemption or Conversion of Liberty Media Group
Common Stock. Upon the Disposition, in one transaction or a series of related
transactions by TCI and its subsidiaries of all or substantially all of the
properties and assets of the Liberty Media Group to one or more persons,
entities or groups (other than (a) in connection with the Disposition by TCI of
all of TCI's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
TCI, (b) a dividend, other distribution or redemption in accordance with any
provision described under "--Redemption of Liberty Media Group Common Stock

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in Exchange for Stock of Subsidiary," "--DIVIDENDS," "--SHARE DISTRIBUTIONS,"
or "--LIQUIDATION RIGHTS," (c) to any person, entity or group which TCI,
directly or indirectly, after giving effect to the Disposition, controls or (d)
in connection with a Related Business Transaction), TCI is required, on or
prior to the 85th Trading Day following the consummation of such Disposition,
to either:

(i) subject to the limitations described under "--DIVIDENDS,"
declare and pay a dividend in cash and/or securities or other
property (other than a dividend or distribution of Common
Stock) to the holders of the outstanding shares of Liberty
Media Group Common Stock equally on a share for share basis
(subject to the provisions described in the last sentence of
the penultimate paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion of Liberty Media Group
Common Stock"), in an aggregate amount equal to the product of
the Liberty Media Group Outstanding Interest Fraction as of
the record date for determining the holders entitled to
receive such dividend and the Liberty Media Group Net
Proceeds;

(ii) provided that there are assets of TCI legally available
therefor and the Liberty Media Group Available Dividend Amount
would have been sufficient to pay a dividend in lieu thereof
as described in clause (i) of this paragraph, then:

(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the Liberty
Media Group, redeem all outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group
Common Stock in exchange for cash and/or securities or other
property (other than Common Stock) in an aggregate amount
equal to the product of the Adjusted Liberty Media Group
Outstanding Interest Fraction as of the date of such
redemption and the Liberty Media Group Net Proceeds, such
aggregate amount to be allocated (subject to the provisions
described in the last sentence of the penultimate paragraph
under this caption) to shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock in
the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same); or

(B) if such Disposition involves substantially
all (but not all) of the properties and assets of the Liberty
Media Group, apply an aggregate amount of cash and/or
securities or other property (other than Common Stock) equal
to the product of the Liberty Media Group Outstanding Interest
Fraction as of the date shares are selected for redemption and
the Liberty Media Group Net Proceeds of such Disposition to
the redemption of outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock, such aggregate amount to be allocated (subject to the
provisions described in the last sentence of the penultimate
paragraph under this caption) to shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group
Common Stock in the ratio of the number of shares of each such
series outstanding, and the number of shares of each such
series to be redeemed to equal the lesser of (x) the whole
number nearest the number determined by dividing the aggregate
amount so allocated to the redemption of such series by the
average Market Value of one share of Series A Liberty Media
Group Common Stock during the ten-Trading Day period beginning
on the 16th Trading Day following the consummation of such
Disposition and (y) the number of shares of such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same); or

(iii) convert (A) each outstanding share of Series A Liberty Media
Group Common Stock into a number (or fraction) of fully paid
and nonassessable shares of Series A TCI Group Common Stock
and (B) each outstanding share of Series B Liberty Media Group
Common Stock into a number (or fraction) of fully paid and
nonassessable shares of Series B TCI Group Common Stock, in
each case equal to

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110% of the average daily ratio (calculated to the nearest
five decimal places) of the Market Value of one share of
Series A Liberty Media Group Common Stock to the Market Value
of one share of Series A TCI Group Common Stock during the
ten-Trading Day period referred to in clause (ii)(B) of this
paragraph.

For these purposes, "substantially all of the properties and assets of
the Liberty Media Group" means a portion of such properties and assets that
represents at least 80% of the then-current market value (as determined by the
Board of Directors) of the properties and assets of the Liberty Media Group as
of such date.

The "Adjusted Liberty Media Group Outstanding Interest Fraction" means
a fraction the numerator of which is the number of outstanding shares of
Liberty Media Group Common Stock and the denominator of which is the sum of (a)
such number of outstanding shares, (b) the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest, (c) the number of
shares of Liberty Media Group Common Stock issuable upon conversion, exercise
or exchange of Pre-Distribution Convertible Securities and (d) the number of
Committed Acquisition Shares issuable.

TCI may elect to pay the dividend or redemption price referred to in
clause (i) or (ii) of the first paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion or Liberty Media Group Common Stock" either
in the same form as the proceeds of the Disposition were received or in any
other combination of cash or securities or other property (other than Common
Stock) that the Board of Directors determines will have an aggregate market
value on a fully distributed basis, of not less than the amount of the Liberty
Media Group Net Proceeds. If the dividend or redemption price is paid in the
form of securities of an issuer other than TCI, the Board of Directors may
determine either to (i) pay the dividend or redemption price in the form of
separate classes or series of securities, with one class or series of such
securities to holders of Series A Liberty Media Group Common Stock and another
class or series of securities to holders of Series B Liberty Media Group Common
Stock, provided that such securities (and, if such securities are convertible
into or exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise or
exchange) do not differ in any respect other than their relative voting rights
and related differences in designation, conversion, redemption and share
distribution provisions with holders of shares of Series B Liberty Media Group
Common Stock receiving the class or series having the higher relative voting
rights (without regard to whether such rights differ to a greater or lesser
extent than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and the Series B Liberty Media Group Common
Stock), provided that if such securities constitute capital stock of a
subsidiary of TCI, such rights will not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion, redemption
and share distribution provisions between the Series A Liberty Media Group
Common Stock and the Series B Liberty Media Group Common Stock, and otherwise
such securities will be distributed on an equal per share basis, or (ii) pay
the dividend or redemption price in the form of a single class of securities
without distinction between the shares received by the holders of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock.

At the time of any dividend made as a result of a Disposition referred
to above, the TCI Group will be credited, and the Liberty Media Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of Liberty Media Group Common Stock), with an amount equal
to the product of (i) the aggregate amount paid in respect of such dividend
times (ii) a fraction the numerator of which is the Liberty Media Group
Inter-Group Interest Fraction and the denominator of which is the Liberty Media
Group Outstanding Interest Fraction.

Redemption of Telephony Group Common Stock in Exchange for Stock of
Subsidiary. At any time at which all of the assets and liabilities attributed
to the Telephony Group have become and continue to be held directly or
indirectly by any one or more corporations that are Qualifying Subsidiaries,
the Board of Directors may, subject to the availability of assets of TCI
legally available therefor, redeem on a pro rata basis, all of the outstanding
shares of Telephony Group Common Stock in exchange for an aggregate number of
outstanding, fully paid and nonassessable shares of common stock of each
Qualifying Subsidiary equal to the product of the Telephony Group Outstanding
Interest

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Fraction and the number of outstanding shares of common stock of such Telephony
Group Subsidiary that are owned by TCI.

In effecting such a redemption, the Board of Directors may determine
either to (i) redeem shares of Series A Telephony Group Common Stock and Series
B Telephony Group Common Stock in exchange for shares of separate classes or
series of common stock of each Qualifying Subsidiary with relative voting
rights and related differences in designation, conversion, redemption and share
distribution provisions not greater than the corresponding differences in
voting rights, designation, conversion, redemption and share distribution
provisions between the Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, with holders of shares of Series B Telephony
Group Common Stock receiving the class or series having the higher relative
voting rights, or (ii) redeem shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock in exchange for shares of a single
class of common stock of each Telephony Group Subsidiary without distinction
between the shares distributed to the holders of the two series of Telephony
Group Common Stock.

See Annex C for an illustration of the redemption of Telephony Group
Common Stock in exchange for common stock of the Qualifying Subsidiaries.

Redemption of Liberty Media Group Common Stock in Exchange for Stock
of Subsidiary. At any time at which all of the assets and liabilities
attributed to the Liberty Media Group are and continue to be held directly or
indirectly by any one or more corporations all of the capital stock of which is
owned by TCI (the "Liberty Media Group Subsidiaries"), the Board of Directors
may, subject to the availability of assets of TCI legally available therefor,
redeem on a pro rata basis, all of the outstanding shares of Liberty Media
Group Common Stock in exchange for an aggregate number of outstanding fully
paid and nonassessable shares of common stock of each Liberty Media Group
Subsidiary equal to the product of the Adjusted Liberty Media Group Outstanding
Interest Fraction and the number of all of the outstanding shares of common
stock of such Liberty Media Group Subsidiary.

In effecting such a redemption, the Board of Directors may determine
either to (i) redeem shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock in exchange for shares of separate
classes or series of common stock of each Liberty Media Group Subsidiary with
relative voting rights and related differences in designation, conversion,
redemption and share distribution provisions not greater than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock, with holders of shares of Series
B Liberty Media Group Common Stock receiving the class or series having the
higher relative voting rights, or (ii) redeem shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock in exchange
for shares of a single class of common stock of each Liberty Media Group
Subsidiary without distinction between the shares distributed to the holders of
the two series of Liberty Media Group Common Stock. If TCI determines to
undertake a redemption as described in clause (i) of the preceding sentence,
the outstanding shares of common stock of each Liberty Media Group Subsidiary
not distributed to holders of Liberty Media Group Common Stock would consist
solely of the class or series having the lower relative voting rights.

Certain Provisions Respecting Convertible Securities. Unless the
provisions of any class or series of Convertible Securities which are
convertible into or exercisable or exchangeable for shares of Telephony Group
Common Stock provide specifically to the contrary, after any conversion date or
redemption date on which all outstanding shares of Telephony Group Common Stock
were converted or redeemed, any share of Telephony Group Common Stock that is
issued on conversion, exercise or exchange of any such Convertible Securities
will, immediately upon issuance pursuant to such conversion, exercise or
exchange and without any notice or any other action on the part of TCI or its
Board of Directors or the holder of such share of Telephony Group Common Stock,
be redeemed in exchange for, to the extent assets of TCI are legally available
therefor, the amount of $.01 per share in cash.

Unless the provisions of any class or series of Pre-Distribution
Convertible Securities or Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares provide
specifically to the

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contrary, after any conversion date or redemption date on which all outstanding
shares of Liberty Media Group Common Stock were converted or redeemed, any
share of Liberty Media Group Common Stock that is issued on conversion,
exercise or exchange of any Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares will, immediately upon issuance
pursuant to such conversion, exercise or exchange and without any notice or any
other action on the part of TCI or the Board of Directors or the holder of
such share of Liberty Media Group Common Stock, be converted into or redeemed
in exchange for, as applicable, the kind and amount of shares of capital stock,
cash and/or other securities or property that a holder of such Pre-Distribution
Convertible Securities or any Convertible Securities which are convertible into
or exercisable or exchangeable for Committed Acquisition Shares would have been
entitled to receive pursuant to the terms of such securities had such terms
provided that the conversion, exercise or exchange privilege in effect
immediately prior to any such conversion or redemption of all outstanding
shares of Liberty Media Group Common Stock would be adjusted so that the holder
of any such Pre-Distribution Convertible Securities or any Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares thereafter surrendered for conversion, exercise or
exchange would be entitled to receive the kind and amount of shares of capital
stock, cash and/or other securities or property such holder would have received
as a result of such action had such securities been converted, exercised or
exchanged immediately prior thereto. With respect to any Convertible
Securities that are convertible into or exercisable or exchangeable for shares
of Liberty Media Group Common Stock and which are created, established or
otherwise first authorized for issuance subsequent to the record date for the
Liberty Media Group Distribution (other than Pre-Distribution Convertible
Securities and Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares), the terms and provisions of
which do not provide for adjustments specifying the kind and amount of capital
stock, cash and/or securities or other property that such holder would be
entitled to receive upon the conversion, exercise or exchange of such
Convertible Securities following any conversion date or redemption date on
which all outstanding shares of Liberty Media Group Common Stock were converted
or redeemed, then upon such conversion, exercise or exchange of such
Convertible Securities, any share of Liberty Media Group Common Stock that is
issued on conversion, exercise or exchange of any such Convertible Securities
will, immediately upon issuance and without any notice or any other action on
the part of TCI or the Board of Directors or the holder of such share of
Liberty Media Group Common Stock, be redeemed in exchange for, to the extent
assets of TCI are legally available therefor, the amount of $.01 per share in
cash.

General Conversion and Redemption Provisions. Not later than the 10th
Trading Day following the consummation of a Disposition referred to above under
"--Mandatory Dividend, Redemption or Conversion of Telephony Group Common
Stock," TCI will announce publicly by press release (i) the Telephony Group Net
Proceeds, (ii) the number of outstanding shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock, (iii) the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock into or for which Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof and (iv) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice. Not earlier than the 26th
Trading Day and not later than the 30th Trading Day following the consummation
of such Disposition, TCI will announce publicly by press release which of the
actions described in clause (i), (ii) or (iii) of the first paragraph under the
caption "--Mandatory Dividend, Redemption or Conversion of Telephony Group
Common Stock" it has irrevocably determined to take.

If TCI determines to pay a dividend described in clause (i) of the
first paragraph under the caption "--Mandatory Dividend, Redemption or
Conversion of Telephony Group Common Stock," TCI will, not later than the 30th
Trading Day following the consummation of such Disposition, cause to be given
to each holder of outstanding shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock, and to each holder of Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the
terms of such Convertible Securities), a notice setting forth (i) the record
date for determining holders entitled to receive such dividend, which will be
not earlier than the 40th Trading Day and not later than the 50th Trading Day
following the consummation of such Disposition, (ii) the anticipated payment
date of such dividend (which will not be more than 85 Trading Days following
the consummation of such Disposition), (iii) the kind of shares of capital
stock, cash and/or other securities or property to be distributed in respect

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of shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock, (iv) the Telephony Group Net Proceeds, (v) the Telephony Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (vi) the number of outstanding shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock and the number of shares
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (vii) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities will be entitled to receive such dividend only if they
appropriately convert, exercise or exchange them prior to the record date
referred to in clause (i) of this sentence. Such notice will be sent by
first-class mail, postage prepaid, at such holder's address as the same appears
on the transfer books of TCI.

If TCI determines to undertake a redemption of shares of Telephony
Group Common Stock following a Disposition of all (not merely substantially
all) of the properties and assets of the Telephony Group as described in clause
(ii)(A) of the first paragraph under the caption "--Mandatory Dividend,
Redemption or Conversion of Telephony Group Common Stock," TCI will cause to be
given to each holder of outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(i) a statement that all shares of Telephony Group Common Stock outstanding on
the redemption date will be redeemed, (ii) the redemption date (which will not
be more than 85 Trading Days following the consummation of such Disposition),
(iii) the kind of shares of capital stock, cash and/or other securities or
property to be paid as a redemption price in respect of shares of Telephony
Group Common Stock outstanding on the redemption date, (iv) the Telephony Group
Net Proceeds, (v) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (vi) the place or places where
certificates for shares of Telephony Group Common Stock, properly endorsed or
assigned for transfer (unless TCI waives such requirement), are to be
surrendered for delivery of certificates for shares of such capital stock, cash
and/or other securities or property, (vii) the number of outstanding shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
and the number of shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock into or for which outstanding Convertible
Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof and (viii) in the case of a
notice to holders of Convertible Securities, a statement to the effect that
holders of such Convertible Securities will be entitled to participate in such
redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the redemption date referred to in
clause (ii) of this sentence and a statement as to what, if anything, such
holders will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, the provision described under "--Certain
Provisions Respecting Convertible Securities" if such holders convert, exercise
or exchange such Convertible Securities following such redemption date. Such
notice will be sent by first-class mail, postage prepaid, not less than 35
Trading Days nor more than 45 Trading Days prior to the redemption date, at
such holder's address as the same appears on the transfer books of TCI.

If TCI determines to undertake a redemption of shares of Telephony
Group Common Stock following a Disposition of substantially all (but not all)
of the properties and assets of the Telephony Group as described in clause
(ii)(B) of the first paragraph under the caption "--Mandatory Dividend,
Redemption or Conversion of Telephony Group Common Stock," TCI will, not later
than the 30th Trading Day following the consummation of such Disposition, cause
to be given to each holder of record of outstanding shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (i) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
will be the date on which shares of the Telephony Group Common Stock then
outstanding will be selected for redemption, (ii) the anticipated redemption
date (which will not be more than 85 Trading Days following the consummation of
such Disposition), (iii) the kind of shares of capital stock, cash and/or other
securities or property to be paid as a redemption price in respect of shares of
Telephony Group Common Stock selected for redemption, (iv) the Telephony Group
Net Proceeds, (v) the Telephony Group Outstanding

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Interest Fraction as of a recent date preceding the date of such notice, (vi)
the number of outstanding shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock and the number of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof, (vii)
in the case of a notice to holders of Convertible Securities, a statement to
the effect that holders of such Convertible Securities will be entitled to
participate in such selection for redemption only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior to the
date referred to in clause (i) of this sentence and a statement as to what, if
anything, such holders will be entitled to receive pursuant to the terms of
such Convertible Securities if such holders convert, exercise or exchange such
Convertible Securities following such date and (viii) a statement that TCI will
not be required to register a transfer of any shares of Telephony Group Common
Stock for a period of 15 Trading Days next preceding the date referred to in
clause (i) of this sentence. Promptly following the date referred to in clause
(i) of the preceding sentence, but not earlier than the 40th Trading Day and
not later than the 50th Trading Day following the consummation of such
Disposition, TCI will cause to be given to each holder of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock to be
redeemed, a notice setting forth (i) the number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock held by such
holder to be redeemed, (ii) a statement that such shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock will be redeemed,
(iii) the redemption date (which will not be more than 85 Trading Days
following the consummation of such Disposition), (iv) the kind and per share
amount of shares of capital stock, cash and/or other securities or property to
be received by such holder with respect to each share of such Telephony Group
Common Stock to be redeemed, including details as to the calculation thereof,
and (v) the place or places where certificates for shares of such Telephony
Group Common Stock, properly endorsed or assigned for transfer (unless TCI
waives such requirement), are to be surrendered for delivery of certificates
for shares of such capital stock, cash and/or other securities or property.
The notices referred to in this paragraph will be sent by first-class mail,
postage prepaid, at such holder's address as the same appears on the transfer
books of TCI. The outstanding shares of Telephony Group Common Stock to be
redeemed will be redeemed by TCI pro rata among the holders of Telephony Group
Common Stock or by such other method as may be determined by the Board of
Directors to be equitable.

In the event of any conversion as described above under the caption
"--Conversion of the Telephony Group Common Stock at the Option of TCI" or
"--Mandatory Dividend, Redemption or Conversion of Telephony Group Common
Stock," TCI will cause to be given to each holder of outstanding shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
and to each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for such notice
is otherwise made pursuant to the terms of such Convertible Securities), a
notice setting forth (i) a statement that all outstanding shares of Telephony
Group Common Stock will be converted, (ii) the conversion date (which will not
be more than 85 Trading Days following the consummation of such Disposition in
the event of a conversion pursuant to the provisions described under
"--Mandatory Dividend, Redemption or Conversion of Telephony Group Common
Stock" and which will not be more than 120 days after the Appraisal Date in the
event of a conversion pursuant to the provisions described under "--Conversion
of Telephony Group Common Stock at the Option of TCI"), (iii) the per share
number (or fraction) of shares of Series A TCI Group Common Stock or Series B
TCI Group Common Stock, as applicable, to be received with respect to each
share of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock, including details as to the calculation thereof, (iv) the place
or places where certificates for shares of Telephony Group Common Stock,
properly endorsed or assigned for transfer (unless TCI waives such
requirement), are to be surrendered, (v) the number of outstanding shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock, and the number of shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock into or for which outstanding Convertible
Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof and (vi) in the case of a
notice to holders of Convertible Securities, a statement to the effect that
holders of such Convertible Securities will be entitled to participate in such
conversion only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the conversion date referred to in
clause (ii) of this sentence and a statement as to what, if anything, such
holders will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, the provision described under the caption
"--Certain Provisions Respecting Convertible Securities" if such holders
convert, exercise or exchange such

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Convertible Securities following such conversion date. Such notice will be
sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the conversion date, at such holder's
address as the same appears on the transfer books of TCI.

If TCI determines to redeem shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock as described above under the
caption "--Redemption of Telephony Group Common Stock in Exchange for Stock of
Subsidiary," TCI will promptly cause to be given to each holder of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for such notice
is otherwise made pursuant to the terms of such Convertible Securities), a
notice setting forth (i) a statement that all outstanding shares of Telephony
Group Common Stock will be redeemed in exchange for shares of common stock of
the Qualifying Subsidiaries, (ii) the redemption date, (iii) the Telephony
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice, (iv) the place or places where certificates for shares of
Telephony Group Common Stock, properly endorsed or assigned for transfer
(unless TCI waives such requirement), are to be surrendered for delivery of
certificates for shares of common stock of the Qualifying Subsidiaries, (v) the
number of outstanding shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock and the number of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof and
(vi) in the case of a notice to holders of Convertible Securities, a statement
to the effect that holders of such Convertible Securities will be entitled to
receive shares of common stock of the Telephony Group Subsidiaries upon
redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the redemption date referred to in
clause (ii) of this sentence and a statement as to what, if anything, such
holders will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, the provisions described under the caption
"--Certain Provisions Respecting Convertible Securities" if such holders
convert, exercise or exchange such Convertible Securities following the
redemption date. Such notice will be sent by first-class mail, postage
prepaid, not less than 35 Trading Days nor more than 45 Trading Days prior to
the redemption date, at such holder's address as the same appears on the
transfer books of TCI.

Neither the failure to mail any notice to any particular holder of
Telephony Group Common Stock or of Convertible Securities nor any defect
therein will affect the sufficiency thereof with respect to any other holder of
outstanding shares of Telephony Group Common Stock or of Convertible
Securities, or the validity of any conversion or redemption.

TCI will not be required to issue or deliver fractional shares of any
class of capital stock or any fractional securities to any holder of Telephony
Group Common Stock upon any conversion, redemption, dividend or other
distribution described above. In connection with the determination of the
number of shares of any class of capital stock that is issuable or the amount
of securities that is deliverable to any holder of record upon any such
conversion, redemption, dividend or other distribution (including any fractions
of shares or securities), TCI may aggregate the number of shares of Telephony
Group Common Stock held at the relevant time by such holder of record. If the
number of shares of any class of capital stock or the amount of securities
remaining to be issued or delivered to any holder of Telephony Group Common
Stock is a fraction, TCI will, if such fraction is not issued or delivered to
such holder, pay a cash adjustment in respect of such fraction in an amount
equal to the fair market value of such fraction on the fifth Trading Day prior
to the date such payment is to be made (without interest). For purposes of the
preceding sentence, "fair market value" of any fraction will be (i) in the case
of any fraction of a share of capital stock of TCI, the product of such
fraction and the Market Value of one share of such capital stock and (ii) in
the case of any other fractional security, such value as is determined by the
Board of Directors.

No adjustments in respect of dividends will be made upon the
conversion or redemption of any shares of Telephony Group Common Stock;
provided, however, that if the conversion date or the redemption date with
respect to the Telephony Group Common Stock is subsequent to the record date
for the payment of a dividend or other distribution thereon or with respect
thereto, the holders of shares of Telephony Group Common Stock at the close of

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business on such record date will be entitled to receive the dividend or other
distribution payable on or with respect to such shares on the date set for
payment of such dividend or other distribution, notwithstanding the conversion
or redemption of such shares or TCI's default in payment of the dividend or
distribution due on such date.

Before any holder of shares of Telephony Group Common Stock will be
entitled to receive certificates representing shares of any kind of capital
stock or cash and/or securities or other property to be received by such holder
with respect to any conversion or redemption of shares of Telephony Group
Common Stock, such holder is required to surrender at such place as TCI will
specify certificates for such shares, properly endorsed or assigned for
transfer (unless TCI waives such requirement). TCI will as soon as practicable
after surrender of certificates representing shares of Telephony Group Common
Stock deliver to the person for whose account such shares were so surrendered,
or to the nominee or nominees of such person, certificates representing the
number of whole shares of the kind of capital stock or cash and/or securities
or other property to which such person is entitled, together with any payment
for fractional securities referred to above. If less than all of the shares of
Telephony Group Common Stock represented by any one certificate are to be
redeemed, TCI will issue and deliver a new certificate for the shares of
Telephony Group Common Stock not redeemed. TCI will not be required to
register a transfer of (i) any shares of Telephony Group Common Stock for a
period of 15 Trading Days next preceding any selection of shares of Telephony
Group Common Stock to be redeemed or (ii) any shares of Telephony Group Common
Stock selected or called for redemption. Shares selected for redemption may
not thereafter be converted pursuant to the provisions described under the
caption "--Conversion at the Option of the Holder."

From and after any applicable conversion date or redemption date, all
rights of a holder of shares of Telephony Group Common Stock that were
converted or redeemed will cease except for the right, upon surrender of the
certificates representing shares of Telephony Group Common Stock, to receive
certificates representing shares of the kind and amount of capital stock or
cash and/or securities or other property for which such shares were converted
or redeemed, together with any payment for fractional securities, and such
holder will have no other or further rights in respect of the shares of
Telephony Group Common Stock so converted or redeemed, including, but not
limited to, any rights with respect to any cash, securities or other property
which are reserved or otherwise designated by TCI as being held for the
satisfaction of TCI's obligations to pay or deliver any cash, securities or
other property upon the conversion, exercise or exchange of any Convertible
Securities outstanding as of the date of such conversion or redemption. No
holder of a certificate that, immediately prior to the applicable conversion
date or redemption date for the Telephony Group Common Stock, represented
shares of Telephony Group Common Stock will be entitled to receive any dividend
or other distribution with respect to shares of any kind of capital stock into
or in exchange for which the Telephony Group Common Stock was converted or
redeemed until surrender of such holder's certificate for a certificate or
certificates representing shares of such kind of capital stock. Upon such
surrender, there will be paid to the holder the amount of any dividends or
other distributions (without interest) which theretofore became payable with
respect to a record date after the conversion date or redemption date, as the
case may be, but that were not paid by reason of the foregoing, with respect to
the number of whole shares of the kind of capital stock represented by the
certificate or certificates issued upon such surrender. From and after a
conversion date or redemption date, as the case may be, of Telephony Group
Common Stock, TCI will, however, be entitled to treat the certificates for
shares of Telephony Group Common Stock that have not yet been surrendered for
conversion or redemption as evidencing the ownership of the number of whole
shares of the kind or kinds of capital stock for which the shares of Telephony
Group Common Stock represented by such certificates have been converted or
redeemed, notwithstanding the failure to surrender such certificates.

TCI will pay any and all documentary, stamp or similar issue or
transfer taxes that may be payable in respect of the issue or delivery of any
shares of capital stock and/or other securities on conversion or redemption of
shares of Telephony Group Common Stock. TCI will not, however, be required to
pay any tax that may be payable in respect of any transfer involved in the
issue and delivery of any shares of capital stock in a name other than that in
which the shares of Telephony Group Common Stock so converted or redeemed were
registered and no such issue or delivery will be made unless and until the
person requesting such issue has paid to TCI the amount of any such tax, or has
established to the satisfaction of TCI that such tax has been paid.

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Provisions substantially the same as those described under this
caption "--General Conversion and Redemption Provisions", apply in the event of
a Disposition of all or substantially all of the properties and assets of the
Liberty Media Group and a determination of TCI to pay a dividend on or
undertake a partial or complete redemption of the Liberty Media Group Common
Stock following such Disposition, in the event of any conversion of the Liberty
Media Group Common Stock as described under the caption "--Conversion of
Liberty Media Group Common Stock at the Option of TCI" or "--Mandatory
Dividend, Redemption or Conversion of Liberty Media Group Common Stock", and in
the event of a redemption of the Liberty Media Group Common Stock in exchange
for stock of one or more subsidiaries as described under the caption
"--Redemption of Liberty Media Group Common Stock in Exchange for Stock of
Subsidiary."

LIQUIDATION RIGHTS

In the event of a liquidation, dissolution or winding up of TCI,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of TCI and subject to the prior payment in full of
the preferential amounts to which any class or series of Preferred Stock is
entitled, (i) the holders of the shares of TCI Group Common Stock will share
equally, on a share for share basis, in a percentage of the funds of TCI
remaining for distribution to its common stockholders equal to 100% multiplied
by the average daily ratio (expressed as a decimal) of W/Z for the 20-Trading
Day period ending on the Trading Day prior to the date of the public
announcement of such liquidation, dissolution or winding up, (ii) the holders
of the shares of Liberty Media Group Common Stock will share equally, on a
share for share basis, in a percentage of the funds of TCI remaining for
distribution to its common stockholders equal to 100% multiplied by the average
daily ratio (expressed as a decimal) of X/Z for such 20-Trading Day period and
(iii) the holders of the shares of Telephony Group Common Stock will share
equally, on a share for share basis, in a percentage of the funds of TCI
remaining for distribution to its common stockholders equal to 100% multiplied
by the average daily ratio (expressed as a decimal) of Y/Z for such 20-Trading
Day period, where W is the aggregate Market Capitalization of the Series A TCI
Group Common Stock and the Series B TCI Group Common Stock, X is the aggregate
Market Capitalization of the Series A Liberty Media Group Common Stock and the
Series B Liberty Media Group Common Stock, Y is the aggregate Market
Capitalization of the Series A Telephony Group Common Stock and the Series B
Telephony Group Common Stock, and Z is the aggregate Market Capitalization of
the Series A TCI Group Common Stock, the Series B TCI Group Common Stock, the
Series A Liberty Media Group Common Stock, the Series B Liberty Media Group
Common Stock, the Series A Telephony Group Common Stock and the Series B
Telephony Group Common Stock. Neither a consolidation, merger nor sale of
assets will be construed to be a "liquidation," "dissolution" or "winding up"
of TCI.

No holder of Telephony Group Common Stock or Liberty Media Group
Common Stock will have any special right to receive specific assets of the
Telephony Group or the Liberty Media Group, as the case may be, in the case of
any dissolution, liquidation or winding up of TCI.

DETERMINATIONS BY THE BOARD OF DIRECTORS

The TCI Charter provides that any determinations made by the Board of
Directors under any provision described under "DESCRIPTION OF CAPITAL STOCK"
will be final and binding on all stockholders of TCI, except as may otherwise
be required by law. Such a determination would not be binding if it were
established that the determination was made in breach of a fiduciary duty of
the Board of Directors. TCI will prepare a statement of any such determination
by the Board of Directors respecting the fair market value of any properties,
assets or securities and will file such statement with the Secretary of TCI.

PREEMPTIVE RIGHTS

Holders of the TCI Group Common Stock, Liberty Media Group Common
Stock and the Telephony Group Common Stock do not have any preemptive rights to
subscribe for any additional shares of capital stock or other obligations
convertible into or exercisable for shares of capital stock that may hereafter
be issued by TCI.

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PREFERRED STOCK

As of October 31, 1996, 1,675,096 shares of Class B Preferred Stock
and 50 million shares of Series Preferred Stock were authorized for issuance,
of which 1,620,026 shares of Class B Preferred Stock, 70,575 shares of Series C
Preferred Stock, 997,222 shares of Series D Preferred Stock, 278,307 shares of
Series F Preferred Stock, 6,695,527 shares of Series G Preferred Stock and
6,695,527 shares of Series H Preferred Stock were outstanding. All of the
shares of Class A Preferred Stock have previously been redeemed and retired and
may not be reissued, thereby reducing the number of authorized shares of
Preferred Stock. All of the shares of Series E Preferred Stock have previously
been redeemed and retired, with the effect that such shares have been restored
to the status of authorized and unissued shares of Series Preferred Stock, may
be reissued as shares of another series of Series Preferred Stock, but may not
be reissued as Series E Preferred Stock. As of October 31, 1996, all of the
outstanding shares of Series F Preferred Stock were held by subsidiaries of
TCI.

CLASS B 6% CUMULATIVE REDEEMABLE EXCHANGEABLE JUNIOR PREFERRED STOCK

Subject to the prior preferences and other rights of any class or
series of Preferred Stock ranking prior to the Class B Preferred Stock with
respect to the payment of dividends, the holders of Class B Preferred Stock are
entitled to receive cumulative dividends, when and as declared by the Board of
Directors out of unrestricted funds legally available therefor, in preference
to dividends on the Common Stock. Dividends accrue cumulatively (but without
compounding) at an annual rate of 6% of the stated liquidation value of $100
per share (the "Stated Liquidation Value"), whether or not such dividends are
declared or funds are legally available for payment of dividends. Accrued
dividends are payable annually and, in the sole discretion of the Board of
Directors, may be declared and paid in cash, in shares of Series A TCI Group
Common Stock or in any combination of the foregoing. Accrued dividends not
paid as provided above on any dividend payment date accumulate and such
accumulated unpaid dividends may be declared and paid in cash, shares of Series
A TCI Group Common Stock or any combination thereof at any time without
reference to any regular dividend payment date, to holders of record of Class B
Preferred Stock as of a special record date fixed by the Board of Directors.
No interest or additional dividends will accrue or be payable with respect to
any dividend payment on the Class B Preferred Stock that may be in arrears or
with respect to that portion of any other payment on the Class B Preferred
Stock that is in arrears which consists of accumulated or accrued and unpaid
dividends.

Upon the liquidation, dissolution or winding up of TCI, the holders of
Class B Preferred Stock will be entitled, after payment of preferential amounts
on any class or series of Preferred Stock ranking prior to the Class B
Preferred Stock with respect to liquidating distributions, to receive from the
assets of TCI available for distribution to stockholders an amount in cash or
property or a combination thereof, per share, equal to the Stated Liquidation
Value thereof, plus all accumulated and accrued but unpaid dividends thereon to
the date of payment.

Subject to the rights of any class or series of Preferred Stock
ranking prior to or on a parity with the Class B Preferred Stock, the Class B
Preferred Stock is redeemable at the option of TCI, in whole at any time or in
part from time to time, for a redemption price per share payable in cash equal
to the Stated Liquidation Value thereof, plus all accumulated and accrued but
unpaid dividends thereon to and including the redemption date. TCI does not
have any mandatory obligation to redeem the Class B Preferred Stock as of any
fixed date, at the option of the holders or otherwise.

The Class B Preferred Stock is exchangeable at the option of TCI in
whole but not in part at any time for junior subordinated debt securities of
TCI ("Junior Exchange Notes"). If TCI exercises its optional exchange right,
each holder of outstanding shares of Class B Preferred Stock will be entitled
to receive in exchange therefor newly issued Junior Exchange Notes of a series
authorized and established for the purpose of such exchange, the aggregate
principal amount of which will be equal to the aggregate Stated Liquidation
Value of the shares of Class B Preferred Stock so exchanged by such holder,
plus all accumulated and accrued but unpaid dividends thereon to and including
the exchange date. The Junior Exchange Notes will mature on the 15th
anniversary of the date of issuance and will be subject to earlier redemption
at the option of TCI, in whole or in part, for a redemption price equal to the
principal amount thereof plus

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accrued but unpaid interest. Interest will accrue, and be payable annually, on
the principal amount of the Junior Exchange Notes at a rate per annum to be
determined prior to issuance by adding a spread of 215 basis points to the
"Fifteen Year Treasury Rate" (as defined in the Indenture pursuant to which the
Junior Exchange Notes will be issued). Interest will accrue on overdue
principal at the same rate, but will not accrue on overdue interest.

The Class B Preferred Stock ranks senior to the TCI Group Common
Stock, the Telephony Group Common Stock and the Liberty Media Group Common
Stock and ranks junior to the Series C Preferred Stock, the Series D Preferred
Stock, the Series F Preferred Stock, the Series G Preferred Stock and the
Series H Preferred Stock as to dividend rights, rights to redemption and rights
on liquidation.

For so long as any dividends are in arrears on the Class B Preferred
Stock or any class or series of Preferred Stock ranking pari passu with the
Class B Preferred Stock which is entitled to payment of cumulative dividends
prior to the redemption, exchange, purchase, or other acquisition of the Class
B Preferred Stock, and until all dividends accrued up to the immediately
preceding dividend payment date on the Class B Preferred Stock and such parity
stock have been paid or declared and set apart so as to be available for
payment in full thereof and for no other purpose, neither TCI nor any
subsidiary thereof may redeem, exchange, purchase, or otherwise acquire any
shares of Class B Preferred Stock, any such parity stock or any class or series
of its capital stock ranking junior to the Class B Preferred Stock, or set
aside any money or assets for such purpose, unless all of the outstanding
shares of Class B Preferred Stock and such parity stock are redeemed. For so
long as any dividends are in arrears on the Class B Preferred Stock and until
all dividends accrued up to the immediately preceding dividend payment date on
the Class B Preferred Stock have been paid or declared and set apart so as to
be available for payment in full thereof and for no other purpose, TCI may not
declare or pay any dividend on or make any distribution with respect to any
junior stock or parity stock or set aside any money or assets for any such
purpose, except for dividends declared and paid on parity stock
contemporaneously and on a pro rata basis with dividends declared and paid on
the Class B Preferred Stock. If TCI fails to redeem or exchange shares of
Class B Preferred Stock on a date fixed for redemption or exchange, and until
such shares are redeemed or exchanged in full, TCI may not redeem or exchange
any parity stock or junior stock, declare or pay any dividend on or make any
distribution with respect to any junior stock, or set aside money or assets for
such purpose, and neither TCI nor any subsidiary thereof may purchase or
otherwise acquire any Class B Preferred Stock, parity stock or junior stock or
set aside any money or assets for any such purpose. The failure of TCI to pay
any dividends on any class or series of parity stock or to redeem or exchange
on any date fixed for redemption or exchange any shares of Class B Preferred
Stock will not prevent TCI from (i) paying any dividends on junior stock solely
in shares of junior stock or the redemption, purchase or other acquisition of
junior stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of a failure to pay
dividends on any parity stock) through the application of the proceeds from the
sale of, shares of junior stock; or (ii) the payment of dividends on any parity
stock solely in shares of parity stock and/or junior stock or the redemption,
exchange, purchase or other acquisition of Class B Preferred Stock or parity
stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of a failure to pay dividends on any
parity stock) through the application of the proceeds from the sale of, parity
stock and/or junior stock.

The Class B Preferred Stock has no voting rights, except as required
by the DGCL, and except that the holders of Class B Preferred Stock have the
right to vote with the holders of TCI Group Common Stock, Telephony Group
Common Stock and Liberty Media Group Common Stock, on the basis of one vote per
share, in any general election of directors of TCI.

SERIES PREFERRED STOCK

The Series Preferred Stock is issuable, from time to time, in one or
more series, with such powers, designations, preferences and relative
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as is stated and expressed in a resolution or resolutions
providing for the issue of each such series adopted by the Board of Directors.

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All shares of any one series of the Series Preferred Stock are
required to be alike in every particular. Except to the extent otherwise
provided in the resolution or resolutions providing for the issue of any series
of Series Preferred Stock, the holders of shares of such series will have no
voting rights except as may be required by Delaware law.

Series C Convertible Preferred Stock. Each share of Series C
Preferred Stock is convertible, at the option of the holder, into 116.24 shares
of Series A TCI Group Common Stock and 37 shares of Series A Liberty Media Group
Common Stock (after giving effect to the Liberty Stock Distribution), subject
to anti-dilution adjustments. The dividend, liquidation and redemption
features of the Series C Preferred Stock, each of which is discussed in greater
detail below, are determined by reference to the liquidation value of the
Series C Preferred Stock, which as of any date of determination is equal, on a
per share basis, to the sum of (i) $2,375, plus (ii) all dividends accrued on
such share through the dividend payment date on or immediately preceding such
date of determination to the extent not paid on or before such date, plus (iii)
for purposes of determining liquidation and redemption payments, all unpaid
dividends accrued on the sums of clauses (i) and (ii) above, to such date of
determination.

Subject to the prior preferences and other rights of any class or
series of preferred stock ranking senior to or on a parity with the Series C
Preferred Stock, the holders of Series C Preferred Stock are entitled to
receive preferential cumulative cash dividends out of funds legally available
therefor. Dividends accrue cumulatively at an annual rate of 5 1/2% of the
liquidation value per share, whether or not such dividends are declared or
funds are legally or contractually available for payment of dividends, except
that if TCI fails to redeem shares of Series C Preferred Stock required to be
redeemed on a redemption date, dividends will thereafter accrue cumulatively at
an annual rate of 15% of the liquidation value per share. Dividends not paid
on any dividend payment date will be added to the liquidation value on such
date and remain a part thereof until such dividends and all dividends accrued
thereon are paid in full. Dividends will accrue on unpaid dividends at the
rate of 5 1/2% per annum (15% under the circumstances described above), unless
such dividends remain unpaid for two consecutive quarters, in which event such
rate will increase to 15% per annum until such dividends and all dividends,
accrued thereon, are paid in full.

The Series C Preferred Stock is subject to optional redemption by TCI
at any time after August 8, 2001, in whole or in part, at a redemption price,
per share, equal to the then liquidation value of the Series C Preferred Stock.
Subject to the prior preferences and other rights of any other class or series
of Preferred Stock ranking senior to or on a parity with the Series C Preferred
Stock and subject to any prohibition or restriction contained in any instrument
evidencing indebtedness of TCI, the Series C Preferred Stock is required to be
redeemed by TCI at any time on or after August 8, 2001 at the option of the
holder, in whole or in part (provided that the aggregate liquidation value of
the shares to be redeemed is in excess of $1 million), in each case at a
redemption price, per share, equal to the then liquidation value.

The Series C Preferred Stock ranks senior to the TCI Group Common
Stock, the Telephony Group Common Stock, the Liberty Media Group Common Stock
and the Class B Preferred Stock and on a parity basis with the Series D
Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock and
the Series H Preferred Stock as to dividend rights, rights to redemption and
rights on liquidation.

For so long as any dividends are in arrears on the Series C Preferred
Stock and until all dividends accrued up to the immediately preceding dividend
payment date on the Series C Preferred Stock have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI may not redeem or otherwise acquire any shares of Series C
Preferred Stock or any shares of any class or series of its capital stock
ranking junior to the Series C Preferred Stock, unless all of the outstanding
shares of Series C Preferred Stock are redeemed. For so long as any dividends
are in arrears on the Series C Preferred Stock and until all dividends accrued
up to the immediately preceding dividend payment date on the Series C Preferred
Stock have been paid or declared and set apart so as to be

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available for payment in full thereof and for no other purpose, TCI may not
declare or pay any dividend on or make any other distribution with respect to
any junior stock or set aside any money or assets for such purpose, except that
TCI may pay a dividend on any class or series of junior stock solely in shares
of capital stock ranking junior to the Series C Preferred Stock. If TCI fails
to redeem shares of Series C Preferred Stock required to be redeemed on a
redemption date, and until all then outstanding shares of Series C Preferred
Stock are redeemed in full, TCI may not redeem any junior stock, or otherwise
acquire any shares of such stock or Series C Preferred Stock, except that TCI
may acquire shares of Series C Preferred Stock pursuant to a purchase or
exchange offer made to holders of all outstanding shares of Series C Preferred
Stock, if as to holders of all outstanding shares of Series C Preferred Stock
the terms of the purchase or exchange offer for all such shares are identical.

The holders of Series C Preferred Stock are entitled to vote on an as
converted basis on all matters submitted to a vote of holders of TCI Group
Common Stock, Telephony Group Common Stock and Liberty Media Group Common Stock
and any other class of capital stock of TCI entitled to vote generally on the
election of directors. Holders of Series C Preferred Stock are not entitled to
vote as a separate class except as otherwise may be required by the DGCL.

Series D Convertible Preferred Stock. Each share of Series D
Preferred Stock is convertible, at the option of the holder, into 10 shares of
Series A TCI Group Common Stock, three and one-half shares of Series A Liberty
Media Group Common Stock (after giving effect to the Liberty Stock
Distribution) and one share of the Series A Common Stock of TCI Satellite
Entertainment, Inc., subject to antidilution adjustments. The Certificate of
Designations for the Series D Preferred Stock further provides that if TCI
distributes to all holders of Class A Common Stock rights or warrants to
subscribe for or purchase shares of capital stock of TCI (other than shares of
Class A Common Stock or Class B Common Stock) or a subsidiary of TCI, which
capital stock (i) is common stock of its issuer or (ii) participates in one or
more business operations of the issuer thereof in such a manner that if such
operations were owned by a corporation and such stock were issued thereby such
capital stock would be common stock of such corporation ("Special Securities"),
each holder of Series D Preferred Stock will have the option, in lieu of any
antidilution adjustment that would otherwise apply to the conversion rate of
the Series D Preferred Stock, to exchange a specified portion of its shares of
Series D Preferred Stock for shares of a new series of convertible preferred
stock of the issuer of the Special Securities having terms similar to the
Series D Preferred Stock but convertible into Special Securities.

The dividend, liquidation and redemption features of the Series D
Preferred Stock, each of which is discussed below, are determined by reference
to the liquidation value of the Series D Preferred Stock, which as of any date
of determination is equal, on a per share basis, to the sum of (i) $300, plus
(ii) all dividends accrued on such share through the dividend payment date on
or immediately preceding such date of determination to the extent not paid on
or before such date, plus (iii) for purposes of determining liquidation and
redemption payments, an amount equal to all unpaid dividends accrued on the sum
of clauses (i) and (ii) above, to such date of determination.

Subject to the prior preferences and other rights of any class or
series of Preferred Stock ranking senior to or on a parity with the Series D
Preferred Stock with respect to the payment or declaration of dividends, the
holders of Series D Preferred Stock are entitled to receive preferential
cumulative cash dividends out of funds legally available therefor. Dividends
accrue on a daily basis at an annual rate of 5 1/2% of the liquidation value
per share, whether or not such dividends are declared or funds are legally or
contractually available for payment of dividends, except that if TCI fails to
redeem shares of Series D Preferred Stock required to be redeemed on a
redemption date, dividends will thereafter accrue cumulatively at an annual
rate of 10% of the liquidation value per share until such shares are redeemed.
To the extent any cash dividends are not paid on any dividend payment date, the
amount of such dividends will be automatically converted, to the extent
permissible under the DGCL, into shares of Class A Common Stock at a conversion
rate equal to 95% of the then "current market price" (as defined in the
Certificate of Designations establishing the Series D Preferred Stock) of the
Class A Common Stock, and upon issuance of shares of Class A Common Stock to
holders of Series D Preferred Stock in respect of such conversion such dividend
will be deemed paid for all purposes. Dividends not so paid or deemed paid on
any dividend payment date are added to the liquidation value on such date and
remain a part thereof until such dividends and all dividends accrued thereon
are paid in full. Dividends

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will accrue on such unpaid dividends at the rate of 5 1/2% per annum (10% under
the circumstances described above), unless such dividends remain unpaid for two
consecutive quarters, in which event such rate will increase to 10% per annum
until such dividends and all dividends accrued thereon are paid in full.

Upon the dissolution, liquidation or winding up of TCI, holders of the
Series D Preferred Stock will be entitled to receive from the assets of TCI
available for distribution to stockholders an amount in cash, per share, equal
to the liquidation value of the Series D Preferred Stock.

The Series D Preferred Stock is subject to optional redemption by TCI
at any time after the fifth anniversary of its issuance, in whole or from time
to time in part, at a redemption price, per share, equal to the then
liquidation value of the Series D Preferred Stock. Shares of Series D
Preferred Stock may also be redeemed at the option of TCI after the third
anniversary of the issue date, in whole or from time to time in part, at a
redemption price per share equal to the then liquidation value of the Series D
Preferred Stock, if the market value per share of the Class A Common Stock has
exceeded $37.50 for the period specified in the Certificate of Designations
establishing the Series D Preferred Stock. Subject to the prior preferences
and other rights of any other class or series of Preferred Stock ranking senior
to or on a parity basis with the Series D Preferred Stock and subject to any
prohibition or restriction contained in any instrument evidencing indebtedness
of TCI, any holder of Series D Preferred Stock, at such holder's option, may
require TCI, at any time after the tenth anniversary of the issuance of such
Series D Preferred Stock, to redeem all or a portion of such holder's shares of
Series D Preferred Stock, provided that the aggregate liquidation value of the
shares to be redeemed is in excess of $50,000 (or, if all of the shares of
Series D Preferred Stock held by such holder have an aggregate liquidation
value of less than $50,000, all but not less than all of such shares of Series
D Preferred Stock), in each case at a redemption price, per share, equal to the
then liquidation value of the Series D Preferred Stock. If TCI fails to effect
any redemption of Series D Preferred Stock called for redemption or which a
holder has validly requested be redeemed, the holders thereof will have the
option to convert their shares of Series D Preferred Stock into shares of Class
A Common Stock at a conversion rate equal to the quotient obtained by dividing
the redemption price by 95% of the "current market price" of the Class A Common
Stock on the redemption date, provided that in the case of a failure by TCI to
redeem shares at the request of a holder, the exercise of the foregoing
conversion right will be delayed for one year.

The Series D Preferred Stock ranks senior to the TCI Group Common
Stock, the Telephony Group Common Stock, the Liberty Media Group Common Stock
and the Class B Preferred Stock and on a parity basis with the Series C
Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock and
the Series H Preferred Stock as to dividend rights, rights to redemption and
rights on liquidation.

For so long as any dividends are in arrears on the Series D Preferred
Stock and until all dividends accrued up to the immediately preceding dividend
payment date on the Series D Preferred Stock have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI may not redeem or otherwise acquire any shares of Series D
Preferred Stock or any shares of any class or series of its capital stock
ranking pari passu with or junior to the Series D Preferred Stock, unless all
of the outstanding shares of Series D Preferred Stock are redeemed. For so
long as any dividends are in arrears on the Series D Preferred Stock and until
all dividends accrued up to the immediately preceding dividend payment date on
the Series D Preferred Stock have been paid or declared and set apart so as to
be available for payment in full thereof and for no other purpose, TCI may not
declare or pay any dividend on or make any other distribution with respect to
any junior stock or set aside any money or assets for such purpose, except that
TCI may pay a dividend on any class or series of junior stock solely in shares
of capital stock ranking junior to the Series D Preferred Stock. If TCI fails
to redeem shares of Series D Preferred Stock required to be redeemed on a
redemption date, and until all then outstanding shares of Series D Preferred
Stock are redeemed in full, TCI may not redeem any junior stock, or otherwise
acquire any shares of such stock or Series D Preferred Stock, except that TCI
may acquire shares of Series D Preferred Stock pursuant to a purchase or
exchange offer made to holders of all outstanding shares of Series D Preferred
Stock, if as to holders of all outstanding shares of Series D Preferred Stock
the terms of the purchase or exchange offer for all such shares are identical.

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The Series D Preferred Stock has no voting rights, except as required
by the DGCL and except that, without the consent of the holders of 66 2/3% of
the aggregate liquidation value of the Series D Preferred Stock, TCI may not
create any series of Preferred Stock that is senior as to dividend rights,
rights to redemption, or rights on liquidation to the Series D Preferred Stock.

Series F Convertible Redeemable Participating Preferred Stock. Shares
of Series F Preferred Stock are convertible, at the option of the holder, into
Series A TCI Group Common Stock at a rate of 1496.65 shares of Series A TCI
Group Common Stock for each share of Series F Preferred Stock, subject to
anti-dilution adjustments. In addition, any shares of Series F Preferred Stock
which cease to be held by TCI or a subsidiary of TCI will automatically be
converted into shares of Series A TCI Group Common Stock. The anti-dilution
provisions of the Series F Preferred Stock provide that the conversion rate of
the Series F Preferred Stock will be adjusted (i) in the event of a dividend or
distribution on the outstanding shares of Series A TCI Group Common Stock in
shares of Series A TCI Group Common Stock, by adjusting the then-current
conversion rate such that the holder of Series F Preferred Stock thereafter
surrendered for conversion would receive the number of shares of Series A TCI
Group Common Stock which it would have been entitled to receive had such shares
of Series F Preferred Stock been converted prior to the record date for such
dividend or distribution and (ii) in the event of a dividend or distribution to
holders of Series A TCI Group Common Stock of any securities, evidences of
indebtedness or other assets (other than cash dividends or shares of Series A
TCI Group Common Stock), then the conversion rate will be adjusted by
multiplying the then-current conversion rate by a fraction, the numerator of
which is the current market price of a share of Series A TCI Group Common Stock
and the denominator of which is such current market price less the fair market
value (as determined by the Board of Directors) of the securities, evidences of
indebtedness or assets so distributed.

The holders of the Series F Preferred Stock are entitled to
participate, on an as-converted basis, with the holders of the Series A TCI
Group Common Stock, with respect to any cash dividends or distributions
declared and paid on the Series A TCI Group Common Stock. Dividends or
distributions on the Series A TCI Group Common Stock which are not paid in cash
would result in the adjustment of the applicable conversion rate as described
above.

Upon the dissolution, liquidation or winding up of TCI, holders of the
Series F Preferred Stock are entitled to receive from the assets of TCI
available for distribution to stockholders an amount in cash or property or a
combination thereof, per share of Series F Preferred Stock, equal to the sum of
(i) $.01 and (ii) the amount to be distributed per share of Series A TCI Group
Common Stock in such liquidation, dissolution or winding up multiplied by the
applicable conversion rate of a share of Series F Preferred Stock.

The Series F Preferred Stock is subject to optional redemption by TCI
at any time after the 30th business day following issuance, in whole or in
part, at a redemption price, per share, equal to $24,875 (as adjusted in
respect of stock splits, reverse splits and other events affecting the shares
of Series F Preferred Stock), plus any dividends which have been declared but
are unpaid as of the date fixed for such redemption. TCI will pay the
redemption price (or designated portion thereof) of the shares of Series F
Preferred Stock called for redemption by issuing to the holder thereof, in
respect of its shares to be redeemed, a number of shares of Series A TCI Group
Common Stock equal to the aggregate redemption price (or designated portion
thereof) of such shares divided by the average market price of the Series A TCI
Group Common Stock for a period specified, and subject to the adjustments
described, in the certificate of designations establishing the Series F
Preferred Stock.

The Series F Preferred Stock ranks senior to the TCI Group Common
Stock, the Telephony Group Common Stock, the Liberty Media Group Common Stock
and the Class B Preferred Stock and on a parity with the Series C Preferred
Stock, the Series D Preferred Stock, the Series G Preferred Stock and the
Series H Preferred Stock as to dividend rights, rights to redemption and rights
on liquidation.

If at any time TCI has declared a dividend on the Series F Preferred
Stock and failed to pay or set aside consideration sufficient to pay such
dividend, or if TCI declares a cash dividend on the shares of Series A TCI
Group Common Stock and fails to pay or set aside the participating dividend
required to be paid to the holders of the Series

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F Preferred Stock, then (i) TCI may not declare or pay any dividend on or make
any distribution with respect to any parity stock or junior stock or set aside
any money or assets for any such purpose until such dividend payable to the
holders of Series F Preferred Stock has been paid or consideration sufficient
to pay such dividend has been set aside for such purpose, and (ii) neither TCI
nor any subsidiary thereof may redeem, exchange, purchase or otherwise acquire
any shares of Series F Preferred Stock, parity stock or junior stock, or set
aside any money or assets for any such purpose, unless all then outstanding
shares of such parity stock required to be redeemed under such circumstances
are redeemed. If TCI fails to redeem shares of Series F Preferred Stock
required to be redeemed on a redemption date, TCI may not declare or pay any
dividend on or make any distribution with respect to any junior stock or set
aside money or assets for any such purpose, and neither TCI nor any subsidiary
may redeem any parity stock or junior stock, or purchase or otherwise acquire
any Series F Preferred Stock, parity stock or junior stock, or set aside any
money or assets for any such purpose, until such shares of Series F Preferred
Stock are redeemed. The failure of TCI to pay any dividends on any class or
series of parity stock or to redeem on any date fixed for redemption any shares
of Series F Preferred Stock will not prevent TCI from (i) paying any dividends
on junior stock solely in shares of junior stock or the redemption or other
acquisition of junior stock solely in exchange for (together with a cash
adjustment for fractional shares, if any) shares of junior stock; or (ii) the
payment of dividends on any parity stock solely in shares of parity stock
and/or junior stock or the redemption or other acquisition of parity stock
solely in exchange for (together with a cash adjustment for fractional shares,
if any), or through the application of the proceeds from the sale of, shares of
parity stock and/or junior stock.

The Series F Preferred Stock has no voting rights, except as required
by the DGCL, and except that such shares will vote with the TCI Group Common
Stock, the Telephony Group Common Stock and the Liberty Media Group Common
Stock and any class or series of Preferred Stock entitled to vote thereon, on
the basis of one vote per share, in any general election of directors of TCI.

Series G Redeemable Convertible Preferred Stock. If the sum of (i)
the last reported sale price of the Series A TCI Group Common Stock plus (ii)
one-fourth of the last reported sale price of the Series A Liberty Media Group
Common Stock, equals or exceeds $27 (as adjusted for stock dividends, stock
splits, reclassifications or combinations of the Series A TCI Group Common
Stock and the Series A Liberty Media Group Common Stock) for any ten
consecutive trading days during the 65 consecutive trading days ending on the
last trading day immediately preceding January 25, 1997 (the "Contingency"),
then no dividends will accrue or be payable on the Series G Preferred Stock. If
the Contingency is not met, and only in such event, then subject to the prior
preferences and other rights of any class or series of Preferred Stock ranking
prior to the Series G Preferred Stock with respect to the payment of dividends,
the holders of Series G Preferred Stock will be entitled to receive cumulative
dividends, when and as declared by the Board of Directors out of unrestricted
funds legally available therefor, in preference to dividends on the Common
Stock and the Class B Preferred Stock. Dividends will accrue on the Series G
Preferred Stock from and after the first anniversary of issuance if the
Contingency is not met, on a daily basis at the rate of 4% per annum of the
Liquidation Preference per share, whether or not such dividends are declared or
funds are available for payment of dividends. The "Liquidation Preference" of a
share of Series G Preferred Stock as of any date in question means an amount
equal to the sum of (i) the stated liquidation value of $21.60 per share, plus
(ii) an amount equal to all dividends accrued on such share which have been
added to and remain a part of the Liquidation Preference as of such date, plus
(iii) for purposes of determining liquidation and redemption payments, an
amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (i) and (ii) above during the period from the immediately
preceding dividend payment date through and including the date in question.
Dividends not paid on any dividend payment date are added to the Liquidation
Preference on such date and remain a part thereof until such dividends are
paid. The rate per annum at which dividends will accrue on that portion of the
Liquidation Preference that consists of unpaid dividends that were added to the
Liquidation Preference on a dividend payment date and that remain unpaid on the
next succeeding dividend payment date will increase to 8.625% per annum from
and after such next succeeding dividend payment date. Accrued dividends are
payable semiannually and, in the sole discretion of the Board of Directors, may
be declared and paid in cash, in shares of Series A TCI Group Common Stock or
in any combination of the foregoing. Accrued dividends not paid as provided
above on any dividend payment date accumulate and such accumulated unpaid
dividends may be declared and paid in cash, shares of Series A TCI Group Common
Stock or any combination thereof at any time without reference

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to any regular dividend payment, to holders of record of Series G Preferred
Stock as of a special record date fixed by the Board of Directors.

Upon the liquidation, dissolution or winding up of TCI, the holders of
Series G Preferred Stock will be entitled, after payment of preferential
amounts on any class or series of Preferred Stock ranking prior to the Series G
Preferred Stock with respect to liquidating distributions, to receive from the
assets of TCI available for distribution to stockholders an amount in cash or
property or a combination thereof, per share, equal to the Liquidation
Preference thereof as of the date of payment or distribution.

Subject to the rights of any class or series of Preferred Stock
ranking prior to or on a parity with Series G Preferred Stock, the Series G
Preferred Stock is redeemable at the option of TCI, in whole at any time or in
part from time to time on or after February 1, 2001 for a redemption price per
share payable in cash equal to the Liquidation Preference thereof on such
redemption date. Subject to the rights of any class or series of Preferred
Stock ranking prior to or on a parity with the Series G Preferred Stock, TCI
shall redeem the Series G Preferred Stock out of funds legally available
therefor on February 1, 2016, for a redemption price per share payable in cash
equal to the Liquidation Preference thereof on such redemption date.

The Series G Preferred Stock ranks senior to the TCI Group Common
Stock, the Telephony Group Common Stock, the Liberty Media Group Common Stock
and the Class B Preferred Stock and on a parity basis with the Series C
Preferred Stock, the Series D Preferred Stock, the Series F Preferred Stock and
the Series H Preferred Stock as to dividend rights, rights to redemption and
rights on liquidation.

Each share of Series G Preferred Stock is convertible, at the option
of the holder, at any time prior to the close of business on the business day
immediately prior to the redemption thereof, into 1.190 shares of Series A TCI
Group Common Stock, subject to anti-dilution adjustments.

For so long as any dividends are in arrears on the Series G Preferred
Stock or any class or series of Preferred Stock ranking on a parity with the
Series G Preferred Stock which is entitled to payment of cumulative dividends
prior to the redemption, exchange, purchase, or other acquisition of the Series
G Preferred Stock, and until all dividends accrued up to the immediately
preceding dividend payment date on the Series G Preferred Stock and such parity
stock have been paid or declared and set apart so as to be available for
payment in full thereof and for no other purpose, neither TCI nor any
subsidiary thereof may redeem, exchange, purchase, or otherwise acquire any
shares of Series G Preferred Stock, any parity stock or any class or series of
its capital stock ranking junior to the Series G Preferred Stock, or set aside
any money or assets for such purpose, unless all of the then outstanding shares
of Series G Preferred Stock and such parity stock and any other parity stock
that by its terms is required to be redeemed under such circumstances are
redeemed. For so long as any dividends are in arrears on the Series G Preferred
Stock and until all dividends accrued up to the immediately preceding dividend
payment date on the Series G Preferred Stock have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI may not declare or pay any dividend on or make any distribution
with respect to any junior stock or parity stock or set aside any money or
assets for any such purpose, except for dividends declared and paid on parity
stock contemporaneously and on a pro rata basis with dividends declared and
paid on the Series G Preferred Stock. If TCI fails to redeem shares of Series G
Preferred Stock on a date fixed for redemption, and until such shares are
redeemed in full, TCI may not redeem any junior stock or, except for
contemporaneous pro rata redemptions, any parity stock, declare or pay any
dividend on or make any distribution with respect to any junior stock, or,
except as provided above, parity stock or set aside money or assets for such
purpose and neither TCI nor any subsidiary thereof may purchase or otherwise
acquire any Series G Preferred Stock, parity stock or junior stock or set aside
any money or assets for any such purpose.

The failure of TCI to pay any dividends on any class or series of
parity stock or to redeem on any date fixed for redemption any shares of Series
G Preferred Stock will not prevent (i) the payment of dividends on junior stock
solely in shares of junior stock or the redemption, purchase or other
acquisition of junior stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of a
failure to pay dividends on

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any parity stock) through the application of the proceeds from the sale of,
shares of junior stock; (ii) the payment of dividends on any parity stock
solely in shares of parity stock and/or junior stock or the redemption,
exchange, purchase, or other acquisition of Series G Preferred Stock or parity
stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of a failure to pay dividends on any
parity stock) through the application of the proceeds from the sale of, parity
stock and/or junior stock; or (iii) the purchase or acquisition of shares of
Series G Preferred Stock pursuant to a purchase or exchange offer made to all
holders of outstanding shares of Series G Preferred Stock, provided that the
terms of the purchase or exchange offer shall be identical for all shares of
Series G Preferred Stock and all accrued dividends on such shares shall have
been paid or shall have been declared and irrevocably set apart in trust for
the benefit of the holders of shares of Series G Preferred Stock and for no
other purpose.

The Series G Preferred Stock has no voting rights, except (i) as
required by the DGCL, and (ii) that the holders of Series G Preferred Stock
have the right to vote with the TCI Group Common Stock, the Telephony Group
Common Stock, the Liberty Media Group Common Stock, the Class B Preferred Stock
and any other class or series of Preferred Stock entitled to vote in any
general election of directors, on the basis of one vote per share, in any
general election of directors of TCI.

Series H Redeemable Convertible Preferred Stock. If the Contingency
is met, then no dividends will accrue or be payable on the Series H Preferred
Stock. If the Contingency is not met, and only in such event, then subject to
the prior preferences and other rights of any class or series of Preferred
Stock ranking prior to the Series H Preferred Stock with respect to the payment
of dividends, the holders of Series H Preferred Stock will be entitled to
receive cumulative dividends, when and as declared by the Board of Directors
out of unrestricted funds legally available therefor, in preference to
dividends on the Common Stock and the Class B Preferred Stock. Dividends will
accrue on the Series H Preferred Stock from and after the first anniversary of
issuance, if the Contingency is not met, on a daily basis at the rate of 4% per
annum of the Liquidation Preference per share, whether or not such dividends
are declared or funds are available for payment of dividends. The "Liquidation
Preference" of a share of Series H Preferred Stock as of any date in question
means an amount equal to the sum of (i) the stated liquidation value of $5.40
per share, plus (ii) an amount equal to all dividends accrued on such share
which have been added to and remain a part of the Liquidation Preference as of
such date, plus (iii) for purposes of determining liquidation and redemption
payments, an amount equal to all unpaid dividends accrued on the sum of the
amounts specified in clauses (i) and (ii) above during the period from the
immediately preceding dividend payment date through and including the date in
question. Dividends not paid on any dividend payment date are added to the
Liquidation Preference on such date and remain a part thereof until such
dividends are paid. The rate per annum at which dividends will accrue on that
portion of the Liquidation Preference that consists of unpaid dividends that
were added to the Liquidation Preference on a dividend payment date and that
remain unpaid on the next succeeding dividend payment date will increase to
8.625% per annum from and after such next succeeding dividend payment date.
Accrued dividends are payable semiannually and, in the sole discretion of the
Board of Directors, may be declared and paid in cash, in shares of Series A TCI
Group Common Stock or in any combination of the foregoing. Accrued dividends
not paid as provided above on any dividend payment date accumulate and such
accumulated unpaid dividends may be declared and paid in cash, shares of Series
A TCI Group Common Stock or any combination thereof at any time without
reference to any regular dividend payment, to holders of record of Series H
Preferred Stock as of a special record date fixed by the Board of Directors.

Upon the liquidation, dissolution or winding up of TCI, the holders of
Series H Preferred Stock will be entitled, after payment of preferential
amounts on any class or series of Preferred Stock ranking prior to the Series H
Preferred Stock with respect to liquidating distributions, to receive from the
assets of TCI available for distribution to stockholders an amount in cash or
property or a combination thereof, per share, equal to the Liquidation
Preference thereof as of the date of payment or distribution.

Subject to the rights of any class or series of Preferred Stock
ranking prior to or on a parity with Series H Preferred Stock, the Series H
Preferred Stock is redeemable at the option of TCI, in whole at any time or in
part from time to time on or after February 1, 2001, for a redemption price per
share payable in cash equal to the Liquidation Preference thereof on such
redemption date. Subject to the rights of any class or series of Preferred
Stock ranking prior

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to or on a parity with the Series H Preferred Stock, TCI shall redeem the
Series H Preferred Stock out of funds legally available therefor on February 1,
2016, for a redemption price per share payable in cash equal to the Liquidation
Preference thereof on such redemption date.

The Series H Preferred Stock ranks senior to the TCI Group Common
Stock, Telephony Group Common Stock, Liberty Media Group Common Stock and the
Class B Preferred Stock and on a parity basis with the Series C Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock and the
Series G Preferred Stock as to dividend rights, rights to redemption and rights
on liquidation.

Each share of Series H Preferred Stock is convertible, at the option
of the holder, at any time prior to the close of business on the business day
immediately prior to the redemption thereof, into .2625 of one share of Series
A Liberty Media Group Common Stock, subject to anti-dilution adjustments.
However, the shares issuable upon conversion shall be adjusted to provide for
the Liberty Stock Distribution.

For so long as any dividends are in arrears on the Series H Preferred
Stock or any class or series of Preferred Stock ranking on a parity with the
Series H Preferred Stock which is entitled to payment of cumulative dividends
prior to the redemption, exchange, purchase, or other acquisition of the Series
H Preferred Stock, and until all dividends accrued up to the immediately
preceding dividend payment date on the Series H Preferred Stock and such parity
stock have been paid or declared and set apart so as to be available for
payment in full thereof and for no other purpose, neither TCI nor any
subsidiary thereof may redeem, exchange, purchase, or otherwise acquire any
shares of Series H Preferred Stock, any parity stock or any class or series of
its capital stock ranking junior to the Series H Preferred Stock, or set aside
any money or assets for such purpose, unless all of the then outstanding shares
of Series H Preferred Stock and such parity stock and any other parity stock
that by its terms is required to be redeemed under such circumstances are
redeemed. For so long as any dividends are in arrears on the Series H Preferred
Stock and until all dividends accrued up the immediately preceding dividend
payment date on the Series H Preferred Stock have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI may not declare or pay any dividend on or make any distribution
with respect to any junior stock or parity stock or set aside any money or
assets for any such purpose, except for dividends declared and paid on parity
stock contemporaneously and on a pro rata basis with dividends declared and
paid on the Series H Preferred Stock. If TCI fails to redeem shares of Series H
Preferred Stock on a date fixed for redemption, and until such shares are
redeemed in full, TCI may not redeem any junior stock or, except for
contemporaneous pro rata redemptions, any parity stock, declare or pay any
dividend on or make any distribution with respect to any junior stock or,
except as provided above, parity stock, or set aside money or assets for such
purpose and neither TCI nor any subsidiary thereof may purchase or otherwise
acquire any Series H Preferred Stock, parity stock or junior stock or set aside
any money or assets for any such purpose.

The failure of TCI to pay any dividends on any class or series of
parity stock or to redeem on any date fixed for redemption any shares of Series
H Preferred Stock will not prevent (i) the payment of dividends on junior stock
solely in shares of junior stock or the redemption, purchase or other
acquisition of junior stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of a
failure to pay dividends on any parity stock) through the application of the
proceeds from the sale of, shares of junior stock; (ii) the payment of
dividends on any parity stock solely in shares of parity stock and/or junior
stock or the redemption, exchange, purchase, or other acquisition of Series H
Preferred Stock or parity stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of a
failure to pay dividends on any parity stock) through the application of the
proceeds from the sale of, parity stock and/or junior stock; or (iii) the
purchase or acquisition of shares of Series H Preferred Stock pursuant to a
purchase or exchange offer made to all holders of outstanding shares of Series
H Preferred Stock, provided that the terms of the purchase or exchange offer
shall be identical for all shares of Series H Preferred Stock and all accrued
dividends on such shares shall have been paid or shall have been declared and
irrevocably set apart in trust for the benefit of the holders of shares of
Series H Preferred Stock and for no other purpose.

The Series H Preferred Stock has no voting rights, except (i) as
required by the DGCL, and (ii) that the holders of Series H Preferred Stock
have the right to vote with the TCI Group Common Stock, the Telephony Group
Common Stock, the Liberty Media Group Common Stock, the Class B Preferred Stock
and any other class or series of Preferred

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Stock entitled to vote in any general election of directors, on the basis of
one vote per share, in any general election of directors of TCI.

ANTI-TAKEOVER CONSIDERATIONS

The DGCL, the TCI Charter and TCI's Bylaws contain provisions which
may serve to discourage or make more difficult a change in control of TCI
without the support of the Board of Directors or without meeting various other
conditions. The principal provisions of the DGCL and the aforementioned
corporate governance documents are outlined below.

DGCL Section 203, in general, prohibits a "business combination"
between a corporation and an "interested stockholder" within three years of the
date such stockholder became an "interested stockholder," unless (i) prior to
such date the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, exclusive of
shares owned by directors who are also officers and by certain employee stock
plans or (iii) on or after such date, the business combination is approved by
the board of directors and authorized by the affirmative vote at a
stockholders' meeting of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. The term "business combination" is
defined to include, among other transactions between the interested stockholder
and the corporation or any direct or indirect majority-owned subsidiary
thereof, a merger or consolidation; a sale, pledge, transfer or other
disposition (including as part of a dissolution) of assets having an aggregate
market value equal to 10% or more of either the aggregate market value of all
assets of the corporation on a consolidated basis or the aggregate market value
of all the outstanding stock of the corporation; certain transactions that
would increase the interested stockholder's proportionate share ownership of
the stock of any class or series of the corporation or such subsidiary; and any
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation or any such subsidiary. In general, and subject to certain
exceptions, an "interested stockholder" is any person who is the owner of 15%
or more of the outstanding voting stock (or, in the case of a corporation with
classes of voting stock with disparate voting power, 15% or more of the voting
power of the outstanding voting stock) of the corporation, and the affiliates
and associates of such person. The term "owner" is broadly defined to include
any person that individually or with or through his or its affiliates or
associates, among other things, beneficially owns such stock, or has the right
to acquire such stock (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement or understanding or upon
the exercise of warrants or options or otherwise or has the right to vote such
stock pursuant to any agreement or understanding, or has an agreement or
understanding with the beneficial owner of such stock for the purpose of
acquiring, holding, voting or disposing of such stock. The restrictions of
DGCL Section 203 do not apply to corporations that have elected, in the manner
provided therein, not to be subject to such section or, with certain
exceptions, which do not have a class of voting stock that is listed on a
national securities exchange or authorized for quotation on an interdealer
quotation system of a registered national securities association or held of
record by more than 2,000 stockholders.

The TCI Charter does not contain any provision "opting out" of the
application of DGCL Section 203 and TCI has not taken any of the actions
necessary for it to "opt out" of such provision. As a result, the provisions
of Section 203 will remain applicable to transactions between TCI and any of
its "interested stockholders."

The TCI Charter also contains certain provisions which could make a
change in control of TCI more difficult. For example, the TCI Charter
requires, subject to the rights, if any, of any class or series of Preferred
Stock, the affirmative vote of 66 2/3% of the total voting power of the
outstanding shares of Voting Securities, voting together as a single class, to
approve (i) a merger or consolidation of TCI with, or into, another
corporation, other than a merger or consolidation which does not require the
consent of stockholders under the DGCL or a merger or consolidation which has
been approved by 75% of the members of the Board of Directors (in which case,
in accordance with the DGCL, the affirmative vote of a majority of the total
voting power of the outstanding Voting Securities would, with certain

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<PAGE> 141
exceptions, be required for approval), (ii) the sale, lease or exchange of all
or substantially all of the property and assets of TCI or (iii) the dissolution
of TCI. "Voting Securities" is currently defined as the TCI Group Common
Stock, the Liberty Media Group Common Stock, the Telephony Group Common Stock
and any class or series of Preferred Stock entitled to vote generally with the
holders of Common Stock on matters submitted to stockholders for a vote. The
TCI Charter also provides for a Board of Directors of not less than three
members, divided into three classes of approximately equal size, with each
class to be elected for a three-year term at each special meeting of
stockholders. The exact number of directors, currently nine, is fixed by the
Board of Directors. The holders of TCI Group Common Stock, Telephony Group
Common Stock, Liberty Media Group Common Stock, Class B Preferred Stock, Series
C Preferred Stock, Series G Preferred Stock and Series H Preferred Stock,
voting together as a single class, vote in elections for directors. (The
holders of TCI's Series F Preferred Stock are entitled to vote in the election
of directors; however, the DGCL prohibits the voting of such shares because
such shares are held by subsidiaries of TCI.) Stockholders of TCI do not have
cumulative voting rights.

The TCI Charter authorizes the issuance of 50,000,000 shares of Series
Preferred Stock, of which 33,901,240 remain available for issuance as of
October 31, 1996. Under the TCI Charter, the Board of Directors is authorized,
without further action by the stockholders of TCI, to establish the
preferences, limitations and relative rights of the Series Preferred Stock. In
addition, 1,900,000,000 shares of TCI Group Common Stock, 825,000,000 shares of
Liberty Media Group Common Stock and 825,000,000 shares of Telephony Group
Common Stock are currently authorized by the TCI Charter, of which
1,135,416,392 shares of the TCI Group Common Stock (as of October 31, 1996),
575,988,733 shares of the Liberty Media Group Common Stock (after giving effect
to the Liberty Stock Distribution) (as of October 31, 1996) and ____ shares of
Telephony Group Common Stock (assuming the purchase of all Shares offered
hereby) remain available for issuance (without taking into consideration shares
reserved for issuance upon conversion, exchange or exercise of outstanding
convertible or exchangeable securities and options). The issue and sale of
shares of TCI Group Common Stock and Liberty Media Group Common Stock,
Telephony Group Common Stock and/or Series Preferred Stock could occur in
connection with an attempt to acquire control of TCI, and the terms of such
shares of Series Preferred Stock could be designed in part to impede the
acquisition of such control.

The TCI Charter requires the affirmative vote of 66 2/3% of the total
voting power of the outstanding shares of Voting Securities, voting together as
a single class, to approve any amendment, alteration or repeal of any provision
of the TCI Charter or the addition or insertion of other provisions therein.

The TCI Charter and TCI's Bylaws provide that a special meeting of
stockholders will be held at any time, subject to the rights of the holders of
any class or series of Preferred Stock, upon the call of the Secretary of TCI
upon (i) the written request of the holders of not less than 66 2/3% of the
total voting power of the outstanding shares of Voting Securities or (ii) at
the request of not less than 75% of the members of the Board of Directors.
Subject to the rights of any class or series of Preferred Stock, TCI's Bylaws
require that written notice of the intent to make a nomination at a meeting of
stockholders must be received by the Secretary of TCI, at TCI's principal
executive offices, not later than (a) with respect to an election of directors
to be held at an annual meeting of stockholders, 90 days in advance of such
meeting, and (b) with respect to an election of directors to be held at a
special meeting of stockholders, the close of business on the seventh day
following the day on which notice of such meeting is first given to
stockholders. The notice must contain: (1) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (2) a representation that the stockholder is a holder of record
of TCI's Voting Securities entitled to vote at the meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (3) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (4) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Commission had each proposed nominee been nominated, or intended to be
nominated, by the Board of Directors; and (5) the consent of each nominee to
serve as a director of TCI if so elected. Any actions to remove directors is
required to be for "cause" (as defined in the TCI Charter) and be approved by
the holders of 66 2/3% of the total voting power of the outstanding shares
entitled to vote in the election of directors.

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CERTAIN UNITED STATES TAX CONSEQUENCES
TO HOLDERS OF TELEPHONY GROUP COMMON STOCK

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following summary of the material Federal income tax consequences
to the holders of Telephony Group Common Stock is based on the opinion of
Baker & Botts, L.L.P., counsel to TCI, and Baker & Botts, L.L.P. has advised
TCI that this summary accurately describes such material consequences. The
discussion is based on the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), Treasury Department regulations, published positions
of the Service and court decisions now in effect, all of which are subject to
change. In particular, the United States Congress could enact legislation
affecting the treatment of stock with characteristics similar to the Telephony
Group Common Stock, or the Treasury Department could change the current law in
future regulations. Any further legislation or regulations could be enacted or
promulgated so as to apply retroactively to the Telephony Group Common Stock.
However, upon advice of counsel, TCI believes that, as a practical matter, it
is unlikely that such legislation or regulations would apply retroactively to
the Telephony Group Common Stock. The discussion contained herein and
counsel's opinion are based on the assumption that the Telephony Group Common
Stock will have the characteristics as described herein.

TAX IMPLICATIONS TO STOCKHOLDERS

This discussion addresses those stockholders who will hold Telephony
Group Common Stock as a capital asset within the meaning of Section 1221 of the
Code. This discussion is included for general information only. It does not
discuss all aspects of Federal income taxation that could be relevant to a
stockholder in light of such stockholder's particular tax circumstances and
does not apply to certain types of stockholders who could be subject to special
treatment under the Federal income tax laws. STOCKHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS
TO THEIR PARTICULAR SITUATION, AS WELL AS TO THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL, OR FOREIGN TAX LAWS TO WHICH THEY COULD BE SUBJECT.

Sale or Exchange of Common Stock. Upon a stockholder's taxable sale
or exchange of the Telephony Group Common Stock, such stockholder would
recognize gain or loss equal to the difference between (i) any cash received
plus the fair market value of any other consideration received and (ii) the tax
basis of the stock sold or exchanged. Such tax basis would, in the case of a
purchase of the stock, be the amount paid therefor.

Should TCI redeem the Telephony Group Common Stock in the future by
distributing shares of one or more Qualifying Subsidiaries in exchange
therefor, it intends to do so in a manner that such redemption will be tax free
under Section 355 of the Code. If such redemption does not qualify under
Section 355 of the Code, then the holders of the Telephony Group Common Stock
could, depending upon their individual circumstances, either (a) recognize gain
on the redemption in an amount equal to the difference between the fair market
value of the Qualifying Subsidiaries stock received and the stockholders' tax
basis in their shares being redeemed or (b) be treated as having received a
taxable dividend in an amount equal to the fair market value of the received
Qualifying Subsidiaries stock.

The excess of net long-term capital gains over net short-term capital
loss could be taxed at a rate lower than ordinary income for certain
noncorporate taxpayers. A capital gain is long-term if the asset is held for
more than one year and is short-term if held for one year or less. The
distinction between capital gain or loss and ordinary income is also relevant
for purposes of, among other things, the limitation on the deductibility of
capital losses.

Conversion. In the opinion of counsel, the Telephony Group Common
Stock should be treated as stock of TCI for federal income tax purposes. If
the Telephony Group Common Stock is so treated, a conversion of such stock into
TCI Group Common Stock pursuant to the terms of the Telephony Group Common
Stock should constitute a tax free

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exchange. However, it is not clear that an exchange of shares of Telephony
Group Common Stock for shares of TCI Group Common Stock, or shares of TCI Group
Common Stock for shares of Telephony Group Common Stock, would constitute a tax
free exchange under the Code.

Dividends. Dividend payments received by a holder of Telephony Group
Common Stock who is not a Nonresident Alien (as defined below) will be taxable
at ordinary income rates to the extent of the current and accumulated earnings
and profits of TCI, then as a return of basis of the Telephony Group Common
Stock of the holder, then as capital gain. Corporate shareholders would
generally be eligible for a dividends received deduction with respect to the
distribution.

Nonresident Alien Holders. Dividend payments received by a holder of
Telephony Group Common Stock who is a Nonresident Alien (as defined below)
would be subject to United States Federal withholding tax unless a treaty
exemption applies or the Nonresident Alien otherwise establishes an exemption.
A Nonresident Alien holder would not be subject to United States Federal income
or withholding tax on any gain realized on the taxable sale or exchange of any
such stock, unless (A) such gain was effectively connected with a United
States trade or business of the Nonresident Alien, (B) the Nonresident Alien
was an individual who had been present in the United States for a period or
periods of 183 days or more during the taxable year and certain other
conditions were met or (C) the stock sold or exchanged was a "United States
Real Property Interest" as defined in Section 897(c)(1) of the Code at any time
during the five years prior to the sale or exchange of the stock or at any time
during the time that the Nonresident Alien held such stock, whichever time was
shorter. The Telephony Group Common Stock sold or exchanged would be a United
States Real Property Interest only if, at any time during the five years prior
to the sale or exchange of such stock, or at any time during the period that
the Nonresident Alien held such stock, whichever time was shorter, TCI had been
a "United States real property holding corporation" as defined in Section
897(c)(2) of the Code and the Nonresident Alien owned directly or indirectly
more than 5% of such series of Telephony Group Common Stock. TCI believes that
it is not, has not been and will not become a "United States real property
holding corporation" for Federal income tax purposes.

A "Nonresident Alien" is any person who, for Federal income tax
purposes, is a foreign corporation, a nonresident alien individual, a
nonresident alien fiduciary or a foreign estate or trust, or a foreign
partnership that includes as a member any of the foregoing persons.

Backup Withholding. Certain noncorporate holders of Telephony Group
Common Stock could be subject to backup withholding at a rate of 31% on the
payment of dividends on such stock. Backup withholding will apply only if the
holder (i) failed to furnish its Taxpayer Identification Number ("TIN"), which,
for an individual, is his or her Social Security number, (ii) furnished an
incorrect TIN, (iii) was notified by the Service that it had failed to properly
report payments of interest or dividends or (iv) under certain circumstances,
failed to certify under penalties of perjury that (1) it had furnished a
correct TIN and (2) had not been notified by the Service that it had failed to
properly report payments of interest or dividends. Stockholders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedures for obtaining such an exemption if applicable.

The amount of any backup withholding on a payment to a holder of
Telephony Group Common Stock would be allowed as a credit against such
stockholder's Federal income tax liability and could entitle such stockholder
to a refund, provided that the required information was furnished to the
Service.

TAX IMPLICATIONS TO TCI

As noted above, in the opinion of counsel, the Telephony Group Common
Stock should be treated as stock of TCI for federal income tax purposes.
Accordingly, no gain or loss should be recognized by TCI on the sale of
Telephony Group Common Stock. If, however, the Telephony Group Common Stock
were treated as property other than stock of TCI, TCI could recognize gain on
the sale of Telephony Group Common Stock in an amount equal to the difference
between the proceeds received therefrom and its tax basis in the hands of TCI.
If the Telephony Group

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Common Stock is treated as stock of a subsidiary of TCI, and not as stock of
TCI, the Telephony Group could, depending upon the amount of stock issued, be
treated as not includable in TCI's consolidated federal income tax return. If
so treated, any dividends paid or deemed paid to TCI by the Telephony Group
would be taxed to TCI.

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement
(the "U.S. Purchase Agreement"), TCI has agreed to sell to each of the
underwriters named below (the "U.S. Underwriters"), and each of the U.S.
Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated, Credit Suisse First Boston Corporation and
Salomon Brothers Inc are acting as representatives (the "U.S. Representatives"),
severally has agreed to purchase, the aggregate number of shares of Series A
Telephony Group Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
- ---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith,
Incorporated. . . . . . . . . . . . . . . . . . . . . .
-------------
Morgan Stanley & Co. Incorporated . . . . . . . . . . . . . . . .
-------------
Credit Suisse First Boston Corporation . . . . . . . . . . . . .
-------------
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . .
-------------

__________________ . . . . . . . . . . . . . . . . . . . . . . .
-------------

Total
=============
</TABLE>

TCI has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with Merrill Lynch International, Morgan Stanley & Co.
International Limited, Credit Suisse First Boston (Europe) Limited and Salomon
Brothers International Limited, acting as lead managers (the "International
Representatives"), and certain other underwriters outside the United States
and Canada (collectively, the "International Underwriters" and, together with
the U.S. Underwriters, the "Underwriters"). Subject to the terms and
conditions set forth in the International Purchase Agreement, TCI has agreed to
sell to the International Underwriters, and the International Underwriters
have severally agreed to purchase, an aggregate of _______ shares of Series A
Telephony Group Common Stock.

In the U.S. Purchase Agreement and the International Purchase
Agreement, the Underwriters named therein have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the shares
of Series A Telephony Group Common Stock being sold pursuant to each such
agreement if any of the shares of Series A Telephony Group Common Stock being
sold pursuant to such Purchase Agreement are purchased. Under certain
circumstances, under the Purchase Agreements, the commitments of non-defaulting
Underwriters may be increased. Each Purchase Agreement provides that TCI is
not obligated to sell, and the Underwriters named therein are not obligated to
purchase, the shares of Series A Telephony Group Common Stock under the terms
of the Purchase Agreement unless all of the shares of Series A Telephony Group
Common Stock to be sold pursuant to the Purchase Agreements are
contemporaneously sold.

142
<PAGE> 145
The U.S. Representatives have advised TCI that the U.S. Underwriters
propose to offer the shares of Series A Telephony Group Common Stock offered
hereby in the U.S. Offering to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $___ per share of Series A
Telephony Group Common Stock, and that the U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $___ per share of Series
A Telephony Group Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.

The initial public offering price per share of Series A Telephony
Group Common Stock and the total underwriting discount per share of Series A
Telephony Group Common Stock are identical under the U.S. Purchase Agreement
and the International Purchase Agreement.

TCI has granted to the U.S. Underwriters and the International
Underwriters options to purchase up to an aggregate of _______ and _______
shares of Series A Telephony Group Common Stock, respectively, at the initial
public offering price, less the underwriting discount. Such options, which
will expire 30 days after the date of this Prospectus, may be exercised solely
to cover over-allotments. To the extent that the Underwriters exercise such
options, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase from TCI approximately the same percentage of
the option shares that the number of shares to be purchased initially by that
Underwriter is of the ________ shares of Series A Telephony Group Common Stock
initially purchased by the Underwriters.

TCI has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the U.S.
Underwriters and the International Underwriters are permitted to sell shares
of Series A Telephony Group Common Stock to each other.

TCI has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Series A Telephony Group Common Stock will not offer to sell or resell shares
of Series A Telephony Group Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, and the International Underwriters and
any bank, broker or dealer to whom they sell shares of Series A Telephony Group
Common Stock will not offer to sell or resell shares of Series A Telephony
Group Common Stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. persons or to Canadian persons, except in the
case of transactions pursuant to the Intersyndicate Agreement which, among
other things, permits the Underwriters to purchase from each other and to offer
to resell such number of shares of Series A Telephony Group Common Stock as the
selling Underwriter or Underwriters and the purchasing Underwriter or
Underwriters may agree.

TCI has agreed not to sell, offer to sell, grant any option (other
than employee stock options) for the sale of, or otherwise dispose of, any
shares of Telephony Group Common Stock or securities convertible into or
exercisable or exchangeable for Telephony Group Common Stock (except for the
shares offered hereby and the shares of Telephony Group Common Stock issuable
by TCI pursuant to the exercise of the Executive Options) for a period of 180
days after the date of this Prospectus without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, subject to certain limited
exceptions included in the Purchase Agreements.

Prior to the Offerings, there has been no public market for the shares
of Series A Telephony Group Common Stock. The initial public offering price of
the Series A Telephony Group Common Stock was determined by negotiations
between TCI and the U.S. Representatives and the International Representatives.
Among the factors considered in such negotiations, in addition to prevailing
market conditions, were current market valuations of publicly traded companies
that TCI and the Underwriters believe to be reasonably comparable to the
Telephony Group, an assessment of TCI's results of operations in recent periods
with respect to the Telephony Group, estimates of the business potential and
earnings prospects of the Telephony Group, the current state of the Telephony
Group's development and the current state of the Telephony Group's industry and
the economies of the Telephony Group's principal markets as a whole. The
offering price set forth on the cover of the Prospectus should not, however, be

143
<PAGE> 146
considered an indication of the actual value of the Series A Telephony Group
Common Stock. Such price will be subject to change as a result of market
conditions and other factors. There can be no assurance that an active trading
market will develop for the Series A Telephony Group Common Stock or that the
Series A Telephony Group Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price.

TCI has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.

Certain of the Underwriters have provided various investment banking
services to TCI and certain of its subsidiaries.

LEGAL MATTERS

The validity of the Shares will be passed upon for TCI by Baker &
Botts, L.L.P., New York, New York. Jerome H. Kern, special counsel of Baker
& Botts, L.L.P., is a director of TCI and holds options to purchase shares of
Series A TCI Group Common Stock and Series A Liberty Media Group Common Stock.
Another partner of Baker & Botts, L.L.P. holds restricted shares of Series A
Liberty Media Group Common Stock. Certain legal matters in connection with
the Offerings will be passed upon for the Underwriters by Brown & Wood LLP,
New York, New York.

EXPERTS

The combined balance sheets of Telephony Group as of December 31, 1995
and 1994, and the related combined statements of operations, equity and cash
flows for each of the years in the three-year period ended December 31, 1995
have been included herein in reliance upon the report, dated March 18, 1996,
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

The consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1995, and all related
financial statement schedules, have been included herein in reliance upon the
reports, dated March 18, 1996, of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.

The combined balance sheets of TCI Group as of December 31, 1995 and
1994, and the related combined statements of operations, equity, and cash flows
for each of the years in the three-year period ended December 31, 1995, which
appears in the December 31, 1995 Annual Report on Form 10-K of
Tele-Communications, Inc. have been incorporated by reference herein in
reliance upon the report, dated March 18, 1996, of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP covering the combined financial statements
refers to the effects of not consolidating TCI Group's interest in Liberty
Media Group for the periods subsequent to the mergers of the predecessor of TCI
Communications, Inc. and Liberty Media Corporation on August 4, 1994 and refers
to the effects of not consolidating TCI Group's interest in the Telephony Group
for all periods.

The combined balance sheets of Liberty Media Group as of December 31,
1995 and 1994, and the related combined statements of operations, equity, and
cash flows for each of the years in the three-year period ended December 31,
1995, which appear in the December 31, 1995 Annual Report on Form 10-K of
Tele-Communications, Inc., have been incorporated by reference herein in
reliance upon the report, dated March 18, 1996, of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.

144
<PAGE> 147
The statements of operations, stockholders' equity, and cash flows of
Liberty Media Corporation and subsidiaries for the year ended December 31,
1993, which appear in the December 31, 1995 Annual Report on Form 10-K of
Tele-Communications, Inc., have been incorporated by reference herein in
reliance upon the report, dated March 18, 1994, of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP covering the December 31, 1993 financial
statements refers to a change in method of accounting for income taxes.

The consolidated balance sheet of TeleWest plc and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations and cash flows for each of the years in the three year period ended
December 31, 1995, which appear in the December 31, 1995 Annual Report on Form
10-K of Tele-Communications, Inc., have been incorporated by reference herein
in reliance upon the report, dated March 6, 1996, of KPMG Audit plc,
independent chartered accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.

The combined balance sheets of Cablevision (a combination of certain
cable television assets of Cablevision S.A., Televisora Belgrano S.A.,
Construered S.A. and Univent's S.A.) as of December 31, 1994 and 1993, and the
related combined statements of operations and deficit and cash flows for each
of the years in the three-year period ended December 31, 1994, which appear in
the Current Report on Form 8-K of Tele-Communications, Inc. dated April 20,
1995, as amended, have been incorporated by reference herein in reliance upon
the report, dated March 24, 1995, of KPMG Finsterbusch Pickenhayn Sibille,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.

The combined financial statements of VII Cable which appear in TCI's
Current Report on Form 8-K dated June 19, 1996, have been incorporated by
reference herein in reliance on the report dated February 14, 1996 of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

145
<PAGE> 148
FINANCIAL INFORMATION INDEX

<TABLE>
<CAPTION>
Page
Numbers
<S> <C>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES:

Management's Discussion and Analysis of Financial Condition and Results of
Operations, Years ended December 31, 1995, 1994 and 1993 F-3
Independent Auditors' Report F-24
Consolidated Balance Sheets,
December 31, 1995 and 1994 F-25
Consolidated Statements of Operations,
Years ended December 31, 1995, 1994 and 1993 F-27
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1995, 1994, 1993 F-28
Consolidated Statements of Cash Flows,
Years ended December 31, 1995, 1994 and 1993 F-31
Notes to Consolidated Financial Statements,
December 31, 1995, 1994 and 1993 F-32

Management's Discussion and Analysis of Financial Condition and Results of
Operations, Nine months ended September 30, 1996 and 1995 F-78
Consolidated Balance Sheets,
September 30, 1996 and December 31, 1995 (unaudited) F-87
Consolidated Statements of Operations,
Three month and nine month periods ended September 30, 1996 and 1995 (unaudited) F-89
Consolidated Statement of Stockholders' Equity,
Nine months ended September 30, 1996 (unaudited) F-90
Consolidated Statements of Cash Flows,
Nine months ended September 30, 1996 and 1995 (unaudited) F-91
Notes to Consolidated Financial Statements,
September 30, 1996 (unaudited) F-92

"TELEPHONY GROUP":

Management's Discussion and Analysis of Financial Condition and Results of
Operations, Years ended December 31, 1995, 1994 and 1993 F-107
Independent Auditors' Report F-118
Combined Balance Sheets,
December 31, 1995 and 1994 F-119
Combined Statements of Operations,
Years ended December 31, 1995, 1994 and 1993 F-120
Combined Statements of Combined Equity,
Years ended December 31, 1995, 1994, 1993 F-121
Combined Statements of Cash Flows,
Years ended December 31, 1995, 1994 and 1993 F-122
Notes to Combined Financial Statements,
December 31, 1995, 1994 and 1993 F-123
</TABLE>

(continued)

F-1
<PAGE> 149
FINANCIAL INFORMATION INDEX

<TABLE>
<CAPTION>
Page
Numbers
<S> <C>
"TELEPHONY GROUP" (CONTINUED):

Management's Discussion and Analysis of Financial Condition and Results of
Operations, Nine months ended September 30, 1996 and 1995 F-142
Combined Balance Sheets,
September 30, 1996 and December 31, 1995 (unaudited) F-153
Combined Statements of Operations,
Three month and nine month periods ended September 30, 1996 and 1995 (unaudited) F-154
Combined Statement of Combined Equity,
Nine months ended September 30, 1996 (unaudited) F-155
Combined Statements of Cash Flows,
Nine months ended September 30, 1996 and 1995 (unaudited) F-156
Notes to Combined Financial Statements,
September 30, 1996 (unaudited) F-157
</TABLE>

F-2
<PAGE> 150
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Summary of Operations

As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement to combine the two
companies (the "TCI/Liberty Combination"). The transaction was consummated on
August 4, 1994 and was structured as a tax free exchange of Class A and Class B
shares of both companies and preferred stock of Liberty for like shares of a
newly formed holding company, TCI/Liberty Holding Company. In connection with
the TCI/Liberty Combination, Old TCI changed its name to TCI Communications,
Inc. ("TCIC") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. ("TCI" or the "Company").

During the fourth quarter of 1994, the Company was reorganized (the
"Reorganization") based upon four lines of business: Domestic Cable and
Communications; Programming; International Cable and Programming ("TINTA"); and
Technology/Venture Capital. The Company reorganized its structure to provide
for financial and operational independence in the four operating units, each
under the direction of its own chief executive officer, while maintaining the
synergies and scale economies provided by a common corporate parent. While
neither the International Cable and Programming unit nor the Technology/Venture
Capital unit is currently significant to the Company as a whole, the Company
believes each unit has growth potential and each unit is unique enough in
nature to warrant separate operational focus.

On August 3, 1995, the shareholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue a new class of stock ("Liberty Group
Stock") which is intended to reflect the separate performance of TCI's business
which produces and distributes cable television programming services ("Liberty
Media Group"). While the Liberty Group Stock constitutes common stock of TCI,
the issuance of the Liberty Group Stock did not result in any transfer of
assets or liabilities of TCI or any of its subsidiaries or affect the rights of
holders of TCI's or any of its subsidiaries' debt. On August 10, 1995, TCI
distributed one hundred percent of the equity value attributable to Liberty
Media Group (the "Distribution") to its security holders of record on August 4,
1995. Additionally, the stockholders of TCI approved the redesignation of the
previously authorized TCI Class A and Class B common stock into Series A TCI
Group and Series B TCI Group common stock ("TCI Group Stock"). The TCI Group
Stock is intended to reflect the performance of those businesses of the Company
not attributed to Liberty Media Group. Such businesses are referred to herein
as "TCI Group". Liberty Media Group and TCI Group are sometimes hereinafter
referred to individually as a "Group".

Subsequent to consummation of the TCI/Liberty Combination, the Company
operates principally in two industry segments: cable and communications
services and programming services. Home shopping is a programming service
which includes a retail function. Separate amounts for the aforementioned home
shopping services have been provided to enhance the readers understanding of
the Company. The Technology/Venture Capital and the International Cable and
Programming portions of the Company's business have been included with cable
and communications services due to their relative insignificance. The amounts
provided for the Company's programming services segment represent the results
of Liberty Media Group since the date of the TCI/Liberty Combination. The
tables below set forth for the periods presented, the percentage relationship
that certain items bear to revenue. This summary provides trend data relating
to the normal recurring operations of the Company. Other items of significance
are discussed under separate captions below.

F-3

<PAGE> 151
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------
1995 1994 1993
----------------- ------------------ ---------------------
amounts in millions, except for percentages
<S> <C> <C> <C> <C> <C> <C>
Cable and Communications Services:
- ----------------------------------

Revenue 100% $ 5,384 100% $ 4,247 100% $ 4,153

Operating costs and expenses before
depreciation and amortization 64 3,457 58 2,474 56 2,326

Depreciation and amortization 24 1,274 23 992 22 911
---- ------- ---- ------- ----- -------

Operating income 12% $ 653 19% $ 781 22% $ 916
==== ======= ==== ======= ===== =======

Programming Services:
- --------------------

Electronic Retailing Services:

Net sales 100% $ 1,019 100% $ 482 -- $ --

Cost of sales 69 702 65 313 -- --

Operating costs and expenses before
depreciation and amortization 35 359 30 145 -- --

Depreciation and amortization 4 43 3 15 -- --
---- ------- ---- ------- ----- -------

Operating income (loss) (8)% $ (85) 2% $ 9 -- $ --
==== ======= ==== ======= ===== =======

Other Programming Services:

Revenue 100% $ 521 100% $ 240 -- $ --

Operating costs and expenses before
depreciation and amortization 94 492 96 231 -- --

Depreciation and amortization 11 55 5 11 -- --
---- ------- ---- ------- ----- -------

Operating loss (5)% $ (26) (1)% $ (2) -- $ --
==== ======= ==== ======= ===== =======

Eliminations
- ------------
Revenue 100% $ (73) 100% $ (33) -- $ --

Operating costs and expenses before
depreciation and amortization (100) (73) (100) (33) -- --
---- ------- ---- ------- ----- -------

Operating income --% $ -- --% $ -- --% $ --
==== ======= ==== ======= ===== =======

Tele-Communications, Inc. Consolidated:
- --------------------------------------

Revenue 100% $ 6,851 100% $ 4,936 100% $ 4,153

Cost of sales 10 702 6 313 -- --

Operating costs and expenses before
depreciation and amortization 62 4,235 57 2,817 56 2,326

Depreciation and amortization 20 1,372 21 1,018 22 911
---- ------- ---- ------- ----- -------

Operating income 8% $ 542 16% $ 788 22% $ 916
==== ======= ==== ======= ===== =======
</TABLE>

F-4

<PAGE> 152
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Cable and Communications Services

On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the Federal Communications Commission ("FCC") adopted certain rate
regulations required by the 1992 Cable Act and imposed a moratorium on certain
rate increases. As a result of such actions, the Company's basic and tier
service rates and its equipment and installation charges (the "Regulated
Services") are subject to the jurisdiction of local franchising authorities and
the FCC. The regulations established benchmark rates in 1993 which were
further reduced in 1994, to which the rates charged by cable operators for
Regulated Services were required to conform.

The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level. The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base. However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets. As a result,
the Company pursued cost of service justifications in only a few cases. On
December 15, 1995, the FCC adopted slightly more favorable cost of service
rules.

The regulations also provide mechanisms for adjusting rates when
regulated tiers are affected by channel additions or deletions. Additional
programming costs resulting from channel additions can be accorded the same
external treatment as other program costs increases, and cable operators
presently are permitted to recover a mark-up on their programming expenses.
Under one option, operators are allowed a flat ($.20) fee increase per channel
added to an existing cable programming services tier ("CPST"), with an aggregate
cap on such increases ($1.20) plus a license fee reserve ($.30) through 1996.
In 1997, an additional flat ($.20) fee increase will be available, and the
license fees for additional channels and for increases in existing channels will
no longer be subject to the aggregate cap. This optional approach for adding
services is scheduled to expire on December 31, 1997.

The Company reduced its rates in 1993 and 1994 and limited its rate
increases in 1995 in response to FCC regulations. The Company believes that it
has complied in all material respects with the provisions of the 1992 Cable
Act, including its rate setting provisions. However, the Company's rates for
Regulated Services are subject to review by the FCC, if a complaint has been
filed, or by the appropriate franchise authority, if such authority has been
certified. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received. Any
refunds of the excess portion of tier service rates would be retroactive to the
date of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation of
the rate reductions.

F-5

<PAGE> 153
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

On October 30, 1995, the FCC accepted for comment a proposed resolution
of all complaints against the CPST currently pending against cable systems owned
by the Company. If the proposed resolution is accepted by the FCC, the Company
will settle all pending complaints by a one-time credit to each subscriber in
CPST regulated franchises. The aggregate amount of such credits is
approximately $9 million and had previously been accrued by the Company. In
addition, the FCC will find that the CPST rates in CPST regulated franchises on
September 15, 1995 comply with federal regulations. The Company has committed
not to file any additional cost-of-service filings until May 15, 1996 in
franchises that were subject to CPST regulation prior to September 15, 1995.
However, the Company will be able to avail itself of the other mechanisms under
FCC rules to recover costs, including abbreviated cost-of-service filings
covering system rebuilds and upgrades. In the proposed resolution, the Company
does not admit any violation of, or any failure to conform to, the 1992 Cable
Act or the rules promulgated thereunder. The comment period has ended and the
Company is awaiting final action by the FCC.

On February 8, 1996, the Telecommunications Act of 1996 (the "1996
Telecom Act") was signed into law. Because the 1996 Telecom Act does not
deregulate CPST rates until 1999 (and basic service tier rates will remain
regulated thereafter), the Company believes that the 1993 and 1994 rate
regulations have had and will continue to have a material adverse effect on its
results of operations.

Revenue from Cable and Communications increased 26% from 1994 to 1995.
Such increase is due to the effect of certain acquisitions (13%), growth in the
Company's satellite subscribers (4%), increases in the rates charged to the
Company's subscribers from inflation increases, the provision of new channels
and increases in equipment costs (4%), growth in subscriber levels within the
Company's cable television systems (4%) and an increase in the Company's long-
distance voice and data service revenue (1%).

Revenue increased 2% from 1993 to 1994. Such increase was the result
of the TCI/Liberty Combination in August of 1994 (1%), growth in subscriber
levels within the Company's cable television systems (5%), the effect of
certain other acquisitions (2%) and certain new services (1%), net of a
decrease in revenue (4%) due to rate reductions required by rate regulation
implemented pursuant to the 1992 Cable Act and a decrease in revenue (3%) due
to the transfer of Netlink USA ("Netlink") to the Programming unit in the
Reorganization. Netlink's operations were included in Cable and Communications
Services in 1993, but have been reflected in Programming Services for all of
1994 and 1995. In the second half of 1994, as a result of the FCC revision of
its rate regulations which reduced benchmark rates, the Company experienced an
additional decrease, in excess of that which was incurred in 1993, in the price
charged for its Regulated Services.

Included in the Company's revenue from cable operations of $5,105
million, $4,203 million and $4,098 million for the years ended December 31,
1995, 1994 and 1993, respectively, is $5,038 million, $4,177 million and $4,098
million attributable to TCIC and $67 million, $26 million and $0 attributable
to other cable operations.

F-6

<PAGE> 154
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Operating costs and expenses before depreciation and amortization
increased 40% for the year ended December 31, 1995. Exclusive of the effects
of acquisitions (13%) and Primestar (7%) (see discussion below), such expenses
increased 20%. Programming expenses accounted for the majority of such
increase. In this regard, programming expenses represented $1,251 million
(36%), $903 million (36%) and $740 million (32%) of operating costs and
expenses before depreciation and amortization during 1995, 1994 and 1993,
respectively. The Company cannot determine whether and to what extent
increases in the cost of programming will affect its future operating costs.
However, such programming costs have increased at a greater percentage than
increases in revenue of Regulated Services. The Company will experience an
increase in programming costs in the first five months of 1996 without
increasing its rates charged to its customers at that time. In June of 1996,
the Company will be entitled to an increase in its service rates for increased
programming costs and inflation. FCC regulations provide for the Company to
further increase its rates by an additional amount intended to recover
increased programming costs incurred during the first five months of 1996 and
not previously recovered, as well as interest on said amounts.

During 1995, the Company changed its approach to how it ordered and
stored excess cable distribution equipment. The Company created material
support centers and consolidated all of its excess inventory. In conjunction
with this change, the Company incurred $5 million of costs. Additionally,
during 1995, the Company incurred approximately $22 million in expenses related
to initiatives to improve its customer service, to begin the redesign of its
computer and accounting systems and to promote and market the Company's
products. During the fourth quarter of 1995, the Company incurred $25 million
in expenses related to payment of bonuses to the majority of its employees.

The Company has an investment in a direct broadcast satellite
partnership, Primestar Partners ("Primestar"). Primestar provides programming
and marketing support to each of its cable partners who then provide satellite
service to their customers. During 1995, the Company's revenue and expenses
related to such satellite service have increased significantly as the number of
the Company's Primestar subscribers increased from approximately 100,000
subscribers at January 1, 1995 to approximately 550,000 subscribers at December
31, 1995. During the year ended December 31, 1995, revenue increased from $30
million to $207 million and operating, selling, general and administrative
expenses increased from $18 million to $197 million, as compared to the year
ended December 31, 1994. The Company incurs significant sales commissions and
installation costs when customers initially subscribe. Therefore, as long
as the Company continues to launch this new service and increase its Primestar
subscriber base at such a rapid pace, management expects operating costs and
expenses will increase as well.

Operating costs and expenses before depreciation and amortization
increased 6% for the year ended December 31, 1994 compared to the corresponding
period of 1993. The consolidation of Liberty resulted in an increase of $18
million in operating, selling, general and administrative expenses from
Liberty's cable television systems. In 1993, the Company incurred certain
one-time direct charges relating to the implementation of the FCC rate
regulations.

The increase in the Company's depreciation expense in 1995 is due to
acquisitions, as well as increased capital expenditures due to a program to
upgrade and install optical fiber technology in the Company's cable systems.
The systems, which facilitate digital transmission of voice, video and data
signals, will have optical fiber to neighborhood nodes with coaxial cable
distribution downstream from that point. The increase in amortization expense
in 1995 is due to acquisitions.

F-7

<PAGE> 155
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.

Electronic Retailing Services

This information reflects the results of Home Shopping Network, Inc.
("HSN"), which became a consolidated subsidiary of the Company in the
TCI/Liberty Combination. HSN's primary business is the sale of merchandise to
viewers of the home shopping programming produced and distributed by Home
Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of HSN.

During the year ended December 31, 1995, HSN's net sales increased
from $482 million to $1,019 million. Such increase is due to the consolidation
of HSN in August of 1994 in connection with the TCI/Liberty Combination.
However, on an annualized basis, HSN's net sales decreased approximately 10%.
Such annualized decrease is the net affect of a 19% decease in the number of
packages shipped, partially offset by a 9% increase on the average price per
unit sold.

In September 1994, HSN appointed new management personnel to institute
procedures intended to improve purchasing and other merchandising practices.
Their strategies included offering a greater variety of products, developing
strong private label lines, selling higher margin items and offering name brand
and other high quality merchandise. These efforts were aimed at long-term
improvements in sales by attracting new customers and increasing the frequency
of repeat purchases. However, the impact of these strategies was to adversely
affect sales during 1995.

Since June 5, 1995, HSN has operated two full-time networks renamed
HSN, the primary network, and Spree!. On August 5, 1995, HSN relaunched the
HSN network with more scheduled programs and theme related shows, new sets,
graphics and music. During the third quarter of 1995, HSN relaunched the
Spree! network with a more spontaneous format, new graphics and music. These
changes were designed to eliminate programming redundancies, distinguish the
networks and reach a broader range of potential customers.

Management of HSN also instituted promotional programs to help
increase sales, including a national advertising campaign and a "no interest --
no payments" credit promotion through February 1996 for certain purchases made
during the third and fourth quarters of 1995 using HSN's private label credit
card. Although the credit promotion program was successful, its effect was not
enough to offset the decline in sales discussed above.

Additionally, $4 million of the restructuring charges for the year
ended December 31, 1995, represents HSN management's estimate of costs to be
incurred in connection with the closing of HSN's Reno, Nevada, distribution
center, which was accomplished in June 1995. The decision to close the Reno
distribution center was based on an evaluation of HSN's overall distribution
strategy. Management of HSN believes that consolidation of HSN's distribution
facilities will result in better operating efficiencies and improved service
to customers.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

HSN's cost of sales increased from $313 million to $702 million during
1995. As a percent of sales, cost of sales increased from 65% in 1994 to 69%
in 1995. The increase in the cost of sales percentages primarily relate to
warehouse sales and other promotional events. Such events included price
discounts to (i) facilitate the restructuring of HSN's distribution center,
(ii) make room for new holiday merchandise and (iii) adjust inventory levels
and product mix. In addition, cost of sales for the year ended December 31,
1995 includes a $12 million increase in HSC's inventory carrying value
adjustment related to products which are inconsistent with HSN's new sales and
merchandise philosophy.

HSN believes that future levels of net sales of HSC will be dependent,
in large part, on program carriage, market penetration and merchandising
management. Program carriage is defined as the number of cable systems and
broadcast television stations that carry HSC programming. Market penetration
represents the level of active purchasers within a market.

Cable television systems and affiliated broadcast television stations
broadcast HSC programming under affiliation agreements with varying original
terms. HSN seeks to increase the number of cable television systems and
broadcast television stations that televise HSC programming while evaluating
the expected profitability of each contract.

HSN believes that seasonality does impact its business, but not to the
same extent it impacts the retail industry in general.

On November 27, 1995, the Company announced that it had agreed to
exchange its controlling interest in HSN for shares of Silver King
Communications, Inc. ("Silver King"). The Company will receive approximately
11 million newly issued shares of Silver King in exchange for its 37.5 million
shares of HSN.

Liberty Media Group and Mr. Barry Diller and certain of their
respective affiliates entered into an agreement in August 1995 pursuant to
which an option owned by Liberty Media Group to purchase 2 million shares of
Silver King Class B common stock (the "Option") (which shares would constitute
voting control of Silver King) would be transferred to Silver Management
Company ("Silver Company"), an entity in which Liberty Media Group would own
all of the non-voting equity interests (which would constitute substantially
all of the equity of such entity) and Mr. Diller would own all of the voting
equity interests. Silver Company would thereafter exercise the Option and hold
the shares of Silver King Class B Common Stock purchased thereunder. In an
amendment to such agreement entered into in November 1995, Liberty Media Group
agreed to contribute all of its shares of HSN (which shares constitute
approximately 41% of the equity of HSN and approximately 90% of the voting
power of HSN) to Silver Company in return for additional non-voting equity
interests in Silver Company. Following such contribution, Silver Company would
exchange such HSN shares with Silver King for additional shares of Silver King
Common Stock and Class B Common Stock (thereby increasing Silver Company's
controlling interest in Silver King to in excess of 80% of the voting power of
Silver King). Each such transaction is subject to the satisfaction of certain
conditions, including the receipt of all necessary regulatory consents and
approvals. If consummated, HSN would cease to be a subsidiary of the Company
and therefore, the financial results of HSN would not be consolidated with the
financial results of Liberty Media Group. Although the Company would cease to
possess voting control over HSN, it would continue to have an indirect equity
interest in HSN through its ownership of the equity securities of Silver
Company. No assurance can be given that the transaction will be consummated.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Other Programming Services

Revenue from the Company's Other Programming Services increased $281
million or 117% from 1994 to 1995, and operating costs and expenses before
depreciation and amortization increased $261 million or 113%. Such increases
are primarily due to the TCI/Liberty Combination.

Revenue of TCI's consolidated entertainment and information
programming services represented $240 million of total consolidated revenue for
1994. This revenue was attributable to subscription and advertising revenue at
TCI's consolidated sports programming businesses ($91 million), revenue from
Netlink, a marketer and distributor of programming to the United States home
satellite dish subscriber market ($132 million) and subscription revenue
generated by Southern Satellite Systems, Inc. ("Southern") and Encore Media
Corporation ("Encore") ($17 million).

On October 31, 1995, Liberty Media Group announced that it had entered
into a binding agreement in principle with The News Corporation Limited ("News
Corp.") and TINTA. In the United States, Liberty Media Group and News Corp.
agreed to form a partnership (the "Fox-Liberty Venture") into which Liberty
Media Group will contribute interests in its national and regional sports
networks and into which News Corp. will contribute its fx cable network and
certain other assets. Upon consummation, Liberty Media Group will receive a 50%
interest in the Fox-Liberty Venture and $350 million in cash. The fx Network
will be transformed into a nationally distributed, general entertainment and
sports network. The regional sports networks currently operated under the Prime
Sports name will be relaunched under the Fox Sports banner.

Internationally, News Corp., and a 50/50 partnership formed by Liberty
Sports, a wholly owned subsidiary of Liberty Media Group, and TINTA (the
"Liberty-TINTA Partnership") have agreed to form a venture to operate currently
existing sports services in Asia, Latin American and Australia and a variety of
new sports services throughout the world except in the United Kingdom, Japan
and New Zealand where prior arrangements preclude an immediate collaboration.
The Liberty-TINTA Partnership will own 50% of the international venture with
News Corp. owning the other 50%. News Corp. is contributing various
international sports rights, including the Star Sports channel which is
broadcast throughout Asia as part of the Star package of services. The
Liberty-TINTA Partnership is contributing Prime Deportiva, a Spanish language
sports service distributed in Latin America and in Hispanic markets in the
United States, an interest in Torneos y Competencias S.A., an Argentinean
sports programming and production business, various international sports and
satellite transponder rights and cash. The Liberty-TINTA Partnership will also
contribute their 50% interest in Premiere Sports and All-Star Sports in
Australia. Both are 24-hour sports services available via MMDS or cable
television in Australia.

The closing of the formation of both the US Venture and the
International Venture is expected to occur during 1996.

Other Income and Expense

The Company's interest expense increased $225 million or 29% during
1995, as compared to 1994 and $54 million or 7% during 1994, as compared to
1993. Such increases are the result of higher interest rates and debt
balances. The Company's weighted average interest rate on borrowings was 8.1%,
7.5% and 7.2% during 1995, 1994 and 1993, respectively.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

The Company is a shareholder of TeleWest plc ("TeleWest"), a company
that is currently operating and constructing cable television and telephone
systems in the United Kingdom ("UK"). TeleWest, which is accounted for under
the equity method, had a carrying value at December 31, 1995 of $550 million
and comprised $70 million, $43 million and $28 million of the Company's share
of its affiliates' losses in 1995, 1994, and 1993, respectively. In addition,
the Company has other less significant equity method investments in video
distribution and programming businesses located in the UK, other parts of
Europe, Asia, Latin America and certain other foreign countries. In the
aggregate, such other equity method investments had a carrying value of $354
million at December 31, 1995 and accounted for $62 million and $50 million of
the Company's share of its affiliates' losses in 1995 and 1994, respectively.

TeleWest was formed during the fourth quarter of 1995 upon the merger
(the "TeleWest Merger") of TeleWest Communications plc (formerly TCI/US WEST
Cable Communications Group or "TeleWest UK") ("TeleWest Communications") with
SBC (CableComms)(UK). Prior to the TeleWest Merger, the Company had an
effective ownership interest of approximately 36% in TeleWest Communications,
and subsequent to the TeleWest Merger the Company has an effective ownership
interest of approximately 27% in TeleWest. As a result of the TeleWest Merger,
the Company recognized a gain of $165 million (before deducting the related tax
expense of $58 million). Such gain represents the difference between the
Company's recorded cost for TeleWest Communications and the Company's effective
proportionate share of TeleWest's net assets. There is no assurance that the
Company will realize similar gains in future periods.

As a result of the TeleWest Communications November 1994 initial
public offering (the "TeleWest IPO") and the associated dilution of the
Company's ownership interest of TeleWest Communications, the Company recognized
a gain amounting to $161 million (before deducting the related tax expense of
$57 million) in 1994.

TeleWest, which is currently constructing broadband cable television
and telephony networks in the UK, has incurred net losses since its inception.
Although there is no assurance, the Company believes (i) that the continued
expansion of TeleWest's networks ultimately will provide TeleWest with a
revenue base that will exceed its expenses and (ii) that TeleWest's present and
future sources of liquidity (including the net proceeds from the TeleWest IPO
and certain bank credit facilities) will be sufficient to meet TeleWest's
liquidity requirements for the foreseeable future. The Company has no present
intention to make significant loans to or investments in TeleWest.

During the year ended December 31, 1995, the Company recognized a gain
amounting to $123 million in connection with the sale to the public of 20
million shares of common stock (the "IPO") and the issuance of shares of common
stock for an investment in an Argentine programming entity (the "TYC
Acquisition") by TINTA. There is no assurance that the Company will realize
similar gains in future periods.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Effective February 9, 1995, QVC Programming Holdings, Inc. (the
"Purchaser"), a corporation jointly owned by Comcast Corporation and the
Company, was merged (the "QVC Merger") with and into QVC, Inc. ("QVC") with QVC
continuing as the surviving corporation. The Company owns an approximate 43%
interest of the post-merger QVC. Upon consummation of the QVC Merger, the
Company was deemed to exercise significant influence over QVC and, accordingly,
adopted the equity method of accounting for its investment in QVC. The
accompanying 1994 financial statements have been restated to reflect such
change in accounting. Such restatement resulted in an increase in the
Company's net earnings of $5 million for the year ended December 31, 1994.

During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its
own common stock. As a result of the repurchase, the Company's ownership of
BET was increased from 19% to 22%. Therefore, the Company is deemed to
exercise significant influence over BET and, has accordingly adopted the equity
method of accounting for its investment in BET. The accompanying 1994 and 1993
financial statements have been restated to reflect such change in accounting.
Such restatement resulted in an increase in the Company's net earnings of $2
million for each of 1994 and 1993.

On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased
49.9% of Liberty's 50% general partnership interest in American Movie Classics
Company ("AMC"). The gain recognized by Liberty in connection with the
disposition of AMC was $183 million and is included in the Company's share of
Liberty's earnings prior to the TCI/Liberty Combination.

Net Earnings (Loss)

The Company's net loss (before preferred stock dividend requirements)
of $171 million for the year ended December 31, 1995 represented a decrease of
$233 million as compared to the Company's net earnings (before preferred stock
dividend requirements) of $62 million for 1994. Such decrease is due primarily
to a decrease in operating income, a decrease in share of earnings of
affiliates (a significant portion of which results from the gain recognized in
1994 by Liberty upon the sale of its investment in AMC), and an increase in
interest expense partially offset by the recognition of a gain resulting from
the TINTA IPO.

The Company's net earnings (before preferred stock dividend
requirements) of $62 million for the year ended December 31, 1994 represented
an increase of $67 million as compared to the Company's net loss (before
preferred stock dividend requirements) of $5 million for the corresponding
period of 1993. Such increase is principally the result of the effect of
improved share of earnings from Liberty prior to the TCI/Liberty Combination
(principally resulting from the gain recognized by Liberty upon the sale of its
investment in AMC), the recognition of a gain resulting from the TeleWest IPO,
and the reduction in income tax expense (principally resulting from the
required recognition in the third quarter of 1993 of the cumulative effect of
the change in the Federal income tax rate from 34% to 35%), net of the effect
of the aforementioned reduction in rates charged for Regulated Services and the
decrease in gain on disposition of assets.

Inflation has not had a significant impact on the Company's results of
operations during the three-year period ended December 31, 1995.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Recent Accounting Pronouncements

In March of 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of ("Statement No. 121"), effective for fiscal years beginning after
December 15, 1995. Statement No. 121 requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement No. 121 effective January 1, 1996. The
effect of such adoption is not expected to be significant.

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the FASB in
October 1995. Statement No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans as well as transactions
in which an entity issues its equity instruments to acquire goods or services
from non-employees. The Company will include the disclosures required by
Statement No. 123 in the notes to future financial statements.

Liquidity and Capital Resources

During 1994, subsidiaries of the Company, Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox" and together with the Company and
Comcast, the "Cable Partners") and Sprint Corporation ("Sprint") formed a
partnership ("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo, in which
the Company owns an indirect 30% interest, the partners participated in
auctions ("PCS Auctions") of broadband personal communications services ("PCS")
licenses conducted by the FCC. In the first round auction, which concluded
during the first quarter of 1995, WirelessCo was the winning bidder for PCS
licenses for 29 markets, including New York, San Francisco-Oakland-San Jose,
Detroit, Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-
Fort Lauderdale. The aggregate license cost for these licenses was
approximately $2.1 billion.

WirelessCo also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and agreed to make capital contributions to APC
equal to 49/51 of the cost of APC's PCS license. Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license. WirelessCo may also be required to finance the
build-out expenditures for APC's PCS system. Cox, which holds a pioneer
preference PCS license for the Los Angeles-San Diego market, and the Company,
Comcast and Sprint have also agreed on the general terms and conditions upon
which Cox (with a 51% interest) and WirelessCo (with a 49% interest) would form
a partnership to hold and develop a PCS system using the Los Angeles-San Diego
license. APC and the Cox partnership would affiliate their PCS systems with
WirelessCo and be part of WirelessCo's nationwide integrated network, offering
wireless communications services under the "Sprint" brand.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.

WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.

In March of 1995, the Cable Partners and Sprint ( collectively, the
"Partners") formed two new partnerships, of which the principal partnership is
currently known as Sprint Spectrum Holding Company, L.P. ("Sprint Spectrum"), to
which they contributed their respective interests in WirelessCo and through
which they formed another partnership, NewTelco, L.P. ("New Telco") to engage in
the business of providing local wireline communications services to residences
and businesses on a nationwide basis. The Cable Partners agreed to contribute
their interests in Teleport Communications Group, Inc. and TCG Partners
(collectively, "TCG") to NewTelco. TCG is one of the largest competitive access
providers in the United States in terms of route miles.

Effective January 31, 1996, the Partners amended the Sprint Spectrum
partnership agreement (the "Partnership Agreement") and certain other agreements
related thereto. Under the Partnership Agreement, the business of Sprint
Spectrum and its subsidiaries will be the provision of certain wireless and
other services described in the Partnership Agreement. The Partners intend for
Sprint Spectrum and its subsidiary partnerships to be the exclusive vehicles
through which they engage in the wireless telephony service businesses, subject
to certain exceptions. Sprint Spectrum will no longer be authorized to engage
in the business of providing local wireline communications services to
residences and businesses. In connection with the amendment of the Partnership
Agreement, the Partners, also agreed to the termination of the agreement to
contribute the Cable Partners' interests in TCG to NewTelco.

Pursuant to separate agreements, each of the Cable Partners and Sprint
have agreed to negotiate in good faith on a market-by-market basis for the
provision of local wireline telephony services over the cable television
facilities of the respective Cable Partner under the Sprint brand. Accordingly,
local wireline telephony offerings in each market would be the subject of
individual agreements to be negotiated with Sprint, rather than being provided
by Sprint Spectrum, as originally contemplated. The Cable Partners and Sprint
also reaffirmed their intention to continue to attempt to integrate the business
of TCG with that of Sprint Spectrum. In addition, each Cable Partner agreed to
certain restrictions on its ability to offer, promote, or package certain of its
products or services with certain products and services of other persons and
agreed to make its facilities available to Sprint for specified purposes to the
extent and on the terms that it has made such facilities available to others for
such purposes. Such agreements have a term of five years, but under certain
circumstances may terminate after three years.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out of Sprint
Spectrum's nationwide network for wireless personal communications services.
Pursuant to the business plan, the Partners are obligated to make additional
cash capital contributions to Sprint Spectrum in the aggregate amount of
approximately $1.9 billion during the two-year period that commenced January 1,
1996. The business plan contemplates that Sprint Spectrum will require
additional equity thereafter.

As of January 26, 1995, TCI, TCIC, and TeleCable Corporation
("TeleCable") consummated a transaction whereby TeleCable was merged into TCIC
(the "TeleCable Merger"). The aggregate $1.6 billion purchase price was
satisfied by TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of approximately 42
million shares of TCI Class A common stock and 1 million shares of TCI
Convertible Preferred stock, Series D (the "Series D Preferred Stock") with an
aggregate initial liquidation value of $300 million. The Series D Preferred
Stock, which accrues dividends at a rate of 5.5% per annum, is convertible into
10 million shares of Series A TCI Group Stock and 2.5 million shares of Series
A Liberty Group Stock. The Series D Preferred Stock is redeemable for cash at
the option of TCI after five years and at the option of either TCI or the
holder after ten years.

On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision S.A. and certain affiliated companies (collectively, "Cablevision")
for a purchase price of $282 million, before liabilities assumed. The purchase
price was paid with cash consideration of $195 million and TINTA's issuance of
$87 million principal amount of secured negotiable promissory notes payable to
the selling shareholders. TINTA has an option during the two-year period ended
April 25, 1997 to increase its ownership interest in Cablevision up to 80% at a
cost per subscriber similar to the initial purchase price, adjusted however for
certain fluctuations in applicable foreign currency exchange rates.

In July 1995, TCIC and TCI, entered into certain agreements with
Viacom Inc. ("Viacom") and certain subsidiaries of Viacom regarding the
purchase by TCIC of all of the common stock of a subsidiary of Viacom ("Cable
Sub") which, at the time of purchase, will own Viacom's cable systems and
related assets.

The transaction has been structured as a tax-free reorganization in
which Cable Sub will initially transfer all of its non-cable assets, as well as
all of its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub will also transfer to New Viacom Sub the
proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan
Facility") to be arranged by TCIC, TCI and Cable Sub. Following these
transfers, Cable Sub will retain cable assets with an estimated value at
closing of approximately $2.2 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Repayment of the Loan Proceeds
will be non-recourse to Viacom and New Viacom Sub.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Viacom will offer to the holders of shares of Viacom Class A Common
Stock and Viacom Class B Common Stock (collectively, "Viacom Common Stock") the
opportunity to exchange (the "Exchange Offer") a portion of their shares of
Viacom Common Stock for shares of Class A Common Stock, par value $100 per
share, of Cable Sub ("Cable Sub Class A Stock"). The Exchange Offer will be
subject to a number of conditions, including a condition (the "Minimum
Condition") that sufficient tenders are made of Viacom Common Stock that permit
the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange
Offer to equal the total number of shares of Cable Sub Class A Stock issuable
in the Exchange Offer.

Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B common stock for $350
million (which will be used to reduce Cable Sub's obligations under the Loan
Facility). At the time of such acquisition, the Cable Sub Class A Stock
received by Viacom stockholders pursuant to the Exchange Offer will
automatically convert into a series of senior cumulative exchangeable preferred
stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of
$100 per share (the "Stated Value"). The terms of the Exchangeable Preferred
Stock, including its dividend, redemption and exchange features, will be
designed to cause the Exchangeable Preferred Stock, in the opinion of two
investment banks, to initially trade at the Stated Value. The Exchangeable
Preferred Stock will be exchangeable, at the option of the holder commencing
after the fifth anniversary of the date of issuance, for shares of Series A TCI
Group Stock. The Exchangeable Preferred Stock will also be redeemable, at the
option of Cable Sub, after the fifth anniversary of the date of issuance, and
will be subject to mandatory redemption on the tenth anniversary of the date of
issuance at a price equal to the Stated Value per share plus accrued and unpaid
dividends, payable in cash or, at the election of Cable Sub, in shares of
Series A TCI Group Stock or in any combination of the foregoing. If
insufficient tenders are made by Viacom stockholders in the Exchange Offer to
permit the Minimum Condition to be satisfied, Viacom will extend the Exchange
Offer for up to 15 business days and, during such extension, TCI and Viacom are
to negotiate in good faith to determine mutually acceptable changes in the
terms and conditions for the Exchangeable Preferred Stock and the Exchange
Offer that each believes in good faith will cause the Minimum Condition to be
fulfilled and that would cause the Exchangeable Preferred Stock to trade at a
price equal to the Stated Value immediately following the expiration of the
Exchange Offer. In the event the Minimum Condition is not thereafter met, TCI
and Viacom will each have the right to terminate the transaction. In addition,
either party may terminate the transaction if the Exchange offer has not
commenced by June 24, 1996 or been consummated by July 24, 1996.

Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue
Service that the transaction qualifies as a tax-free transaction and the
satisfaction or waiver of all of the conditions of the Exchange Offer. A
request for a letter ruling from the Internal Revenue Service has been filed by
Viacom. The Company believes that, based upon the unique and complex structure
of the transaction, there exists significant uncertainty as to whether a
favorable ruling will be obtained. In light of the foregoing, management of
the Company has concluded that consummation of the transaction is not yet
probable. Accordingly, no assurance can be given that the transaction will be
consummated.

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

At December 31, 1995, Cable Sub provided service to approximately 1.2
million basic subscribers and had total assets of $1,067 million. For the year
ended December 31, 1995, Cable Sub had revenue of $442 million and net earnings
of $34 million. It is expected that if the transaction is consummated, the
Company would account for such acquisition under the purchase method of
accounting. Accordingly, the cost to acquire Cable Sub estimated at
approximately $2.2 billion (reflecting the Loan Proceeds of $1.7 billion and
the estimated aggregate Stated Value of the Exchangeable Preferred Stock of
$500 million) would be allocated to the assets and liabilities acquired
according to their respective fair values, with any excess being treated as
intangible assets. As such, the Company will, if such transaction is
consummated, reflect additional interest expense, depreciation, amortization
and minority share of losses of consolidated subsidiaries. On a pro forma
basis, if the transaction had been consummated under its current terms on or
before January 1, 1995, Cable Sub would have reflected loss before taxes of
approximately $51 million for the year ended December 31, 1995. On a pro forma
basis, Cable Sub would reflect an approximate $21 million of preferred stock
dividend requirements on an annual basis assuming, solely for the purpose of
this presentation, a dividend rate of 4.25% per annum on the Exchangeable
Preferred Stock. On a pro forma basis, the Company would reflect the foregoing
financial impacts of Cable Sub in its consolidated results of operations except
that the preferred stock dividend requirement of Cable Sub would be reflected
as minority interest in the Company's statement of operations and the Company
would incur an additional approximately $28 million of interest expense per
year arising from the assumed borrowing by the Company for its $350 million
capital contribution to Cable Sub.

The Company owns shares of common stock and preferred stock of Turner
Broadcasting System, Inc. ("TBS"). On September 22, 1995, the boards of
directors of Time Warner and TBS approved plans to merge their respective
companies (the "TBS/Time Warner Merger"). Under the terms of the agreement,
TBS shareholders will receive 0.75 of a Time Warner common share for each TBS
Class A and Class B common share. Each holder of TBS Class C preferred stock
will receive 0.80 of a Time Warner common share for each of the 6 shares of TBS
Class B common stock into which each of the shares of Class C preferred stock
may be converted.

Subject to certain conditions, the Company has agreed to vote its TBS
shares for the TBS/Time Warner Merger. The Time Warner shares of common stock
received by the Company will be exchanged immediately for a series of voting
common stock ("Time Warner Series Common Stock") economically equivalent to the
common stock and placed in a voting trust with Time Warner Chairman, Gerald M.
Levin, as the trustee.

In connection with the TBS/Time Warner Merger, TBS has agreed to sell
its interest in SportSouth Network, L.P. ("SportSouth"), a regional sports
cable network, to the Company for approximately $60 million; and Time Warner
has agreed to issue shares of Time Warner Series Common Stock economically
equivalent to 5 million shares of Time Warner common stock to the Company in
exchange for a 6-year option to purchase Southern. Time Warner has also agreed
to issue additional shares of Time Warner Series Common Stock to the Company
having a market value of $160 million in the event Time Warner exercised such
option. Any shares of Time Warner common stock issuable in connection with the
Southern option will be exchanged for Time Warner Series Common Stock.
Additionally, Time Warner will grant the Company an option to purchase Time
Warner's interest in Sunshine Network, a Florida based sports cable network,
for $14 million.

F-17

<PAGE> 165
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

The TBS/Time Warner Merger is subject to, among other things, approval
by the FCC and regulatory review by federal antitrust authorities, and approval
by the shareholders of TBS and Time Warner. It is expected to be completed in
1996.

Pursuant to an underwritten public offering, the Company sold
19,550,000 shares of TCI Class A common stock in February of 1995. The Company
received net proceeds of approximately $401 million. Such proceeds were
immediately used to reduce outstanding indebtedness under credit facilities.

On July 18, 1995, TINTA completed the IPO in which it sold 20 million
shares of TINTA Series A common stock to the public for aggregate consideration
of $320 million, before deducting related expenses (approximately $19 million).
TINTA used the IPO proceeds to repay debt of the Company ($177 million) and
fund acquisitions, operations and capital contributions.

During the year ended December 31, 1995, TCIC sold approximately $1.5
billion of publicly-placed fixed rate senior and medium term notes with interest
rates ranging from 6.8% to 8.8% and maturity dates ranging through 2015. The
proceeds from the sale of these notes were used primarily to repay variable-rate
bank debt.

Subsequent to December 31, 1995, TINTA issued $345 million (before
deducting offering costs of $9 million) of 4.5% convertible subordinated
debentures. TINTA anticipates that it will use the net proceeds to fund
capital contributions to certain of its equity investees.

Also, subsequent to December 31, 1995, the Company, through certain
subsidiaries, issued (i) 4.6 million shares of Cumulative Exchangeable
Preferred Stock for net cash proceeds of $223 million, (ii) 20 million
preferred securities of 8.72% Trust Originated Preferred Securities for net
cash proceeds of $486 million (through a special purpose entity formed as a
Delaware business trust) and (iii) $1 billion of publicly-placed fixed rate
senior and medium term notes with interest rates ranging from 6.9% to 7.9% and
maturity dates ranging through 2026. The Company used the proceeds from the
aforementioned debt and equity securities to retire overnight commercial paper
and to repay variable rate indebtedness.

The Company has a credit facility which matures in September of 1996.
The outstanding balance of such facility was $602 million at December 31, 1995.
The Company currently anticipates that it will refinance such borrowings but
there can be no assurance that it can do so on terms acceptable to the Company.

F-18

<PAGE> 166
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

The Company is a holding company and its assets consist almost
entirely of investments in its subsidiaries. As a holding company, the
Company's ability to pay dividends on any classes or series of preferred stock
is dependent on the earnings of, or other funds available to, the Company's
subsidiaries and the distribution or other payment of such earnings or other
funds to the Company in the form of dividends, loans or other advances, payment
or reimbursement of management fees and expenses and repayment of loans and
advances from the Company. The Company's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
the dividends on any class or series of preferred stock of TCI or to make any
funds available therefor, whether by dividends, loans or other payments. The
payment of dividends or the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or regulatory restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. Further, certain of the Company's subsidiaries are
subject to loan agreements that prohibit or limit the transfer of funds by such
subsidiaries to the Company in the form of dividends, loans, or advances, and
require that such subsidiaries' indebtedness to the Company be subordinate to
the indebtedness under such loan agreements. The amount of net assets of
subsidiaries subject to such restrictions exceeds the Company's consolidated
net assets. The Company's subsidiaries currently have the ability to transfer
funds to the Company in amounts exceeding the Company's dividend requirement on
any class or series of preferred stock. Net cash provided by operating
activities of subsidiaries which are not restricted from making transfers to
the parent company have been and are expected to continue to be sufficient to
enable the parent company to meet its cash obligations.

Moreover, almost all of the consolidated liabilities of the Company
have been incurred by its subsidiaries. Therefore, the Company's rights, and
the extent to which the holders of the Company's preferred stocks will be able
to participate in the distribution of assets of any subsidiary upon the
latter's liquidation or reorganization, will be subject to prior claims of the
subsidiary's creditors, including trade creditors, except to the extent that
the Company may itself be a creditor with recognized claims against such
subsidiary (in which case the claims of the Company would still be subject to
the prior claims of any secured creditor of such subsidiary and of any holder
of indebtedness of such subsidiary that is senior to that held by the Company).

Subsidiaries of the Company had approximately $2.5 billion in unused
lines of credit at December 31, 1995 excluding amounts related to lines of
credit which provide availability to support commercial paper. Although
subsidiaries of the Company were in compliance with the restrictive covenants
contained in their credit facilities at said date, additional borrowings under
the credit facilities are subject to the subsidiaries' continuing compliance
with such restrictive covenants (which relate primarily to the maintenance of
certain ratios of cash flow to total debt and cash flow to debt service, as
defined in the credit facilities) after giving effect to such additional
borrowings. See note 9 to the accompanying consolidated financial statements
for additional information regarding the material terms of the subsidiaries'
lines of credit.

F-19

<PAGE> 167
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and other non-cash
operating credits or charges)($1,975 million, $1,798 million and $1,858 million
in 1995, 1994 and 1993, respectively) to interest expense ($1,010 million, $785
million and $731 million in 1995, 1994 and 1993, respectively), is determined
by reference to the consolidated statements of operations. The Company's
interest coverage ratio was 196%, 229% and 254% for 1995, 1994 and 1993,
respectively. The decrease in the Company's interest coverage in 1995 is
caused by increased interest expense due to higher interest rates and debt
levels in 1995. Management of the Company believes that the foregoing interest
coverage ratio is adequate in light of the consistency and nonseasonal nature
of its cable television operations and the relative predictability of the
Company's interest expense, almost half of which results from fixed rate
indebtedness. Operating Cash Flow is a measure of value and borrowing capacity
within the cable television industry and is not intended to be a substitute for
cash flows provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should not be
relied upon as such. Operating Cash Flow, as defined, does not take into
consideration substantial costs of doing business, such as interest expense,
and should not be considered in isolation to other measures of performance.

Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying consolidated statements of cash
flows. Net cash provided by operating activities ($957 million, $908
million and $1,247 million in 1995, 1994 and 1993, respectively) reflects net
cash from the operations of the Company available for the Company's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Amounts expended
by the Company for its investing activities exceed net cash provided by
operating activities. However, management believes that net cash provided by
operating activities, the ability of the Company and its subsidiaries to obtain
additional financing (including the subsidiaries' available lines of credit and
access to public debt markets), issuances and sales of the Company's equity or
equity of its subsidiaries, and proceeds from disposition of assets will
provide adequate sources of short-term and long-term liquidity in the future.
See the Company's consolidated statements of cash flows included in the
accompanying consolidated financial statements.

In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements. At December 31, 1995, after considering the net effect of various
interest rate exchange agreements (see note 9 to the consolidated financial
statements) with notional amounts aggregating $1,918 million, the Company had
$6,002 million (or 45%) of fixed-rate debt with a weighted average interest
rate of 8.8% and $7,209 million (or 55%) of variable-rate debt with a weighted
average interest rate of 6.3%.

F-20

<PAGE> 168
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

Pursuant to the interest rate exchange agreements, the Company pays
(i) fixed interest rates ranging from 6.1% to 9.9% on notional amounts of $602
million at December 31, 1995 and (ii) variable interest rates on notional
amounts of $2,520 million at December 31, 1995. During the years ended
December 31, 1995, 1994 and 1993, the Company's net payments pursuant to its
fixed rate exchange agreements were $13 million, $26 million and $38 million,
respectively. During the years ended December 31, 1995, 1994 and 1993, the
Company's net receipts (payments) pursuant to its variable rate exchange
agreements were (less than $1 million), $36 million and $31 million,
respectively. The Company is exposed to credit losses for the periodic
settlements of amounts due under the interest rate exchange agreements in the
event of nonperformance by the other parties to the agreements. However, the
Company does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.

In connection with its investments in certain foreign entities, the
Company is exposed to unfavorable and potentially volatile fluctuations of the
U.S. dollar against the UK pound sterling ("L."), the Japanese yen ("Yen"), and
various other foreign currencies that are the functional currencies of the
Company's foreign subsidiaries and affiliates. Any increase (decrease) in the
value of the U.S. dollar against any foreign currency that is the functional
currency of an operating subsidiary or affiliate of TINTA will cause the
Company to experience unrealized foreign currency translation losses (gains)
with respect to amounts already invested in such foreign currencies. The
Company is also exposed to foreign currency risk to the extent that the Company
or its foreign subsidiaries and affiliates enter into transactions denominated
in currencies other than their respective functional currencies. Because the
Company generally views its foreign operating subsidiaries and affiliates as
long-term investments, the Company generally does not attempt to hedge existing
investments in its foreign affiliates and subsidiaries. With respect to
funding commitments that are denominated in currencies other than the U.S.
dollar, the Company historically has sought to reduce its exposure to
short-term (generally no more than 90 days) movements in the applicable
exchange rates once the timing and amount of such funding commitments becomes
fixed. Although the Company monitors foreign currency exchange rates with the
objective of mitigating its exposure to unfavorable fluctuations in such rates,
the Company believes that it is not possible or practical to completely
eliminate the Company's exposure to unfavorable fluctuations in foreign
currency exchange rates.

Approximately twenty-five percent of the franchises held by the
Company, involving approximately 4.4 million basic subscribers, expire within
five years. There can be no assurance that the franchises for the Company's
systems will be renewed as they expire, although the Company believes that its
cable television systems generally have been operated in a manner which
satisfies the standards established by the Cable Communications Policy Act of
1984 (the "1984 Cable Act"), as supplemented by the renewal provisions of the
1992 Cable Act, for franchise renewal. However, in the event they are renewed,
the Company cannot predict the impact of any new or different conditions that
might be imposed by the franchising authorities in connection with the
renewals. To date they have not varied significantly from the original terms.

F-21

<PAGE> 169
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

A significant competitive impact is expected from medium power and
higher power direct broadcast satellites ("DBS") that use high frequencies to
transmit signals that can be received by dish antennas much smaller in size
than traditional home satellite dishes ("HSDs"). Primestar distributes a
multi-channel programming service via a medium power communications satellite
to HSDs of approximately 3 feet in diameter. At December 31, 1995, Primestar,
through its partners, served an estimated 940,000 HSDs in the United States.
Two other DBS operators, DirecTV, a subsidiary of GM Hughes Electronics, and
United States Satellite Broadcasting, a subsidiary of Hubbard Broadcasting,
Inc., offer video services that can be received by HSDs that measure
approximately eighteen inches in diameter. Such DBS operators have the right
to distribute substantially all of the significant cable television programming
services currently carried by cable television systems. The competition from
DBS will likely continue to grow. One DBS operator is preparing to launch a
new DBS satellite. AT&T Corp. recently made a large investment in DirecTV, and
several other major companies are preparing to develop and operate high-power
DBS systems, including MCI Communications Corp. ("MCI") and News Corp. MCI
recently acquired rights to satellite frequencies for DBS in an FCC auction.

The 1996 Telecom Act eliminated the statutory and regulatory
restrictions that prevented telephone companies from competing with cable
operators for the provision of video services by any means. The 1996 Telecom
Act allows local telephone companies, including the regional bell operating
companies, to compete with cable television operators both inside and outside
their telephone service areas. The Company expects that it will face
substantial competition from telephone companies for the provision of video
services. The Company assumes that all major telephone companies have already
entered or soon will enter the business of providing video services. Most
major telephone companies have greater financial resources than the Company,
and the 1992 Cable Act ensures that telephone company providers of video
services will have access to all of the significant cable television
programming services. Additionally, the 1996 Telecom Act eliminates certain
federal restrictions on utility holding companies and thus frees all utility
companies to provide cable television services. The Company expects this
could result in another source of significant competition in the delivery of
video services.

The Company is upgrading and installing optical fiber technology in its
cable systems at a rate such that in approximately two years TCI anticipates
that it will be serving the majority of its customers with this technology. The
systems, which facilitate digital transmission of voice, video and data signals,
will have optical fiber to neighborhood nodes with coaxial cable distribution
downstream from that point. The Company made capital expenditures of $1,782
million in 1995 and the Company expects to expend similar amounts in 1996 to
provide for the continued rebuilding of its cable systems. However, such
proposed expenditures are subject to reevaluation based upon changes in the
Company's liquidity, including those resulting from rate regulation.

The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $222
million at December 31, 1995. Although there can be no assurance, management
of the Company believes that it will not be required to meet its obligations
under such guarantees, or if it is required to meet any of such guarantees,
that they will not be material to the Company.

F-22

<PAGE> 170
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993

The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion picture
studios through February 28, 2009 (the "Film Licensing Obligations"). The
aggregate minimum liability under certain of the license agreements is
approximately $414 million. The aggregate amount of the Film Licensing
Obligations under other license agreements is not currently estimable because
such amount is dependent upon certain variable factors. Nevertheless, the
Company's aggregate payments under the Film Licensing Obligations could prove
to be significant. Additionally, the Company has guaranteed up to $67 million
of similar license fee obligations of an affiliate.

The Company has committed to provide additional debt or equity funding
to certain of its affiliates. At December 31, 1995, such commitments
aggregated $95 million.

The Company intends to continue to develop its entertainment and
information programming services and has made certain financial commitments
related to the acquisition of programming. The Company's obligation for
certain sports program rights contracts as of December 31, 1995 was $448
million. Upon the formation of the Fox-Liberty Venture, of which there is no
assurance, the Company anticipates that such commitments will be transferred to
the Fox-Liberty Venture. In the event the Fox-Liberty Venture is not formed,
the Company expects that sufficient cash will be generated by the programming
services to satisfy these commitments. However, the continued development of
such services may require additional financing and it cannot be predicted
whether the Company will obtain such financing on terms acceptable to the
Company.

The Company's various partnerships and other affiliates accounted for
under the equity method generally fund their acquisitions, required debt
repayments and capital expenditures through borrowings under and refinancing of
their own credit facilities (which are generally not guaranteed by the Company)
and through net cash provided by their own operating activities.

The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Amounts expended for acquisitions and capital expenditures exceed net cash
provided by operating activities.

F-23

<PAGE> 171
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We have audited the accompanying consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Communications, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Denver, Colorado
March 18, 1996

F-24

<PAGE> 172
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 1995 and 1994

<TABLE>
<CAPTION>
1995 1994 *
-------- --------
Assets amounts in millions
- ------
<S> <C> <C>
Cash $ 118 74

Trade and other receivables, net 407 301

Inventories, net 104 121

Prepaid expenses 65 36

Prepaid program rights 47 24

Committed film inventory 122 58

Investments in affiliates, accounted for
under the equity method, and related
receivables (notes 5 and 6) 2,372 1,299

Investment in Turner Broadcasting System, Inc.
("TBS") (note 7) 955 660

Property and equipment, at cost:
Land 88 91
Distribution systems 9,545 7,705
Support equipment and buildings 1,429 1,146
-------- --------
11,062 8,942
Less accumulated depreciation 3,653 3,066
-------- --------
7,409 5,876
-------- --------

Franchise costs 14,322 11,152
Less accumulated amortization 2,092 1,708
-------- --------
12,230 9,444
-------- --------

Other assets, net of amortization 1,748 1,383
-------- --------

$ 25,577 19,276
======== ========
</TABLE>

*Restated - see notes 5 and 6.
(continued)

F-25

<PAGE> 173
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, continued

December 31, 1995 and 1994

<TABLE>
<CAPTION>
1995 1994 *
-------- --------
Liabilities and Stockholders' Equity amounts in millions
- ------------------------------------
<S> <C> <C>
Accounts payable $ 243 201

Accrued interest 233 183

Accrued programming expense 318 248

Other accrued expenses 1,114 561

Debt (note 9) 13,211 11,162

Deferred income taxes (note 14) 4,584 3,509

Other liabilities 195 160
-------- --------

Total liabilities 19,898 16,024
-------- --------

Minority interests in equity
of consolidated subsidiaries 651 429

Redeemable preferred stocks (note 10) 478 168

Stockholders' equity (note 11):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock,
$.01 par value -- --
Tele-Communications, Inc. Series A TCI
Group common stock, $1 par value
Authorized 1,750,000,000 shares;
issued 672,211,009 in 1995 672 --
Tele-Communications, Inc. Series B TCI
Group common stock, $1 par value
Authorized 150,000,000 shares;
issued 84,691,554 in 1995 85 --
Tele-Communications, Inc. Series A Liberty
Media Group common stock, $1 par value
Authorized 750,000,000 shares;
issued 142,896,264 in 1995 143 --
Tele-Communications, Inc. Series B Liberty
Media Group common stock, $1 par value
Authorized 75,000,000 shares;
issued 21,196,868 in 1995 21 --
Class A common stock, $1 par value
Issued 576,979,498 shares in 1994 -- 577
Class B common stock, $1 par value
Issued 89,287,429 shares in 1994 -- 89
Additional paid-in capital 4,068 2,791
Cumulative foreign currency
translation adjustment, net of taxes (9) (4)
Unrealized holding gains for
available-for-sale securities, net of taxes 338 94
Accumulated deficit (454) (282)
-------- --------
4,864 3,265
Treasury stock, at cost (100,524,364 shares of
Series A TCI Group common stock in 1995; and
86,030,992 shares of Class A common
stock and 4,172,629 shares of Class B
common stock in 1994) (314) (610)
-------- --------

Total stockholders' equity 4,550 2,655
-------- --------

Commitments and contingencies (note 15)

$ 25,577 19,276
======== ========
</TABLE>
*Restated - see notes 5 and 6.

See accompanying notes to consolidated financial statements.

F-26

<PAGE> 174
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
1995 1994 * 1993 *
-------- -------- --------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue (note 16):
From cable and programming services
(notes 4 and 8) $ 5,832 4,454 4,153
Net sales from electronic retailing services 1,019 482 --
-------- -------- --------
6,851 4,936 4,153
-------- -------- --------

Operating costs and expenses:
Operating (note 4) 2,097 1,445 1,190
Cost of sales from electronic retailing services 702 313 --
Selling, general and administrative 2,066 1,380 1,105
Compensation relating to stock
appreciation rights 55 -- 31
Adjustment to compensation relating to stock
appreciation rights -- (8) --
Restructuring charges 17 -- --
Depreciation 899 700 622
Amortization 473 318 289
-------- -------- --------
6,309 4,148 3,237
-------- -------- --------

Operating income (note 16) 542 788 916

Other income (expense):
Interest expense (1,010) (785) (731)
Interest and dividend income 52 36 34
Share of earnings of Liberty Media Corporation
("Liberty") (note 4) -- 128 7
Share of losses of other affiliates, net
(notes 5 and 6) (193) (112) (76)
Gain on sale of subsidiary stock (note 13) 123 -- --
Gain on sale of stock by equity investee (note 5) 165 161 --
Gain (loss) on disposition of assets 49 (10) 42
Other, net (19) (24) (28)
-------- -------- --------
(833) (606) (752)
-------- -------- --------

Earnings (loss) before income taxes (291) 182 164

Income tax benefit (expense) (note 14) 120 (120) (169)
-------- -------- --------

Net earnings (loss) (note 8) (171) 62 (5)

Dividend requirements on preferred stocks (34) (8) (2)
-------- -------- --------

Net earnings (loss) attributable
to common stockholders (note 8) $ (205) 54 (7)
======== ======== ========

Net earnings (loss) attributable to common
stockholders (note 2):
TCI Class A and Class B common stock $ (71) 54 (7)
TCI Group Series A and Series B common stock (107) -- --
Liberty Media Group Series A and Series B
common stock (27) -- --
-------- -------- --------
$ (205) 54 (7)
======== ======== ========
Primary and fully diluted net earnings (loss)
attributable to common stockholders per common
and common equivalent share (notes 2 and 8):
TCI Class A and Class B common stock $ (.11) .10 (.02)
TCI Group Series A and Series B common stock $ (.16) -- --
Liberty Media Group Series A and Series B
common stock $ (.16) -- --
</TABLE>

* Restated - see notes 5 and 6.

See accompanying notes to consolidated financial statements.

F-27

<PAGE> 175
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Years ended December 31, 1995, 1994 and 1993

Common Stock
---------------------------------------------------------------------
Class B TCI TCI Group Liberty Media Group
Preferred -------------------- -------------------- --------------------
Stock Class A Class B Series A Series B Series A Series B
----------- -------- --------- -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993* $ -- 462 48 -- -- -- --
Net loss -- -- -- -- -- -- --
Issuance of common stock
upon conversion of notes
(note 9) -- 20 -- -- -- -- --
Issuance of common stock upon
exercise of options -- -- -- -- -- -- --
Dividends on redeemable
preferred stocks -- -- -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- --
Acquisition and retirement
of common stock -- -- (1) -- -- -- --
------- ------- ------ ------- ------- ------- -------

Balance at December 31, 1993 $ -- 482 47 -- -- -- --
------- ------- ------ ------- ------- ------ -------
<CAPTION>
Unrealized
Cumulative holding Note
foreign gains for receivable
Additional currency available- from
paid-in translation for-sale related Accumulated Treasury
capital adjustment securities * party deficit * stock
----------- ---------- ------------ ------------ --------------- ----------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993* 1,909 (19) -- -- (339) (333)
Net loss -- -- -- -- (5) --
Issuance of common stock
upon conversion of notes
(note 9) 383 -- -- -- -- --
Issuance of common stock upon
exercise of options 7 -- -- -- -- --
Dividends on redeemable
preferred stocks (2) -- -- -- -- --
Foreign currency translation
adjustment -- (10) -- -- -- --
Acquisition and retirement
of common stock (4) -- -- -- -- --
------- ----- --------- ------ ------ -------

Balance at December 31, 1993 2,293 (29) -- -- (344) (333)
------- ----- --------- ------ ------ -------
<CAPTION>
Total
stockholders'
equity *
--------------
amounts in millions
<S> <C>
Balance at January 1, 1993* 1,728
Net loss (5)
Issuance of common stock
upon conversion of notes
(note 9) 403
Issuance of common stock upon
exercise of options 7
Dividends on redeemable
preferred stocks (2)
Foreign currency translation
adjustment (10)
Acquisition and retirement
of common stock (5)
-------

Balance at December 31, 1993 2,116
-------
</TABLE>

* Restated-see notes 5 and 6

(continued)

F-28

<PAGE> 176
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity, continued

Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------------------
Class B TCI TCI Group Liberty Media Group
Preferred -------------------- -------------------- --------------------
Stock Class A Class B Series A Series B Series A Series B
----------- -------- --------- -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993* $ -- 482 47 -- -- -- --
Unrealized holding gains for
available-for-sale securities
as of January 1, 1994 -- -- -- -- -- -- --
Net earnings -- -- -- -- -- -- --
Conversion of redeemable preferred
stock (note 10) -- 1 -- -- -- -- --
Issuance of common stock upon
conversion of notes (note 9) -- 3 -- -- -- -- --
Issuance of common stock upon
exercise of stock option -- -- -- -- -- -- --
Acquisition and retirement of
common stock -- -- -- -- -- -- --
Consummation of the TCI/Liberty
Combination (note 4) -- 85 42 -- -- -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements -- -- -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- --
Issuance of TCI Class A common
stock to subsidiaries of TCI in
Reorganization -- -- -- -- -- -- --
Issuance of Class A common stock
for investment -- 6 -- -- -- -- --
Repayment of note receivable from
related party -- -- -- -- -- -- --
Change in unrealized holding gains
for available-for-sale securities -- -- -- -- -- -- --
----- ------- ----- ---- ---- ---- ----

Balance at December 31, 1994 $ -- 577 89 -- -- -- --
---- ------- ------ ------ ------- ------ ------
<CAPTION>
Unrealized
Cumulative holding Note
foreign gains for receivable
Additional currency available- from Total
paid-in translation for-sale related Accumulated Treasury stockholders'
capital adjustment securities * party deficit * stock equity *
---------- ---------- ------------ ----------- ----------- -------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993* 2,293 (29) -- -- (344) (333) 2,116
Unrealized holding gains for
available-for-sale securities
as of January 1, 1994 -- -- 297 -- -- -- 297
Net earnings -- -- -- -- 62 -- 62
Conversion of redeemable preferred
stock (note 10) 17 -- -- -- -- -- 18
Issuance of common stock upon
conversion of notes (note 9) -- -- -- -- -- -- 3
Issuance of common stock upon
exercise of stock option 3 -- -- -- -- -- 3
Acquisition and retirement of
common stock (2) -- -- -- -- -- (2)
Consummation of the TCI/Liberty
Combination (note 4) 383 -- 4 (15) -- (285) 214
Accreted dividends on all classes of
preferred stock (8) -- -- -- -- -- (8)
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements 4 -- -- -- -- -- 4
Foreign currency translation
adjustment -- 25 -- -- -- -- 25
Issuance of TCI Class A common
stock to subsidiaries of TCI in
Reorganization (23) -- -- -- -- 23 --
Issuance of Class A common stock
for investment 124 -- -- -- -- -- 130
Repayment of note receivable from
related party -- -- -- 15 -- (15) --
Change in unrealized holding gain
for available-for-sale securities -- -- (207) -- -- -- (207)
----- ----- ---- ----- ----- ----- -----

Balance at December 31, 1994 2,791 (4) 94 -- (282) (610) 2,655
----- ----- ---- ----- ----- ----- -----
</TABLE>
(continued)
*Restated - see notes 5 and 6

F-29

<PAGE> 177
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

Years ended December 31, 1995, 1994 and 1993

Common Stock
-------------------------------------------------------------------
Class B TCI TCI Group Liberty Media Group
Preferred -------------------- -------------------- --------------------
Stock Class A Class B Series A Series B Series A Series B
----------- -------- --------- -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 * $ -- 577 89 -- -- -- --
Net loss -- -- -- -- -- -- --
Issuance of common stock in
public offering -- 20 -- -- -- -- --
Issuance of common stock in
private offering -- 1 -- -- -- -- --
Issuance of common stock for
acquisitions and investments
(note 8) -- 59 -- -- -- -- --
Issuance of Class A common
stock to subsidiary of TCI in
Reorganization -- -- -- -- -- -- --
Issuance of Class A common stock to
subsidiary in exchange for
investment -- -- -- -- -- -- --
Retirement of Class A common
stock previously held by subsidiary -- -- -- -- -- -- --
Exchange of common stock held by
subsidiaries of TCI for Convertible
Redeemable Participating Preferred
Stock, Series F ("Series F
Preferred Stock") (note 1) -- (86) (4) -- -- -- --
Conversion of Series F Preferred
Stock held by subsidiary for Series
A TCI Group common stock -- -- -- 101 -- -- --
Distribution of Series A and
Series B Liberty Media Group
common stock to TCI common
stockholders (note 1) -- -- -- -- -- 143 21
Costs associated with Distribution
to stockholders -- -- -- -- -- -- --
Redesignation of TCI common stock
into Series A and Series B TCI
Group common stock (note 1) -- (571) (85) 571 85 -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption
requirements -- -- -- -- -- -- --
Payment of preferred stock dividends -- -- -- -- -- -- --
Issuance of common stock
by subsidiary (note 13) -- -- -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- --
Change in unrealized holding gains
for available-for-sale securities -- -- -- -- -- -- --
Adjustment to reflect elimination of
reporting delay with respect to
certain foreign subsidiaries (note 2) -- -- -- -- -- -- --
-------- --------- -------- ------ -------- --------- ---------
Balance at December 31, 1995 $ -- -- -- 672 85 143 21
======== ========= ======== ====== ======== ========= =========
<CAPTION>
Unrealized
Cumulative holding Note
foreign gains for receivable
Additional currency available- from Total
paid-in translation for-sale related Accumulated Treasury stockholders'
capital adjustment securities * party deficit * stock equity *
---------- ---------- ------------ ----------- ----------- -------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 * 2,791 (4) 94 -- (282) (610) 2,655
Net loss -- -- -- -- (171) -- (171)
Issuance of common stock in
public offering 381 -- -- -- -- -- 401
Issuance of common stock in
private offering 29 -- -- -- -- -- 30
Issuance of common stock for
acquisitions and investments
(note 8) 1,329 -- -- -- -- -- 1,388
Issuance of Class A common
stock to subsidiary of TCI in
Reorganization (6) -- -- -- -- 6 --
Issuance of Class A common stock to
subsidiary in exchange for
investment (1) -- -- -- -- 1 --
Retirement of Class A common
stock previously held by subsidiary 29 -- -- -- -- (29) --
Exchange of common stock held by
subsidiaries of TCI for Convertible
Redeemable Participating Preferred
Stock, Series F ("Series F
Preferred Stock") (note 1) (542) -- -- -- -- 632 --
Conversion of Series F Preferred
Stock held by subsidiary for Series
A TCI Group common stock 213 -- -- -- -- (314) --
Distribution of Series A and
Series B Liberty Media Group
common stock to TCI common
stockholders (note 1) (164) -- -- -- -- -- --
Costs associated with Distribution
to stockholders (8) -- -- -- -- -- (8)
Redesignation of TCI common stock
into Series A and Series B TCI
Group common stock (note 1) -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock (34) -- -- -- -- -- (34)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption
requirements 10 -- -- -- -- -- 10
Payment of preferred stock dividends (10) -- -- -- -- -- (10)
Issuance of common stock
by subsidiary (note 13) 51 -- -- -- -- -- 51
Foreign currency translation
adjustment -- (5) -- -- -- -- (5)
Change in unrealized holding gains
for available-for-sale securities -- -- 244 -- -- -- 244
Adjustment to reflect elimination of
reporting delay with respect to
certain foreign subsidiaries (note 2) -- -- -- -- (1) -- (1)
-------- -------- -------- -------- -------- ------- -----

Balance at December 31, 1995 4,068 (9) 338 -- (454) (314) 4,550
======== ======== ======== ======== ======== ======= =====
</TABLE>

*Restated - see notes 5 and 6

See accompanying notes to consolidated financial statements.

F-30

<PAGE> 178
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
1995 1994 * 1993 *
-------- -------- --------
amounts in millions
(see note 3)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (171) 62 (5)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,372 1,018 911
Compensation relating to stock appreciation
rights 55 -- 31
Adjustment to compensation relating to stock
appreciation rights -- (8) --
Share of earnings of Liberty -- (128) (7)
Share of losses of other affiliates 193 112 76
Gain on sale of subsidiary stock (123) -- --
Gain on sale of stock by equity investee (165) (161) --
Deferred income tax expense (benefit) (153) 37 140
Loss (gain) on disposition of assets (49) 10 (42)
Other non cash charges (credits) (37) 5 48
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables (70) 15 (32)
Change in inventories 16 (26) --
Change in prepaids (86) (97) (4)
Change in accrued interest 45 13 63
Change in other accruals and payables 132 56 68
Net cash used in Flextech plc's operating
activities during the month ended
September 30, 1995 (note 2) (2) -- --
-------- -------- --------
Net cash provided by operating activities 957 908 1,247
-------- -------- --------

Cash flows from investing activities:
Cash paid for acquisitions (477) (358) (158)
Capital expended for property and equipment (1,782) (1,264) (947)
Cash proceeds from disposition of assets 166 39 149
Additional investments in and
loans to affiliates and others (1,134) (445) (361)
Repayment of loans by affiliates and others 18 148 62
Other investing activities (84) (15) 89
Net cash used in Flextech plc's investing activities
during the month ended September 30, 1995 (note 2) (51) -- --
-------- -------- --------
Net cash used in investing activities (3,344) (1,895) (1,166)
-------- -------- --------

Cash flows from financing activities:
Borrowings of debt 8,152 4,676 6,305
Repayments of debt (6,567) (3,607) (6,321)
Proceeds from sale of subsidiary stock 445 -- --
Issuances of common stock 431 1 6
Preferred stock dividends of subsidiaries (6) (6) (6)
Preferred stock dividends (24) (4) (2)
Costs associated with Distributor to Stockholders (8) -- --
Repurchases of preferred stock -- -- (92)
Repurchases of common stock -- -- (4)
Net cash used in Flextech plc's financing activities
during the month ended September 30, 1995 (note 2) 8 -- --
-------- -------- --------

Net cash provided (used) by financing
activities 2,431 1,060 (114)
-------- -------- --------

Net increase (decrease) in cash 44 73 (33)

Cash at beginning of year 74 1 34
-------- -------- --------

Cash at end of year $ 118 74 1
======== ======== ========
</TABLE>

* Restated - see notes 5 and 6.

See accompanying notes to consolidated financial statements.

F-31

<PAGE> 179
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 1995, 1994 and 1993

(1) Organization

Principles of Consolidation

The accompanying consolidated financial statements include the
accounts of Tele-Communications, Inc. and those of all majority-owned
subsidiaries ("TCI" or the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.

Reorganization

During the fourth quarter of 1994, the Company was reorganized (the
"Reorganization") based upon four lines of business: Domestic Cable
and Communications (the "Cable Unit"); Programming (the "Programming
Unit"); International Cable and Programming ("TINTA"); and
Technology/Venture Capital. Upon Reorganization, certain of the
assets of the Cable and Programming Units were transferred to the
other operating units. As consideration for such transfer of assets,
TCI issued 317,112 shares of TCI Class A common stock and 246,402
shares of Redeemable Convertible Preferred Stock, Series E ("Series E
Preferred Stock") (see note 10). Preferred stock of TCI which is
owned by subsidiaries of TCI eliminates in consolidation. Common
stock of the Company held by subsidiaries is treated as treasury stock
in consolidation.

Liberty Group Stock

On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue a new class of stock ("Liberty
Group Stock") which is intended to reflect the separate performance of
TCI's business which produces and distributes cable television
programming services ("Liberty Media Group"). While the Liberty Group
Stock constitutes common stock of TCI, the issuance of the Liberty
Group Stock did not result in any transfer of assets or liabilities of
TCI or any of its subsidiaries or affect the rights of holders of
TCI's or any of its subsidiaries' debt. On August 10, 1995, TCI
distributed one hundred percent of the equity value attributable to
the Liberty Media Group (the "Distribution") to its security holders
of record on August 4, 1995. Additionally, the stockholders of TCI
approved the redesignation of the previously authorized TCI Class A
and Class B common stock into Series A TCI Group and Series B TCI
Group common stock ("TCI Group Stock").

Upon the Distribution of the Liberty Group Stock and subsequent to the
redesignation of TCI Class A and Class B common stock into Series A
and Series B TCI Group Stock, the TCI Group Stock is intended to
reflect the separate performance of the subsidiaries and assets not
attributed to Liberty Media Group, including (i) TCI's Cable and
Communication unit, (ii) TINTA and (iii) TCI's Technology/Venture
Capital unit. Such subsidiaries and assets are referred to as "TCI
Group".

(continued)

F-32

<PAGE> 180
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense to TCI Group or to Liberty Media Group for
purposes of preparing their combined financial statements, the change
in the capital structure of TCI does not affect the ownership or the
respective legal title to assets or responsibility for liabilities of
TCI or any of its subsidiaries. TCI and its subsidiaries will each
continue to be responsible for their respective liabilities. Holders
of TCI Group Stock or Liberty Group Stock are holders of common stock
of TCI and continue to be subject to risks associated with an
investment in TCI and all of its businesses, assets and liabilities.
The issuance of Liberty Group Stock did not affect the rights of
creditors of TCI.

Dividends on TCI Group Stock are payable at the sole discretion of the
Board out of the lesser of assets of TCI legally available for
dividends and the available dividend amount with respect to TCI Group,
as defined. Determinations to pay dividends on TCI Group Stock will
be based primarily upon the financial condition, results of operations
and business requirements of TCI Group and TCI as a whole.

Dividends on Liberty Group Stock are payable at the sole discretion of
the Board out of the lesser of all assets of TCI legally available for
dividends and the available dividend amount with respect to Liberty
Media Group, as defined. Determinations to pay dividends on Liberty
Group Stock will be based primarily upon the financial condition,
results of operations and business requirements of Liberty Media Group
and TCI as a whole.

After the Distribution, existing preferred stock and debt securities
of TCI that were convertible into or exchangeable for shares of TCI
Class A common stock were, as a result of the operation of
antidilution provisions, adjusted so that there will be delivered upon
their conversion or exchange (in addition to the same number of shares
of redesignated Series A TCI Group Stock as were theretofore issuable
thereunder) the number of shares of Series A Liberty Group Stock that
would have been issuable in the Distribution with respect to the TCI
Class A common stock issuable upon conversion or exchange had such
conversion or exchange occurred prior to the record date for the
Distribution. Options to purchase TCI Class A common stock
outstanding at the time of the Distribution were adjusted by issuing
to the holders of such options separate options to purchase that
number of shares of Series A Liberty Group Stock which the holder
would have been entitled to receive had the holder exercised such
option to purchase TCI Class A common stock prior to the record date
for the Distribution and reallocating a portion of the aggregate
exercise price of the previously outstanding options to the newly
issued options to purchase Series A Liberty Group Stock.

(continued)

F-33

<PAGE> 181
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

A number of wholly-owned subsidiaries of the Company which are part of
the TCI Group owned shares of Class A common stock and preferred stock
of the Company ("Subsidiary Shares"). Because the Distribution of the
Liberty Group Stock was made as a dividend to all holders of the
Company's Class A common stock and Class B common stock and, pursuant
to the anti-dilution provisions set forth therein, to the holders of
securities convertible into Class A common stock and Class B common
stock upon the conversion thereof, shares of Liberty Group Stock would
have otherwise been issued and become issuable in respect of the
Subsidiary Shares held by these subsidiaries and would have been
attributed to TCI Group. The Liberty Group Stock issued in connection
with the Distribution was intended to constitute 100% of the equity
value thereof to the holders of the TCI Class A common stock and TCI
Class B common stock and TCI Group did not initially have any interest
in Liberty Media Group represented by any outstanding shares of
Liberty Group Stock (an "Inter-Group Interest"). Therefore, the
Company determined to exchange all of the outstanding Subsidiary
Shares for shares of a new series of Series Preferred Stock designated
Convertible Redeemable Participating Preferred Stock, Series F (the
"Series F Preferred Stock"). See note 10. The rights, privileges and
preferences of the Series F Preferred Stock did not entitle its
holders to receive Liberty Group Stock in the Distribution or upon
conversion of the Series F Preferred Stock.

(2) Summary of Significant Accounting Policies

Receivables

Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1995 and 1994 was not material.

Inventories, Net

Merchandise inventories are valued at the lower of cost or market,
cost being determined using the first-in, first-out method. Cost
includes freight, certain warehousing costs and other allocable
overhead. Market is determined on the basis of net realizable value,
giving consideration to obsolescence and other factors. Inventories
are presented net of an inventory carrying adjustment of $33 million
and $19 million at December 31, 1995 and 1994, respectively.

Program Rights

Prepaid program rights are amortized on a film-by-film basis (or
event-by-event basis for sports events) over the specific number of
exhibitions. Committed film inventory and program rights payable are
recorded at the estimated costs of the programs when the film is
available for airing. These amounts are amortized on a film-by-film
basis over the specific number of exhibitions.

(continued)

F-34

<PAGE> 182
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Investments

All marketable equity securities held by the Company are classified as
available-for-sale and are carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are
carried net of taxes as a separate component of stockholders' equity.

Other investments in which the ownership interest is less than 20% and
are not considered marketable securities are generally carried at
cost. For those investments in affiliates in which the Company's
voting interest is 20% to 50%, the equity method of accounting is
generally used. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company's share of the
net earnings or losses of the affiliates as they occur rather than as
dividends or other distributions are received, limited to the extent
of the Company's investment in, advances to and commitments for the
investee. The Company's share of net earnings or losses of affiliates
includes the amortization of the difference between the Company's
investment and its share of the net assets of the investee.
Recognition of gains on sales of properties to affiliates accounted
for under the equity method is deferred in proportion to the Company's
ownership interest in such affiliates.

Changes in the Company's proportionate share of the underlying equity
of a subsidiary or equity method investee, which result from the
issuance of additional equity securities by such subsidiary or equity
investee, generally are recognized as gains or losses in the Company's
consolidated statements of operations.

Long-Lived Assets

(a) Property and Equipment

Property and equipment is stated at cost, including
acquisition costs allocated to tangible assets acquired.
Construction costs, including interest during construction and
applicable overhead, are capitalized. During 1995, 1994 and
1993, interest capitalized was not material.

Depreciation is computed on a straight-line basis using
estimated useful lives of 3 to 15 years for distribution
systems, 3 to 40 years for support equipment and buildings.

Repairs and maintenance are charged to operations, and
renewals and additions are capitalized. At the time of
ordinary retirements, sales or other dispositions of property,
the original cost and cost of removal of such property are
charged to accumulated depreciation, and salvage, if any, is
credited thereto. Gains or losses are only recognized in
connection with the sales of properties in their entirety.

(continued)

F-35

<PAGE> 183
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(b) Franchise Costs

Franchise costs include the difference between the cost of
acquiring cable television systems and amounts allocated to
their tangible assets. Such amounts are generally amortized
on a straight-line basis over 40 years. Costs incurred by the
Company in obtaining franchises are being amortized on a
straight-line basis over the life of the franchise, generally
10 to 20 years.

In March of 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal
years beginning after December 15, 1995. Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and either the
undiscounted future cash flows estimated to be generated by those
assets or the fair market value are less than the assets' carrying
amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company
will adopt Statement No. 121 effective January 1, 1996. The effect of
such adoption is not expected to be significant.

Interest Rate Derivatives

Amounts receivable or payable under derivative financial instruments
used to manage interest rate risks arising from the Company's
financial liabilities are recognized as interest expense. Gains and
losses on early terminations of derivatives are included in the
carrying amount of the related debt and amortized as yield adjustments
over the remaining terms of the debt. The Company does not use such
instruments for trading purposes.

Minority Interests

Recognition of minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those consolidated
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of consolidated
subsidiaries have the right to cause the Company to repurchase such
holders' common equity.

Included in minority interests in equity of consolidated subsidiaries
is $49 million and $50 million in 1995 and 1994, respectively, of
preferred stocks (and accumulated dividends thereon) of certain
subsidiaries. The current dividend requirements on these preferred
stocks aggregate $6 million per annum and such dividend requirements
are reflected as minority interests in the accompanying consolidated
statements of operations.

Subsequent to December 31, 1995, TCI Communications, Inc. ("TCIC"), a
wholly-owned subsidiary of TCI, issued to the public 4.6 million
shares of Cumulative Exchangeable Preferred Stock with an initial
liquidation value of $230 million. Such issuance will be reflected as
an increase in the Company's minority interest in equity of
consolidated subsidiaries.
(continued)

F-36

<PAGE> 184
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Trust Originated Preferred Securities(SM)

Subsequent to December 31, 1995, TCI Communications Financing I (the
"Trust"), an indirect wholly-owned subsidiary of the Company, issued
$16 million in common securities and issued $500 million of 8.72%
Trust Originated Preferred Securities(SM) (the "Preferred
Securities" and together with the common securities, the "Trust
Securities"). The Trust exists for the exclusive purposes of issuing
Trust Securities and investing the proceeds thereof into an
aggregate principal amount of $516 million of 8.72% Subordinated
Deferrable Interest Notes due January 31, 2045 (the "Subordinated
Debt Securities") of the Company. The Subordinated Debt Securities
are unsecured obligations of the Company and are subordinate and
junior in right of payment to certain other indebtedness of the
Company. Upon redemption of such Subordinated Debt Securities, the
Preferred Securities will be mandatorily redeemable. The Company
effectively provides a full and unconditional guarantee of the
Trust's obligations under the Preferred Securities. The Company will
present the Preferred Securities as a separate line item in its
balance sheet captioned "Company-obligated mandatorily redeemable
preferred securities of subsidiary trust."

Foreign Currency Translation

All balance sheet accounts of foreign investments are translated at
the current exchange rate as of the end of the accounting period.
Statement of operations items are translated at average currency
exchange rates. The resulting translation adjustment is recorded as a
separate component of stockholders' equity.

Net Sales from Electronic Retailing Services

Revenue includes merchandise sales and shipping and handling revenue,
and is reduced by incentive discounts and sales returns to arrive at
net sales from home shopping services. Revenue is recorded for
credit card sales upon transaction authorization, and for check sales
upon receipt of customer payment, which does not vary significantly
from the time goods are shipped. The Company's sales policy allows
merchandise to be returned at the customer's discretion, generally up
to 30 days. An allowance for returned merchandise is provided based
upon past experience.

Stock Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the FASB
in October 1995. Statement No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans as
well as transactions in which an entity issues its equity instruments
to acquire goods or services from non-employees. The Company will
include the disclosures required by Statement No. 123 in the notes to
future financial statements.

(continued)

F-37

<PAGE> 185
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Earnings (Loss) Per Common and Common Equivalent Share

(a) TCI Class A and B Common Stock

Loss per common share attributable to common stockholders was
computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares
outstanding (648.2 million for the period from January 1, 1995
through the Distribution and 432.6 million for the year ended
December 31, 1993). Common stock equivalents were not
included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.

Primary earnings per common and common equivalent share
attributable to common stockholders was computed by dividing
net earnings attributable to common stockholders by the
weighted average number of common and common equivalent shares
outstanding (540.8 million for the year ended December 31,
1994).

Fully diluted earnings per common and common equivalent share
attributable to common stockholders was computed by dividing
earnings attributable to common stockholders by the weighted
average number of common and common equivalent shares
outstanding (540.8 million for the year ended December 31,
1994). Shares issuable upon conversion of the Convertible
Preferred Stock, Series C ("Series C Preferred Stock") (see
note 10) have not been included in the computation of weighted
average shares because their effect would be anti-dilutive.

(b) TCI Group Stock

The loss attributable to common stockholders per common share
for the period from the Distribution to December 31, 1995 was
computed by dividing net loss attributable to TCI Group Series
A and Series B common stockholders by the weighted average
number of common shares outstanding of TCI Group Stock during
the period (656.4 million). Common stock equivalents were not
included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.

The loss per common share for the period from the Distribution
to December 31, 1995 was computed by dividing net loss
attributable to Liberty Media Group Series A and Series B
common stockholders by the weighted average number of common
shares outstanding of Liberty Group Stock during the period
(164.1 million). Common stock equivalents were not included
in the computation of weighted average shares outstanding
because their inclusion would be anti-dilutive.

(continued)

F-38

<PAGE> 186
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Accounting for Foreign Subsidiaries

Through the third quarter of 1995, the Company included certain of its
foreign subsidiaries (Flextech plc ("Flextech") and Cablevision S.A.
("Cablevision")) in its financial statements on a one-month time
delay. The Company eliminated such time delay from its December 31,
1995 financial statements. As a result, the Company's consolidated
statements of operations for the year ended December 31, 1995 include
(i) Cablevision's result of operations for the period from April 25,
1995 (the date Cablevision was acquired - see note 8) through December
31, 1995 and (ii) Flextech's results of operations for the period from
December 1, 1994 through December 31, 1995 (exclusive of the one-month
period ended September 30, 1995). The Company's consolidated
statement of cash flows for the year ended December 31, 1995 includes
the cash flows of Cablevision and Flextech for the same periods except
that Flextech's cash flows for the one-month period ended September
30, 1995 are included therein on a summarized basis. In connection
with the elimination of the above-described reporting delays, the
Company (i) restated certain of its quarterly financial information in
order to present Cablevision's 1995 results of operations on a current
basis (see note 17) and (ii) charged Flextech's net loss for the
one-month ended September 30, 1995 ($1 million) directly to the
Company's accumulated deficit so that the Company's consolidated
statement of operations for the year ended December 31, 1995 would not
include more than 12 months of Flextech's operating results.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Reclassification

Certain amounts have been reclassified for comparability with the 1995
presentation.

(continued)

F-39

<PAGE> 187
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(3) Supplemental Disclosures to Consolidated Statements of Cash Flows

Cash paid for interest was $965 million, $758 million and $641
million for the years ended December 31, 1995, 1994 and 1993,
respectively. Cash paid for income taxes was $65 million in
1995 and was not material in 1994 or 1993.

Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
Years ended
December 31,
-------------------------------
1995 1994 1993
------ ------ ------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 3,571 1,921 172
Liabilities assumed, net of current assets (445) (648) (7)
Deferred tax liability recorded
in acquisitions (1,083) (190) (7)
Minority interests in equity of
acquired entities 49 (35) --
Note receivable from related party
assumed (1,615) 15 --
Common stock and preferred stock
issued in acquisitions (808) --
Common stock issued to TCIC and
Liberty in the TCI/Liberty Combination
reflected as treasury stock (note 3) -- 285 --
Unrealized gains on available-for-sale
securities of acquired entities -- (182) --
-------- -------- -------

Cash paid for acquisitions $ 477 358 158
======== ======== =======

Conversion of debt into additional minority
interest in consolidated subsidiary $ 14 -- --
======== ======== =======

Assets contributed for interest in limited
liability company $ 3 -- --
======== ======== =======

Issuance of subsidiary stock for equity
investment $ 11 -- --
======== ======== =======

Receipt of notes receivable upon
disposition of Liberty common
stock and preferred stock $ -- -- 182
======= ======== =======

Noncash exchange of equity investment
for consolidated subsidiary and
equity investment $ -- -- 22
======= ======== =======

Noncash capital contribution to
equity investee $ -- -- 22
======= ======== =======
</TABLE>

(continued)

F-40

<PAGE> 188
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4) Investment in Liberty Media Corporation

As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty entered into a
definitive merger agreement to combine the two companies (the
"TCI/Liberty Combination"). The transaction was consummated on August
4, 1994 and was structured as a tax free exchange of Class A and Class
B shares of both companies and preferred stock of Liberty for like
shares of a newly formed holding company, TCI/Liberty Holding Company.
In connection with the TCI/Liberty Combination, Old TCI changed its
name to TCI Communications, Inc. and TCI/Liberty Holding Company
changed its name to Tele-Communications, Inc.

Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and
other related party considerations, TCIC accounted for its investment
in Liberty under the equity method. Accordingly, TCIC had not
recognized any income relating to dividends, including preferred stock
dividends, and TCIC recorded the earnings or losses generated by
Liberty (by recognizing 100% of Liberty's earnings or losses before
deducting preferred stock dividends) through the date the TCI/Liberty
Combination was consummated.

Summarized unaudited financial information of Liberty for the period
from January 1, 1994 through August 4, 1994 and for the year ended
December 31, 1993 is as follows:

<TABLE>
<CAPTION>
1994 1993
------ ------
Consolidated Operations amounts in millions
-----------------------
<S> <C> <C>
Revenue $ 790 1,153
Operating expenses (726) (1,105)
Depreciation and amortization (32) (49)
------ ------

Operating income (loss) 32 (1)

Interest expense (22) (31)
Other, net 118 39
------ ------

Net earnings $ 128 7
====== ======
</TABLE>

Prior to the TCI/Liberty Combination, TCIC purchased sports and other
programming from certain subsidiaries of Liberty. Charges to TCIC
(which were based upon customary rates charged to others) for such
programming were $27 million and $44 million for the period from
January 1, 1994 through August 4, 1994 and for the year ended December
31, 1993, respectively. Such amounts are included in operating
expenses in the accompanying consolidated statements of operations.
Certain subsidiaries of Liberty purchased from TCIC, at TCIC's cost
plus an administrative fee, certain pay television and other
programming. In addition, a consolidated subsidiary of Liberty paid a
commission to TCIC for merchandise sales to customers who were
subscribers of TCIC's cable systems. Aggregate commissions and
charges for such programming were $9 million and $11 million for the
period from January 1, 1994 through August 4, 1994 and for the year
ended December 31, 1993, respectively. Such amounts are recorded in
revenue in the accompanying consolidated statements of operations.

(continued)

F-41

<PAGE> 189
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of
Liberty's 50% general partnership interest in American Movie Classics
Company ("AMC"). The gain recognized by Liberty in connection with
the disposition of AMC was $183 million and is included in the
Company's share of Liberty's earnings prior to the TCI/Liberty
Combination.

(5) Investments in Affiliates

The Company has various investments accounted for under the equity
method. Certain of the more significant investments held by the
Company at December 31, 1995 were Sprint Spectrum, a partnership
formed by the Company, Comcast Corporation ("Comcast"), Cox
Communications, Inc. ("Cox") and Sprint Corporation ("Sprint")
(carrying value of $689 million) (see note 15), Teleport
Communications Group, Inc. and TCG Partners (collectively, "TCG")
(carrying value of $244 million), TeleWest plc ("New TeleWest")
(carrying value of $550 million) and Discovery Communications, Inc.
(carrying value of $117 million).

Summarized unaudited financial information for affiliates other than
Liberty is as follows:

<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
Combined Financial Position amounts in millions
---------------------------
<S> <C> <C>
Property and equipment, net $ 3,863 2,450
Franchise costs, net 1,204 579
Other assets, net 5,347 3,050
------- -----

Total assets $10,414 6,079
======= =====

Debt $ 5,336 2,333
Due to (from) TCI 45 (2)
Other liabilities 1,713 1,195
Owners' equity 3,320 2,553
------- -----

Total liabilities and equity $10,414 6,079
======= =====
</TABLE>

<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Combined Operations amounts in millions
-------------------
<S> <C> <C> <C>
Revenue $ 4,461 2,703 713
Operating expenses (3,807) (2,405) (648)
Depreciation and
amortization (532) (297) (127)
-------- -------- ------

Operating income (loss) 122 1 (62)

Interest expense (337) (100) (37)
Other, net (123) 24 98
-------- -------- ------

Net loss $ (338) (75) (1)
======== ======== ======
</TABLE>

(continued)

F-42

<PAGE> 190
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In August 1995, the Company made an additional $29 million investment
in Courtroom Television Network ("Court") which represented the
Company's pro rata share of capital calls made in prior years by
the other partners of Court that the Company had no obligation to
fund. Due to the additional investment in Court, which restored its
33% ownership interest, the Company's share of losses of Court for the
year ended December 31, 1995 includes $18 million of previously
unrecognized losses of Court. These losses were not recognized in
prior periods due to the fact that the Company's investment in Court
had been reduced to zero.

During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its
common stock. As a result of the repurchase, the Company's ownership
of BET was increased from 19% to 22%. Therefore, the Company is
deemed to exercise significant influence over BET and, accordingly,
has adopted the equity method of accounting for its investment in BET.
As a result, the Company restated its financial statements, which
resulted in a decrease to its investment in BET, its unrealized
holding gains on available-for-sale securities, its deferred taxes and
accumulated deficit of $44 million, $32 million, $18 million and $6
million, respectively, at December 31, 1994. In addition, the Company
increased its net earnings by $2 million for each of 1994 and 1993.

At December 31, 1995, the Company had an effective ownership interest
of approximately 27% in New TeleWest, a company that is currently
operating and constructing cable television and telephone systems in
the United Kingdom ("UK"). New TeleWest was formed on October 3, 1995
upon the merger (the "TeleWest Merger") of TeleWest Communications plc
("TeleWest Communications") with SBC (CableComms) (UK). Prior to the
TeleWest Merger, the Company had an effective ownership interest of
approximately 36% in TeleWest Communications. As a result of the
TeleWest Merger, the Company recognized a gain of approximately $165
million (before deducting deferred income taxes of $58 million), which
gain represents the difference between the Company's recorded cost for
TeleWest Communications and the Company's 27% effective proportionate
share of New TeleWest's net assets.

New TeleWest contributed $70 million, $43 million and $28 million of
the Company's share of its affiliates' losses during the years ended
December 31, 1995, 1994 and 1993, respectively. In addition, the
Company has other less significant equity method investments in video
distribution and programming businesses located in the UK, other parts
of Europe, Asia, Latin America and certain other foreign countries.
In the aggregate, such other equity method investments had a carrying
value of $354 million at December 31, 1995 and accounted for $62
million of the Company's share of its affiliates' losses in 1995.

As a result of TeleWest Communications' November 1994 initial public
offering and the associated dilution of the Company's ownership
interest of TeleWest Communications, the Company recognized a gain
amounting to $161 million (before deducting the related tax expense of
$57 million).

(continued)

F-43

<PAGE> 191
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts (other than non-recourse debts) of that partnership in the event
liabilities of that partnership were to exceed its assets.

(6) Investment in QVC, Inc.

Effective February 9, 1995 and pursuant to an Agreement and Plan of
Merger, QVC Programming Holdings, Inc. (the "Purchaser"), a
corporation which is jointly owned by Comcast and the Company, merged
(the "QVC Merger") with and into QVC, Inc. ("QVC") with QVC continuing
as the surviving corporation. The Company owns an approximate 43%
interest of the post-merger QVC.

Liberty began accounting for its investment in QVC under the cost
method in May 1994, upon its determination to remain outside of the
previous QVC stockholders agreement. Prior to such determination,
Liberty had accounted for its investment in QVC under the equity
method.

Upon consummation of the QVC Merger, the Company was deemed to
exercise significant influence over QVC and, as such, adopted the
equity method of accounting for its investment in QVC. As a result,
TCI restated its financial statements, which resulted in a decrease to
its investment in QVC, its unrealized gain from available-for-sale
securities, its deferred tax liability and accumulated deficit by $211
million, $127 million, $89 million and $5 million, respectively, at
December 31, 1994. In addition, the restatement resulted in an
increase in the Company's share of earnings of Liberty and share of
losses of other affiliates by $1 million and $7 million, respectively,
for the year ended December 31, 1994.

A credit facility entered into by the Purchaser is secured by the
common stock of certain subsidiaries of QVC and by certain of QVC's
carriage and distribution agreements. In addition, Comcast and the
Company have pledged their shares of QVC pursuant to such credit
facility.

(7) Investment in Turner Broadcasting System, Inc.

The Company owns shares of TBS common stock and shares of a class of
preferred stock of TBS which have voting rights and are convertible
into shares of TBS common stock. The holders of those preferred
shares, as a group, are entitled to elect seven of fifteen members of
the board of directors of TBS, and the Company appoints three such
representatives. However, voting control over TBS continues to be
held by its chairman of the board and chief executive officer. The
Company's total holdings of TBS common and preferred stocks represent
an approximate 7.5% voting interest for those matters for which
preferred and common stock vote as a single class.

At December 31, 1995 and 1994, the Company's investment in TBS common
stock had an aggregate market value of $777 million and $487 million,
respectively (including unrealized holding gains of $451 million and
$169 million, respectively).

(continued)

F-44

<PAGE> 192
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At December 31, 1995 and 1994, the Company's investment in TBS
preferred stock, carried at cost, had an aggregate market value of
$927 million and $579 million, respectively, based upon the market
value of the common stock into which it is convertible. Such market
value exceeded cost by $749 million and $406 million, respectively,
for such periods.

On September 22, 1995, the boards of directors of Time Warner Inc.
("Time Warner") and TBS approved plans to merge their respective
companies (the "TBS/Time Warner Merger"). Under the terms of the
agreement, TBS shareholders will receive 0.75 of a Time Warner common
share for each TBS Class A and Class B common share. Each holder of
TBS Class C preferred stock will receive 0.80 of a Time Warner common
share for each of the 6 shares of TBS Class B common stock into which
each of the shares of Class C preferred stock may be converted.

Subject to certain conditions, the Company has agreed to vote its TBS
shares for the TBS/Time Warner Merger. The Time Warner shares of
common stock received by the Company will be exchanged immediately for
a series of voting common stock ("Time Warner Series Common Stock")
economically equivalent to the common stock and placed in a voting
trust with Time Warner Chairman, Gerald M. Levin, as the trustee.

In connection with the TBS/Time Warner Merger, TBS has agreed to sell
its interest in SportSouth Network, L.P., a regional sports cable
network, to the Company for approximately $60 million; and Time Warner
has agreed to issue 5 million shares of Time Warner common stock to
the Company in exchange for a 6-year option to purchase Southern
Satellite Systems, Inc. ("Southern"). Time Warner has also agreed to
issue additional shares of Time Warner Series Common Stock to the
Company having a market value of $160 million in the event Time Warner
exercises such option. Any shares of Time Warner common stock
issuable in connection with the Southern option will be exchanged for
Time Warner Preferred Stock. Additionally, Time Warner will grant the
Company an option to purchase Time Warner's interest in Sunshine
Network, a Florida based sports cable network, for $14 million.

The transaction is subject to, among other things, approval by the
Federal Communications Commission ("FCC") and regulatory review by
federal antitrust authorities, and approval by the shareholders of TBS
and Time Warner. It is expected to be completed in 1996.

(8) Acquisitions

As of January 26, 1995, TCI, TCIC and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged
into TCIC. The aggregate $1.6 billion purchase price was satisfied by
TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of
approximately 42 million shares of TCI Class A common stock and 1
million shares of TCI Convertible Preferred Stock, Series D (the
"Series D Preferred Stock") with an aggregate initial liquidation
value of $300 million (see note 10).

(continued)

F-45

<PAGE> 193
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision for a purchase price of $282 million, before liabilities
liabilities assumed. The purchase price was paid with cash
consideration of $195 million and TINTA's issuance of $87 million
principal amount of secured negotiable promissory notes payable (the
"Cablevision Notes") to the selling shareholders. TINTA has an option
during the two-year period ended April 25, 1997 to increase its
ownership interest in Cablevision up to 80% at a cost per subscriber
similar to the initial purchase price, adjusted however for certain
fluctuations in applicable foreign currency exchange rates.

The acquisitions of TeleCable and Cablevision were accounted for by
the purchase method. Accordingly, the results of operations of such
acquired entities have been consolidated with those of the Company
since the respective dates of acquisition. On a pro forma basis, the
Company's revenue would have been increased by $77 million, and the
Company's net loss, net loss attributable to common stockholders and
net loss per share would have been decreased by $13 million, $12
million and $.02, respectively, for the year ended December 31, 1995;
and revenue, net earnings, net earnings attributable to common
stockholders and net earnings per share would have increased by $441
million, $17 million, less than $1 million and less than $0.01,
respectively, for 1994 had such acquired entities been consolidated
with the Company on January 1, 1994. The foregoing unaudited pro forma
financial information was based upon historical results of operations
adjusted for acquisition costs and, in the opinion of management, is
not necessarily indicative of the results had the Company operated the
acquired entities since January 1, 1994.

Effective January 26, 1995, TCI purchased from Comcast the 19.9%
minority interest in Heritage Communications, Inc. owned by Comcast
for aggregate consideration of approximately $290 million, the
majority of which was paid in shares of TCI Class A common stock.

(9) Debt

Debt is summarized as follows:

<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at ------------
December 31, 1995 1995 1994
----------------- ---- ----
amounts in millions
<S> <C> <C> <C>
Debt of subsidiaries:
Senior notes 8.5% $ 6,713 5,412
Bank credit facilities 6.9% 3,712 4,045
Commercial paper 6.4% 1,469 445
Notes payable 10.2% 934 1,024
Convertible notes (a) 9.5% 45 45
Cablevision Notes (b) 10.0% 65 --
Other debt 273 191
------- ------

$13,211 11,162
======= ======
</TABLE>

(continued)

F-46

<PAGE> 194
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(a) These convertible notes, which are stated net of unamortized
discount of $186 million at December 31, 1995 and 1994, mature
on December 18, 2021. The notes require (so long as
conversion of the notes has not occurred) an annual interest
payment through 2003 equal to 1.85% of the face amount of the
notes. During the years ended December 31, 1995, 1994 and
1993, certain of these notes were converted into 3,416 shares,
2,350,000 shares and 819,000 shares of TCI Class A common
stock, respectively. At December 31, 1995, the notes were
convertible, at the option of the holders, into an aggregate
of 38,707,574 shares of Series A TCI Group Stock and 9,676,893
shares of Series A Liberty Group Stock.

(b) The Cablevision Notes are secured by TINTA's pledge of stock
representing its 51% interest in Cablevision.

The bank credit facilities and various other debt instruments of the
Company's subsidiaries generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings,
specified cash flow and financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and
include certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and/or dividend payments.

As security for borrowings under one of its bank credit facilities,
the Company has pledged 100,524,364 shares of Series A TCI Group Stock
held by a subsidiary of the Company. As security for borrowings under
another of its credit facilities, TCI has pledged a portion of its TBS
common stock (with a quoted market value of $760 million at December
31, 1995).

In order to achieve the desired balance between variable and fixed
rate indebtedness, the Company has entered into various interest rate
exchange agreements pursuant to which it pays (i) fixed interest rates
(the "Fixed Rate Agreements") ranging from 6.1% to 9.9% on notional
amounts of $602 million at December 31, 1995 and (ii) variable
interest rates (the "Variable Rate Agreements") on notional amounts of
$2,520 million at December 31, 1995. During the years ended December
31, 1995, 1994 and 1993, the Company's net payments pursuant to the
Fixed Rate Agreements were $13 million, $26 million and $38 million,
respectively; and the Company's net receipts (payments) pursuant to
the Variable Rate Agreements were (less than $1 million), $36 million
and $31 million, respectively. After giving effect to the Company's
interest rate exchange agreements, approximately 45% of the Company's
indebtedness bears interest at fixed rates.

(continued)

F-47

<PAGE> 195
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company's Fixed Rate Agreements and Variable Rate Agreements
expire as follows (amounts in millions, except percentages):

<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
---------- ------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
April 1996 9.9% $ 30 April 1996 6.8% $ 50
May 1996 8.3% 50 July 1996 8.2% 10
June 1996 6.1% 42 August 1996 8.2% 10
July 1996 8.2% 10 September 1996 4.6% 150
August 1996 8.2% 10 April 1997 7.0% 200
November 1996 8.9% 150 September 1998 4.8%-5.2% 300
October 1997 7.2%-9.3% 80 April 1999 7.4% 100
December 1997 8.7% 230 September 1999 7.2%-7.4% 300
---- February 2000 5.8%-6.6% 650
$602 March 2000 5.8%-6.0% 675
==== September 2000 5.1% 75
-------
$ 2,520
=======
</TABLE>

The Company is exposed to credit losses for the periodic settlements
of amounts due under these interest rate exchange agreements in the
event of nonperformance by the other parties to the agreements.
However, the Company does not anticipate that it will incur any
material credit losses because it does not anticipate nonperformance
by the counterparties.

The fair value of the interest rate exchange agreements is the
estimated amount that the Company would pay or receive to terminate
the agreements at December 31, 1995, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. The Company would be required to pay an estimated $25
million at December 31, 1995 to terminate the agreements.

The fair value of the debt of the Company's subsidiaries is estimated
based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same
remaining maturities. The fair value of debt, which has a carrying
value of $13,211 million, was $13,804 million at December 31, 1995.

Certain of TCI's subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper. Also, certain of TCI's subsidiaries pay fees
ranging from 1/4% to 1/2% per annum on the average unborrowed portion
of the total amount available for borrowings under bank credit
facilities.

(continued)

F-48

<PAGE> 196
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Annual maturities of debt for each of the next five years are as
follows (amounts in millions):

* Includes $1,469 million of commercial paper.

(10) Redeemable Preferred Stocks

4-1/2% Convertible Preferred Stock. The 4-1/2% Convertible Preferred
Stock was stated at its redemption value of $3,000 per share, and each
share was convertible into 204 shares of TCI Class A common stock. In
February of 1994, all of the shares of such convertible preferred
stock were tendered to the Company for conversion and, on March 3,
1994, 1,265,004 shares of TCI Class A common stock were issued to the
holders of such preferred stock.

Convertible Preferred Stock, Series C. TCI has issued 70,575 shares
of a series of TCI Series Preferred Stock designated "Convertible
Preferred Stock, Series C," par value $.01 per share, as partial
consideration for an acquisition by TCI .

Each share of Series C Preferred Stock is convertible, at the option
of the holders, into 100 shares of Series A TCI Group Stock and 25
shares of Series A Liberty Group stock, subject to anti-dilution
adjustments. The dividend, liquidation and redemption features of the
Series C Preferred Stock will be determined by reference to the
liquidation value of the Series C Preferred Stock, which as of any
date of determination is equal, on a per share basis, to the sum of
(i) $2,375, plus (ii) all dividends accrued on such share through the
dividend payment date on or immediately preceding such date of
determination to the extent not paid on or before such date, plus
(iii), for purposes of determining liquidation and redemption
payments, all unpaid dividends accrued on the sum of clauses (i) and
(ii) above, to such date of determination.

(continued)

F-49

<PAGE> 197
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Subject to the prior preferences and other rights of any class or
series of TCI preferred stock ranking pari passu with the Series C
Preferred Stock, the holders of Series C Preferred Stock are entitled
to receive and, subject to any prohibition or restriction contained in
any instrument evidencing indebtedness of TCI, TCI is obligated to pay
preferential cumulative cash dividends out of funds legally available
therefor. Dividends accrue cumulatively at an annual rate of 5-1/2%
of the liquidation value per share, whether or not such dividends are
declared or funds are legally or contractually available for payment
of dividends, except that if TCI fails to redeem shares of Series C
Preferred Stock required to be redeemed on a redemption date,
dividends will thereafter accrue cumulatively at an annual rate of 15%
of the liquidation value per share. Accrued dividends are payable
quarterly on January 1, April 1, July 1 and October 1 of each year,
commencing on the first dividend payment date after the issuance of
the Series C Preferred Stock. Dividends not paid on any dividend
payment date will be added to the liquidation value on such date and
remain a part thereof until such dividends and all dividends accrued
thereon are paid in full. Dividends accrue on unpaid dividends at the
rate of 5-1/2% per annum, unless such dividends remain unpaid for two
consecutive quarters in which event such rate will increase to 15% per
annum. The Series C Preferred Stock ranks prior to the Series A TCI
Group Stock, Series A Liberty Group Stock and Class B Preferred Stock
and pari passu with the Series F Preferred Stock with respect to the
declaration and payment of dividends.

Upon the dissolution, liquidation or winding up of TCI, holders of the
Series C Preferred Stock will be entitled to receive from the assets
of TCI available for distribution to stockholders an amount in cash,
per share, equal to the liquidation value. The Series C Preferred
Stock will rank prior to the TCI common stock and Class B Preferred
Stock and pari passu with the Series F Preferred Stock as to any such
distributions.

The Series C Preferred Stock is subject to optional redemption at any
time after the seventh anniversary of its issuance, in whole or in
part, by TCI at a redemption price, per share, equal to the then
liquidation value of the Series C Preferred Stock. Subject to the
rights of any other class or series of the Company's preferred stock
ranking pari passu with the Series C Preferred Stock, the Series C
Preferred Stock is required to be redeemed by the Company at any time
after such seventh anniversary at the option of the holder, in whole
or in part (provided that the aggregate liquidation value of the
shares to be redeemed is in excess of $1 million), in each case at a
redemption price, per share, equal to the liquidation value.

(continued)

F-50

<PAGE> 198
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For so long as any dividends are in arrears on the Series C Preferred
Stock or any class or series of TCI preferred stock ranking pari passu
with the Series C Preferred Stock and until all dividends accrued up
to the immediately preceding dividend payment date on the Series C
Preferred Stock and such parity stock shall have been paid or declared
and set apart so as to be available for payment in full thereof and
for no other purpose, TCI may not redeem or otherwise acquire any
shares of Series C Preferred Stock, any such parity stock or any class
or series of its preferred stock ranking junior (including the TCI
common stock and the Series C Preferred Stock) unless all then
outstanding shares of Series C Preferred Stock and such parity stock
are redeemed. If TCI fails to redeem shares of Series C Preferred
Stock required to be redeemed on a redemption date, and until all such
shares are redeemed in full, TCI may not redeem any such parity stock
or junior stock, or otherwise acquire any shares of such stock or
Series C Preferred Stock. Nothing contained in the two immediately
preceding sentences shall prevent TCI from acquiring (i) shares of
Series C Preferred Stock and any such parity stock pursuant to a
purchase or exchange offer made to holders of all outstanding shares
of Series C Preferred Stock and such parity stock, if (a) as to
holders of all outstanding shares of Series C Preferred Stock, the
terms of the purchase or exchange offer for all such shares are
identical, (b) as to holders for all outstanding shares of a
particular series or class of parity stock, the terms of the purchase
or exchange offer for all such shares are identical and (c) as among
holders of all outstanding shares of Series C Preferred Stock and
parity stock, the terms of each purchase or exchange offer are
substantially identical relative to the respective liquidation prices
of the shares of Series C Preferred Stock and each series or class of
such parity stock, or (ii) shares of Series C Preferred Stock, parity
stock or junior stock in exchange for, or through the application of
the proceeds of the sale of, shares of junior stock.

The Series C Preferred Stock is subject to restrictions on transfer
although it has certain customary registration rights with respect to
the underlying shares of TCI Group and Liberty Group Stock. The
Series C Preferred Stock may vote on all matters submitted to a vote
of the holders of the TCI common stock, has one vote for each share of
TCI Group and Liberty Group Stock into which the shares of Series C
Preferred Stock are converted for such purpose, and may vote as a
single class with the TCI common stock. The Series C Preferred Stock
has no other voting rights except as required by the Delaware General
Corporation Law ("DGCL") and except that the consent of the holders of
record of shares representing at least two-thirds of the liquidation
value of the outstanding shares of the Series C Preferred Stock is
necessary to (i) amend the designation, rights, preferences and
limitations of the Series C Preferred Stock as set forth in the TCI
Charter and (ii) to create or designate any class or series of TCI
preferred stock that would rank prior to the Series C Preferred Stock.

Convertible Preferred Stock, Series D. The Company issued 1,000,000
shares of a series of TCI Series Preferred Stock designated
"Convertible Preferred Stock, Series D, par value $.01 per share, as
partial consideration for the merger between TCIC and TeleCable (see
note 8).
(continued)

F-51

<PAGE> 199
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The holders of the Series D Preferred Stock shall be entitled to
receive, when and as declared by the Board out of unrestricted funds
legally available therefor, cumulative dividends, in preference to
dividends on any stock that ranks junior to the Series D Preferred
Stock (currently the TCI Group Stock, the Liberty Group Stock and the
Class B Preferred Stock), that shall accrue on each share of Series D
Preferred stock at the rate of 5-1/2% per annum of the liquidation
value ($300 per share). Dividends are cumulative, and in the event
that dividends are not paid in full on two consecutive dividend
payment dates or in the event that TCI fails to effect any required
redemption of Series D Preferred Stock, accrue at the rate of 10% per
annum of the liquidation value. The Series D Preferred Stock ranks on
parity with the Series C Preferred Stock and the Series F Preferred
Stock.

Prior to the Distribution, 431 shares of Series D Preferred Stock were
converted into 4,310 shares of TCI Class A common stock. Subsequent
to the Distribution, each share of Series D Preferred Stock is
convertible into 10 shares of Series A TCI Group Stock and 2.5 shares
of Series A Liberty Group Stock, subject to adjustment upon certain
events specified in the certificate of designation establishing Series
D Preferred Stock. To the extent any cash dividends are not paid on
any dividend payment date, the amount of such dividends will be deemed
converted into shares of TCI common stock at a conversion rate equal
to 95% of the then current market price of common stock, and upon
issuance of common stock to holders of Series D Preferred Stock in
respect of such deemed conversion, such dividend will be deemed paid
for all purposes. See note 1.

Shares of Series D Preferred Stock are redeemable for cash at the
option of the holder at any time after the tenth anniversary of the
issue date at a price equal to the liquidation value in effect as of
the date of the redemption. Shares of Series D Preferred Stock may
also be redeemed for cash at the option of TCI after the fifth
anniversary of the issue date at such redemption price or after the
third anniversary of the issue date if the market value per share
exceeds certain defined levels for periods specified in the
certificate of designation.

If TCI fails to effect any required redemption of Series D Preferred
Stock, the holders thereof will have the option to convert their
shares of Series D Preferred Stock into common stock at a conversion
rate of 95% of the then current market value of common stock, provided
that such option may not be exercised unless the failure to redeem
continues for more than a year.

Except as required by law, holders of Series D Preferred Stock are not
entitled to vote on any matters submitted to a vote of the
stockholders of TCI.

(continued)

F-52

<PAGE> 200
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Convertible Redeemable Participating Preferred Stock, Series F.
Immediately prior to the record date for the Distribution, the Company
caused each of its subsidiaries holding Subsidiary Shares to exchange
such shares for shares of Series F Preferred Stock having an aggregate
value of not less than that of the Subsidiary Shares so exchanged.
The Company is authorized to issue 500,000 shares of Series F
Preferred Stock, par value $.01 per share. Subsidiaries of TCI hold
all the issued and outstanding shares. Subsidiaries of TCI exchanged
all of the Subsidiary Shares for 355,141 shares of Series F Preferred
Stock. Subsequent to such exchange, a holder of 78,077 shares of
Series F Preferred Stock converted its holdings into 100,524,364
shares of Series A TCI Group Stock. Such shares of Series A TCI Group
Stock are reflected as treasury stock in the accompanying consolidated
financial statements. Such preferred stock of TCI eliminates in
consolidation.

Each share of Series F Preferred Stock was convertible into 1,000
shares of Series A TCI Group Stock, subject to anti-dilution
adjustments, at the option of the holder at any time. The
anti-dilution provisions of the Series F Preferred Stock provide that
the conversion rate of the Series F Preferred Stock will be adjusted
by increasing the number of shares of Series A TCI Group Stock
issuable upon conversion in the event of any non-cash dividend or
distribution of the Series A TCI Group Stock to give effect to the
value of the securities, assets or other property so distributed;
however, no such adjustment shall entitle the holder to receive the
actual security, asset or other property so distributed upon the
conversion of shares of Series F Preferred Stock. Therefore, the
Distribution resulted in an adjustment to the conversion rate of the
Series F Preferred Stock such that each holder has the right to
receive upon conversion 1,287.51 shares of Series A TCI Group Stock.

The holders of the Series F Preferred Stock are entitled to
participate, on an as-converted basis, with the holders of the Series
A TCI Group Stock, with respect to any cash dividends or distribution
declared and paid on the Series A TCI Group Stock. Dividends or
distribution on the Series A TCI Group Stock which are not paid in
cash would result in the adjustment of the applicable conversion rate
as described above.

Upon the dissolution, liquidation or winding up of the Company,
holders of the Series F Preferred Stock will be entitled to receive
from the assets of the Company available for distribution to
stockholders an amount, in cash or property or a combination thereof,
per share of Series F Preferred Stock, equal to the sum of (x) $.01
and (y) the amount to be distributed per share of Series A TCI Group
Stock in such liquidation, dissolution or winding up multiplied by the
applicable conversion rate of a share of Series F Preferred Stock.

(continued)

F-53

<PAGE> 201
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Series F Preferred Stock is subject to optional redemption by the
Company at any time after its issuance, in whole or in party, at a
redemption price, per share, equal to the issue price of a share of
Series F Preferred Stock (as adjusted in respect of stock splits,
reverse splits and other events affecting the shares of Series F
Preferred Stock), plus any dividends which have been declared but are
unpaid as of the date fixed for such redemption. The Company may
elect to pay the redemption price (or designated portion thereof) of
the shares of Series F Preferred Stock called for redemption by
issuing to the holder thereof, in respect of its shares to be
redeemed, a number of shares of Series A TCI Group Stock equal to the
aggregate redemption price (or designated portion thereof) of such
shares divided by the average of the last sales prices of the Series A
TCI Group Stock for a period specified, and subject to the adjustments
described, in the certificate of designation establishing the Series F
Preferred Stock.

Redeemable Convertible TCI Group Preferred Stock, Series G ("Series G
Preferred Stock") and Redeemable Convertible Liberty Media Group
Preferred Stock, Series H ("Series H Preferred Stock"). Subsequent to
December 31, 1995, TCI issued 7,259,380 shares of a series of TCI
Series Preferred Stock designated "Redeemable Convertible TCI Group
Preferred Stock, Series G" and 7,259,380 shares of a series of TCI
Series Preferred Stock designated "Redeemable Convertible Liberty
Media Group Preferred Stock, Series H" as consideration for an
acquisition.

The initial liquidation value for the Series G Preferred Stock and
Series H Preferred Stock is $21.60 per share and $5.40 per share,
respectively, subject in both cases, to increase in an amount equal to
aggregate accrued but unpaid dividends, if any. No dividends will
accrue on the Series G or Series H Preferred Stock if the sum of the
last reported sale price of TCI Group Stock plus one-fourth of the
last reported sale price of the Liberty Group Stock equals or exceeds
$27 for any ten consecutive trading days during the 65 trading days
immediately prior to the first anniversary of issuance of the Series G
and Series H Preferred Stock. If the sum of the amounts specified in
the preceding sentence does not equal or exceed $27 for the specified
period, dividends will begin to accrue on the Series G and Series H
Preferred Stock on the first anniversary of issuance of the Series G
and Series H Preferred Stock, and will thereafter be payable
semi-annually commencing August 1, 1997, at the rate of 4% per annum
on the liquidation value. Any dividends paid on the Series G and
Series H Preferred Stock may be paid, at TCI's election, in cash or
shares of TCI Group Stock. Additional dividends will accrue on unpaid
dividends initially at a rate of 4% per annum. The dividend rate on
dividends that remain unpaid for six months will increase to 8.625%
per annum.

(continued)

F-54

<PAGE> 202
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Each share of Series G Preferred Stock is convertible at the option of
the holder at any time prior to the close of business on the last
business day prior to redemption into 1.05 shares of Series A TCI
Group Stock and each share of Series H Preferred Stock is convertible
at any time prior to the close of business on the last business day
prior to redemption into .2625 shares of Series A Liberty Group Stock.
The conversion rights of Series G and Series H Preferred Stock are
subject to adjustment in certain circumstances.

Among other such adjustments, if the Liberty Group Stock, or any other
redeemable capital stock of TCI into which either series of Preferred
Stock may be convertible ("Redeemable Capital Stock"), is redeemed in
full by TCI (the "Redemption Event"), then, except as otherwise
described below, the shares of such Series G and Series H Preferred
Stock will thereafter be convertible into the kind and amount of
consideration that would have been received in such Redemption Event
by a holder of the number of shares of Redeemable Capital Stock that
would have been issuable upon conversion of such shares of Series G
and Series H Preferred Stock, if they had been converted in full
immediately prior to such Redemption Event.

However, if any series of Redeemable Capital Stock into which a series
of Series G or Series H Preferred Stock is then convertible is
redeemed in full by TCI in exchange for securities of another issuer
("Redemption Securities"), TCI may elect to provide the holders of
such Series G or Series H Preferred Stock with the right to exchange
such Series G or Series H Preferred Stock, concurrently with the
Redemption Event, for preferred stock of such other issuer ("Mirror
Preferred Stock"). Such Mirror Preferred Stock shall be convertible
into Redemption Securities and shall otherwise have terms and
conditions comparable to the Series G or Series H Preferred Stock
exchanged. If TCI provides such an exchange right, any holder that
does not then choose to participate in such exchange will continue to
hold such Series G or Series H Preferred Stock but such holder will
lose the conversion right with respect to the Redeemable Capital Stock
redeemed in the Redemption Event and will not have any right to
receive Redemption Securities in lieu thereof. A holder that
participates in such exchange will receive Mirror Preferred Stock
convertible into Redemption Securities, but will no longer hold the
Series G or Series H Preferred Stock so exchanged.

An alternative provision will apply if, at the time of exercise of any
such exchange right provided by TCI, the holder of the applicable
series of Series G or Series H Preferred Stock would be entitled to
receive on conversion any property in addition to the Redeemable
Capital Stock being redeemed. In that case, holders that choose to
participate in the exchange will receive both Mirror Preferred Stock
issued by the issuer of the Redemption Securities of the other issuer
and a new preferred stock of TCI convertible into such additional
property. In such event, the Mirror Preferred Stock and such new TCI
preferred stock will have a combined liquidation value equal to the
liquidation value of the Series G or Series H Preferred Stock
exchanged and will otherwise have terms and conditions comparable to
such Series G or Series H Preferred Stock.

(continued)

F-55

<PAGE> 203
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Series G and Series H Preferred Stock are redeemable at TCI's
option, in whole or in part, any time on or after February 1, 2001.
The Series G and Series H Preferred Stock will be redeemable in full
on February 1, 2016, to the extent then outstanding. In all cases,
the redemption price per share will be the liquidation value thereof,
including the amount of any accrued but unpaid dividends thereon, to
and including the redemption date.

The Series G and Series H Preferred Stock will rank prior to TCI
common stock and the TCI Class B Preferred Stock and pari passu with
all other currently outstanding classes and series of TCI preferred
stock with respect to the declaration and payment of dividends and in
liquidation.

The Series G and Series H Preferred Stock will vote in any general
election of directors of TCI and will have one vote per share for such
purposes and will vote as a single class with the TCI common stock,
the TCI Class B Preferred Stock and any other class or series of TCI
Preferred Stock entitled to vote in any general election of directors.
The Series G and Series H Preferred Stock will have no other voting
rights except as required by the DGCL.

(11) Stockholders' Equity

Common Stock

The Series A TCI Group Stock and Series A Liberty Group Stock each
have one vote per share, and the Series B TCI Group Stock and Series B
Liberty Group Stock each have ten votes per share. Each share of
Series B TCI Group Stock is convertible, at the option of the holder,
into one share of Series A TCI Group Stock, and each share of Series B
Liberty Group Stock is convertible, at the option of the holder, into
one share of Series A Liberty Group Stock. See note 1.

The rights of holders of the TCI Group Stock upon liquidation of TCI
are based upon the ratio of the aggregate market capitalization, as
defined, of the TCI Group Stock to the aggregate market
capitalization, as defined, of the TCI Group Stock and the Liberty
Group Stock.

Similarly, the rights of holders of the Liberty Group Stock upon
liquidation of TCI are based upon the ratio of the aggregate market
capitalization, as defined, of the Liberty Group Stock to the
aggregate market capitalization, as defined, of the Liberty Group
Stock and the TCI Group Stock.

Employee Benefit Plans

The Company has several employee stock purchase plans (the "Plans") to
provide employees an opportunity for ownership in the Company and to
create a retirement fund. Terms of the Plans generally provide for
employees to contribute up to 10% of their compensation to a trust for
investment in TCI Group Stock and Liberty Media Group Stock. The
Company, by annual resolution of the Board, generally contributes up
to 100% of the amount contributed by employees. Certain of the
Company's subsidiaries have their own employee benefit plans.
Contributions to all plans aggregated $28 million, $21 million and $16
million for 1995, 1994 and 1993, respectively.

(continued)

F-56

<PAGE> 204
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Preferred Stock

Class A Preferred Stock. The Company is authorized to issue 700,000
shares of Class A Preferred Stock, par value $.01 per share.
Subsidiaries of TCI held all of the issued and outstanding shares of
such stock, amounting to 592,797 shares. Such preferred stock
eliminated in consolidation. The holders of the Class A Preferred
Stock exchanged such Subsidiary Shares for shares of Series F
Preferred Stock immediately prior to the record date of the
Distribution. See note 1.

Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock.
The Company is authorized to issue 1,675,096 shares of Class B
Preferred Stock and 1,620,026 of such shares are issued and
outstanding.

Dividends accrue cumulatively (but without compounding) at an annual
rate of 6% of the stated liquidation value of $100 per share (the
"Stated Liquidation Value"), whether or not such dividends are
declared or funds are legally available for payment of dividends.
Accrued dividends will be payable annually on March 1 of each year (or
the next succeeding business day if March 1 does not fall on a
business day), and, in the sole discretion of the Board, may be
declared and paid in cash, in shares of Series A TCI Group Stock or in
any combination of the foregoing. Accrued dividends not paid as
provided above on any dividend payment date will accumulate and such
accumulated unpaid dividends may be declared and paid in cash, shares
of Series A TCI Group Stock or any combination thereof at any time
(subject to the rights of any senior stock and, if applicable, to the
concurrent satisfaction of any dividend arrearages on any class or
series of TCI preferred stock ranking on a parity with the Class B
Preferred Stock with respect to dividend rights) with reference to any
regular dividend payment date, to holders of record of Class B
Preferred Stock as of a special record date fixed by the Board (which
date may not be more than 45 days nor less than 10 days prior to the
date fixed for the payment of such accumulated unpaid dividends). The
Class B Preferred Stock ranks junior to the Series F Preferred Stock
with respect to the declaration and payment of dividends.

If all or any portion of a dividend payment is to be paid through the
issuance and delivery of shares of Series A TCI Group Stock, the
number of such shares to be issued and delivered will be determined by
dividing the amount of the dividend to be paid in shares of Series A
TCI Group Stock by the Average Market Price of the Series A TCI Group
Stock. For this purpose, "Average Market Price" means the average of
the daily last reported sale prices (or, if no sale price is reported
on any day, the average of the high and low bid prices on such day) of
a share of Series A TCI Group Stock for the period of 20 consecutive
trading days ending on the tenth trading day prior to the regular
record date or special record date, as the case may be, for the
applicable dividend payment.

(continued)

F-57

<PAGE> 205
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In the event of any liquidation, dissolution or winding up of TCI, the
holders of Class B Preferred Stock will be entitled, after payment of
preferential amounts on any class or series of stock ranking prior to
the Class B Preferred Stock with respect to liquidating distributions,
to receive from the assets of TCI available for distribution to
stockholders an amount in cash or property or a combination thereof,
per share, equal to the Stated Liquidation Value thereof, plus all
accumulated and accrued but unpaid dividends thereon to and including
the redemption date. TCI does not have any mandatory obligation to
redeem the Class B Preferred Stock as of any fixed date, at the option
of the holders or otherwise.

Subject to the prior preferences and other rights of any class or
series of TCI preferred stock, the Class B Preferred Stock will be
exchangeable at the option of TCI in whole but not in part at any time
for junior subordinated debt securities of TCI ("Junior Exchange
Notes"). The Junior Exchange Notes will be issued pursuant to an
indenture (the "Indenture"), to be executed by TCI and a qualified
trustee to be chosen by TCI.

If TCI exercises its optional exchange right, each holder of
outstanding shares of Class B Preferred Stock will be entitled to
receive in exchange therefor newly issued Junior Exchange Notes of a
series authorized and established for the purpose of such exchange,
the aggregate principal amount of which will be equal to the aggregate
Stated Liquidation Value of the shares of Class B Preferred Stock so
exchanged by such holder, plus all accumulated and accrued but unpaid
dividends thereon to and including the exchange date. The Junior
Exchange Notes will be issuable only in principal amounts of $100 or
any integral multiple thereof and a cash adjustment will be paid to
the holder for any excess principal that would otherwise be issuable.
The Junior Exchange Notes will mature on the fifteenth anniversary of
the date of issuance and will be subject to earlier redemption at the
option of TCI, in whole or in part, for a redemption price equal to
the principal amount thereof plus accrued but unpaid interest.
Interest will accrue, and be payable annually, on the principal amount
of the Junior Exchange Notes at a rate per annum to be determined
prior to issuance by adding a spread of 215 basis points to the
"Fifteen Year Treasury Rate" (as defined in the Indenture). Interest
will accrue on overdue principal at the same rate, but will not accrue
on overdue interest.

The Junior Exchange Notes will represent unsecured general obligations
of TCI and will be subordinated in right of payment to all Senior Debt
(as defined in the Indenture).
(continued)

F-58

<PAGE> 206
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For so long as any dividends are in arrears on the Class B Preferred
Stock or any class or series of TCI preferred stock ranking pari passu
with the Class B Preferred Stock which is entitled to payment of
cumulative dividends prior to the redemption, exchange, purchase or
other acquisition of the Class B Preferred Stock, and until all
dividends accrued up to the immediately preceding dividend payment
date on the Class B Preferred Stock and such parity stock shall have
been paid or declared and set apart so as to be available for payment
in full thereof and for no other purpose, neither TCI nor any
subsidiary thereof may redeem, exchange, purchase or otherwise acquire
any shares of Class B Preferred Stock, any such parity stock or any
class or series of its capital stock ranking junior to the Class B
Preferred Stock (including the TCI common stock), or set aside any
money or assets for such purpose, unless all of the outstanding shares
of Class B Preferred Stock and such parity stock are redeemed. If TCI
fails to redeem or exchange shares of Class B Preferred Stock on a
date fixed for redemption or exchange, and until such shares are
redeemed or exchanged in full, TCI may not redeem or exchange any
parity stock or junior stock, declare or pay any dividend on or make
any distribution with respect to any junior stock or set aside money
or assets for such purpose and neither TCI nor any subsidiary thereof
may purchase or otherwise acquire any Class B Preferred Stock, parity
stock or junior stock or set aside money or assets for any such
purpose. The failure of TCI to pay any dividends on any class or
series of parity stock or to redeem or exchange on any date fixed for
redemption or exchange any shares of Class B Preferred Stock shall not
prevent TCI from (i) paying any dividends on junior stock solely in
shares of junior stock or the redemption purchase or other acquisition
of junior stock solely in exchange for (together with cash adjustment
for fractional shares, if any) or (but only in the case of a failure
to pay dividends on any parity stock) through the application of the
proceeds from the sale of, shares of junior stock; or (ii) the payment
of dividends on any parity stock solely in shares of parity stock
and/or junior stock or the redemption, exchange, purchase or other
acquisition of Class B Preferred Stock or parity stock solely in
exchange for (together with a cash adjustment for fractional shares,
if any), or (but only in the case of failure to pay dividends on any
parity stock) through the application of the proceeds from the sale
of, parity stock and/or junior stock.

The Class B Preferred Stock will vote in any general election of
directors, will have one vote per share for such purpose and will vote
as a single class with the TCI common stock and any class or series of
TCI preferred stock entitled to vote in any general election of
directors. The Class B Preferred Stock will have no other voting
rights except as required by the DGCL.

Series Preferred Stock. The TCI Series Preferred Stock is issuable,
from time to time, in one or more series, with such designations,
preferences and relative participating, option or other special
rights, qualifications, limitations or restrictions thereof, as shall
be stated and expressed in a resolution or resolutions providing for
the issue of such series adopted by the Board.

(continued)

F-59

<PAGE> 207
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Redeemable Convertible Preferred Stock, Series E. In connection with
the Reorganization, the Board created and authorized the issuance of
the Redeemable Convertible Preferred Stock, Series E, par value $.01
per share. The Company is authorized to issue 400,000 shares of such
preferred stock. Subsidiaries of TCI held all of the issued and
outstanding shares of such stock, amounting to 246,402 shares. All
such preferred stock eliminated in consolidation. The holders of the
Series E Preferred Stock exchanged such Subsidiary Shares for shares
of Series F Preferred Stock immediately prior to the record date of
the Distribution.

Stock Options

In 1994, the Company adopted the Tele-Communications, Inc. 1994 Stock
Incentive Plan (the "1994 Plan"). The Plan provided for awards to be
made in respect of a maximum of 16 million shares of TCI Class A
common stock. Awards may be made as grants of stock options, stock
appreciation rights, restricted shares, stock units or any combination
thereof. Pursuant to the TCI/Liberty Merger Agreement and certain
assumption agreements, stock options and/or stock appreciation rights
granted (or assumed) by Old TCI and stock options and/or stock
appreciation rights granted by Liberty were assumed by the Company and
new options and/or stock appreciation rights were substituted under
the 1994 Plan. The following descriptions represent the terms of the
assumed options and/or stock appreciation rights and additional awards
under the 1994 Plan.

The 1994 Plan was adjusted to provide that the number and type of
shares subject to future awards consists of a number of shares of
Series A TCI Group Stock equal to the number of shares of Class A
common stock subject to future awards immediately prior to the
Distribution and a number of shares of Series A Liberty Group Stock
equal to one-fourth of the number of shares of Class A common stock
subject to future awards immediately prior to Distribution. Following
the Distribution, the Compensation Committee of TCI may in its
discretion grant awards, including awards of options on, or stock
appreciation rights respecting, shares of Series A TCI Group Stock,
Series A Liberty Group Stock, or combinations thereof, in such amounts
and types as it determines in accordance with the terms of the 1994
Plan, as adjusted.

In 1995, the Company adopted the Tele-Communications, Inc. 1995
Employee Stock Incentive Plan (the "1995 Plan"). In addition, the
Company has established the Tele-Communications, Inc. 1996 Stock
Incentive Plan (the "1996 Plan") which is subject to stockholder
approval.

(continued)

F-60

<PAGE> 208
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In connection with the Distribution, each holder of an outstanding
option or stock appreciation right received an additional option or
stock appreciation right, as applicable, covering a number of shares
of Series A Liberty Group Stock equal to one-fourth of the number of
shares of Class A common stock theretofore subject to the outstanding
option or stock appreciation right, and the outstanding option or
stock appreciation right would continue in effect as an option or
stock appreciation right covering the same number of shares of Series
A TCI Group Stock (as redesignated) that were theretofore subject to
the option or stock appreciation right. The aggregate pre-adjustment
strike price of the outstanding options or stock appreciation rights
was allocated between the outstanding options or stock appreciation
rights and the newly issued options or stock appreciation rights in a
ratio determined by the Compensation Committee. The following
descriptions of stock options and/or stock appreciation rights have
been adjusted to reflect such change.

The following table presents information regarding certain options in
tandem with stock appreciation rights ("SARs") to purchase Class A,
Series A TCI Group Stock and Series A Liberty Group Stock pursuant to
the 1994 Plan, the 1995 Plan and the 1996 Plan:

<TABLE>
<CAPTION>
Series A Liberty
Class A Series A TCI Media Group
common stock Group Stock Stock
--------------- --------------- --------------
<S> <C> <C> <C>
Outstanding at January 1, 1993 4,525,578 -- --
Granted 3,955,000 -- --
Exercised (96,242) -- --
Canceled (75,000) -- --
-------------- --------------- --------------

Outstanding at December 31, 1993 8,309,336 -- --
Granted 3,191,000 -- --
Assumed 54,600 -- --
Exercised (217,483) -- --
Canceled (16,625) -- --
-------------- --------------- --------------

Outstanding at December 31, 1994 11,320,828 -- --
Converted from Class A options (11,218,866) 11,218,866 --
Adjustment for Distribution -- -- 2,804,715
Granted -- 7,407,500 2,211,000
Exercised (91,962) (933,516) (227,003)
Canceled (10,000) (90,500) (22,625)
-------------- --------------- --------------

Outstanding at December 31, 1995 -- 17,602,350 4,766,087
============== =============== ==============

Exercise Price $8.83-19.56 $6.60-17.00 $8.83-24.00
============== =============== ==============

Vesting period 4-5 years 4-5 years
=============== ==============
</TABLE>

On December 13, 1995, pursuant to the 1994 Plan, the Company awarded
330,000 restricted shares of Series A TCI Group common stock and
30,000 restricted shares of Series A Liberty Group Stock to certain
officers and other key employees of the Company. Such restricted
shares vest as to 50% on December 13, 2000 and as to the remaining 50%
on December 13, 2001.

(continued)

F-61

<PAGE> 209
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

SARs with respect to 1,423,500 shares of Series A TCI Group Stock and
355,875 shares of Series A Liberty Group Stock were outstanding at
December 31, 1995. These rights have an adjusted strike price of
$0.60 and $0.82 per share, respectively, and become exercisable and
vest evenly over seven years, beginning March 28, 1992. The SARs
expire on March 28, 2001. The Company has the option of paying the
holder in stock or cash.

On August 3, 1995, stockholders of the Company approved the Director
Stock Option Plan including the grant, effective as of November 16,
1994, to each person that as of that date was a member of the Board
and was not an employee of the Company or any of its subsidiaries, of
options to purchase 50,000 shares of TCI Class A common stock.
Pursuant to the Director Stock Option Plan, options to purchase
300,000 shares of Series A TCI Group common stock were granted at an
exercise price of $16.50 per share and options to purchase 75,000
shares of Series A Liberty Group Stock were granted at an exercise
price of $22.00 per share and will vest and become exercisable over a
five-year period, commencing on November 16, 1995 and will expire on
November 16, 2004 During the year ended December 31, 1995, options to
purchase 50,000 shares of Series A TCI Group Stock and options to
purchase 12,500 shares of Series A Liberty Media Group Stock were
canceled.

Estimated compensation relating to restricted stock awards, options
with tandem SARs and SARs has been recorded through December 31, 1995,
but is subject to future adjustment based upon market value, and
ultimately, on the final determination of market value when the rights
are exercised or the restricted stock awards are vested.

Other

In connection with the exercise of a stock option by an
officer/director of Liberty, a note was given to Liberty as partial
payment of the exercise price. This note bore interest at 7.54% per
annum. At the date of the TCI/Liberty Combination, the Company
recorded the net assumed note receivable, amounting to approximately
$15 million, from such officer as a reduction of stockholders' equity.
On October 27, 1994, such officer tendered to the Company 634,917
shares of TCI Class B common stock in full payment of principal and
interest amounting to $15 million.

The shares issued by Liberty upon exercise of the aforementioned
Liberty option, together with all subsequent dividends and
distributions thereon, were subject to repurchase by Liberty under
certain circumstances. Such shares were exchanged for 15,600,000
shares of TCI Class A common stock and 200,000 shares of Class B
Preferred Stock in the TCI/Liberty Combination. The Company's
repurchase right terminates as to 20% of the Option Units per year,
commencing March 28, 1992, and will terminate as to all of the Option
Units on March 28, 1996 or in the event of death, disability or under
certain other circumstances.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The excess of consideration received on debentures converted or
options exercised over the par value of the stock issued is credited
to additional paid-in capital.

At December 31, 1995, there were 75,466,614 shares of Series A TCI
Group Stock and 19,179,651 shares of Series A Liberty Group Stock
reserved for issuance under exercise privileges related to options,
convertible debt securities and convertible preferred stock and upon
vesting of the restricted stock awards described in this note 11 and
in notes 9 and 10. Additionally, in January of 1996, the Company
issued 7,259,380 shares each of Series G Preferred Stock and Series H
Preferred Stock (see note 10). Such preferred stocks are convertible
into 7,622,349 shares of Series A TCI Group Stock and 1,905,587 shares
of Series A Liberty Group Stock. In addition, one share of Series A
TCI Group Stock is reserved for each outstanding share of Series B TCI
Group Stock and one share of Series A Liberty Group Stock is reserved
for each outstanding share of Series B Liberty Group Stock. See note
1 for the effect of the Distribution on the conversion rights of
holders of convertible securities.

(12) Transactions with Officers and Directors

Effective January 31, 1996, a director of the Company purchased
one-third of the Company's interest in two limited partnerships and
obtained two ten-year options to purchase the Company's remaining
partnership interests. The purchase price for the one-third partnership
interests was 37.209 shares of WestMarc Communications, Inc. (a
wholly-owned subsidiary of the Company) Series C Cumulative Compounding
Preferred Stock owned by such director, and the purchase price for the
ten-year options was $100 for each option. All options are exercisable
for cash in the aggregate amount of $3,000,000.

(13) Sale of Subsidiary Stock

On July 18, 1995, TINTA completed an initial public offering (the
"IPO") in which it sold 20 million shares of TINTA Series A common
stock to the public for consideration of $16.00 per share aggregating
$320 million, before deducting related expenses (approximately $19
million). The shares sold to the public represented 17% of TINTA's
total issued and outstanding common stock. Also in July 1995, TINTA
issued 687,500 shares of TINTA Series A common stock as partial
consideration for a 35% ownership interest in Torneos Y Competencias
S.A., an Argentine sports programming company (the "TYC Acquisition").
As a result of the IPO and the TYC Acquisition, the Company has
recognized a gain amounting to $123 million. Subsequent to the IPO and
the TYC Acquisition, TCI owns 82% of the issued and outstanding stock
of TINTA, representing in excess of 90% of the voting power of TINTA.

In June 1995, Flextech issued share capital for cash and preferred
shares of Thomson Directories Limited. In connection with such
issuance, the Company recorded a $51 million increase to stockholders'
equity and a $93 million increase to minority interests in equity of
consolidated subsidiaries. No gain was recognized in the Company's
consolidated statement of operations due primarily to the existence of
the Company's contingent obligations to repurchase certain of the
Flextech share capital.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(14) Income Taxes

TCI files a consolidated Federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which the
Company owns less than 80% each file a separate income tax return.
TCI and such subsidiaries calculate their respective tax liabilities
on a separate return basis which are combined in the accompanying
consolidated financial statements.

Income tax benefit (expense) for the years ended December 31, 1995, 1994 and
1993 consists of:

<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1995:
Federal $ (23) 130 107
State and local (10) 23 13
-------- -------- --------

$ (33) 153 120
======== ======== ========

Year ended December 31, 1994:
Federal $ (69) (29) (98)
State and local (14) (8) (22)
-------- -------- --------

$ (83) (37) (120)
======== ======== ========

Year ended December 31, 1993:
Federal $ (14) (120) (134)
State and local (15) (20) (35)
-------- -------- --------

$ (29) (140) (169)
======== ======== ========
</TABLE>

Income tax benefit (expense) differs from the amounts computed by
applying the Federal income tax rate of 35% as a result of the
following:

<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit
(expense) $ 102 (64) (57)
Adjustment to deferred tax assets
and liabilities for enacted change
in Federal income tax rate -- -- (76)
Amortization not deductible for
tax purposes (25) (13) (12)
Minority interest in losses (earnings)
of consolidated subsidiaries 9 (3) (1)
Gain on sale of subsidiary stock 43 -- --
Recognition of losses of
consolidated partnership -- (10) (8)
State and local income taxes,
net of Federal income tax benefit (4) (20) (23)
Valuation allowance on
foreign corporation -- (10) --
Other (5) -- 8
-------- -------- --------

$ 120 (120) (169)
======== ======== ========
</TABLE>

(continued)

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Notes to Consolidated Financial Statements

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:

<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
-------- --------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 583 490
Less - valuation allowance (121) (100)
Investment tax credit carryforwards 118 122
Less - valuation allowance (41) (36)
Alternative minimum tax credit
carryforwards 95 90
Investments in affiliates, due
principally to losses of affiliates
recognized for financial statement
purposes in excess of losses
recognized for income tax purposes 176 294
Future deductible amounts principally
due to non-deductible accruals 90 52
Other 10 19
-------- --------

Net deferred tax assets 910 931
-------- --------

Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation 1,111 1,197
Franchise costs, principally due to
differences in amortization 3,569 2,600
Investment in affiliates, due
principally to undistributed
earnings of affiliates 499 452
Intangible assets, principally due to
differences in amortization 42 108
Leases capitalized for tax purposes 53 --
Other 166 83
-------- --------
Total gross deferred tax liabilities 5,440 4,440
-------- --------

Net deferred tax liability $ 4,530 3,509
======== ========
</TABLE>

The valuation allowance for deferred tax assets as of December 31, 1995
was $162 million. Such balance increased by $26 million from December
31, 1994.

At December 31, 1995, the Company had net operating loss carryforwards
for income tax purposes aggregating approximately $1,177 million of
which, if not utilized to reduce taxable income in future periods, $134
million expires in 2003, $116 million in 2004, $344 million in 2005,
$325 million in 2006, $138 million in 2009 and $120 million in 2010.
Certain subsidiaries of the Company had additional net operating loss
carryforwards for income tax purposes aggregating approximately $245
million and these net operating losses are subject to certain rules
limiting their usage.

(continued)

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Notes to Consolidated Financial Statements

At December 31, 1995, the Company had remaining available investment
tax credits of approximately $63 million which, if not utilized to
offset future Federal income taxes payable, expire at various dates
through 2005. Certain subsidiaries of the Company had additional
investment tax credit carryforwards aggregating approximately $55
million and these investment tax credit carryforwards are subject to
certain rules limiting their usage.

Certain of the Federal income tax returns of TCI and its subsidiaries
which filed separate income tax returns are presently under examination
by the Internal Revenue Service for the years 1981 through 1992. A
subsidiary of the Company has filed a petition in United States Tax
Court protesting the disallowance of certain Transitional Investment
Tax Credits and such issue will likely be litigated in 1996. In the
opinion of management, any additional tax liability, not previously
provided for, resulting from these examinations, ultimately determined
to be payable, should not have a material adverse effect on the
consolidated financial position of the Company.

New tax legislation was enacted in the third quarter of 1993 which,
among other matters, increased the corporate Federal income tax rate
from 34% to 35%. The Company has reflected the tax rate change in its
consolidated statements of operations. Such tax rate change resulted
in an increase of $76 million to income tax expense and deferred
income tax liability.

(15) Commitments and Contingencies

During 1994, subsidiaries of the Company, Comcast, Cox (collectively,
the "Cable Partners") and Sprint formed a partnership ("WirelessCo")
to engage in the business of providing wireless communications
services on a nationwide basis. Through WirelessCo, in which the
Company owns an indirect 30% interest, the partners participated in
auctions ("PCS Auctions") of broadband personal communications
services ("PCS") licenses conducted by the Federal Communications
Commission ("FCC"). In the first round auction, which concluded
during the first quarter of 1995, WirelessCo was the winning bidder
for PCS licenses for 29 markets, including New York, San
Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale.
The aggregate license cost for these licenses was approximately $2.1
billion.

WirelessCo also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited
partnership interest in APC for $23 million and agreed to make capital
contributions to APC equal to 49/51 of the cost of APC's PCS license.
Additional capital contributions may be required in the event APC is
unable to finance the full cost of its PCS license. WirelessCo may
also be required to finance the build-out expenditures for APC's PCS
system. Cox, which holds a pioneer preference PCS license for the Los
Angeles-San Diego market, and the Company, Comcast and Sprint have also
agreed on the general terms and conditions upon which Cox (with a 51%
interest) and WirelessCo (with a 49% interest) would form a partnership
to hold and develop a PCS system using the Los Angeles-San Diego
license. APC and the Cox partnership would affiliate their PCS systems
with WirelessCo and be part of WirelessCo's nationwide integrated
network, offering wireless communications services under the "Sprint"
brand.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3%
interest. PhillieCo was the winning bidder in the first round auction
for a PCS license for the Philadelphia market at a license cost of $85
million. To the extent permitted by law, the PCS system to be
constructed by PhillieCo would also be affiliated with WirelessCo's
nationwide network.

WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful
bidders. The capital that WirelessCo will require to fund the
construction of the PCS systems, in addition to the license costs and
investments described above, will be substantial.

In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships, of which the principal
partnership is Sprint Spectrum, to which they contributed their
respective interests in WirelessCo and through which they formed
another partnership, NewTelco, L.P. ("NewTelco") to engage in the
business of providing local wireline communications services to
residences and businesses on a nationwide basis. The Cable Partners
agreed to contribute their interests in TCG to NewTelco. TCG is one of
the largest competitive access providers in the United States in terms
of route miles.

Effective January 31, 1996, the Partners amended the Sprint Spectrum
partnership agreement (the "Partnership Agreement") and certain other
agreements related thereto. Under the Partnership Agreement, the
business of Sprint Spectrum and its subsidiaries will be the provision
of certain wireless and other services described in the Partnership
Agreement. The Partners intend for Sprint Spectrum and its subsidiary
partnerships to be the exclusive vehicles through which they engage in
the wireless telephony service businesses, subject to certain
exceptions. Sprint Spectrum will no longer be authorized to engage in
the business of providing local wireline communications services to
residences and businesses. In connection with the amendment of the
Partnership Agreement, the Partners, also agreed to the termination of
the agreement to contribute the Cable Partners' interests in TCG to
NewTelco.

Pursuant to separate agreements, each of the Cable Partners and Sprint
have agreed to negotiate in good faith on a market-by-market basis for
the provision of local wireline telephony services over the cable
television facilities of the respective Cable Partner under the Sprint
brand. Accordingly, local wireline telephony offerings in each market
would be the subject of individual agreements to be negotiated with
Sprint, rather than being provided by Sprint Spectrum, as originally
contemplated. The Cable Partners and Sprint also reaffirmed their
intention to continue to attempt to integrate the business of TCG with
that of Sprint Spectrum. In addition, each Cable Partner agreed to
certain restrictions on its ability to offer, promote, or package
certain of its products or services with certain products and services
of other persons and agreed to make its facilities available to Sprint
for specified purposes to the extent and on the terms that it has made
such facilities available to others for such purposes. Such agreements
have a term of five years, but under certain circumstances may
terminate after three years.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out
of Sprint Spectrum's nationwide network for wireless personal
communications services. Pursuant to the business plan, the Partners
are obligated to make additional cash capital contributions to Sprint
Spectrum in the aggregate amount of approximately $1.9 billion during
the two-year period that commenced January 1, 1996. The business plan
contemplates that Sprint Spectrum will require additional equity
thereafter.

In July 1995, TCIC and TCI entered into certain agreements with Viacom
Inc. ("Viacom") and certain subsidiaries of Viacom regarding the
purchase by TCIC of all of the common stock of a subsidiary of Viacom
("Cable Sub") which, at the time of purchase, will own Viacom's cable
systems and related assets.

The transaction has been structured as a tax-free reorganization in
which Cable Sub will initially transfer all of its non-cable assets,
as well as all of its liabilities other than current liabilities, to a
new subsidiary of Viacom ("New Viacom Sub"). Cable Sub will also
transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a
$1.7 billion loan facility (the "Loan Facility") to be arranged by
TCIC, TCI and Cable Sub. Following these transfers, Cable Sub will
retain cable assets with an estimated value at closing of
approximately $2.2 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Repayment of the Loan
Proceeds will be non-recourse to Viacom and New Viacom Sub.

Viacom will offer to the holders of shares of Viacom Class A Common
Stock and Viacom Class B Common Stock (collectively, "Viacom Common
Stock") the opportunity to exchange (the "Exchange Offer") a portion
of their shares of Viacom Common Stock for shares of Class A Common
Stock, par value $100 per share, of Cable Sub ("Cable Sub Class A
Stock"). The Exchange Offer will be subject to a number of
conditions, including a condition (the "Minimum Condition") that
sufficient tenders are made of Viacom Common Stock that permit the
number of shares of Cable Sub Class A Stock issued pursuant to the
Exchange Offer to equal the total number of shares of Cable Sub Class
A Stock issuable in the Exchange Offer.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B common stock for
$350 million (which will be used to reduce Cable Sub's obligations
under the Loan Facility). At the time of such acquisition, the Cable
Sub Class A Stock received by Viacom stockholders pursuant to the
Exchange Offer will automatically convert into a series of senior
cumulative exchangeable preferred stock (the "Exchangeable Preferred
Stock") of Cable Sub with a stated value of $100 per share (the
"Stated Value"). The terms of the Exchangeable Preferred Stock,
including its dividend, redemption and exchange features, will be
designed to cause the Exchangeable Preferred Stock, in the opinion of
two investment banks, to initially trade at the Stated Value. The
Exchangeable Preferred Stock will be exchangeable, at the option of
the holder commencing after the fifth anniversary of the date of
issuance, for shares of Series A TCI Group Stock. The Exchangeable
Preferred Stock will also be redeemable, at the option of Cable Sub,
after the fifth anniversary of the date of issuance, and will be
subject to mandatory redemption on the tenth anniversary of the date
of issuance at a price equal to the Stated Value per share plus
accrued and unpaid dividends, payable in cash or, at the election of
Cable Sub, in shares of Series A TCI Group Stock, or in any
combination of the foregoing. If insufficient tenders are made by
Viacom stockholders in the Exchange Offer to permit the Minimum
Condition to be satisfied, Viacom will extend the Exchange Offer for
up to 15 business days and, during such extension, TCI and Viacom are
to negotiate in good faith to determine mutually acceptable changes to
the terms and conditions for the Exchangeable Preferred Stock and the
Exchange Offer that each believes in good faith will cause the Minimum
Condition to be fulfilled and that would cause the Exchangeable
Preferred Stock to trade at a price equal to the Stated Value
immediately following the expiration of the Exchange Offer. In the
event the Minimum Condition is not thereafter met, TCI and Viacom will
each have the right to terminate the transaction. In addition, either
party may terminate the transaction if the exchange offer has not
commenced by June 24, 1996 or been consummated by July 24, 1996.

Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal
Revenue Service that the transaction qualifies as a tax-free
transaction and the satisfaction or waiver of all of the conditions of
the Exchange Offer. A request for a letter ruling from the Internal
Revenue Service has been filed by Viacom. The Company believes that,
based upon the unique and complex structure of the transaction, there
exists significant uncertainty as to whether a favorable ruling will
be obtained. In light of the foregoing, management of the Company has
concluded that consummation of the transaction is not yet probable.
No assurance can be given that the transaction will be consummated.

(continued)

F-69

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

On October 31, 1995, Liberty Media Group announced that it had entered
into a binding agreement in principle with The News Corporation
Limited ("News Corp.") and TINTA. In the United States, Liberty Media
Group and News Corp. agreed to form a partnership (the "Fox-Liberty
Venture") into which Liberty Media Group will contribute interests in
its national and regional sports networks and into which News Corp.
will contribute its fx cable network and certain other assets. Upon
consummation, Liberty Media Group will receive a 50% interest in the
Fox-Liberty Venture and $350 million in cash. The fx network will be
transformed into a nationally distributed, general entertainment and
sports network. The regional sports networks currently operated under
the Prime Sports name will be relaunched under the Fox Sports banner.

Internationally, News Corp., and a 50/50 partnership forms by Liberty
Sports, Inc., a wholly-owned subsidiary of Liberty Media Group, and
TINTA (the "Liberty-TINTA Partnership") have agreed to form a venture
to operate currently existing sports services in Asia, Latin American
and Australia and a variety of new sports services throughout the
world except in the United Kingdom, Japan and New Zealand where prior
arrangements preclude an immediate collaboration. The Liberty-TINTA
Partnership will own 50% of the international venture with News Corp.
owning the other 50%. News Corp. is contributing various
international sports rights, including the Star Sports channel which
is broadcast throughout Asia as part of the Star package of services.
The Liberty-TINTA Partnership is contributing Prime Deportiva, a
Spanish language sports service distributed in Latin American and in
Hispanic markets in the United States, an interest in Torneos y
Competencias S.A., an Argentinean sports programming and production
business, various international sports and satellite transponder
rights and cash. The Liberty-TINTA Partnership will also contribute
their 50% interest in Premiere Sports and All-Star Sports in
Australia. Both are 24-hour sports services available via MMDS or
cable television in Australia.

The transactions contemplated by the above agreements are expected to
close during 1996.

On November 27, 1995, the Company announced that it had agreed to
exchange its controlling interest in Home Shopping Network, Inc.
("HSN") for shares of Silver King Communications, Inc. ("Silver
King"). The Company will receive approximately 11 million newly
issued shares of Silver King in exchange for it 37.5 million shares of
HSN.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Liberty Media Group and Mr. Barry Diller and certain of their
respective affiliates entered into an agreement in August 1995
pursuant to which an option owned by Liberty Media Group to purchase 2
million shares of Silver King Class B common stock (the "Option")
(which shares would constitute voting control of Silver King) would be
transferred to Silver Management Company ("Silver Company"), an entity
in which Liberty Media Group would own all of the non-voting equity
interests (which would constitute substantially all of the equity of
such entity) and Mr. Diller would own all of the voting equity
interests. Silver Company would thereafter exercise the Option and
hold the shares of Silver King Class B Common Stock purchased
thereunder. In an amendment to such agreement entered into in
November 1995, Liberty Media Group agreed to contribute all of its
shares of HSN (which shares constitute approximately 41% of the equity
of HSN and approximately 80% of the voting power of HSN) to Silver
Company in return for additional non-voting equity interests in Silver
Company. Following such contribution Silver Company would exchange
such HSN shares with Silver King for additional shares of Silver King
Common Stock and Class B Common Stock (thereby increasing Silver
Company's controlling interest in Silver King to in excess of 80% of
the voting power of Silver King). Each such transaction is subject to
the satisfaction of certain conditions, including the receipt of all
necessary regulatory consents and approvals. If consummated, HSN
would cease to be a subsidiary of the Company and therefore, the
financial results of HSN would not be consolidated with the financial
results of Liberty Media Group. Although the Company would cease to
possess voting control over HSN, it would continue to have an indirect
equity interest in HSN through its ownership of the equity securities
of Silver Company. No assurance can be given that the transaction
will be consummated.

On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In
1993 and 1994, the FCC adopted certain rate regulations required by
the 1992 Cable Act and imposed a moratorium on certain rate increases.
As a result of such actions, the Company's basic and tier service
rates and its equipment and installation charges (the "Regulated
Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated
against competitive benchmark rates as published by the FCC, and
equipment and installation charges are based on actual costs. Any
rates for Regulated Services that exceeded the benchmarks were reduced
as required by the 1993 and 1994 rate regulations. The rate
regulations do not apply to the relatively few systems which are
subject to "effective competition" or to services offered on an
individual service basis, such as premium movie and pay-per-view
services.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company believes that it has complied in all material respects
with the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the Company's rates for Regulated Services are
subject to review by the FCC, if a complaint has been filed, or the
appropriate franchise authority, if such authority has been certified.
If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to
the appropriate benchmark and refund the excess portion of rates
received. Any refunds of the excess portion of tier service rates
would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be
retroactive to one year prior to the implementation of the rate
reductions.

On October 30, 1995, the FCC accepted for comment a proposed
resolution of all complaints against the cable programming services
tier ("CPST") currently pending against cable systems owned by the
Company. If the proposed resolution is accepted by the FCC, the
Company will settle all pending complaints by a one-time credit to
each subscriber in CPST regulated franchises. The aggregate amount of
such credits is approximately $9 million and had previously been
accrued by the Company. In addition, the FCC will find that the CPST
rates in CPST regulated franchises on September 15, 1995 comply with
federal regulations. The Company has committed not to file any
additional cost-of-service filings until May 15, 1996 in franchises
that were subject to CPST regulation prior to September 15, 1995.
However, the Company will be able to avail itself of the other
mechanisms under FCC rules to recover costs, including abbreviated
cost-of-service filings covering system rebuilds and upgrades. In the
proposed resolution, the Company does not admit any violation of, or
any failure to conform to, the 1992 Cable Act or the rules promulgated
thereunder. The comment period has ended and the Company is awaiting
action by the FCC.

The Company is obligated to pay fees for the license to exhibit
certain qualifying films that are released theatrically by various
motion picture studios through February 28, 2009 (the "Film Licensing
Obligations"). The aggregate minimum liability under certain of the
license agreements is approximately $414 million. The aggregate
amount of the Film Licensing Obligations under other license
agreements is not currently estimable because such amount is dependent
upon certain variable factors. Nevertheless, the Company's aggregate
payments under the Film License Obligations could prove to be
significant. Additionally, the Company has guaranteed up to $67
million of similar license fee obligations of an affiliate.

The Company has long-term sports program rights contracts which
require payments through 2006. Future payments for each of the next
five years as follows (amounts in millions):

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $222 million at December 31, 1995. Although there can
be no assurance, management of the Company believes that it will not
be required to meet its obligations under such guarantees, or if it is
required to fulfill any of such guarantees, that they will not be
material to the Company.

The Company has also committed to provide additional debt or equity
funding to certain of its affiliates. At December 31, 1995, such
commitments aggregated $95 million.

The Company leases business offices, has entered into pole rental
agreements and transponder lease agreements and uses certain equipment
under lease arrangements. Rental expense under such arrangements
amounted to $142 million, $82 million and $70 million in 1995, 1994
and 1993, respectively.

Future minimum lease payments under noncancellable operating leases
for each of the next five years are summarized as follows (amounts in
millions):

It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less
than the amount shown for 1996.

Certain key employees of the Company hold restricted stock awards and
options with tandem SARs to acquire shares of certain subsidiaries'
common stock. Estimates of the compensation related to the restricted
stock awards and options and/or SARs have been recorded in the
accompanying consolidated financial statement, but are subject to
future adjustment based upon the market value of the respective common
stock and, ultimately, on the final market value when the rights are
exercised or the restricted stock awards are vested.

The Company has contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. In the
opinion of management, it is expected that amounts, if any, which may
be required to satisfy such contingencies will not be material in
relation to the accompanying consolidated financial statements.

(continued)

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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(16) Information about the Company's Operations

Subsequent to the consummation of the TCI/Liberty Combination, the
Company operates primarily in two industry segments: cable and
communications services ("Cable") and programming services
("Programming"). Programming includes the production, acquisition and
distribution of globally branded entertainment, education and
information programming services and software for distribution through
all available formats and media; and home shopping via television and
other interactive media, direct marketing, advertising sales,
infomercials and transaction processing. Home shopping is a
programming service which includes a retail function. Separate
amounts of the aforementioned home shopping service have been provided
to enhance the readers understanding of the Company. The Company has
investments, accounted for under the equity method and the cost
method, which also operate in the Cable and Programming industries.
The following is selected information about the Company's operations
for the years ended December 31, 1995 and 1994:

<TABLE>
<CAPTION>
Programming
-----------------------------
Electronic Other Intersegment
Cable Retailing Programming Eliminations Total
----- --------- ----------- ------------ -----
1995 amounts in millions
----
<S> <C> <C> <C> <C> <C>
Revenue $ 5,384 1,019 521 (73) 6,851
======== ========== ============ ============ ========

Operating income
(loss) $ 653 (85) (26) -- 542
======== ========== ============ ============ ========

Depreciation and
amortization $ 1,274 43 55 -- 1,372
======== ========== ============ ============ ========

Capital
expenditures $ 1,733 13 36 -- 1,782
======== ========== ============ ============ ========

Identifiable assets $ 22,612 725 1,793 -- 25,130
======== ========== ============ ============ ========

1994
----

Revenue $ 4,247 482 240 (33) 4,936
======== ========== ============ ============ ========

Operating income
(loss) $ 781 9 (2) -- 788
======== ========== ============ ============ ========

Depreciation and
amortization $ 992 15 11 -- 1,018
======== ========== ============ ============ ========

Capital
expenditures $ 1,239 19 6 -- 1,264
======== ========== ============ ============ ========

Identifiable assets $ 17,121 739 1,448 (32) 19,276
======== ========== ============ ============ ========
</TABLE>

(continued)

F-74

<PAGE> 222
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(17) Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
1995: except per share amounts
----
<S> <C> <C> <C> <C>
Revenue:
As previously reported $ 1,524 1,660 1,761
Adjustment to reflect Cablevision
operations on a current basis -- 14 --
-------- -------- --------
As adjusted $ 1,524 1,674 1,761 1,892
======== ======== ======== ========

Operating income:
As previously reported $ 180 151 182
Adjustment to restate amortization of
of intangibles upon reallocation of
purchase price
Adjustment to reflect Cablevision -- (20) (4)
operations on a current basis
As adjusted $ -- 4 (2)
-------- -------- --------
180 135 176 51
======== ======== ======== ========
Income tax benefit:
As previously reported $ 19 48 37
Adjustment for effect of adopting
equity method of accounting for BET -- -- (1)
Adjustment to restate amortization of
of intangibles upon reallocation of
purchase price
Adjustment to reflect Cablevision -- 8 1
operations on a current basis -- 3 (1)
-------- -------- --------
As adjusted $ 19 59 36 6
======== ======== ======== ========

Net earnings (loss):
As previously reported $ (45) (83) 36
Adjustment for effect of adopting
equity method of accounting for BET 1 -- --
Adjustment to restate amortization of
of intangibles upon reallocation of
purchase price
Adjustment to reflect Cablevision -- (12) (3)
operations on a current basis -- -- (1)
-------- -------- --------
As adjusted $ (44) (95) 32 (64)
======== ======== ======== ========

Primary and fully diluted earnings
(loss) attributable to common
stockholders per common and
common equivalent share:

TCI Class A and Class B common stock
As previously reported $ (.08) (.14) .12
Adjustment for effect of adopting equity
method of accounting for BET -- -- --
Adjustment to restate amortization of
of intangibles upon reallocation of
purchase price
Adjustment to reflect Cablevision -- (.02) --
operations on a current basis -- -- --
-------- -------- --------
As adjusted $ (.08) (.16) .12 N/A
======== ======== ========
</TABLE>

(continued)

F-75

<PAGE> 223
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
1995 (continued): except per share amounts
----------------
<S> <C> <C> <C> <C>
Series A and Series B TCI Group Stock
As previously reported $ (.09)
Adjustment to reflect Cablevision
operations on a current basis --
--------
As adjusted N/A N/A $ (.09) (.07)
======== ========

Series A and Series B Liberty Group Stock
As previously reported $ (.02)
Adjustment for effect of adopting equity
method of accounting for BET --
Adjustment to restate amortization of
of intangibles upon reallocation of
purchase price (.01)
--------
As adjusted N/A N/A $ (.03) (.13)
======== ========

1994:
----

Revenue $ 1,060 1,081 1,286 1,509

Operating income $ 234 205 186 163

Income tax expense:
As previously reported $ (31) (21) (33) (31)
Adjustment for effect of adopting
equity method of accounting for
investments:
QVC -- (1) -- (2)
BET -- -- -- (1)
-------- -------- -------- --------
As adjusted $ (31) (22) (33) (34)
======== ======== ======== ========

Net earnings (loss):
As previously reported $ 32 6 25 (8)
Adjustment for effect of adopting
equity method of accounting for
investments:
QVC -- -- 2 3
BET -- 1 -- 1
-------- -------- -------- --------
As adjusted $ 32 7 27 (4)
======== ======== ======== ========

Primary and fully diluted
earnings (loss) attributable to
common stockholders per
common and common equivalent
share:
As previously reported $ .07 .01 .04 (.02)
Adjustment for effect of adopting
equity method of accounting for
investments:
QVC -- -- -- .01
BET -- -- -- --
-------- -------- -------- --------
As adjusted $ .07 .01 .04 (.01)
======== ======== ======== ========
</TABLE>

F-76

<PAGE> 224
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(18) Subsequent Event (Unaudited)

On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International, Inc, and Viacom, Inc. ("Viacom"),
TCIC acquired all of the common stock of a subsidiary of Viacom
("Cable Sub") which owned Viacom's cable systems and related assets
(the "Viacom Acquisition").

The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following
these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay
the Loan Proceeds borrowed under the Loan Facility. Neither Viacom nor
New Viacom Sub has any obligation with respect to repayment of the
Loan Proceeds.

Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class
B Common Stock (collectively, "Viacom Common Stock") the opportunity
to exchange (the "Exchange Offer") a portion of their shares of Viacom
Common Stock for shares of Class A Common Stock, par value $100 per
share, of Cable Sub ("Cable Sub Class A Stock"). Immediately following
the completion of the Exchange Offer, TCIC acquired from Cable Sub
shares of Cable Sub Class B Common Stock (the "Share Issuance") for
$350 million (which was used to reduce Cable Sub's obligations under
the Loan Facility). At the time of the Share Issuance, the Cable Sub
Class A Stock received by Viacom stockholders pursuant to the Exchange
Offer automatically converted into 5% Class A Senior Cumulative
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") of
Cable Sub with a stated value of $100 per share (the "Stated Value").
The Exchangeable Preferred Stock is exchangeable, at the option of the
holder commencing after the fifth anniversary of the date of issuance,
for shares of Series A TCI Group Stock at an initial exchange rate of
4.81 shares of Series A TCI Group Stock for each share of Exchangeable
Preferred Stock exchanged. The Exchangeable Preferred stock is subject
to redemption, at the option of Cable Sub, after the fifth anniversary
of the date of issuance, initially at a redemption price of $102.50
per share and thereafter at prices declining ratably annually to $100
per share on and after the eighth anniversary of the date of issuance,
plus accrued and unpaid dividends to the date of redemption. The
Exchangeable Preferred Stock is also subject to mandatory redemption
on the tenth anniversary of the date of issuance at a price equal to
the Stated Value per share plus accrued and unpaid dividends. Amounts
payable by Cable Sub in satisfaction of its optional or mandatory
redemption obligations with respect to the Exchangeable Preferred
Stock may be made in cash or, at the election of Cable Sub, in shares
of Series A TCI Group Stock, or in any combination of the foregoing.

F-77

<PAGE> 225

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction
with the Company's Management's Discussion and Analysis of Financial Condition
and Results of Operations for the year ended December 31, 1995 included herein.
The following discussion focuses on material changes in the trends, risks and
uncertainties affecting the Company's results of operations and financial
condition.

(1) Material changes in financial condition:

The Company is organized based upon four lines of business: Domestic
Cable and Communications; Programming; TINTA; and Technology/Venture Capital.
Such organization provides for financial and operational independence in the
four operating units, each under the direction of its own chief executive
officer, while maintaining the synergies and scale economies provided by a
common corporate parent. While neither TINTA nor the Technology/Venture
Capital unit is currently significant to the Company as a whole, the Company
believes each unit has growth potential and each unit is unique enough in
nature to warrant separate operational focus.

On August 10, 1995, TCI distributed to its security holders of record
one hundred percent of the equity value of TCI attributable to Liberty Media
Group. The Liberty Group Stock is intended to reflect the separate performance
of Liberty Media Group. While the Liberty Group Stock constitutes common stock
of TCI, the issuance of the Liberty Group Stock did not result in any transfer
of assets or liabilities of TCI or any of its subsidiaries or affect the rights
of holders of TCI's or any of its subsidiaries' debt. The TCI Group Stock is
intended to reflect the performance of TCI Group.

Subsidiaries of the Company, Comcast, Cox and Sprint are partners in
Sprint Spectrum which was formed to engage in the business of providing
wireless communications services on a nationwide basis. The Company owns an
indirect 30% interest in Sprint Spectrum. Sprint Spectrum was the successful
bidder for PCS licenses for 29 markets in an auction conducted by the FCC that
ended in March 1995. The aggregate license cost for these licenses was
approximately $2.1 billion, all of which has been paid. Sprint Spectrum may
elect to bid in subsequent auctions of PCS licenses and/or acquire PCS licenses
from other holders, has invested in APC which holds the PCS license for the
Washington-Baltimore market, has agreed to invest in the entity that will hold
the PCS license for the Los Angeles-San Diego market, and may invest in other
entities that hold PCS licenses. Subsidiaries of Cox, Sprint and the Company
are also partners in PhillieCo which holds a PCS license for the Philadelphia
market which was acquired at a license cost of $85 million. The Company has an
indirect 35.3% interest in PhillieCo.

The capital that Sprint Spectrum will require to fund the construction
of the PCS systems, in addition to the license costs and investments described
above, will be substantial. Pursuant to the business plan adopted by the
partners in Sprint Spectrum for the build out of Sprint Spectrum's nationwide
network, the partners are obligated to make additional cash capital
contributions to Sprint Spectrum in the aggregate amount of approximately $1.9
billion during the two-year period that commenced January 1, 1996. The Company
has agreed to contribute approximately $0.6 billion of such aggregate amount,
$0.2 billion of which was contributed during the nine months ended September
30, 1996. The business plan contemplates that Sprint Spectrum will require
additional equity thereafter.

(continued)

F-78

<PAGE> 226

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(1) Material changes in financial condition (continued):

On July 31, 1996, TCIC consummated the Viacom Acquisition whereby TCIC
acquired all of the common stock of Cable Sub which owned Viacom's cable
systems and related assets.

The transaction was structured as a tax-free reorganization in which
Cable Sub initially transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to New Viacom Sub. Cable Sub
also transferred to New Viacom Sub the proceeds of the Loan Facility.
Following these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Neither Viacom nor New Viacom Sub
has any obligation with respect to repayment of the Loan Proceeds.

Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of Viacom Common Stock the opportunity to exchange a portion of
their shares of Viacom Common Stock for shares of Cable Sub Class A Stock.
Immediately following the completion of the Exchange Offer, TCIC acquired from
Cable Sub shares of Cable Sub Class B common stock for $350 million. At the
time of the Share Issuance, the Cable Sub Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted into
Exchangeable Preferred Stock. For additional discussion of the Viacom
Acquisition, see note 7 to the accompanying consolidated financial statements.

In February 1996, TINTA issued $345 million (before deducting offering
costs of $9 million) of 4.5% convertible subordinated debentures. TINTA
anticipates that it will use the net proceeds to fund capital contributions to
certain of its equity investees.

Additionally, during the nine months ended September 30, 1996, the
Company, through certain subsidiaries, issued (i) 4.6 million shares of
Cumulative Exchangeable Preferred Stock for net cash proceeds of $223 million,
(ii) 20 million preferred securities of 8.72% Trust Originated Preferred
Securities(SM) for net cash proceeds of $486 million (through a special purpose
entity formed as a Delaware business trust) (iii) 20 million preferred
securities of 10% Trust Preferred Securities for net cash proceeds of $485
million (through a special purpose entity formed as a Delaware business trust)
and (iv) $2.06 billion of publicly-placed senior and medium term notes with
interest rates ranging from 6.2% to 7.9% and maturity dates ranging through
2026. The Company used the proceeds from the aforementioned debt and equity
issuances to retire commercial paper and to repay certain variable and
fixed-rate indebtedness. In connection with the prepayment of certain
fixed-rate indebtedness, the Company recognized a loss on early extinguishment
of debt of $62 million. Such loss related to prepayment penalties amounting to
$60 million and the retirement of deferred loan costs.

The Company has a credit facility which matures in September of 1997.
The outstanding balance of such facility was $387 million at September 30,
1996. The Company currently anticipates that it will refinance such
borrowings, but there can be no assurance that it can do so on terms acceptable
to the Company.

(continued)

F-79

<PAGE> 227

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(1) Material changes in financial condition (continued):

During the second quarter of 1996, certain subsidiaries of the Company
terminated, at such subsidiaries' option, certain revolving bank credit
facilities with aggregate commitments of approximately $2 billion. The Company
does not believe that such terminations will adversely affect its future
liquidity. At September 30, 1996, subsidiaries of the Company had
approximately $2.2 billion of availability under lines of credit, excluding
amounts related to lines of credit which provide availability to support
commercial paper. Although such subsidiaries of the Company were in compliance
with the restrictive covenants contained in their credit facilities at said
date, additional borrowings under the credit facilities are subject to the
subsidiaries' continuing compliance with the restrictive covenants (which
relate primarily to the maintenance of certain ratios of cash flow to total
debt and cash flow to debt service, as defined in the credit facilities) after
giving effect to such additional borrowings. See note 8 to the accompanying
consolidated financial statements for additional information regarding the
material terms of the subsidiaries' lines of credit.

One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and other non-cash
operating credits or charges) ($1,706 million and $1,510 million for the nine
months ended September 30, 1996 and 1995, respectively) to interest expense
($803 million and $746 million for the nine months ended September 30, 1996 and
1995, respectively), is determined by reference to the consolidated statements
of operations. The Company's interest coverage ratio was 212% and 202% for the
nine months ended September 30, 1996 and 1995, respectively. Management of the
Company believes that the foregoing interest coverage ratio is adequate in
light of the consistent and nonseasonal nature of its cable television
operations and the relative predictability of the Company's interest expense,
almost half of which results from fixed rate indebtedness. Operating Cash Flow
is a measure of value and borrowing capacity within the cable television
industry and is not intended to be a substitute for cash flows provided by
operating activities, a measure of performance prepared in accordance with
generally accepted accounting principles, and should not be relied upon as
such. Operating Cash Flow, as defined, does not take into consideration
substantial costs of doing business, such as interest expense, and should not
be considered in isolation to other measures of performance.

Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying consolidated statements of cash
flows. Net cash provided by operating activities ($844 million and $670
million for the nine months ended September 30, 1996 and 1995, respectively)
reflects net cash from the operations of the Company available for the
Company's liquidity needs after taking into consideration the aforementioned
additional substantial costs of doing business not reflected in Operating Cash
Flow. Amounts expended by the Company for its investing activities exceed net
cash provided by operating activities. However, management believes that net
cash provided by operating activities, the ability of the Company and its
subsidiaries to obtain additional financing (including the subsidiaries
available lines of credit and access to public debt markets), issuances and
sales of the Company's equity or equity of its subsidiaries, and proceeds from
disposition of assets will provide adequate sources of short-term and long-term
liquidity in the future. See the Company's consolidated statements of cash
flows included in the accompanying consolidated financial statements.

(continued)

F-80

<PAGE> 228

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(1) Material changes in financial condition (continued):

In late April, 1996, TCIC was notified by Moody's Investors Service,
Inc. and Duff & Phelps Credit Rating Co. that those rating agencies had
downgraded by one level their respective ratings of TCIC's senior debt to the
first level below investment grade. Fitch Investors Service, L.P. reaffirmed
its rating for TCIC's senior debt at the last level of investment grade. On
October 18, 1996, Standard and Poor's Securities, Inc. ("Standard & Poor's)
issued a press release stating that TCIC's senior debt would be placed on
CreditWatch with negative implications. TCIC's senior debt is currently rated
BBB- by Standard & Poor's (the last level of investment grade). A downgrade by
Standard & Poor's of TCIC's senior debt would lower such debt to the first
level below investment grade. These actions are expected to marginally
increase TCIC's cost of borrowings under certain bank credit facilities, and
may adversely affect TCIC's access to the public debt market and its overall
cost of future borrowings.

In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements. Pursuant to the interest rate exchange agreements, the Company
pays (i) fixed interest rates ranging from 7.2% to 9.3% on notional amounts of
$460 million at September 30, 1996 and (ii) variable interest rates on notional
amounts of $2,450 million at September 30, 1996. During the nine months ended
September 30, 1996 and 1995, the Company's net payments pursuant to the Fixed
Rate Agreements were $3 million and $1 million, respectively; and the Company's
net receipts pursuant to the Variable Rate Agreements were $11 million and less
than $1 million, respectively. The Company is exposed to credit losses for the
periodic settlements of amounts due under the interest rate exchange agreements
in the event of nonperformance by the other parties to the agreements.
However, the Company does not anticipate that it will incur any material credit
losses because it does not anticipate nonperformance by the counterparties.

The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $307
million at September 30, 1996. Although there can be no assurance, management
of the Company believes that it will not be required to meet its obligations
under such guarantees, or if it is required to meet any of such obligations,
that they will not be material to the Company.

The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2009. Based on subscriber
levels at September 30, 1996, these agreements require minimum payments
aggregating approximately $624 million. The aggregate amount of the Film
Licensing Obligations under other license agreements is not currently estimable
because such amount is dependent upon certain variable factors. Nevertheless,
the Company's aggregate payments under the Film Licensing Obligations could
prove to be significant.

The Company has made certain financial commitments related to the
acquisition of sports program rights through 2004. At September 30, 1996, such
commitments aggregated $228 million.

(continued)

F-81

<PAGE> 229

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(1) Material changes in financial condition (continued):

(2) Material changes in results of operations:

Communications and Programming Services Revenue

The Company reduced its rates in 1993 and 1994 and limited its rate
increases in 1995 and 1996 in response to FCC regulations. The Company
believes that it has complied in all material respects with the provisions of
the 1992 Cable Act, including its rate setting provisions. However, the
Company's rates for Regulated Services are subject to review by the FCC, if a
complaint has been filed, or by the appropriate franchise authority, if such
authority has been certified. If, as a result of the review process, a system
cannot substantiate its rates, it could be required to retroactively reduce its
rates to the appropriate benchmark and refund the excess portion of rates
received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion of all
other Regulated Service rates would be retroactive to one year prior to the
implementation of the rate reductions.

On February 8, 1996, the Telecommunications Act of 1996 (the "1996
Telecom Act") was signed into law. Because the 1996 Telecom Act does not
deregulate cable programming service tier rates until 1999 (and basic service
tier rates will remain regulated thereafter), the Company believes that the
1993 and 1994 rate regulations have had and will continue to have a material
adverse effect on its results of operations.

Revenue from communications and programming services increased 25% and
27% for the three months and nine months ended September 30, 1996,
respectively, as compared to the corresponding periods of 1995. In the
Company's regulated cable systems, the Company implemented rate increases for
its Regulated Services in June 1996. As allowed by FCC regulations, such rate
increases include amounts intended to recover increased programming costs
incurred during the first five months of 1996 and not previously recovered, as
well as interest on said amounts.

(continued)

F-82

<PAGE> 230

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(2) Material changes in results of operations (continued):

The increase in revenue for the three months ended September 30, 1996
is due to the net effect of certain acquisitions (including the Viacom
Acquisition) (14%), increases in rates charged to the Company's subscribers due
to inflation, programming cost increases as previously discussed and channel
additions (5%), growth in the Company's satellite subscribers (3%), growth in
subscriber levels within the Company's cable television systems (3%) and
increases in the Company's domestic and international programming and other
revenue (4%) offset by a 4% decrease due to the deconsolidation of the
Company's sports programming businesses (see discussion below). The increase
in revenue for the nine months ended September 30, 1996 is due to the effect of
certain acquisitions (including the Viacom Acquisition) (12%), growth in the
Company's satellite subscribers (5%), increases in rates charged to the
Company's subscribers as noted above (5%), growth in subscriber levels within
the Company's cable television systems (2%) and increases in the Company's
domestic and international programming and other revenue (4%) offset by a 1%
decrease due to the deconsolidation of the Company's sports programming
businesses (see discussion below).

TCI's domestic programming services contributed $298 million and $371
million of revenue for the nine months ended September 30, 1996 and 1995,
respectively. This revenue was attributable to subscription and advertising
revenue at TCI's sports programming businesses through April 29, 1996 (see
related discussion below), revenue from Netlink USA, a marketer and distributor
of programming to the United States home satellite dish subscriber market and
subscription revenue generated by Southern and Encore Media Corporation.

As of April 29, 1996, Liberty Media Group, News Corp. and TINTA formed
two sports programming ventures. In the United States, Liberty Media Group and
News Corp. formed the Fox-Liberty Venture into which Liberty Media Group
contributed interests in its national and regional sports networks and into
which News Corp. contributed its fx cable network and certain other assets.
Liberty Media Group received a 50% interest in the Fox-Liberty Venture and $350
million in cash.

Internationally, News Corp. and the Liberty-TINTA LLC formed the
International Venture to operate currently existing sports services in Latin
American and Australia and a variety of new sports services throughout the
world except in Asia and in the United Kingdom, Japan and New Zealand where
prior arrangements preclude an immediate collaboration. The Liberty-TINTA LLC
owns 50% of the International Venture with News Corp. owning the other 50%.
News Corp. contributed various international sports rights and certain
trademark rights. The Liberty-TINTA LLC contributed Prime Deportiva, a Spanish
language sports service distributed in Latin America and in Hispanic markets in
the United States; an interest in Torneos y Competencias S.A., an Argentinean
sports programming and production business; various international sports and
satellite transponder rights and cash. The Liberty-TINTA LLC also contributed
their 50% interest in Premiere Sports and All-Star Sports. Both are Australian
24-hour sports services available via MMDS or cable television.

As part of the formation of the International Venture, the
Liberty-TINTA LLC is entitled to receive from News Corp. 7.5% of the
outstanding stock of Star Television Limited. Upon delivery of such stock to
the Liberty-TINTA LLC, News Corp. is entitled to receive from the Liberty-TINTA
LLC $20 million and rights under various Asian sports programming agreements.
Star Television Limited operates a satellite-delivered television platform in
Asia.

(continued)

F-83

<PAGE> 231

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(2) Material changes in results of operations (continued):

Net Sales From Electronic Retailing Services

HSN's net sales from electronic retailing services increased 8% and
11% for the three months and nine months ended September 30, 1996,
respectively, as compared to the corresponding periods in 1995. Such increases
are due primarily to 22% and 13% increases in the number of packages shipped
and a decrease of 14% and an increase of 1% in the average price per unit sold.

HSN believes that seasonality does impact its business, but not to the
same extent it impacts the retail industry in general.

In August 1996, the Company entered into a series of agreements which
involved exchanging its controlling interest in HSN for shares of BDTV. If
consummated, HSN would cease to be a subsidiary of the Company and therefore,
the financial results of HSN would not be consolidated with the financial
results of the Company. Although the Company would cease to possess voting
control over HSN, it would continue to have an indirect equity interest in HSN
through its ownership of the equity securities of BDTV, as well as a direct
interest in HSN which would be exchangeable into shares of Silver King. No
assurance can be given that the transaction will be consummated. For
additional discussion of the foregoing transaction, see note 12 to the
accompanying consolidated financial statements.

Operating Costs and Expenses

Operating expenses increased 33% and 35% for the three months and nine
months ended September 30, 1996, respectively, as compared to the corresponding
periods of 1995. Exclusive of the effects of acquisitions (10% and 13%) and
Primestar (2% and 3%) (see discussion below), such expenses increased 21% and
19%. Programming and salary expenses accounted for the majority of such
increases. The Company cannot determine whether and to what extent increases
in the cost of programming will affect its future operating costs. However,
such programming costs have increased at a greater percentage than increases in
revenue of Regulated Services.

For the three months and nine months ended September 30, 1996, cost of
sales decreased $3 million or 2% and increased $33 million or 8%, respectively,
as compared to the same periods in 1995. As a percentage of net sales, cost of
sales decreased from 65% to 59% and from 64% to 62% for the three months and
nine months ended September 30, 1996, as compared to the corresponding periods
in 1995. Such decrease are due to promotional events in 1995 which had the
effect of lowering revenue but not cost of sales and to a change in product
sales mix in 1996.

Selling general and administrative expenses ("SG&A") increased 27% and
30% for the three months and nine months ended September 30, 1996,
respectively, as compared to the corresponding periods of 1995. Exclusive of
the effects of acquisitions (6% and 7%) and Primestar (7% and 9%) (see
discussion below), SG&A increased 14% and 14%. Such increases are due
primarily to salaries, related payroll expenses and those expenses that vary
with revenue and/or subscribers. Additionally, during the nine months ended
September 30, 1996 and 1995, the Company incurred $34 million and $14 million,
respectively, of costs related to newly created material support centers,
initiatives to improve its customer service and the continued redesign of its
computer and accounting systems.

(continued)

F-84

<PAGE> 232

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(2) Material changes in results of operations (continued):

The Company has an interest in Primestar, which provides programming
and marketing support to its partners who distribute a multi-channel
programming service via a medium power communications satellite to home
satellite dish owners. During the three months and nine months ended September
30, 1996, the Company's revenue and expenses related to its Primestar satellite
service increased significantly over the corresponding periods in 1995 as the
number of the Company's Primestar subscribers increased from approximately
370,000 subscribers at September 30, 1995 to approximately 735,000 subscribers
at September 30, 1996. During the three months ended September 30, 1996,
revenue increased from $59 million to $110 million and operating, selling,
general and administrative expenses increased from $54 million to $108 million,
as compared to the three months ended September 30, 1995. During the nine
months ended September 30, 1996, revenue increased from $120 million to $304
million and operating, selling, general and administrative expenses increased
from $111 million to $295 million, as compared to the nine months ended
September 30, 1995. The Company incurs significant sales commissions and
installation costs when customers initially subscribe. Therefore, as long as
the Company continues to launch this new service and increase its Primestar
subscriber base at such a rapid pace, management expects operating costs and
expenses will increase as well.

In June 1996, the Company announced its intention to pursue a tax-free
spin-off of SatCo to the holders of TCI Group Stock. At the time of the
Satellite Spin-Off, SatCo's assets and operations will include the Company's
interest in Primestar and the Company's business of distributing Primestar
programming. Although there is no assurance, the Satellite Spin-Off is
anticipated to be completed in the fourth quarter of 1996. Upon completion of
the Satellite Spin-Off, SatCo's operations will no longer be consolidated with
the Company's.

The increase in the Company's depreciation expense in 1996 is due to
acquisitions, as well as increased capital expenditures due to a program to
upgrade and install optical fiber technology in the Company's cable systems.
The increase in amortization expense in 1996 is due to acquisitions.

(continued)

F-85

<PAGE> 233

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Nine months ended September 30, 1996 and 1995

(2) Material changes in results of operations (continued):

Other Income (Expense) and Net Loss

At September 30, 1996, the Company had an effective ownership interest
of approximately 27% in TeleWest, a company that is currently operating and
constructing cable television and telephone systems in the United Kingdom
("UK"). TeleWest, which is accounted for under the equity method, had a
carrying value at September 30, 1996 of $459 million and comprised $99 million
and $43 million of the Company's share of its affiliates' losses during the
nine months ended September 30, 1996 and 1995, respectively. The increase in
the Company's share of losses of TeleWest is due, in part, to an increase in
TeleWest's interest expense and foreign currency translation losses related to
the issuance of dollar denominated debentures by TeleWest. In addition, the
Company has other less significant investments accounted for under the equity
method in video distribution and programming businesses located in the UK,
other parts of Europe, Asia, Latin America and certain other foreign countries.
In the aggregate, such other equity method investments had a carrying value of
$407 million at September 30, 1996 and accounted for $55 million and $38
million of the Company's share of its affiliates' losses for the nine months
ended September 30, 1996 and 1995, respectively. Additionally, included in
share of losses of affiliates for the nine months ended September 30, 1996 is
$112 million attributable to Sprint Spectrum. Such amount includes $34 million
associated with prior periods.

The Company is reflecting minority interests in earnings of
consolidated subsidiaries of $28 million and $32 million for the three months
and nine months ended September 30, 1996, respectively, as compared to minority
interests in losses of consolidated subsidiaries for the corresponding periods
in 1995. Such changes are due primarily to the accrual of dividends on the
Trust Securities in 1996. See note 9 to the accompanying consolidated
financial statements.

As a result of the TCG IPO, the Company recognized a gain of $12
million during the third quarter of 1996. As a result of the TINTA IPO and the
TYC Acquisition, the Company recognized a gain of $123 million during the third
quarter of 1995. There is no assurance that the Company will realize similar
gains in future periods. See notes 5 and 11 to the accompanying consolidated
financial statements.

As a result of the consummation of the TBS/Time Warner Merger, the
Company will recognize a gain of approximately $1.5 billion in the fourth
quarter of 1996. See note 6 to the accompanying consolidated financial
statements.

The Company's net loss (before preferred stock dividend requirements)
of $136 million for the three months ended September 30, 1996 represents a
change of $168 million, as compared to the Company's net earnings (before
preferred stock dividend requirements) of $32 million for the three months
ended September 30, 1995. The Company's net loss (before preferred stock
dividend requirements) of $438 million for the nine months ended September 30,
1996 represents an increase of $331 million, as compared to the Company's net
loss (before preferred stock dividend requirements) of $107 million for the
nine months ended September 30, 1995. Such changes are primarily the result of
the gain recognized in 1995 related to the TINTA IPO, an increase in share of
losses of affiliates, including the aforementioned share of losses from
TeleWest and Sprint Spectrum, loss on early extinguishment of debt resulting
primarily from the prepayment of certain fixed-rate indebtedness and the change
in minority interests in losses (earnings) of consolidated subsidiaries
discussed above.

F-86

<PAGE> 234

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(unaudited)

<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
Assets amounts in millions
- ------
<S> <C> <C>
Cash $ 465 118

Trade and other receivables, net 430 407

Inventories, net 91 104

Prepaid expenses 95 65

Prepaid program rights 47 47

Committed film inventory 136 122

Investments in affiliates, accounted for under the equity method,
and related receivables (note 5) 2,714 2,372

Investment in Turner Broadcasting System, Inc. ("TBS") (note 6) 1,022 955

Property and equipment, at cost:
Land 94 88
Distribution systems 11,286 9,545
Support equipment and buildings 1,753 1,429
--------- ------
13,133 11,062
Less accumulated depreciation 4,366 3,653
--------- ------
8,767 7,409
--------- ------

Franchise costs 17,486 14,322
Less accumulated amortization 2,349 2,092
--------- ------
15,137 12,230
--------- ------

Other assets, at cost, net of amortization 1,671 1,748
--------- ------
$ 30,575 25,577
========= ======
</TABLE>

(continued)

F-87

<PAGE> 235

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, continued
(unaudited)

<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
Liabilities and Stockholders' Equity amounts in millions
------------------------------------
<S> <C> <C>
Accounts payable $ 200 243

Accrued interest 170 233

Accrued programming expense 394 318

Other accrued expenses 1,178 1,114

Debt (note 8) 15,118 13,211

Deferred income taxes 5,731 4,584

Other liabilities 183 195
------------ -------
Total liabilities 22,974 19,898
------------ -------

Minority interests in equity of consolidated subsidiaries 1,585 651

Redeemable preferred stock 654 478

Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts ("Trust Securities") holding solely
subordinated debt securities of TCI Communications, Inc.
("TCIC")(note 9) 1,000 --

Stockholders' equity (notes 2 and 9):
Series Preferred Stock, $.01 par value Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, $.01 par
value -- --
Tele-Communications, Inc. Series A TCI Group common stock, $1
par value. Authorized 1,750,000,000 shares; issued
684,974,998 shares in 1996 and 672,211,009 shares in 1995 685 672
Tele-Communications, Inc. Series B TCI Group common stock, $1
par value. Authorized 150,000,000 shares; issued 84,663,501
shares in 1996 and 84,691,554 shares in 1995 85 85
Tele-Communications, Inc. Series A Liberty Media Group common
stock, $1 par value. Authorized 750,000,000 shares; issued
146,078,965 shares in 1996 and 142,896,264 shares in 1995 146 143
Tele-Communications, Inc. Series B Liberty Media Group common
stock, $1 par value. Authorized 75,000,000 shares; issued
21,192,269 shares in 1996 and 21,196,868 shares in 1995 21 21
Additional paid-in capital 4,308 4,068
Cumulative foreign currency translation adjustment (12) (9)
Unrealized holding gains for available-for-sale securities, net
of taxes 335 338
Accumulated deficit (892) (454)
------------ -------
4,676 4,864
Treasury stock, at cost (100,524,365 shares and 100,524,364
shares of Series A TCI Group common stock in 1996 and 1995) (314) (314)
------------ -------
Total stockholders' equity 4,362 4,550
------------ -------
Commitments and contingencies (note 12)
$ 30,575 25,577
============ =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-88

<PAGE> 236

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
(unaudited)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- --------------------------
1996 1995 1996 1995
------- ------ ------- ------
amounts in millions,
except per share amounts
<S> <C> <C> <C> <C>
Revenue (note 7):
Communications and programming services $ 1,901 1,521 5,355 4,229
Net sales from electronic retailing services 234 217 734 659
------- ------ ------- ------
2,135 1,738 6,089 4,888
------- ------ ------- ------
Operating costs and expenses:
Operating 723 544 2,056 1,524
Cost of sales from electronic retailing services 137 140 453 420
Selling, general and administrative 669 521 1,874 1,434
Compensation relating to stock appreciation rights -- 8 -- 26
Adjustment to compensation relating to stock
appreciation rights (11) -- (16) --
Restructuring charges -- 6 -- 8
Depreciation 258 228 769 660
Amortization 136 115 381 325
------- ------ ------- ------
1,912 1,562 5,517 4,397
------- ------ ------- ------
Operating income 223 176 572 491

Other income (expense):
Interest expense (277) (262) (803) (746)
Interest and dividend income 18 18 42 36
Share of losses of affiliates, net (note 5) (97) (63) (308) (134)
Loss on early extinguishment of debt (note 8) (7) -- (73) --
Minority interests in losses (earnings) of consolidated
subsidiaries, net (28) 19 (32) 40
Gain on sale of subsidiary stock (note 11) -- 123 -- 123
Gain on sale of stock by equity investee (note 5) 12 -- 12 --
Other, net (13) (17) (8) (27)
------- ------ ------- ------
(392) (182) (1,170) (708)
------- ------ ------- ------
Loss before income taxes (169) (6) (598) (217)

Income tax benefit 33 38 160 110
------- ------ ------- ------
Net earnings (loss) (note 7) (136) 32 (438) (107)

Dividend requirements on preferred stocks (9) (9) (27) (26)
------- ------ ------- ------
Net earnings (loss) attributable to common
stockholders $ (145) 23 (465) (133)
======= ====== ======= ======
Net earnings (loss) attributable to common stockholders:
TCI Class A and Class B common stock $ -- 85 -- (71)
TCI Group Series A and Series B common stock (162) (57) (501) (57)
Liberty Media Group Series A and Series B common
stock 17 (5) 36 (5)
------- ------ ------- ------
$ (145) 23 (465) (133)
======= ====== ======= ======
Net earnings (loss) attributable to common stockholders
per common share (notes 3 and 7):
TCI Class A and Class B common stock $ -- .12 -- (.11)
TCI Group Series A and Series B common stock $ (.24) (.09) (.75) (.09)
Liberty Media Group Series A and Series B common
stock $ .10 (.03) .22 (.03)
</TABLE>

See accompanying notes to consolidated financial statements.

F-89

<PAGE> 237

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

Nine months ended September 30, 1996
(unaudited)

Common Stock
----------------------------------------------
Class B TCI Group Liberty Media Group Additional
Preferred ------------------ --------------------- paid-in
Stock Series A Series B Series A Series B capital
--------- -------- -------- -------- -------- ----------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ -- 672 85 143 21 4,068

Net loss -- -- -- -- -- --
Issuance of common stock for acquisition -- 11 -- 3 -- 255
Issuance of common stock upon conversion of notes -- 1 -- -- -- --
Issuance of common stock upon conversion of
preferred stock -- 1 -- -- -- 15
Accreted dividends on all classes of preferred
stock -- -- -- -- -- (27)
Accreted dividends on all classes of preferred
stock not subject to mandatory redemption
requirements -- -- -- -- -- 7
Payment of preferred stock dividends -- -- -- -- -- (10)
Foreign currency translation adjustment -- -- -- -- -- --
Change in unrealized holding gains for available-
for-sale securities -- -- -- -- -- --
---- ---- ---- ---- ---- ------
Balance at September 30, 1996 $ -- 685 85 146 21 4,308
==== ==== ==== ==== ==== ======

<CAPTION>
Unrealized
holding
Cumulative gains for
foreign available-
currency for-sale Total
translation securities, Accumulated Treasury stockholders'
adjustment net of taxes deficit stock equity
----------- ------------ ----------- -------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 (9) 338 (454) (314) 4,550

Net loss -- -- (438) -- (438)
Issuance of common stock for acquisition -- -- -- -- 269
Issuance of common stock upon conversion of notes -- -- -- -- 1
Issuance of common stock upon conversion of
preferred stock -- -- -- -- 16
Accreted dividends on all classes of preferred
stock -- -- -- -- (27)
Accreted dividends on all classes of preferred
stock not subject to mandatory redemption
requirements -- -- -- -- 7
Payment of preferred stock dividends -- -- -- -- (10)
Foreign currency translation adjustment (3) -- -- -- (3)
Change in unrealized holding gains for available-
for-sale securities -- (3) -- -- (3)
----- ---- ----- ---- ------
Balance at September 30, 1996 (12) 335 (892) (314) 4,362
===== ==== ===== ==== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-90

<PAGE> 238

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(unaudited)

<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1996 1995
------ ------
amounts in millions
(see note 4)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (438) (107)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 1,150 985
Compensation relating to appreciation rights -- 26
Adjustment to compensation relating to stock appreciation rights (16) --
Share of losses of affiliates 308 134
Loss on early extinguishment of debt 73 --
Minority interests in earnings (losses) 32 (40)
Gain on sale of subsidiary stock -- (123)
Gain on sale of stock by equity investee (12) --
Deferred income tax benefit (178) (152)
Other noncash charges 3 2
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (20) 14
Change in inventories 11 (18)
Change in prepaids (32) (86)
Change in accrued interest (64) (18)
Change in other accruals and payables 27 53
------- ------
Net cash provided by operating activities 844 670
------- ------
Cash flows from investing activities:
Cash paid for acquisitions (62) (251)
Capital expended for property and equipment (1,526) (1,205)
Additional investments in and loans to affiliates and others (677) (958)
Repayments of loans to affiliates 329 20
Proceeds from disposition of assets 255 29
Other investing activities (148) (209)
------- ------
Net cash used in investing activities (1,829) (2,574)
------- ------

Cash flows from financing activities:
Borrowings of debt 7,449 7,088
Repayments of debt (7,476) (5,970)
Prepayment penalties (60) --
Issuance of Trust Securities 971 --
Issuance of subsidiary preferred stock 223 --
Contributions by minority shareholders of subsidiaries 315 --
Issuance of common stock -- 431
Proceeds from sale of subsidiary stock -- 445
Payment of preferred stock dividends (34) (22)
Payment of dividends on subsidiary preferred stock and Trust Securities (56) --
------- ------
Net cash provided by financing activities 1,332 1,972
------- ------
Net increase in cash 347 68

Cash at beginning of period 118 74
------- ------
Cash at end of period $ 465 142
======= ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-91

<PAGE> 239

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 1996
(unaudited)

(1) General

The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in TCI's Annual Report on Form
10-K for the year ended December 31, 1995.

Certain amounts have been reclassified for comparability with the 1996
presentation.

In June 1996, the Company announced its intention to pursue a tax-free
spin-off (the "Satellite Spin-Off") of its direct broadcast satellite
subsidiary, TCI Satellite Entertainment, Inc. ("SatCo"), to the holders
of TCI Group Stock. At the time of the Satellite Spin-Off, SatCo's
assets and operations will include the Company's interest in PRIMESTAR
Partners, L.P. ("Primestar") and the Company's business of distributing
Primestar programming. Although there is no assurance, the Satellite
Spin-Off is anticipated to be completed in the fourth quarter of 1996.
Upon completion of the Satellite Spin-Off, SatCo's operations will no
longer be consolidated with the Company's.

In March of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of ("Statement No. 121"), effective for fiscal years
beginning after December 15, 1995. Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted Statement No. 121 effective January
1, 1996. Such adoption did not have a significant effect on the
financial position or results of operations of the Company.

(continued)

F-92

<PAGE> 240

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Pursuant to Statement No. 121, the Company periodically reviews the
carrying amount of its long-lived assets, franchise costs and certain
other assets to determine whether current events or circumstances
warrant adjustments to such carrying amounts. The Company considers
historical and expected future net operating losses to be its primary
indicators of potential impairment. Assets are grouped and evaluated
for impairment at the lowest level for which there are identifiable
cash flows that are largely independent of the cash flows of other
groups of assets ("Assets"). The Company deems Assets to be impaired
if the Company is unable to recover the carrying value of such Assets
over their expected remaining useful life through a forecast of
undiscounted future operating cash flows directly related to the
Assets. If Assets are deemed to be impaired, the loss is measured as
the amount by which the carrying amount of the Assets exceeds their
fair value. The Company generally measures fair value by considering
sales prices for similar assets or by discounting estimated future
cash flows. Considerable management judgment is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.

(2) Liberty Group Stock

On August 3, 1995, the TCI stockholders authorized the TCI Board of
Directors (the "Board") to issue a new class of stock ("Liberty Group
Stock") which is intended to reflect the separate performance of TCI's
business which produces and distributes cable television programming
services ("Liberty Media Group"). While the Liberty Group Stock
constitutes common stock of TCI, the issuance of the Liberty Group
Stock did not result in any transfer of assets or liabilities of TCI
or any of its subsidiaries or affect the rights of holders of TCI's or
any of its subsidiaries' debt. On August 10, 1995, TCI distributed
one hundred percent of the equity value attributable to Liberty Media
Group (the "Distribution") to its security holders of record on August
4, 1995. Additionally, the stockholders of TCI approved the
redesignation of the previously authorized TCI Class A and Class B
common stock into Series A TCI Group and Series B TCI Group common
stock ("TCI Group Stock").

Upon the Distribution and subsequent to the redesignation of TCI Class
A and Class B common stock into Series A and Series B TCI Group Stock,
the TCI Group Stock is intended to reflect the separate performance of
the subsidiaries and assets not attributed to Liberty Media Group,
including (i) TCI's Cable and Communications unit, (ii) TCI's
International Cable and Programming Unit ("TINTA") and (iii) TCI's
Technology/Venture Capital unit. Such subsidiaries and assets are
referred to as "TCI Group".

(continued)

F-93

<PAGE> 241

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(3) Earnings (Loss) Per Common and Common Equivalent Share

TCI Class A and Class B Common Stock

Primary earnings per common and common equivalent share attributable
to common stockholders for the period from July 1, 1995 through the
Distribution was computed by dividing net earnings attributable to
common stockholders by the weighted average number of common and
common equivalent shares outstanding (703.9 million).

Fully diluted earnings per common and common equivalent share
attributable to common stockholders for the period from July 1, 1995
through the Distribution was computed by dividing earnings
attributable to common stockholders by the weighted average number of
common and common equivalent shares outstanding (704.0 million).

The loss attributable to common stockholders per common share for the
period from January 1, 1995 through the Distribution was computed by
dividing net loss attributable to common stockholders by the weighted
average number of common shares outstanding during the period (648.2
million). Common stock equivalents were not included in the
computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.

TCI Group Series A and Series B Common Stock

The loss attributable to TCI Group stockholders per common share for
the three months and nine months ended September 30, 1996 and for the
period from the Distribution through September 30, 1995 was computed
by dividing net loss attributable to TCI Group Series A and Series B
common stockholders by the weighted average number of common shares
outstanding of TCI Group Series A and Series B common stock during the
period (669.1 million, 665.0 million and 656.4 million, respectively).
Common stock equivalents were not included in the computation of
weighted average shares outstanding because their inclusion would be
anti-dilutive.

Liberty Media Group Series A and Series B Common Stock

Earnings attributable to Liberty Media Group stockholders per common
share for the three months and nine months ended September 30, 1996
was computed by dividing net earnings attributable to Liberty Media
Group Series A and Series B common stockholders by the weighted
average number of common shares outstanding of Liberty Media Group
Series A and Series B common stock during the period (167.3 million
and 166.2 million, respectively). Common stock equivalents were not
included in the computation because their inclusion would be
anti-dilutive to TCI.

The loss attributable to Liberty Media Group stockholders per common
share for the period from the Distribution through September 30, 1995
was computed by dividing net loss attributable to Liberty Media Group
Series A and Series B common stockholders by the weighted average
number of common shares outstanding of Liberty Media Group Series A
and Series B common stock during the period (164.1 million). Common
stock equivalents were not included in the computation of weighted
average shares outstanding because their inclusion would be anti-
dilutive.

(continued)

F-94

<PAGE> 242

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4) Supplemental Disclosures to Consolidated Statements of Cash Flows

Cash paid for interest was $867 million and $763 million for the nine
months ended September 30, 1996 and 1995, respectively. Cash paid for
income taxes was $8 million and $62 million for the nine months ended
September 30, 1996 and 1995, respectively.

Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1996 1995
---- ----
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 4,661 3,394
Liabilities assumed, net of current assets (2,095) (495)
Deferred tax liability recorded in acquisitions (1,310) (1,095)
Minority interests in equity of acquired entities (733) 62
Common stock and preferred stock issued in acquisitions (461) (1,615)
-------- -------
Cash paid for acquisitions $ 62 251
======== =======

Exchange of consolidated subsidiaries for note receivable and
equity investments $ 560 --
======== =======
Effect of foreign currency translation adjustment on book
value of foreign equity investments $ 3 1
======== =======
Change in unrealized gains, net of deferred income taxes, on
available-for-sale securities $ 3 294
======== =======
Accrued preferred stock dividends $ 20 4
======== =======
Exchange of common stock held by subsidiaries for Series F
Preferred Stock $ -- 632
======== =======
Distribution of Series A and Series B Liberty Group Stock to
TCI common stockholders $ -- 164
======== =======
Redesignation of TCI common stock into Series A and Series B
TCI Group Stock $ -- 656
======== =======
Conversion of Series F Preferred Stock by subsidiary of TCI
into Series A TCI Group Stock $ -- 314
======== =======
Conversion of debt into additional minority interest in
consolidated subsidiary $ -- 14
======== =======
Common stock issued to subsidiaries in Reorganization
reflected as treasury stock $ -- 6
======== =======
Common stock issued in exchange for cost investment $ -- 73
======== =======
Retirement of Class A common stock previously held by
subsidiary $ -- 29
======== =======
Issuance of subsidiary stock for equity investment $ -- 11
======== =======
</TABLE>

(continued)

F-95

<PAGE> 243

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(5) Investments in Affiliates

Summarized unaudited results of operations for affiliates accounted
for under the equity method are as follows:

<TABLE>
<CAPTION>
Nine months ended
Combined Operations September 30,
------------------- -----------------------
1996 1995
----------- -------
amounts in millions
<S> <C> <C>
Revenue $ 3,989 3,123
Operating expenses (3,570) (2,664)
Depreciation and amortization (501) (375)
----------- -------
Operating income (loss) (82) 84

Interest expense (359) (230)
Other, net (202) (94)
----------- -------
Net loss $ (643) (240)
=========== =======
</TABLE>

The Company has various investments accounted for under the equity
method. Some of the more significant investments held by the Company
at September 30, 1996 were a partnership ("Sprint Spectrum") formed by
the Company, Comcast Corporation ("Comcast"), Cox Communications, Inc.
("Cox") and Sprint Corporation ("Sprint") (carrying value of $783
million) (see note 12), Teleport Communications Group, Inc.
("TCG")(carrying value of $277 million), TeleWest Communications plc
("TeleWest") (carrying value of $459 million), various other foreign
equity investments (cumulative carrying value of $407 million),
Intermedia Capital Partners IV L.P. (carrying value of $287 million)
and Discovery Communications, Inc. (carrying value of $119 million).

TCG, a competitive local exchange carrier, conducted an initial public
offering (the "TCG IPO") on July 2, 1996 in which it sold 27,025,000
shares of Class A common stock at $16.00 per share to the public for
aggregate net proceeds of approximately $410,000,000. As a result of
the TCG IPO, the Company's ownership interest in TCG was reduced from
approximately 35% to approximately 31%. Accordingly, the Company
recognized a gain amounting to $12 million (before deducting deferred
income tax expense of approximately $5 million).

As of April 29, 1996, Liberty Media Group, The News Corporation
Limited ("News Corp.") and TINTA formed two sports programming
ventures. In the United States, Liberty Media Group and News Corp.
formed a partnership (the "Fox-Liberty Venture") into which Liberty
Media Group contributed interests in its national and regional sports
networks and into which News Corp. contributed its fx cable network
and certain other assets. Liberty Media Group received a 50% interest
in the Fox-Liberty Venture and $350 million in cash.

(continued)

F-96

<PAGE> 244

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Internationally, News Corp. and a limited liability company (the
"Liberty-TINTA LLC") formed by Liberty Sports, Inc., a wholly-owned
subsidiary of Liberty Media Group, and TINTA formed a venture (the
"International Venture") to operate previously existing sports
services in Latin America and Australia and a variety of new sports
services throughout the world, except in Asia and in the United
Kingdom, Japan and New Zealand where prior arrangements preclude an
immediate collaboration. The Liberty-TINTA LLC owns 50% of the
International Venture with News Corp. owning the other 50%. News
Corp. contributed various international sports rights and certain
trademark rights. The Liberty-TINTA LLC contributed Prime Deportiva,
a Spanish language sports service distributed in Latin American and in
Hispanic markets in the United States; an interest in Torneos y
Competencias S.A., an Argentinean sports programming and production
business; various international sports and satellite transponder
rights and cash. The Liberty-TINTA LLC also contributed their 50%
interest in Premiere Sports and All-Star Sports. Both are Australian
24-hour sports services available via multichannel, multipoint
distribution systems ("MMDS") or cable television.

As part of the formation of the International Venture, the
Liberty-TINTA LLC is entitled to receive from News Corp. 7.5% of the
outstanding stock of Star Television Limited. Upon delivery of such
stock to the Liberty-TINTA LLC, News Corp. is entitled to receive
from the Liberty-TINTA LLC $20 million and rights under various Asian
sports programming agreements. Star Television Limited operates a
satellite-delivered television platform in Asia.

Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts of that partnership in the event liabilities of that partnership
were to exceed its assets.

(6) Investment in Turner Broadcasting System, Inc.

At September 30, 1996, the Company owned shares of TBS common stock
with an aggregate market value of $844 million (including unrealized
holding gains of $520 million) and shares of a class of TBS preferred
stock that were convertible into TBS common stock with an aggregate
market value of $1,007 million (which exceeded cost by $829 million).
The Company's total holdings represented an approximate 7.5% voting
interest for those matters which preferred and common stock voted as a
single class.

On October 10, 1996, Time Warner, Inc. ("Time Warner") and TBS
consummated a merger (the "TBS/Time Warner Merger") whereby TBS
shareholders received 0.75 of a Time Warner common share for each TBS
Class A and Class B common share, and each holder of TBS Class C
preferred stock received 0.80 of a Time Warner common share for each
of the 6 shares of TBS Class B common stock into which each share of
Class C preferred stock could have been converted. The Company
received approximately 50.6 million shares of Time Warner common stock
in exchange for its TBS holdings. As a result of this like-kind
exchange, the Company will recognize a pre-tax gain of approximately
$1.5 billion in the fourth quarter of 1996.

(continued)

F-97

<PAGE> 245

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

On July 16, 1996, Time Warner, TBS, TCI, Liberty Media Group and the
Federal Trade Commission ("FTC") entered into an agreement in
principle, pursuant to which, among other things, Liberty Media Group
agreed to receive Time Warner securities with limited voting rights
(the "TW Exchange Stock") in exchange for its TBS common and preferred
stock. In addition, subject to a number of conditions, including
receipt of a ruling from the Internal Revenue Service that such
dividend would be tax free to the Liberty Media Group stockholders,
TCI agreed that it would distribute in the form of a stock dividend
(the "Spin-Off") to the Liberty Media Group stockholders the stock of
a new company ("Spinco") which would hold the TW Exchange Stock and
the business of Southern Satellite Systems, Inc. ("Southern"), a
wholly owned subsidiary of Liberty Media Group which distributes the
TBS SuperStation ("WTBS") signal in the United States and Canada. The
level of Liberty Media Group's ownership interest in Time Warner would
be restricted until the Spin-Off occurs, at which time, such
restriction would be eased for Spinco.

If the Spin-Off occurs, certain control stockholders of TCI, Bob
Magness, John C. Malone and Kearns-Tribune Corporation, would exchange
the Spinco common stock they receive for a Spinco convertible
preferred security which would only be entitled to vote on major
corporate transactions involving Spinco.

(7) Acquisition

On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"),
TCIC acquired all of the common stock of a subsidiary of Viacom
("Cable Sub") which owned Viacom's cable systems and related assets
(the "Viacom Acquisition").

The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following
these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay
the Loan Proceeds borrowed under the Loan Facility. Neither Viacom
nor New Viacom Sub has any obligation with respect to repayment of the
Loan Proceeds.

(continued)

F-98

<PAGE> 246

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class
B Common Stock (collectively, "Viacom Common Stock") the opportunity
to exchange (the "Exchange Offer") a portion of their shares of Viacom
Common Stock for shares of Class A Common Stock, par value $100 per
share, of Cable Sub ("Cable Sub Class A Stock"). Immediately
following the completion of the Exchange Offer, TCIC acquired from
Cable Sub shares of Cable Sub Class B Common Stock (the "Share
Issuance") for $350 million (which was used to reduce Cable Sub's
obligations under the Loan Facility). At the time of the Share
Issuance, the Cable Sub Class A Stock received by Viacom stockholders
pursuant to the Exchange Offer automatically converted into 5% Class A
Senior Cumulative Exchangeable Preferred Stock (the "Exchangeable
Preferred Stock") of Cable Sub with a stated value of $100 per share
(the "Stated Value"). The Exchangeable Preferred Stock is
exchangeable, at the option of the holder commencing after the fifth
anniversary of the date of issuance, for shares of Series A TCI Group
Stock at an initial exchange rate of 4.81 shares of Series A TCI Group
Stock for each share of Exchangeable Preferred Stock exchanged. The
Exchangeable Preferred Stock is subject to redemption, at the option
of Cable Sub, after the fifth anniversary of the date of issuance,
initially at a redemption price of $102.50 per share and thereafter at
prices declining ratably annually to $100 per share on and after the
eighth anniversary of the date of issuance, plus accrued and unpaid
dividends to the date of redemption. The Exchangeable Preferred Stock
is also subject to mandatory redemption on the tenth anniversary of
the date of issuance at a price equal to the Stated Value per share
plus accrued and unpaid dividends. Amounts payable by Cable Sub in
satisfaction of its optional or mandatory redemption obligations with
respect to the Exchangeable Preferred Stock may be made in cash or, at
the election of Cable Sub, in shares of Series A TCI Group Stock, or
in any combination of the foregoing.

The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of Cable Sub have been
consolidated with those of the Company since the date of acquisition.
On a pro forma basis, the Company's revenue, net loss, and net loss
per share of TCI Group Stock would have been increased by $276
million, $57 million and $.09, respectively, for the nine months ended
September 30, 1996; and revenue, net loss, net loss per share of TCI
Group Stock and net loss per share of TCI Class A Common Stock would
have been increased by $327 million, $90 million, $.03 and $.11,
respectively, for the nine months ended September 30, 1995 had Cable
Sub been consolidated with the Company on January 1, 1995. The
foregoing unaudited pro forma financial information is based upon
historical results of operations adjusted for acquisition costs and,
in the opinion of management, is not necessarily indicative of the
results had the Company operated Cable Sub since January 1, 1995.

(continued)

F-99

<PAGE> 247

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(8) Debt

Debt is summarized as follows:

<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- -------
amounts in millions
<S> <C> <C>
Notes payable $ 9,405 7,713
Bank credit facilities 4,338 3,854
Commercial paper 1,179 1,469
Convertible notes (a) 43 45
Other debt 153 130
-------- -------
$ 15,118 13,211
======== =======
</TABLE>

(a) These convertible notes, which are stated net of unamortized
discount of $181 million at September 30, 1996 and $186
million at December 31, 1995, mature on December 18, 2021.
The notes require, so long as conversion of the notes has not
occurred, an annual interest payment through 2003 equal to
1.85% of the face amount of the notes. During the nine months
ended September 30, 1996, certain of these notes were
converted into 1,063,800 shares of Series A TCI Group Stock
and 265,950 shares of Series A Liberty Group Stock. At
September 30, 1996, the notes were convertible, at the option
of the holders, into an aggregate of 37,643,774 shares of
Series A TCI Group Stock and 9,410,937 shares of Series A
Liberty Group Stock.

During the nine months ended September 30, 1996, the Company redeemed
certain notes payable which had an aggregate principle balance of $809
million and fixed interest rates ranging from 8.67% to 10.44% (the
"Redemption"). In connection with the Redemption, the Company
recognized a loss on early extinguishment of debt of $62 million.
Such loss related to prepayment penalties amounting to $60 million and
the retirement of deferred loan costs.

During the nine months ended September 30, 1996, certain subsidiaries
of the Company terminated, at such subsidiaries' option, certain
revolving bank credit facilities with aggregate commitments of
approximately $2 billion and refinanced certain other bank credit
facilities. In connection with such termination and refinancings, the
Company recognized a loss on early extinguishment of debt of $11
million related to the retirement of deferred loan costs.

As security for borrowings under one of the Company's bank credit
facilities, the Company has pledged 100,524,364 shares of Series A TCI
Group Stock held by a subsidiary of the Company. Also, as security
for borrowings under another of the Company's credit facilities, the
Company has pledged a portion of the Time Warner common stock received
in the TBS/Time Warner Merger. Additionally, as security for one of
the Company's notes payable (with a balance of $26 million at
September 30, 1996), the Company has pledged the stock of one of its
majority-owned subsidiaries.
(continued)

F-100

<PAGE> 248

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The fair value of the debt of the Company's subsidiaries is estimated
based on the current market prices for the same or similar issues or
on the current rates offered to the subsidiaries of the Company for
debt of the same remaining maturities. The fair value of debt, which
has a carrying value of $15,118 million, was $15,452 million at
September 30, 1996.

In order to achieve the desired balance between variable and fixed
rate indebtedness, the Company has entered into various interest rate
exchange agreements pursuant to which it pays (i) fixed interest rates
(the "Fixed Rate Agreements") ranging from 7.2% to 9.3% on notional
amounts of $460 million at September 30, 1996 and (ii) variable
interest rates (the "Variable Rate Agreements") on notional amounts of
$2,450 million at September 30, 1996. During the nine months ended
September 30, 1996 and 1995, the Company's net payments pursuant to
the Fixed Rate Agreements were $3 million and $1 million,
respectively; and the Company's net receipts pursuant to the Variable
Rate Agreements were $11 million and less than $1 million,
respectively.

The Company's Fixed Rate Agreements and Variable Rate Agreements
expire as follows (dollar amounts in millions):

<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
-------------- ------------- -------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
November 1996 8.9% $ 150 April 1997 7.0% $ 200
October 1997 7.2%-9.3% 80 September 1998 4.8%-5.4% 450
December 1997 8.7% 230 April 1999 7.4% 100
------ September 1999 7.2%-7.4% 300
$ 460 February 2000 5.8%-6.6% 650
====== March 2000 5.8%-6.0% 675
September 2000 5.1% 75
--------
$ 2,450
========
</TABLE>

The fair value of the interest rate exchange agreements is the
estimated amount that the Company would pay or receive to terminate
the agreements at September 30, 1996, taking into consideration
current interest rates and the current creditworthiness of the
counterparties. The Company would be required to pay $33 million at
September 30, 1996 to terminate the agreements.

(continued)

F-101

<PAGE> 249

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(9) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of
TCIC

In January 1996, TCI Communications Financing I ("Trust I"), an
indirect wholly-owned subsidiary of the Company, issued $16 million in
common securities to TCIC, a subsidiary of the Company, and issued
$500 million of 8.72% Trust Originated Preferred Securities(SM) (the
"Trust I Preferred Securities" and together with the common
securities, the "Trust I Securities") to the public. Trust I exists
for the exclusive purposes of issuing Trust I Securities and investing
the proceeds thereof into an aggregate principal amount of $516
million of 8.72% Subordinated Deferrable Interest Notes due January
31, 2045 (the "8.72% Subordinated Debt Securities") of TCIC. The
8.72% Subordinated Debt Securities are unsecured obligations of TCIC
and are subordinate and junior in right of payment to certain other
indebtedness of the Company. Upon redemption of the 8.72%
Subordinated Debt Securities, the Trust I Preferred Securities will be
mandatorily redeemable. TCIC effectively provides a full and
unconditional guarantee of Trust I's obligations under the Trust I
Preferred Securities.

In May 1996, TCI Communications Financing II ("Trust II"), an indirect
wholly-owned subsidiary of the Company, issued $16 million in common
securities to TCIC, and issued $500 million of 10% Trust Preferred
Securities (the "Trust II Preferred Securities" and together with the
common securities, the "Trust II Securities") to the public. Trust II
exists for the exclusive purposes of issuing Trust II Securities and
investing the proceeds thereof into an aggregate principal amount of
$516 million of 10% Subordinated Deferrable Interest Notes due May 31,
2045 (the "10% Subordinated Debt Securities") of TCIC. The 10%
Subordinated Debt Securities are unsecured obligations of TCIC and are
subordinate and junior in right of payment to certain other
indebtedness of the Company. Upon redemption of the 10% Subordinated
Debt Securities, the Trust II Preferred Securities will be mandatorily
redeemable. TCIC effectively provides a full and unconditional
guarantee of Trust II's obligations under the Trust II Preferred
Securities.

The Trust I and Trust II Preferred Securities are presented together
in a separate line item in the accompanying consolidated balance sheet
captioned "Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely subordinated debt
securities of TCI Communications, Inc." Dividends accrued on the Trust
I and Trust II Preferred Securities are included in minority interests
in losses (earnings) of consolidated subsidiaries in the accompanying
consolidated financial statements.

(10) Stockholders' Equity

Stock Options

Estimated compensation relating to restricted stock awards, stock
appreciation rights ("SARs") and options with tandem SARs awarded by
the Company has been recorded through September 30, 1996, but is
subject to future adjustment based upon market value, and ultimately,
on the final determination of market value when the rights are
exercised or the restricted stock awards are vested.

(continued)

F-102

<PAGE> 250

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Other

At September 30, 1996, there were 119,821,579 shares of Series A TCI
Group Stock and 20,967,181 shares of Series A Liberty Group Stock
reserved for issuance under exercise privileges related to options,
convertible debt securities and convertible preferred stock. Also,
one share of Series A TCI Group Stock is reserved for each share of
Series B TCI Group Stock, and one share of Series A Liberty Group
Stock is reserved for each share of Series B Liberty Group Stock.
Additionally, subsidiaries of TCI own an aggregate of 278,307 shares
of TCI Convertible Redeemable Participating Preferred Stock, Series F
("Series F Preferred Stock"). Each share of Series F Preferred Stock
is convertible into 1,287.51 shares of Series A TCI Group Stock.

Subsequent to September 30, 1996, a subsidiary of the Company issued
2,000 shares of exchangeable preferred stock, which shares are
exchangeable into 957,341 shares of Series A TCI Group Stock.

(11) Sale of Subsidiary Stock

On July 18, 1995, TINTA completed an initial public offering (the
"TINTA IPO") in which it sold 20 million shares of TINTA Series A
common stock to the public for consideration of $16.00 per share
aggregating $320 million, before deducting related expenses
(approximately $19 million). The shares sold to the public
represented 17% of TINTA's total issued and outstanding common stock
and 9% of the aggregate voting interest represented by such issued and
outstanding common stock. Also in July 1995, TINTA issued 687,500
shares of TINTA Series A common stock as partial consideration for a
35% ownership interest in Torneos Y Competencias S.A., an Argentine
sports programming company (the "TYC Acquisition"). As a result of
the TINTA IPO and the TYC Acquisition, the Company recognized a gain
amounting to $123 million.

(12) Commitments and Contingencies

Subsidiaries of the Company, Comcast, Cox and Sprint are partners in
Sprint Spectrum which was formed to engage in the business of
providing wireless communications services on a nationwide basis. The
Company owns an indirect 30% interest in Sprint Spectrum. Sprint
Spectrum was the successful bidder for personal communications
services ("PCS") licenses for 29 markets in an auction conducted by
the FCC that ended in March 1995. The aggregate license cost for
these licenses was approximately $2.1 billion, all of which has been
paid. Sprint Spectrum may elect to bid in subsequent auctions of PCS
licenses and/or acquire PCS licenses from other holders, has invested
in an entity ("APC") which holds the PCS license for the
Washington-Baltimore market, has agreed to invest in the entity that
will hold the PCS license for the Los Angeles-San Diego market, and
may invest in other entities that hold PCS licenses. Subsidiaries of
Cox, Sprint and the Company are also partners in a partnership
("PhillieCo") that holds a PCS license for the Philadelphia market
which was acquired at a license cost of $85 million. The Company has
an indirect 35.3% interest in PhillieCo.
(continued)

F-103

<PAGE> 251

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The capital that Sprint Spectrum will require to fund the construction
of the PCS systems, in addition to the license costs and investments
described above, will be substantial. Pursuant to the business plan
adopted by the partners in Sprint Spectrum for the build out of Sprint
Spectrum's nationwide network, the partners are obligated to make
additional cash capital contributions to Sprint Spectrum in the
aggregate amount of approximately $1.9 billion during the two-year
period that commenced January 1, 1996. The Company has agreed to
contribute approximately $0.6 billion of such aggregate amount, $0.2
billion of which was contributed during the nine months ended
September 30, 1996. The business plan contemplates that Sprint
Spectrum will require additional equity thereafter.

On November 27, 1995, the Company announced that it had agreed to
exchange its controlling interest in Home Shopping Network, Inc.
("HSN") for shares of Silver King Communications, Inc. ("Silver
King"). The Company would receive approximately 11 million newly
issued shares of Silver King in exchange for its 37.5 million shares
of HSN.

Liberty Media Group and Mr. Barry Diller and certain of their
respective affiliates entered into an agreement in August 1995
pursuant to which an option owned by Liberty Media Group to purchase 2
million shares of Silver King Class B common stock (the "Option")
(which shares would constitute voting control of Silver King) would be
transferred to BDTV, Inc. ("BDTV") (formerly referred to as "Silver
Management Company"), an entity in which Liberty Media Group would own
all of the non-voting equity interests (which would constitute
substantially all of the equity of such entity) and Mr. Diller would
own all of the voting equity interests and have the right to control
such entity (subject to certain exceptions relating to fundamental
corporate actions). BDTV would thereafter exercise the Option and
hold the shares of Silver King Class B Common Stock purchased
thereunder. In an amendment to such agreement entered into in
November 1995, Liberty Media Group agreed to contribute all of its
shares of HSN (which shares constitute approximately 41% of the equity
of HSN and approximately 80% of the voting power of HSN) to BDTV in
return for additional non-voting equity interests in BDTV. Following
such contribution, BDTV would exchange such HSN shares with Silver
King for additional shares of Silver King Common Stock and Class B
Common Stock (thereby increasing BDTV's controlling interest in Silver
King to in excess of 80% of the voting power of Silver King). In June
1996, the FCC granted its approval to the change in control of Silver
King resulting from such exercise of the Option. Thereafter, in
August 1996, the Option was exercised and BDTV became the controlling
stockholder of Silver King. The FCC approval, received in connection
with the exercise of the Option, however, included a condition that
any increase in TCI's equity interest in Silver King (which would
result from the proposed transfer of HSN shares to Silver King), as
well as any material amendment to the August 1995 agreement with Mr.
Diller, would require the prior approval of the FCC.

(continued)

F-104

<PAGE> 252

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In light of these restrictions, Liberty Media Group and Mr. Diller
began to discuss a restructuring of the November transaction, as well
as certain other alternative structures. On August 25, 1996, Silver
King, HSN and Liberty Media Group entered into a merger agreement and
related transaction agreements pursuant to which (i) Liberty Media
Group agreed to exchange all of its shares of HSN common stock and
approximately 739,000 shares of its HSN Class B Common Stock with the
wholly owned subsidiary of Silver King which was to be merged into HSN
("SK Sub") for shares of stock of SK Sub, (ii) SK Sub would be merged
into HSN (the "HSN Merger"), with HSN being the surviving corporation
owned 80.1% by Silver King and 19.9% by Liberty Media Group, (iii)
Liberty Media Group would receive in the HSN Merger, in exchange for
its remaining 19.3 million shares of HSN Class B Common Stock,
approximately 7.8 million shares of Silver King Class B Common Stock
and the contingent right to receive from time to time approximately
2.6 million additional shares of Silver King Class B Common Stock as
permitted under applicable FCC regulations, and (iv) Liberty Media
Group and Silver King would enter into an exchange agreement providing
for the terms upon which Liberty Media Group's remaining shares of
HSN, as the surviving corporation in the HSN Merger, would be
exchanged from time to time for stock of Silver King as permitted
under applicable FCC regulations. All of the shares of Silver King
Class B Common Stock actually received by Liberty Media Group at the
time of the HSN Merger would be immediately contributed to an entity
("BDTV II") in which Mr. Diller owns all of the voting equity
interests and Liberty Media Group owns a non-voting equity interest
(which non-voting interest constitutes substantially all the equity of
BDTV II) and which (other than with respect to certain fundamental
corporate actions) is controlled by Mr. Diller.

The HSN Merger is subject to the satisfaction of certain conditions,
including the receipt of all necessary regulatory consents and
approvals, consummation of the merger of Savoy Pictures Entertainment,
Inc. and a subsidiary of Silver King, and approval of such
transactions by the stockholders of Silver King and HSN. Liberty
Media Group has entered into agreements with both Silver King and HSN
pursuant to which Liberty Media Group has agreed to vote or cause to
be voted shares of Silver King and HSN owned by it in favor of the HSN
Merger and the other related transactions to be voted upon by the
stockholders of HSN and Silver King. In addition, such voting
agreements prohibit Liberty Media Group from disposing of shares of
HSN or Silver King except pursuant to the HSN Merger or following a
termination of the HSN merger agreement. If consummated, HSN would
cease to be a subsidiary of the Company and therefore, the financial
results of HSN would not be consolidated with the Company's financial
results. Although the Company would cease to possess voting control
over HSN, it would continue to have an indirect equity interest in HSN
through its ownership of the equity securities of BDTV, as well as a
direct interest in HSN. No assurance can be given that the HSN Merger
and related transactions will be consummated or if such transactions
are consummated, when such additional shares may be received by
Liberty media Group or that any or all such shares are ultimately
issued to Liberty Media Group.

The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2009 (the "Film
Licensing Obligations"). Based on subscriber levels at September 30,
1996, these agreements require minimum payments aggregating
approximately $624 million. The aggregate amount of the Film
Licensing Obligations under other license agreements is not currently
estimable because such amount is dependent upon certain variable
factors. Nevertheless, the Company's aggregate payments under the
Film Licensing Obligations could prove to be significant.

(continued)

F-105

<PAGE> 253

TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $307 million at September 30, 1996. Although there can
be no assurance, management of the Company believes that it will not
be required to meet its obligations under such guarantees, or if it is
required to meet any of such obligations, that they will not be
material to the Company.

The Company has made certain financial commitments related to the
acquisition of sports program rights through 2004. At September 30,
1996, such commitments aggregated $228 million.

Certain key employees of the Company hold restricted stock awards and
options with tandem SARs to acquire shares of certain subsidiaries'
common stock. Estimates of the compensation related to the restricted
stock awards and options and/or SARs have been recorded in the
accompanying consolidated financial statements, but are subject to
future adjustment based upon the market value of the respective common
stock and, ultimately, on the final market value when the rights are
exercised or the restricted stock awards are vested.

F-106
<PAGE> 254

"TELEPHONY GROUP"
(a combination of certain assets)

Management's Discussion and Analysis of
Financial Condition and Results of Operations

General

On December 4, 1996, the Board of Directors of Tele-Communications,
Inc. (the "Board") authorized, subject to shareholder approval (the "Telephony
Stock Proposal"), the issuance of a new class of stock ("Telephony Group
Stock") which is intended to reflect the separate performance of the Telephony
Group. The Telephony Group would initially consist of TCI Group's interest in
TCI Telephony Services, Inc., an indirect wholly owned subsidiary of Tele-
Communications, Inc. ("TCI" or the "Company"), its subsidiaries, their
respective assets, and all assets and liabilities of the TCI Group (as defined
below) to the extent attributed to any of the foregoing assets, whether or not
such assets or liabilities are assets and liabilities of TCI Telephony
Services, Inc. (together with its consolidated subsidiaries (unless the context
indicates otherwise), "TCI Telephony"). The principal assets of TCI Telephony
are its non- consolidating investments in a series of partnerships formed to
engage in the business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"), to
residential and business customers nationwide under the "Sprint" brand (the
"PCS Ventures"), and its investment in Teleport Communications Group, Inc., a
Delaware corporation ("TCG" or "Teleport"). The PCS Ventures include Sprint
Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively, "Sprint
Spectrum"), the partners of each of which are subsidiaries of Sprint
Corporation ("Sprint"), Comcast Corporation ("Comcast"), Cox Communications,
Inc. ("Cox") and TCI, and PhillieCo, L.P. ("PhillieCo"), the partners of which
are subsidiaries of Sprint, Cox and TCI. TCI, through subsidiaries, has a 30%
interest as a partner in Sprint Spectrum and a 35.3% interest as a partner in
PhillieCo. TCG is a competitive local exchange carrier that offers a wide
range of local telecommunications services in major metropolitan markets
nationwide, primarily to businesses, long distance carriers and resellers, and
wireless communications companies. The Company has a 31.1% equity interest
(which represents a 36.4% voting interest) in TCG. The Telephony Group would
also include such other assets of the TCI Group as the Board may in the future
determine to attribute to the Telephony Group and such other businesses, assets
and liabilities as TCI may in the future acquire for the Telephony Group, as
determined by the Board. It is currently the intention of TCI that any
businesses, assets and liabilities so attributed to the Telephony Group in the
future would be businesses, assets and liabilities of, or related to, the
interests of the TCI Group in the domestic wireless and wireline communications
businesses (the "Telephony Business").

The TCI Group is intended to reflect the performance of those
businesses of the Company not attributed to the Liberty Media Group (which is
intended to reflect the performance of TCI's business which produces and
distributes cable television programming services) and the Telephony Group.
Collectively, the TCI Group, the Liberty Media Group and the Telephony Group
are referred to as the "Groups" and individually may be referred to herein as a
"Group".

(continued)

F-107
<PAGE> 255

"TELEPHONY GROUP"
(a combination of certain assets)

As of the date of these financial statements, the only interests of
the TCI Group in the Telephony Business that are not attributed to the
Telephony Group are the business currently being conducted by a subsidiary of
the TCI Group which provides long-distance transport of video, voice, data
traffic and other telecommunications services primarily to inter-exchange
carriers on a wholesale basis using a digital broadband microwave network
located throughout a 14-state region in the western United States (the
"Microwave Business"), and the Company's business, which is in the development
stage, of providing wireline residential telephony services via TCI's cable
plant to residential and small business customers in certain of the geographic
areas served by the Company's cable television systems (the "ResTel Business").
The Company began offering residential telephony service commercially in October
1996 in Hartford, Connecticut. Telephony Group has the right, but not the
obligation, to acquire the ResTel Business from the Company in whole or in part
(by geographic area), at any time or from time to time, as applicable, provided
that Telephony Group is at the time of exercise a subsidiary of the Company and
the Company is then conducting such business.

The method of determining the purchase price for the ResTel Business,
and the arrangements between the Telephony Group and the TCI Group for the use
by TCI Telephony of the TCI Group's underlying cable plant to conduct the
ResTel Business, have not yet been determined. In making such determinations,
the Board will consider, among other things, the TCI Group's aggregate
investment (historically and through any upgrade for two-way service) in the
cable plant that TCI Telephony would use to conduct the ResTel Business; the
use of such plant by TCI's various subsidiaries or Groups (e.g., for cable,
telephony and Internet services), including the use by the Telephony Group of
the underlying plant for the ResTel Business and the use by the TCI Group of
the upgraded plant for other two-way services (such as Internet services and,
if developed in the future, interactive television services), and the ongoing
costs to maintain the plant. The purchase price and other arrangements between
the Groups determined by the Board may or may not reflect the terms and
conditions that either Group might have obtained in an arm's-length negotiation
with a third party. It is currently anticipated that TCI Telephony, if it
exercises its right to acquire the ResTel Business, will enter into a long-term
agreement with TCI for the use of the cable plant via which it would conduct
the ResTel Business and for the payment by TCI Telephony of an allocated share
of the costs to maintain such plant. The portion of TCI's investment in the
plant that the Board determines to allocate to the Telephony Group may be
included in the purchase price for the ResTel Business or as a usage fee
pursuant to such long-term agreement.

If TCI Telephony exercises its right to acquire the ResTel Business in
whole or in part, payment of the purchase price may be in funds generated by
the Telephony Group (whether through future operations or sales of assets), in
funds borrowed from TCI or through an increase in the Inter-Group Interest (as
defined below) of the TCI Group in the Telephony Group. Whether or not TCI
Telephony will exercise its rights to acquire the ResTel Business (in whole or
in part) will depend upon a number of factors, including the penetration rates
for the service in the geographic area or areas in which the service has been
commercially launched, the cost of providing the service at the penetration
rate achieved in that area, the price paid by TCI Telephony to acquire such
business from the TCI Group, and pursuant to its arrangement with the TCI Group
regarding the use of the cable plant, and the ability of TCI Telephony to fund
the continued development and ongoing operation of the ResTel Business in that
area.

TCI Telephony also has the right to acquire TCI's interests in the
Microwave Business at a price based on the fair market value of such business
(as determined by the Board). Such right may be exercised at any time provided
that at the time of exercise TCI Telephony is then a subsidiary of TCI and TCI
is then conducting such business.

(continued)

F-108
<PAGE> 256

"TELEPHONY GROUP"
(a combination of certain assets)

The common stockholders' equity value of TCI attributable to the
Telephony Group that, at any relevant time, is attributed to the TCI Group, and
accordingly, not represented by outstanding Telephony Group Stock is referred
to as "Inter-Group Interest". Prior to the issuance of any shares of Telephony
Group Stock, the Inter-Group Interest of the TCI Group in the Telephony Group
is 100%. As any shares of Telephony Group Stock are issued and distributed or
sold, the TCI Group's Inter-Group Interest in the Telephony Group will be
reduced accordingly.

While the Telephony Group Stock constitutes common stock of TCI, the
issuance of the Telephony Group Stock will not result in any transfer of assets
or liabilities of TCI or any of its subsidiaries or affect the rights of
holders of TCI's or any of its subsidiaries' debt.

Holders of Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock"), Series A Liberty Media Group and Series B Liberty Media
Group common stock ("Liberty Media Group Stock") and Telephony Group Stock
(when issued) will be common stockholders of TCI and will be subject to risks
associated with an investment in TCI and all of its businesses, assets and
liabilities.

Summary of Operations

Certain corporate general and administrative costs are charged to
Telephony Group at rates set at the beginning of the year based on projected
utilization for that year. The utilization-based charges are set at levels
that management believes to be reasonable and that would approximate the costs
Telephony Group would incur for comparable services on a stand alone basis.
During 1995 and 1994, Telephony Group was allocated $358,000 and $50,000,
respectively, in corporate general and administrative costs by TCI Group.

Telephony Group records compensation relating to stock appreciation
rights and restricted stock awards granted to certain employees involved with
Telephony Group matters by TCI. Such compensation is subject to future
adjustment based upon market value, and ultimately, on the final determination
of market value when the rights are exercised or the restricted stock awards
are vested.

Other Income and Expenses

Telephony Group's share of losses of affiliates of $65.3 million for
the year ended December 31, 1995 represents an increase of $44.9 million or
220%, when compared to the Telephony Group's share of losses of $20.4 million
for the year ended December 31, 1994. The increase is directly attributable to
the Telephony Group's share of losses in the PCS Ventures, TCG and other
affiliates accounted for under the equity method.

The share of losses from the Telephony Group's investment in the PCS
Ventures was $33.9 million for the year ended December 31, 1995 which
represents an increase of $32.9 million, as compared to the share of losses of
$1 million for the year ended December 31, 1994. The increase in the share of
losses is attributed primarily to general and administrative costs associated
with the start-up of operations and Sprint Spectrum's share of losses in
American PCS L.P. ("APC"). The PCS Ventures are in the development stage of
operations and generated no revenue during 1995.

(continued)

F-109
<PAGE> 257

"TELEPHONY GROUP"
(a combination of certain assets)

The share of losses from the Telephony Group's investment in TCG was
$30.0 million for the year ended December 31, 1995 which represents an increase
of $10.6 million, as compared to the share of losses of $19.4 million for the
year ended December 31, 1994. The increase in the share of losses is largely
attributed to costs incurred by TCG in the expansion of their local
telecommunications networks, increased depreciation expense and increased
interest expense partially offset by an increase in telecommunications services
revenue attributed to increased sales of services in existing and new markets
and the growth of TCG's customer base.

Telephony Group's share of losses of affiliates was $20.4 million for
the year ended December 31, 1994, which represents an increase of $12.2 million
over the corresponding period in 1993. Such increase is principally the result
of the Telephony Group's share of losses from TCG.

Interest income increased to $5.8 million in 1995 from $1.7 million in
1994, representing an increase of $4.1 million or 240%. The increase is
largely attributed to an increase in the note receivable from TCG from $61.3
million at December 31, 1994 to $83.4 million at December 31, 1995.

Net Earnings (Loss)

Telephony Group's net loss of $39.0 million for the year ended
December 31, 1995 represents an increase of $27.2 million, as compared to
Telephony Group's net loss of $11.8 million for 1994. Telephony Group's net
loss of $11.8 million for 1994 represents an increase of $7.0 million, as
compared to Telephony Group's net loss of $4.8 million for 1993. Such
increases in the net loss of Telephony Group are primarily the result of the
aforementioned increases in share of losses of affiliates.

Inflation has not had a significant impact on Telephony Group's
results of operations during the three-year period ended December 31, 1995.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the Financial
Accounting Standards Board in October 1995. Statement No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. Telephony Group
will include the disclosures required by Statement No. 123 in the notes to
future financial statements.

Liquidity and Capital Resources

Following approval by shareholders of the Telephony Stock Proposal,
subject to prevailing market and other conditions, the Company currently
proposes to offer shares of Series A Telephony Group Stock for cash in an
initial public offering, in which event the proceeds of such offering would be
allocated to the Telephony Group to be used to fund a portion of its
anticipated capital requirements and for general corporate purposes. The
timing and the size of any such public offering and the price at which such
shares would be sold will be determined by the Board, without further approval
of stockholders, prior to such offering based upon the prevailing market and
other conditions.

(continued)

F-110
<PAGE> 258

"TELEPHONY GROUP"
(a combination of certain assets)

Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the TCI Group, the Liberty Media Group and
the Telephony Group for the purpose of preparing the combined financial
statements of the TCI Group, the Liberty Media Group and the Telephony Group,
the change in the capital structure of the Company contemplated by the
Telephony Group Stock Proposal will not affect legal title to such assets or
responsibility for such liabilities of the Company or any of its subsidiaries.
Holders of TCI Group Stock, Liberty Media Group Stock and Telephony Group Stock
will be common stockholders of the Company and will be subject to risks
associated with an investment in the Company and all of its businesses, assets
and liabilities.

Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect the
combined results of operations or financial condition of the other Groups and
the market price of the TCI Group Stock, the Liberty Media Group Stock and the
Telephony Group Stock. In addition, any net losses of any Group, dividends or
distributions on, or repurchases of, the TCI Group Stock, the Liberty Media
Group Stock or the Telephony Group Stock, and dividends on, or certain
repurchases of, preferred stock, will reduce funds of the Company legally
available for the payment of dividends on the TCI Group Stock, the Liberty
Media Group Stock and the Telephony Group Stock. The combined financial
statements of the TCI Group, the Liberty Media Group and the Telephony Group
should be read in conjunction with the consolidated financial statements of the
Company.

Dividends on the Telephony Group Stock will be payable at the sole
discretion of the Board out of the lesser of assets of TCI legally available
for dividends and the available dividend amount with respect to Telephony
Group, as defined. Determinations to pay dividends on Telephony Group Stock
will be based primarily upon the financial condition, results of operations and
business requirements of Telephony Group and TCI as a whole.

TCI manages certain treasury activities for Telephony Group on a
centralized basis. Cash disbursements of Telephony Group are funded by TCI on
a daily basis. Prior to the implementation of the Telephony Group Stock
Proposal the net amounts of such cash activities are included in combined
equity in the accompanying combined financial statements. Subsequent to the
implementation of the Telephony Group Stock Proposal, such cash activities will
be included in borrowings from or loans to TCI Group or, if determined by the
Board, as an equity contribution to the Telephony Group.

If the Telephony Group Stock Proposal is approved by stockholders, all
debt incurred or preferred stock issued by the Company and its subsidiaries
following the issuance and sale of Telephony Group Stock would (unless the
Board otherwise provides) be specifically attributed to and reflected on the
combined financial statements of the Group that includes the entity which
incurred the debt or issued the preferred stock or, in case the entity
incurring the debt or issuing the preferred stock is Tele-Communications, Inc.,
the TCI Group. The Board could, however, determine from time to time that debt
incurred or preferred stock issued by entities included in a Group should be
specifically attributed to and reflected on the combined financial statement of
one of the other Groups to the extent that the debt is incurred or the
preferred stock is issued for the benefit of such other Group.

(continued)

F-111
<PAGE> 259

"TELEPHONY GROUP"
(a combination of certain assets)

To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The TCI Group
has provided and will continue to provide centralized cash management functions
under which cash receipts of certain entities included in the other Groups are
remitted to the TCI Group and certain cash disbursements of the other Groups
will be funded by the TCI Group on a daily basis. Such transfers of funds
between the Groups will be reflected as borrowings or, if determined by the
Board, in the case of a transfer from the TCI Group to either the Liberty Media
Group or the Telephony Group, reflected as the creation of, or increase in, the
TCI Group's Inter-Group Interest in such Group or, in the case of a transfer
from either the Liberty Media Group or the Telephony Group to the TCI Group,
reflected as a reduction in the TCI Group's Inter-Group Interest in such Group.
There are no specific criteria for determining when a transfer will be reflected
as a borrowing or as an increase or reduction in an Inter-Group Interest. The
Board expects to make such determinations, either in specific instances or by
setting generally applicable policies from time to time, after consideration of
such factors as it deems relevant, including, without limitation, the needs of
the Company, the financing needs and objectives of the Groups, the investment
objectives of the Groups, the availability, cost and time associated with
alternative financing sources, prevailing interest rates and general economic
conditions. Generally, it is expected that entities included in the Liberty
Media Group will seek their own long-term debt financing, whereas the Telephony
Group is expected to require additional advances from the TCI Group for some
period of time. To satisfy this need, TCI has agreed to provide a revolving
credit facility (the "Revolving Credit Facility") to the Telephony Group for a
period commencing December 1, 1996 and ending December 31, 2001. Such facility
would permit aggregate borrowings at any one time outstanding of up to $500
million (subject to reduction or increase as described below), which borrowings
would bear interest at a rate per annum equal to The Bank of New York's prime
rate (as in effect from time to time) plus 1% per annum, payable quarterly. A
commitment fee equal to 3/8% per annum of the average unborrowed availability
under the Revolving Credit Facility will be payable by the Telephony Group to
the TCI Group on a quarterly basis. The maximum amount of borrowings permitted
under the Revolving Credit Facility will be reduced on a dollar-for-dollar basis
(i) by the amount of the first $300 million of net proceeds of any external debt
or equity financings attributed to the Telephony Group resulting in the
reduction of the maximum amount of such borrowings under the Revolving Credit
Facility to an amount not less than $200 million and (ii) below $200 million, if
(but only to the extent that) the net proceeds of any such external financings
attributed to the Telephony Group which are completed on or prior to December 1,
1998 exceed $600 million (including the first $300 million of such proceeds
referred to above. The maximum amount of the borrowings permitted under the
Revolving Credit Facility will be increased on a dollar-for-dollar basis by the
dollar amount of any borrowings thereunder, the proceeds of which are used by
the Telephony Group to pay a portion, if any, of the exercise price for the
purchase of all or part of the ResTel Business from the TCI Group.

Except as described above with respect to the Revolving Credit
Facility, loans from one Group to another Group would bear interest at such
rates and have such repayment schedules and other terms as are established from
time to time by, or pursuant to procedures established by, the Board. The
Board expects to make such determinations, either in specific instances or by
setting generally applicable polices from time to time, after consideration of
such factors as it deems relevant, including, without limitation, the needs of
the Company, the use of proceeds by and creditworthiness of the recipient
Group, the capital expenditure plans and investment opportunities available to
each Group and the availability, cost and time associated with alternative
financing sources.

(continued)

F-112
<PAGE> 260

"TELEPHONY GROUP"
(a combination of certain assets)

The combined balance sheets of a Group would reflect its net loans to
or borrowings from the other Groups. Similarly, the respective combined
statements of operations of the Groups would reflect interest income or
expense, as the case may be, associated with such loans or borrowings and the
respective combined statements of cash flows of the Groups would reflect
changes in the amounts of loans or borrowings deemed outstanding. In the
historical financial statements, net borrowings of the Telephony Group have
been included as a component of the Telephony Group's combined equity.
Subsequent to the date of such financial statements, a portion of such net
borrowings was converted into a $500 million investment in Telephony preferred
stock as described below. The balance of such net borrowings up to November
30, 1996 will continue to be reflected as a component of the Telephony Group's
combined equity. Amounts borrowed by the Telephony Group from another Group on
or subsequent to December 1, 1996, will be reflected on the Telephony Group's
financial statements as indebtedness to the applicable lender.

On December 1, 1996, the TCI Group converted $500 million of its
interest in the Telephony Group into a 6% cumulative compounding redeemable
preferred stock due from the Telephony Group. Such preferred stock is due
December 1, 2011.

In connection with its determination to recommend the Telephony Stock
Proposal to the Company's shareholders, the Board determined to convert a
portion of the amount invested by the Company in the investments attributed to
the Telephony Group into the aforementioned $500 million preferred stock and a
contractual right to use up to $500 million of tax benefits generated by
Telephony Group (principally arising from its partnership interest in the PCS
Ventures) without charge to the TCI Group. Such right can be satisfied only
through and to the extent of future income tax benefits generated by Telephony
Group.

Although any increase in the TCI Group's Inter-Group Interest in the
Telephony Group resulting from an equity contribution by the TCI Group to the
Telephony Group or any decrease in such Inter-Group Interest resulting from a
transfer of funds from the Telephony Group to the TCI Group would be determined
by reference to the market value of the Series A Telephony Group Stock as of
the date of such transfer, such an increase could occur at a time when such
shares could be considered undervalued and such a decrease could occur at a
time when such shares could be considered overvalued.
(continued)

F-113
<PAGE> 261

"TELEPHONY GROUP"
(a combination of certain assets)

For all periods prior to the distribution of the Liberty Media Group
Stock on August 10, 1995 (the "Distribution"), all financial impacts of equity
offerings are and will be attributed entirely to the TCI Group. After the
Distribution, all financial impacts of issuances of additional shares of TCI
Group Stock are and will be attributed entirely to the TCI Group, all financial
impacts of issuances of additional shares of Liberty Media Group Stock the
proceeds of which are attributed to the Liberty Media Group are and will be to
such extent reflected in the combined financial statements of the Liberty Media
Group, and all financial impacts of issuances of additional shares of Liberty
Media Group Stock the proceeds of which are attributed to the TCI Group in
respect of a reduction in any Inter-Group Interest in the Liberty Media Group
are and will be to such extend reflected in the combined financial statements
of the TCI Group. All financial impacts of issuances of shares of Telephony
Group Stock the proceeds of which are attributed to the Telephony Group will be
to such extent reflected in the combined financial statements of the Telephony
Group, and all financial impacts of issuances of shares of Telephony Group
Stock the proceeds of which are attributed to the TCI Group in respect of a
reduction in the TCI Group's Inter-Group Interest in the Telephony Group will
be to such extent reflected in the combined financial statements of the TCI
Group. Financial impacts of dividends or other distributions on, and purchases
of, TCI Group Stock will be attributed entirely to the TCI Group, and financial
impacts of dividends or other distributions on Telephony Group Stock will be
attributed entirely to the Telephony Group, except that dividends or other
distributions on the Telephony Group Stock will (if at the time there is an
Inter-Group Interest in the Telephony Group) result in the TCI Group being
credited, and the Telephony Group being charged (in addition to the charge for
the dividend or other distribution paid), with an amount equal to the product
of the aggregate amount of such dividend or other distribution paid or
distributed in respect of outstanding shares of Telephony Group Stock and a
fraction the numerator of which is the Telephony Group Inter-Group Interest
Fraction and the denominator of which is the Telephony Group Outstanding
Interest Fraction (both as defined). Financial impacts of repurchases of
Telephony Group Stock the consideration for which is charged to the Telephony
Group will be to such extent reflected in the combined financial statements of
the Telephony Group, and financial impacts of repurchases of Telephony Group
Stock the consideration for which is charged to the TCI Group will be to such
extend reflected in the combined financial statements of the TCI Group and will
result in an increase in the TCI Group's Inter-Group Interest in the Telephony
Group.

During 1994, Telephony Group, Comcast, Cox (together with the Company
and Comcast, the "Cable Partners") and Sprint formed the predecessor to Sprint
Spectrum ("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo, in which
Telephony Group owns an indirect 30% interest, the partners participated in
auctions ("PCS Auctions") of broadband PCS licenses conducted by the Federal
Communications Commission ("FCC"). In the first round auction, which concluded
during the first quarter of 1995, WirelessCo was the winning bidder for PCS
licenses for 29 markets, including New York, San Francisco-Oakland-San Jose,
Detroit, Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and
Miami-Fort Lauderdale. The aggregate license cost for these licenses was
approximately $2.1 billion.

(continued)

F-114
<PAGE> 262

"TELEPHONY GROUP"
(a combination of certain assets)

WirelessCo also invested in APC, which holds a PCS license granted
under the FCC's pioneer preference program for the Washington-Baltimore market.
WirelessCo acquired its 49% limited partnership interest in APC for $23 million
and agreed to make capital contributions to APC equal to 49/51 of the cost of
APC's PCS license. Additional capital contributions may be required in the
event APC is unable to finance the full cost of its PCS license. WirelessCo
may also be required to finance the build-out expenditures for APC's PCS
system. Cox, which holds a pioneer preference PCS license for the Los
Angeles-San Diego market, and the Company, Comcast and Sprint have also agreed
on the general terms and conditions upon which Cox (with a 51% interest) and
WirelessCo (with a 49% interest) would form a partnership to hold and develop a
PCS system using the Los Angeles-San Diego license. APC and the Cox
partnership would affiliate their PCS systems with WirelessCo and be part of
WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand.

During 1994, subsidiaries of Cox, Sprint and Telephony Group also
formed PhillieCo, in which the Telephony Group owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.

In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships, of which the principal partnership is
currently known as Sprint Spectrum Holding Company, L.P., to which they
contributed their respective interests in WirelessCo and through which they
formed another partnership, NewTelco, L.P. ("NewTelco") to engage in the
business of providing local wireline communications services to residences and
businesses on a nationwide basis. The Cable Partners agreed to contribute
their interests in TCG to NewTelco. TCG is one of the largest competitive
access providers in the United States in terms of route miles.

Effective January 31, 1996, the Partners amended the Sprint Spectrum
partnership agreement (the "Partnership Agreement") and certain other
agreements related thereto. Under the Partnership Agreement, the business of
Sprint Spectrum and its subsidiaries will be the provision of certain wireless
and other services described in the Partnership Agreement. The partners intend
for Sprint Spectrum and its subsidiary partnerships to be the exclusive
vehicles through which they engage in the wireless telephony service
businesses, subject to certain exceptions. Sprint Spectrum will no longer be
authorized to engage in the businesses of providing local wireline
communications services to residences and businesses. In connection with the
amendment of the Partnership Agreement, the Partners, also agreed to the
termination of the agreement to contribute the Cable Partners' interests in TCG
to NewTelco.

Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out of
Sprint Spectrum's nationwide network for wireless personal communications
services. Pursuant to the business plan, the Partners are obligated to make
additional cash capital contributions to Sprint Spectrum in the aggregate
amount of approximately $1.9 billion during the two-year period that commenced
January 1, 1996. The business plan contemplates that Sprint Spectrum will
require additional equity thereafter.

(continued)

F-115
<PAGE> 263

"TELEPHONY GROUP"
(a combination of certain assets)

If TCI Telephony fails to make any portion of its required additional
capital contributions to Sprint Spectrum and did not cure such failure within
the time periods specified in the Partnership Agreement, such failure would
constitute an Adverse Act and TCI Telephony would become and Adverse Partner
(each such term as defined in the Partnership Agreement). If TCI Telephony
were to become an Adverse Partner, it would lose its right to appoint a
representative to the Partnership Board and the Partnership Board, by action of
the representatives of the other Partners that are not Adverse Partners, would
be entitled to elect (i) to commence procedures to allow such other Partners to
purchase TCI Telephony's interest in Sprint Spectrum at a discount (which
purchase price in the case of a failure to make a required capital contribution
would be the lesser of 90% of the net equity of TCI Telephony's interest in
Sprint Spectrum and 80% of TCI Telephony's prior capital contribution (less any
distributions paid to TCI Telephony)) and/or (ii) to cause Sprint Spectrum to
seek to obtain specific performance of TCI Telephony's obligations or to sue
for money damages. TCI Telephony could also become an Adverse Partner through,
among other things, the disposition of its interest in Sprint Spectrum other
than in accordance with the Partnership Agreement or a material breach of a
material covenant in the Partnership Agreement.

The failure by TCI Telephony to make its pro rata portion of any
additional capital contributions validly requested to be made to Sprint
Spectrum (whether or not required under the applicable provisions of the
Partnership Agreement) would result in a decrease in TCI Telephony's current
30% percentage interest in Sprint Spectrum. Such dilution would be calculated
on the basis of the relative amount of capital contributions made by the
Partners until an aggregate of $5.0 billion had been contributed; thereafter,
the dilution formula would take into account the fair market value of each
Partner's interest in Sprint Spectrum. In the event TCI Telephony's percentage
interest were to decrease below the 8% minimum ownership requirement set forth
in the Partnership Agreement, TCI Telephony's interest in Sprint Spectrum would
convert into that of an "Exclusive Limited Partner" and TCI Telephony would
lose the right to designate a representative to the Partnership Board.

As a partner in certain partnerships, from time to time, the Telephony
Group is obligated to make cash payments, either in the form of equity or
loans, the most significant of which is the funding of Sprint Spectrum. As
previously described, the Partners are obligated to make cash capital
contributions to Sprint Spectrum in the aggregate amount of approximately $1.9
billion during the two-year period that commenced January 1, 1996.

The Telephony Group's commitment to fund partnerships (including the
aforementioned funding obligation to Sprint Spectrum) are estimated as follows
(amounts in thousands):

(continued)

F-116
<PAGE> 264

"TELEPHONY GROUP"
(a combination of certain assets)

TCG has substantial business relationships with a few large customers,
including the major long distance carriers. During 1995, TCG's top 10
customers accounted for approximately 57% of TCG's total revenues on a pro
forma basis after giving effect to a reorganization described more fully in
note 5 to the combined financial statements of Telephony Group. AT&T Corp. and
Sprint each accounted for more than 10% of such revenues, although no customer
accounted for 15% or more of such revenue. A significant reduction in the
level of services TCG performs for any of these customers could have a material
adverse effect on Teleport's results of operations or financial condition.
Most of TCG's customer arrangements are subject to termination on short notice
and do not provide TCG with guarantees that service quantities will be
maintained at current levels, and there can be no assurance that such
arrangements will be continued at the same service quantity levels. TCG
believes that certain of the major long distance carriers are pursuing
alternative to their current practices with regard to obtaining local
telecommunications services, including construction of their own facilities.

TCI Telephony's ability to obtain sufficient equity or debt financing
in order for the Telephony Group to make its expected additional capital
contributions to the PCS Ventures and other entities in which it has
investments will be limited because TCI Telephony does not conduct any
operations directly and does not have any current source of revenues or cash
flow for debt service. TCI could raise capital for the Telephony Group by,
among other things, engaging in public offerings or private placements of
Series A Telephony Group Stock or through issuance of debt securities or
preferred equity securities attributed to the Telephony Group. The Telephony
Group anticipates that for the foreseeable future it will continue to be
dependent upon funding from the TCI Group and, to the extent available, from
external sources. If the available borrowings under the Revolving Credit
Facility that TCI has provided to TCI Telephony is not sufficient to fund the
Telephony Group's capital requirements, no assurance can be given that TCI
Telephony will be able to obtain any required additional financing on terms
acceptable to it, or at all.

F-117
<PAGE> 265

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We have audited and reported separately herein on the consolidated financial
statements of Tele-Communications, Inc. and subsidiaries as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995.

We have also audited the accompanying combined balance sheets of Telephony
Group (a combination of certain assets of Tele-Communications, Inc., as defined
in note 1) as of December 31, 1995 and 1994, and the related combined
statements of operations, equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.

The combined financial statements of Telephony Group are presented for purposes
of additional analysis of the consolidated financial statements of
Tele-Communications, Inc. and subsidiaries. As more fully described in note 1,
the combined financial statements of Telephony Group are intended to reflect
the performance of the assets of Tele- Communications, Inc. consisting of
certain entities engaged in the domestic wireline and wireless telephony
distribution and communications businesses. The combined financial statements
of Telephony Group should be read in conjunction with the consolidated
financial statements of Tele-Communications, Inc. and subsidiaries.

In our opinion, the combined financial statements referred to in the second
paragraph above present fairly, in all material respects, the financial
position of Telephony Group as of December 31, 1995 and 1994, and the results
of their operations and cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Denver, Colorado
March 18, 1996

F-118
<PAGE> 266
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Balance Sheets

December 31, 1995 and 1994

<TABLE>
<CAPTION>
1995 1994
--------------- --------------
Assets amounts in thousands
- ------
<S> <C> <C>
Investments in Sprint Spectrum Holding Company, L.P. and MinorCo,
L.P. (and their respective predecessor) and PhillieCo
(collectively, the "PCS Ventures"), accounted for under the
equity method (note 4)
$ 689,062 37,930
Investments in Teleport Communications Group, Inc., TCG Partners and
certain local market partnerships (collectively, "TCG" or
"Teleport"), accounted for under the equity method, and related
receivables (note 5)
244,012 197,424
Other investments in affiliates, accounted for under the equity
method, and related receivables (note 6)
5,722 1,368
Deferred tax asset (note 7) 4,857 3,612
--------------- --------------
$ 943,653 240,334
=============== ==============
Combined Equity
- ---------------

Combined equity (note 8) $ 943,653 240,334
=============== ==============
</TABLE>

Commitments and contingencies (notes 4 and 9)

See accompanying notes to combined financial statements.

F-119
<PAGE> 267
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Statements of Operations

Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
amounts in thousands
<S> <C> <C> <C>
Operating costs and expenses:
Charges from TCI Group (note 8) $ 358 50 --
Compensation relating to stock appreciation rights (note 8) 119 -- --
------------ ------------ ------------
477 50 --
------------ ------------ ------------
Operating loss (477) (50) --

Other income (expense):
Share of losses of the PCS Ventures (note 4) (33,890) (992) --
Share of losses of TCG (note 5) (29,975) (19,366) (8,182)
Share of losses of other equity affiliates (note 6) (1,468) -- --
Interest income from affiliates (note 5) 5,854 1,718 531
------------ ------------ ------------
(59,479) (18,640) (7,651)
------------ ------------ ------------
Loss before income taxes (59,956) (18,690) (7,651)

Income tax benefit (note 7) 21,002 6,919 2,883
------------ ------------ ------------
Net loss $ (38,954) (11,771) (4,768)
============ ============ ============
</TABLE>

See accompanying notes to combined financial statements.

F-120
<PAGE> 268
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Statements of Equity

Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
Combined
equity
-------------
amounts in thousands
<S> <C>
Balance at January 1, 1993 $ 103,873
Net loss (4,768)
Intergroup tax allocation (676)
Net cash transfers from TCI Group 19,222
-------------

Balance at December 31, 1993 117,651
Net loss (11,771)
Cost allocations from TCI Group 50
Intergroup tax allocation (2,657)
Transfers of assets from TCI Group, net of deferred taxes 7,584
Net cash transfers from TCI Group 129,477
-------------

Balance at December 31, 1994 240,334
Net loss (38,954)
Cost allocations from TCI Group 358
Allocation to Telephony Group of compensation relating to stock appreciation
rights 119
Intergroup tax allocation (17,513)
Transfers of assets from TCI Group, net of deferred taxes 15,926
Net cash transfers from TCI Group 743,383
-------------

Balance at December 31, 1995 $ 943,653
=============
</TABLE>

See accompanying notes to combined financial statements.

F-121
<PAGE> 269
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Statements of Cash Flows

Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- -----------
amounts in thousands
(see note 3)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (38,954) (11,771) (4,768)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Compensation relating to stock appreciation rights
119 -- --
Share of losses of affiliates 65,333 20,358 8,182
Intergroup tax allocation (17,513) (2,657) (676)
Deferred income tax benefit (3,489) (4,262) (2,207)
------------ ---------- -----------
Net cash provided by operating activities 5,496 1,668 531
------------ ---------- -----------
Cash flows from investing activities:
Additional investments in and loans to affiliates (750,861) (132,835) (60,173)
Repayments of receivables from affiliates 1,624 1,640 40,420
------------ ---------- -----------

Net cash used by investing activities (749,237) (131,195) (19,753)
------------ ---------- -----------

Cash flows from financing activities -
Cash transfers to Telephony Group 743,741 129,527 19,222
------------ ---------- -----------

Net change in cash -- -- --

Cash at beginning of year -- -- --
------------ ---------- -----------

Cash at end of year $ -- -- --
============ ========== ===========
</TABLE>

See accompanying notes to combined financial statements.

F-122
<PAGE> 270
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

December 31, 1995, 1994 and 1993

(1) Basis of Presentation

On December 4, 1996 the Board of Directors of Tele-Communications,
Inc. (the "Board") authorized, subject to shareholder approval (the
"Telephony Stock Proposal"), the issuance of a new class of stock
("Telephony Group Stock") which is intended to reflect the separate
performance of the Telephony Group. The Telephony Group would
initially consist of TCI Group's interest in TCI Telephony Services,
Inc., an indirect wholly owned subsidiary of Tele-Communications, Inc.
("TCI" or the "Company"), its subsidiaries, their respective assets,
and all assets and liabilities of the TCI Group (as defined below) to
the extent attributed to any of the foregoing assets, whether or not
such assets or liabilities are assets and liabilities of TCI Telephony
Services, Inc. (together with its consolidated subsidiaries (unless
the context indicates otherwise), "TCI Telephony"). The principal
assets of TCI Telephony are its non-consolidating investments in a
series of partnerships, the PCS Ventures, formed to engage in the
business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"),
to residential and business customers nationwide under the "Sprint"
brand, and its investment in TCG. The PCS Ventures include Sprint
Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively,
"Sprint Spectrum"), the partners of each of which are subsidiaries of
Sprint Corporation ("Sprint"), Comcast Corporation ("Comcast"), Cox
Communications, Inc. ("Cox") and TCI, and PhillieCo, L.P.
("PhillieCo"), the partners of which are subsidiaries of Sprint, Cox
and TCI. TCI, through subsidiaries, has a 30% interest as a partner
in Sprint Spectrum and a 35.3% interest as a partner in PhillieCo.
TCG is a competitive local exchange carrier that offers a wide range
of local telecommunications services in major metropolitan markets
nationwide, primarily to businesses, long distance carriers and
resellers, and wireless communications companies. The Company has a
31.1% equity interest (which represents a 36.4% voting interest) in
TCG. The Telephony Group would also include such other assets of the
TCI Group as the Board may in the future determine to attribute to the
Telephony Group and such other businesses, assets and liabilities as
TCI may in the future acquire for the Telephony Group, as determined
by the Board. It is currently the intention of TCI that any
businesses, assets and liabilities so attributed to the Telephony
Group in the future would be businesses, assets and liabilities of, or
related to, the interests of the TCI Group in the domestic wireless
and wireline communications businesses (the "Telephony Business").

The TCI Group is intended to reflect the performance of those
businesses of the Company not attributed to the Liberty Media Group
(which is intended to reflect the performance of TCI's business which
produces and distributes cable television programming services) and
the Telephony Group. Collectively, the TCI Group, the Liberty Media
Group and the Telephony Group are referred to as the "Groups" and
individually may be referred to herein as a "Group."

(continued)

F-123
<PAGE> 271
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

As of the date of these financial statements, the only interests of the
TCI Group in the Telephony Business that are not attributed to the
Telephony Group are the business currently being conducted by a
subsidiary of the TCI Group which provides long-distance transport of
video, voice, data traffic and other telecommunications services
primarily to inter-exchange carriers on a wholesale basis using a
digital broadband microwave network located throughout a 14-state
region in the western United States (the "Microwave Business"), and the
Company's business, which is in the development stage, of providing
wireline residential telephony services via TCI's cable plant to
residential and small business customers in certain of the geographic
areas served by the Company's cable television systems (the "ResTel
Business"). The Company began offering residential telephony service
commercially in October 1996 in Hartford, Connecticut. Telephony Group
has the right, but not the obligation, to acquire the ResTel Business
from the Company in whole or in part (by geographic area) at any time
or from time to time, as applicable, provided that Telephony Group is
at the time a subsidiary of the Company and the Company is then
conducting such business.

The method of determining the purchase price for the ResTel Business,
and the arrangements between the Telephony Group and the TCI Group for
the use by TCI Telephony of the TCI Group's underlying cable plant to
conduct the ResTel Business, have not yet been determined. In making
such determinations, the Board will consider, among other things, the
TCI Group's aggregate investment (historically and through any upgrade
for two-way service) in the cable plant that TCI Telephony would use
to conduct the ResTel Business; the use of such plant by TCI's various
subsidiaries or Groups (e.g., for cable, telephony and Internet
services), including the use by the Telephony Group of the underlying
plant for the ResTel Business and the use by the TCI Group of the
upgraded plant for other two-way services (such as Internet services
and, if developed in the future, interactive television services), and
the ongoing costs to maintain the plant. The purchase price and other
arrangements between the Groups determined by the Board may or may not
reflect the terms and conditions that either Group might have obtained
in an arms'-length negotiation with a third party. It is currently
anticipated that TCI Telephony, if it exercises its right to acquire
the ResTel Business, will enter into a long-term agreement with TCI
for the use of the cable plant via which it would conduct the ResTel
Business and for the payment by TCI Telephony of an allocated share of
the costs to maintain such plant. The portion of TCI's investment in
the plant that the Board determines to allocate to the Telephony Group
may be included in the purchase price for the ResTel Business or as a
usage fee pursuant to such long-term agreement.

If TCI Telephony exercises its right to acquire the ResTel Business in
whole or in part, payment of the purchase price may be in funds
generated by the Telephony Group (whether through future operations or
sales of assets), in funds borrowed from TCI or through an increase in
the Inter-Group Interest (as defined below) of the TCI Group in the
Telephony Group. Whether or not TCI Telephony will exercise its
rights to acquire the ResTel Business (in whole or in part) will
depend upon a number of factors, including the penetration rates for
the service in the geographic area or areas in which the service has
been commercially launched, the cost of providing the service at the
penetration rate achieved in that area, the price paid by TCI
Telephony to acquire such business from the TCI Group, and pursuant to
its arrangement with the TCI Group regarding the use of the cable
plant, and the ability of TCI Telephony to fund the continued
development and ongoing operation of the ResTel Business in that area.

(continued)

F-124
<PAGE> 272
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

TCI Telephony also has the right to acquire TCI's interests in the
Microwave Business at a price based on the fair market value of such
business (as determined by the Board). Such right may be exercised at
any time provided that at the time of exercise TCI Telephony is then a
subsidiary of TCI and TCI is then conducting such business.

The common stockholders' equity value of TCI attributable to the
Telephony Group that, at any relevant time, is attributed to the TCI
Group, and accordingly, not represented by outstanding Telephony Group
Stock is referred to as "Inter-Group Interest". Prior to the issuance
of any shares of Telephony Group Stock, the Inter-Group Interest of
the TCI Group in the Telephony Group is 100%. As any shares of
Telephony Group Stock are issued and distributed or sold, the TCI
Group's Inter-Group Interest in the Telephony Group will be reduced
accordingly.

While the Telephony Group Stock constitutes common stock of TCI,
issuance of the Telephony Group Stock will not result in any transfer
of assets or liabilities of TCI or any of its subsidiaries or affect
the rights of holders of TCI's or any of its subsidiaries' debt.

Holders of Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock"), Series A Liberty Media Group and Series B Liberty
Media Group common stock ("Liberty Media Group Stock") and Telephony
Group Stock (when issued) will be common stockholders of TCI and will
be subject to risks associated with an investment in TCI and all of
its businesses, assets and liabilities.

Following approval by shareholders of the Telephony Stock Proposal,
subject to prevailing market and other conditions, the Company
currently proposes to offer shares of Series A Telephony Group Stock
for cash in an initial public offering, in which event the proceeds of
such offering would be allocated to the Telephony Group to be used to
fund a portion of its anticipated capital requirements and for general
corporate purposes. The timing and the size of any such public
offering and the price at which such shares would be sold will be
determined by the Board, without further approval of stockholders,
prior to such offering based upon the prevailing market and other
conditions.

Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the TCI Group, the Liberty Media
Group and the Telephony Group for the purpose of preparing the
combined financial statements of the TCI Group, the Liberty Media
Group and the Telephony Group, the change in the capital structure of
the Company contemplated by the Telephony Group Stock Proposal will
not affect legal title to such assets or responsibility for such
liabilities of the Company or any of its subsidiaries. Holders of TCI
Group Stock, Liberty Media Group Stock and Telephony Group Stock will
be common stockholders of the Company and will be subject to risks
associated with an investment in the Company and all of its
businesses, assets and liabilities.

(continued)

F-125
<PAGE> 273
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect
the combined results of operations or financial condition of the other
Groups and the market price of the TCI Group Stock, the Liberty Media
Group Stock and the Telephony Group Stock. In addition, any net
losses of any Group, dividends or distributions on, or repurchases of,
the TCI Group Stock, the Liberty Media Group Stock or the Telephony
Group Stock, and dividends on, or certain repurchases of, preferred
stock, will reduce funds of the Company legally available for the
payment of dividends on the TCI Group Stock, the Liberty Media Group
Stock and the Telephony Group Stock. The combined financial
statements of the TCI Group, the Liberty Media Group and the Telephony
Group should be read in conjunction with the consolidated financial
statements of the Company.

Dividends on the Telephony Group Stock will be payable at the sole
discretion of the Board out of the lesser of assets of TCI legally
available for dividends and the available dividend amount with respect
to Telephony Group, as defined. Determinations to pay dividends on
Telephony Group Stock are based primarily upon the financial
condition, results of operations and business requirements of
Telephony Group and TCI as a whole.

(2) Summary of Significant Accounting Policies

Investments

Investments in affiliates in which Telephony Group's voting interest
is 20% to 50%, the equity method of accounting is generally used.
Under this method, the investment, originally recorded at cost, is
adjusted to recognize Telephony Group's share of the net earnings or
losses of the affiliates as they occur rather than as dividends or
other distributions are received, limited to the extent of Telephony
Group's investment in, advances to and commitments for the investee.
Telephony Group's share of net earnings or losses of affiliates
includes the amortization of the difference between Telephony Group's
investment and its share of the net assets of the investee.
Recognition of gains on sales of properties to affiliates accounted
for under the equity method is deferred in proportion to Telephony
Group's ownership interest in such affiliates.

Changes in Telephony Group's proportionate share of the underlying
equity of a subsidiary or equity method investee, which result from
the issuance of additional equity securities by such subsidiary or
equity investee, generally are recognized as gains or losses in
Telephony Group's combined statements of operations.

(continued)

F-126
<PAGE> 274
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Stock Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the
Financial Accounting Standards Board in October 1995. Statement No.
123 establishes financial accounting and reporting standards for
stock-based employee compensation plans as well as transactions in
which an entity issues its equity instruments to acquire goods or
services from non-employees. Telephony Group will include the
disclosures required by Statement No. 123 in the notes to future
financial statements.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

(3) Supplemental Disclosures to Combined Statements of Cash Flows

There was no cash paid for interest for the years ended December 31,
1995, 1994 and 1993, respectively. Cash paid for income taxes was not
material in any of the years presented.

Noncash transfers of assets to the Telephony Group aggregated
$18,170,000 and $10,668,000, with associated deferred income taxes of
$2,244,000 and $3,084,000 for the years ended December 31, 1995 and
1994, respectively.

(continued)

F-127
<PAGE> 275
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(4) Investments in the PCS Ventures

Summarized unaudited results of operations for the PCS Ventures,
accounted for under the equity method, are as follows:

<TABLE>
<CAPTION>
December 31,
-----------------------------------
Combined Financial Position 1995 1994
--------------------------- ---------------- ---------------
amounts in thousands
<S> <C> <C>
Cash $ 1,149 5,024
Investments and related receivables 2,296,130 123,794
Other assets, net 31,972 423
---------------- ---------------

Total assets $ 2,329,251 129,241
================ ===============

Other liabilities $ 53,436 3,755
Owners' equity 2,275,815 125,486
---------------- ---------------

Total liabilities and equity $ 2,329,251 129,241
================ ===============

<CAPTION>
Years ended December 31,
Combined Operations 1995 1994 1993
------------------- ----------- ----------- ------------
amounts in thousands
<S> <C> <C> <C>
Operating expenses $ (66,720) (3,295) --
Depreciation and amortization (211) (38) --
----------- ----------- ------------

Operating loss (66,931) (3,333) --

Other, net (45,749) 24 --
----------- ----------- ------------

Net loss $ (112,680) (3,309) --
=========== =========== ============
</TABLE>

During 1994, Telephony Group, Comcast, Cox (together with the Company
and Comcast, the "Cable Partners") and Sprint formed a predecessor
partnership to Sprint Spectrum ("WirelessCo") to engage in the
business of providing wireless communications services on a nationwide
basis. Through WirelessCo, in which Telephony Group owns an indirect
30% interest, the partners participated in auctions ("PCS Auctions")
of broadband PCS licenses conducted by the Federal Communications
Commission ("FCC"). In the first round auction, which concluded
during the first quarter of 1995, WirelessCo was the winning bidder
for PCS licenses for 29 markets, including New York, San
Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale.
The aggregate license cost for these licenses was approximately $2.1
billion.

(continued)

F-128
<PAGE> 276
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

WirelessCo also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited
partnership interest in APC for $23 million and agreed to make capital
contributions to APC equal to 49/51 of the cost of APC's PCS license.
Additional capital contributions may be required in the event APC is
unable to finance the full cost of its PCS license. WirelessCo may
also be required to finance the build-out expenditures for APC's PCS
system. Cox, which holds a pioneer preference PCS license for the Los
Angeles-San Diego market, and the Company, Comcast and Sprint have
also agreed on the general terms and conditions upon which Cox (with a
51% interest) and WirelessCo (with a 49% interest) (the "Cox
Partnership") would form a partnership to hold and develop a PCS
system using the Los Angeles-San Diego license. APC and the Cox
partnership would affiliate their PCS systems with WirelessCo and be
part of WirelessCo's nationwide integrated network, offering wireless
communications services under the "Sprint" brand

During 1994, subsidiaries of Cox, Sprint and Telephony Group also
formed PhillieCo, in which Telephony Group owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS
license for the Philadelphia market at a license cost of $85 million.
To the extent permitted by law, the PCS system to be constructed by
PhillieCo would also be affiliated with WirelessCo's nationwide
network.

WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful
bidders. The capital that WirelessCo will require to fund the
construction of the PCS systems, in addition to the license costs and
investments described above, will be substantial.

In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships, of which the principal
partnership is currently known as Sprint Spectrum Holding Company,
L.P., to which they contributed their respective interests in
WirelessCo and through which they formed another partnership,
NewTelco, L.P. ("New Telco") to engage in the business of providing
local wireline communications services to residences and businesses on
a nationwide basis. The Cable Partners agreed to contribute their
interests in TCG to NewTelco. TCG is one of the largest competitive
access providers in the United States in terms of route miles.

Effective January 31, 1996, the Partners amended the Sprint Spectrum
partnership agreement (the "Partnership Agreement") and certain other
agreements related thereto. Under the Partnership Agreement, the
business of Sprint Spectrum and its subsidiaries will be the provision
of certain wireless and other services described in the Partnership
Agreement. The Partners intend for Sprint Spectrum and its subsidiary
partnerships to be the exclusive vehicles through which they engage in
the wireless telephony service businesses, subject to certain
exceptions. Sprint Spectrum will no longer be authorized to engage in
the business of providing local wireline communications services to
residences and businesses. In connection with the amendment of the
Partnership Agreement, the Partners, also agreed to the termination of
the agreement to contribute the Cable Partners' interests in TCG to
NewTelco.

(continued)

F-129
<PAGE> 277
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out
of Sprint Spectrum's nationwide network for wireless personal
communications services. Pursuant to the business plan, the Partners
are obligated to make additional cash capital contributions to Sprint
Spectrum in the aggregate amount of approximately $1.9 billion during
the two-year period that commenced January 1, 1996. The business plan
contemplates that Sprint Spectrum will require additional equity
thereafter.

(5) Investment in TCG

TCG is a competitive local exchange carrier which provides integrated
local telecommunications services in major metropolitan markets
nationwide. TCG's customers are principally telecommunications
intensive businesses, long distance carriers and resellers of wireless
communications companies.

During 1992, the Telephony Group acquired a 30% ownership interest in
Teleport Communications Group, Inc., ("TCGI"). Subsequent to the
acquisition, the Telephony Group advanced funds to TCGI in the form of
notes receivable. Such notes receivable bore interest at a variable
rate (which approximated 7% at December 31, 1995) and amounted to
(including accrued interest) $87,511,000 and $61,372,000 at December
31, 1995 and 1994, respectively. In conjunction with the
Reorganization (as defined below), $57.8 million of such receivables
were converted to equity of TCGI. The remaining note receivable of
$26 million was exchanged for a new note which bears interest at 7.5%
and is due in 2001.

Also during 1992, TCGI, with Cox, Comcast and Continental Cablevision
("Continental"), (collectively the "Cable Stockholders"), formed TCG
Partners to invest, with TCGI, the Cable Stockholders and other cable
operators, in 14 partnerships (the "Local Market Partnership") to
develop and operate local telecommunications networks.

The Telephony Group's investment in TCG is accounted for under the
equity method of accounting.

(continued)

F-130
<PAGE> 278
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Summarized unaudited combined results of operations for TCG, accounted
for under the equity method, are as follows:

<TABLE>
<CAPTION>
December 31,
Combined Financial Position 1995 1994
--------------------------- ---------------- ---------------
amounts in thousands
<S> <C> <C>
Cash $ 32,835 48,987
Investments and related receivables 99,299 53,958
Other assets, net 931,297 707,936
---------------- ---------------

Total assets $ 1,063,431 810,881
================ ===============

Debt $ 356,500 197,500
Other liabilities 236,421 205,267
Minority interest 4,409 2,903
Owners' equity 466,101 405,211
---------------- ---------------

Total liabilities and equity $ 1,063,431 810,881
================ ===============

<CAPTION>
Years ended December 31,
Combined Operations 1995 1994 1993
------------------- ---------- ---------- ----------
amounts in thousands
<S> <C> <C> <C>

Revenue $ 216,445 144,426 84,872
Operating expenses (215,861) (160,233) (90,637)
Depreciation and amortization (61,482) (30,149) (16,382)
---------- ---------- ----------

Operating loss (60,898) (45,956) (22,147)

Interest expense (28,953) (9,862) (1,601)
Other, net (12,819) (7,182) 3,971
---------- ---------- ----------

Net loss $ (102,670) (63,000) (19,777)
========== ========== ==========
</TABLE>

In June 1996, TCGI and the Cable Stockholders agreed to simplify the
TCG capital structure by consolidating the ownership of TCG Partners
and the Local Market Partnerships as wholly owned subsidiaries of
TCGI. As part of this process, certain of the other cable operators
agreed to exchange their interests in the Local Market Partnerships
with TCGI directly or through a Cable Stockholder for TCGI common
stock.

TCGI and the Cable Stockholders entered into a reorganization
agreement pursuant to which TCGI, TCG Partners and the Local Market
Partnerships were reorganized (the "Reorganization"). The principal
transactions comprising the Reorganization include:

The acquisition by TCGI of TCG Partners in exchange for TCGI
Class B Common Stock issued to the Cable Stockholders.

The acquisition by TCGI of all interests in 12 of the 14 Local
Market Partnerships in exchange for TCGI Class B Common Stock
issued to the Cable Stockholders and Class A Common Stock
issued to other cable operators.

(continued)

F-131
<PAGE> 279
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

The contribution to TCGI of $269 million in aggregate
principal amount of indebtedness, plus accrued interest from
May 1995, owed by TCGI to the Cable Stockholders (except that
the Telephony Group retained a $26 million subordinated note
due from TCGI) in exchange for Class B Common Stock issued to
the Cable Stockholders.

Also in July, 1996, TCGI issued approximately 27 million shares
representing approximately 15.4% of Class A Common Stock and $300
million of Senior Notes and $1,073 million of Senior Discount Notes as
part of an initial public offering (the "Offering").

In consideration of the transfer by each of the Cable Stockholders of
its respective interests in TCG Partners and the Local Market
Partnerships and the contribution to TCGI of the indebtedness
described above, the Company issued immediately prior to the Offerings
approximately 69 million additional shares of Class B Common Stock to
the Cable Stockholders.

In connection with Continental's announced merger with U S WEST, Inc.,
TCGI purchased approximately 8 million shares (out of approximately
25.8 million shares) of Class B Common Stock owned by Continental for
$121 million. On November 5, 1996, the U.S. Department of Justice
announced a settlement with U S WEST, Inc., and Continental pursuant
to which Continental will be required to reduce its ownership
percentage in TCGI to below 10% by June 30, 1997 and to eliminate such
ownership entirely by December 31, 1998.

Pursuant to the Reorganization, TCG Partners and 12 of the 14 Local
Market Partnerships have become wholly owned subsidiaries of TCGI.
Subsequent to the Reorganization, the remaining minority interests
related to another cable operator's interests in TCG San Francisco and
TCG Seattle were acquired by the Company. Subsequent to this
acquisition, the ownership interest in these entities were acquired by
the Telephony Group. The issuance of shares received by the Telephony
Group in the Offering assumes that subsequent to the Offerings, the
Telephony Group will contribute its current and acquired partnership
interests in TCG San Francisco and TCG Seattle to TCG. The transfer
of such interests are expected to occur in the fourth quarter of 1996.

Additionally, the Telephony Group will be issued 638,862 shares of
TCGI Class A Common Stock in consideration for the transfer to TCGI of
the partnership interest which the Telephony Group acquired from
MicroNet, Inc. in TCG San Francisco. The Telephony Group also has
acquired a 4.2% interest in TCG San Francisco from InterMedia
Partners. The Telephony Group will be issued 372,666 shares of Class
A Common Stock for the transfer to TCGI of such acquired partnership
interest. These transfers are also expected to occur in the fourth
quarter of 1996.

(continued)

F-132
<PAGE> 280
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(6) Investment in Other Affiliates

Summarized unaudited results of operations for other affiliates
accounted for under the equity method are as follows:

<TABLE>
<CAPTION>
December 31,
------------------------
Combined Financial Position 1995 1994
--------------------------- ---------- ----------
amounts in thousands
<S> <C> <C>
Cash $ 177 417
Other assets, net 14,735 3,126
---------- ----------

Total assets $ 14,912 3,543
========== ==========

Other liabilities $ 9,856 121
Owners' equity 5,056 3,422
---------- ----------

Total liabilities and equity $ 14,912 3,543
========== ==========

<CAPTION>
Years ended December 31,
-------------------------------------
Combined Operations 1995 1994 1993
------------------- ---------- --------- ----------
<S> <C> <C> <C>

Revenue $ 3,204 12 --
Operating expenses (4,578) (5) --
Depreciation and amortization (1,599) (12) --
---------- --------- ----------

Operating loss (2,973) (5) --

Interest expense (342) -- --
Other, net (14) -- --
---------- ---------- ----------

Net loss $ (3,329) (5) --
========== ========== ==========
</TABLE>

(7) Income Taxes

TCI files a consolidated Federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which TCI
owns less than 80% each file a separate income tax return. TCI and
such subsidiaries calculate their respective tax liabilities on a
separate return basis which are combined in the accompanying combined
financial statements.

(continued)

F-133
<PAGE> 281
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Federal income taxes and certain state and local taxes would be paid
on a consolidated basis. However, pursuant to a tax sharing
agreement, federal income taxes are calculated, with certain
adjustments, on a separate return basis for each Group (applying
provisions of the Internal Revenue Code of 1986, as amended, and
related regulations as if such Group filed a separate consolidated
return for federal income tax purposes). Based upon these separate
calculations, an allocation of tax liabilities is made such that each
separate Group is responsible to the Company for its gross share of
the Company's consolidated federal income tax liabilities, such gross
share being determined without regard to (a) tax benefits that are
attributable to the Company or the other Groups or (b) certain tax
benefits that are attributable to a Group but that are taken into
account in determining the Company's consolidated federal income tax
benefit carryovers. Similarly, the Company is responsible to each
Group for tax benefits attributable to such Group and actually used by
the Company in determining its consolidated federal income tax
liability. Notwithstanding the foregoing, the Company and Telephony
Group have agreed that the Company may use up to $500 million of tax
benefits generated by the Telephony Group in determining its
consolidated federal income tax liability without providing a credit
to the Telephony Group in such amount. Tax attributes, including but
not limited to net operating losses, investment tax credits,
alternative minimum tax net operating losses, alternative minimum tax
credits, deferred intercompany gains and tax basis in assets, would be
inventoried and tracked for each Group. In addition, pursuant to such
tax sharing agreement, state and local income taxes are calculated on
a separate return basis for each Group (applying provisions of state
and local tax law and related regulations as if the Group were a
separate unitary or combined group for tax purposes), and the
Company's combined or unitary tax liability is allocated between the
Groups based upon such separate calculation. The Company has retained
the right to file all returns, make all elections and control all
audits and contests. The Company anticipates that the assets and
entities comprising the Telephony Group will be transferred to a
direct subsidiary of TCI. At such time, the Telephony Group will
become party to the Tax Sharing Agreement. Such transfers will be
recorded at carryover basis for financial reporting purposes.

Income tax benefit for the years ended December 31, 1995, 1994 and
1993 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
----------- ----------- ------------
amounts in thousands
<S> <C> <C> <C>
Year ended December 31, 1995:
Federal $ 17,513 3,463 20,976
State and local -- 26 26
----------- ----------- ------------
$ 17,513 3,489 21,002
=========== =========== ============
Year ended December 31, 1994:
----------- ----------- ------------
Federal $ 2,657 3,654 6,311
State and local -- 608 608
----------- ----------- ------------
$ 2,657 4,262 6,919
=========== =========== ============
Year ended December 31, 1993:
Federal $ 676 1,892 2,568
State and local -- 315 315
----------- ----------- ------------
$ 676 2,207 2,883
=========== =========== ============
</TABLE>

(continued)

F-134
<PAGE> 282
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Income tax benefit differs from the amounts computed by applying the
Federal income tax rate of 35% as a result of the following:

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1995 1994 1993
--------------------------------------------
amounts in thousands
<S> <C> <C> <C>
Computed "expected" tax benefit $ 20,985 6,542 2,678
State and local income taxes, net of Federal
income tax benefit 17 377 205
------------ ------------ ------------
$ 21,002 6,919 2,883
=========== ============ ============
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:

<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
--------- -----------
amounts in thousands
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,307 --
Investments in affiliates, due principally to losses of
affiliates recognized for financial statement purposes in
excess of losses recognized for income tax purposes
1,504 3,612
Future deductible amounts principally due to non-deductible
accruals 46 --
--------- ---------
Net deferred tax assets $ 4,857 3,612
========= ===========
</TABLE>

At December 31, 1995, Telephony Group had net operating loss
carryforwards for income tax purposes aggregating approximately $9.5
million, the entire amount of which, if not utilized to reduce taxable
income in future periods, expires in 2010.

Certain of the Federal income tax returns of TCI and its subsidiaries
which filed separate income tax returns are presently under
examination by the Internal Revenue Service for the years 1981 through
1992. In the opinion of management, any additional tax liability, not
previously provided for, resulting from these examinations, ultimately
determined to be payable, should not have a material adverse effect on
the combined financial position of Telephony Group.

New tax legislation was enacted in the third quarter of 1993 which,
among other matters, increased the corporate Federal income tax rate
from 34% to 35%. Telephony Group has reflected the tax rate change in
its combined statements of operations. Such tax rate change resulted
in an immaterial change to income tax expense and deferred income tax
liability.

(continued)

F-135
<PAGE> 283
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(8) Combined Equity

General

If the Telephony Group Stock Proposal is approved by stockholders, the
Series A Telephony Group Stock will have one vote per share and the
Series B Telephony Group Stock will have ten votes per share.

Shares of Series B Telephony Group Stock will be convertible at any
time at the option of the holder only into the same number of shares
of Series A Telephony Group Stock.

The rights of holders of the Telephony Group Stock upon liquidation of
TCI will be based upon the ratio of the aggregate market
capitalization, as defined, of the Telephony Group Stock to the
aggregate market capitalization, as defined, of the TCI Group Stock,
the Telephony Group Stock and the Liberty Media Group Stock.

Stock Options and Stock Appreciation Rights

Certain key employees of TCI involved with Telephony Group matters
hold options with tandem stock appreciation rights to acquire Series A
TCI Group Stock and Series A Liberty Media Group Stock as well as
restricted stock awards of Series A TCI Group Stock. Estimates of the
compensation relating to the options and/or stock appreciation rights
as well as restricted stock awards granted to such employees have been
recorded in the accompanying combined financial statements, but are
subject to future adjustment based upon the market value of Series A
TCI Group Stock and Series A Liberty Media Group Stock (see note 1)
and, ultimately, on the final determination of market value when the
rights are exercised or the restricted shares are vested.

On December 1, 1996, two executive officers of TCI Communications,
Inc., a subsidiary of TCI, were each granted options representing 1.0%
of the equity value of the Telephony Group. Upon the approval of the
Telephony Group Stock Proposal, each of such options will convert to
options to purchase shares of Series A Telephony Group Stock
representing 1.0% of the number of shares of Series A Telephony Group
Stock issuable with respect to the Telephony Group Inter-Group
Interest. The aggregate exercise price for each option is equal to
1.0% of TCI's cumulative investment in the Telephony Group as of
December 1, 1996 less $500 million representing preferred stock of the
Telephony Group due to the TCI Group and further reduced by tax
benefits generated by the Telephony Group (up to $500 million) as and
when used by the TCI Group. Such exercise price shall be adjusted to
reflect an assumed interest cost of 6% per annum on TCI's cumulative
investment reduced by the foregoing amounts through the date of
exercise. Such executive officers were also granted options
representing 1.0% of the equity value of the ResTel Business. The
exercise of the Telephony Group options is inseparable from the ResTel
Business options. Such options vest 20% per annum, first become
exercisable on February 1, 1997 and expire February 1, 2006.

(continued)

F-136
<PAGE> 284
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Transactions with TCI Group and Other Related Parties

Certain TCI corporate general and administrative costs are charged to
Telephony Group at rates set at the beginning of the year based on
projected utilization for that year. The utilization-based charges
are set at levels that management believes to be reasonable and that
approximate the costs Telephony Group would incur for comparable
services on a stand alone basis. During the years ended December 31,
1995 and 1994, Telephony Group was allocated $358,000 and $50,000,
respectively, in corporate general and administrative costs by TCI
Group.

TCI manages certain treasury activities for Telephony Group on a
centralized basis. Cash disbursements of Telephony Group are funded
by TCI on a daily basis. Prior to the implementation of the Telephony
Group Stock Proposal the net amounts of such cash activities are
included in combined equity in the accompanying combined financial
statements. Subsequent to the implementation of the Telephony Group
Stock Proposal, such cash activities will be included in borrowings
from or loans to TCI Group or, if determined by the Board, as an
equity contribution to the Telephony Group.

If the Telephony Group Stock Proposal is approved by stockholders, all
debt incurred or preferred stock issued by the Company and its
subsidiaries following the issuance and sale of Telephony Group Stock
would (unless the Board otherwise provides) be specifically attributed
to and reflected on the combined financial statements of the Group
that includes the entity which incurred the debt or issued the
preferred stock or, in case the entity incurring the debt or issuing
the preferred stock is Tele-Communications, Inc., the TCI Group. The
Board could, however, determine from time to time that debt incurred
or preferred stock issued by entities included in a Group should be
specifically attributed to and reflected on the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such
other Group.

(continued)

F-137
<PAGE> 285
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The
TCI Group has provided and will continue to provide centralized cash
management functions under which cash receipts of certain entities
included in the other Groups are remitted to the TCI Group and certain
cash disbursements of the other Groups will be funded by the TCI Group
on a daily basis. Such transfers of funds between the Groups will be
reflected as borrowings or, if determined by the Board, in the case of
a transfer from the TCI Group to either the Liberty Media Group or the
Telephony Group, reflected as the creation of, or increase in, the TCI
Group's Inter-Group Interest in such Group or, in the case of a
transfer from either the Liberty Media Group or the Telephony Group to
the TCI Group, reflected as a reduction in the TCI Group's Inter-Group
Interest in such Group. There are no specific criteria for determining
when a transfer will be reflected as a borrowing or as an increase or
reduction in an Inter-Group Interest. The Board expects to make such
determinations, either in specific instances or by setting generally
applicable policies from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs
of the Company, the financing needs and objectives of the Groups, the
investment objectives of the Groups, the availability, cost and time
associated with alternative financing sources, prevailing interest
rates and general economic conditions. Generally, it is expected that
entities included in the Liberty Media Group will seek their own
long-term debt financing, whereas the Telephony Group is expected to
require additional advances from the TCI Group for some period of time.
To satisfy this need, TCI has agreed to provide a revolving credit
facility (the "Revolving Credit Facility") to the Telephony Group for a
period commencing December 1, 1996 and ending December 31, 2001. Such
facility would permit aggregate borrowings at any one time outstanding
of up to $500 million (subject to reduction or increase as described
below), which borrowings would bear interest at a rate per annum equal
to The Bank of New York's prime rate (as in effect from time to time)
plus 1% per annum, payable quarterly. A commitment fee equal to 3/8%
per annum of the average unborrowed availability under the Revolving
Credit Facility will be payable by the Telephony Group to the TCI Group
on a quarterly basis. The maximum amount of borrowings permitted under
the Revolving Credit Facility will be reduced on a dollar-for-dollar
basis (i) by the amount of the first $300 million of net proceeds of
any external debt or equity financings attributed to the Telephony
Group resulting in the reduction of the maximum amount of such
borrowings under the Revolving Credit Facility to an amount not less
than $200 million and (ii) below $200 million, if (but only to the
extent that) the net proceeds of any such external financings
attributed to the Telephony Group which are completed on or prior to
December 1, 1998 exceed $600 million (including the first $300 million
of such proceeds referred to above. The maximum amount of the
borrowings permitted under the Revolving Credit Facility will be
increased on a dollar-for-dollar basis by the dollar amount of any
borrowings thereunder, the proceeds of which are used by the Telephony
Group to pay a portion, if any, of the exercise price for the purchase
of all or part of the ResTel Business from the TCI Group.

Except as described above with respect to the Revolving Credit
Facility, loans from one Group to another Group would bear interest at
such rates and have such repayment schedules and other terms as are
established from time to time by, or pursuant to procedures
established by, the Board of Directors. The Board of Directors
expects to make such determinations, either in specific instances or
by setting generally applicable polices from time to time, after
consideration of such factors as it deems relevant, including, without
limitation, the needs of the Company, the use of proceeds by and
creditworthiness of the recipient Group, the capital expenditure plans
and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing
sources.

(continued)

F-138
<PAGE> 286
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

The combined balance sheets of a Group would reflect its net loans to
or borrowings from the other Groups. Similarly, the respective
combined statements of operations of the Groups would reflect interest
income or expense, as the case may be, associated with such loans or
borrowings and the respective combined statements of cash flows of the
Groups would reflect changes in the amounts of loans or borrowings
deemed outstanding. In the historical financial statements, net
borrowings of the Telephony Group have been included as a component of
the Telephony Group's combined equity. Subsequent to the date of such
financial statements, a portion of such net borrowings was converted
into a $500 million investment in Telephony preferred stock as
described below. The balance of such net borrowings up to November
30, 1996 will continue to be reflected as a component of the Telephony
Group's combined equity. Amounts borrowed by the Telephony Group from
another Group on or subsequent to December 1, 1996, will be reflected
on the Telephony Group's financial statements as indebtedness to the
applicable lender.

On December 1, 1996, the TCI Group converted $500 million of its
interest in the Telephony Group into a 6% cumulative compounding
redeemable preferred stock due from the Telephony Group. Such
preferred stock is due December 1, 2011.

In connection with its determination to recommend the Telephony Stock
Proposal to the Company's shareholders, the Board determined to
convert a portion of the amount invested by the Company in the
investments attributed to the Telephony Group into the aforementioned
$500 million of preferred stock and a contractual right to use up to
$500 million of tax benefits generated by Telephony Group (principally
arising from its partnership interest in the PCS Ventures) without
charge to the TCI Group. Such right can be satisfied only through and
to the extent of future income tax benefits generated by Telephony
Group.

Although any increase in the TCI Group's Inter-Group Interest in the
Telephony Group resulting from an equity contribution by the TCI Group
to the Telephony Group or any decrease in such Inter-Group Interest
resulting from a transfer of funds from the Telephony Group to the TCI
Group would be determined by reference to the market value of the
Series A Telephony Group Stock as of the date of such transfer, such
an increase could occur at a time when such shares could be considered
undervalued and such a decrease could occur at a time when such shares
could be considered overvalued.

(continued)

F-139
<PAGE> 287
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

For all periods prior to the distribution of the Liberty Media Group
Stock on August 10, 1995 (the "Distribution"), all financial impacts
of equity offerings are and will be attributed entirely to the TCI
Group. After the Distribution, all financial impacts of issuances of
additional shares of TCI Group Stock are and will be attributed
entirely to the TCI Group, all financial impacts of issuances of
additional shares of Liberty Media Group Stock the proceeds of which
are attributed to the Liberty Media Group are and will be to such
extent reflected in the combined financial statements of the Liberty
Media Group, and all financial impacts of issuances of additional
shares of Liberty Media Group Stock the proceeds of which are
attributed to the TCI Group in respect of a reduction in any
Inter-Group Interest in the Liberty Media Group are and will be to
such extend reflected in the combined financial statements of the TCI
Group. All financial impacts of issuances of shares of Telephony
Group Stock the proceeds of which are attributed to the Telephony
Group will be to such extent reflected in the combined financial
statements of the Telephony Group, and all financial impacts of
issuances of shares of Telephony Group Stock the proceeds of which are
attributed to the TCI Group in respect of a reduction in the TCI
Group's Inter-Group Interest in the Telephony Group will be to such
extent reflected in the combined financial statements of the TCI
Group. Financial impacts of dividends or other distributions on, and
purchases of, TCI Group Stock will be attributed entirely to the TCI
Group, and financial impacts of dividends or other distributions on
Telephony Group Stock will be attributed entirely to the Telephony
Group, except that dividends or other distributions on the Telephony
Group Stock will (if at the time there is an Inter-Group Interest in
the Telephony Group) result in the TCI Group being credited, and the
Telephony Group being charged (in addition to the charge for the
dividend or other distribution paid), with an amount equal to the
product of the aggregate amount of such dividend or other distribution
paid or distributed in respect of outstanding shares of Telephony
Group Stock and a fraction the numerator of which is the Telephony
Group Inter-Group Interest Fraction and the denominator of which is
the Telephony Group Outstanding Interest Fraction (both as defined).
Financial impacts of repurchases of Telephony Group Stock the
consideration for which is charged to the Telephony Group will be to
such extent reflected in the combined financial statements of the
Telephony Group, and financial impacts of repurchases of Telephony
Group Stock the consideration for which is charged to the TCI Group
will be to such extend reflected in the combined financial statements
of the TCI Group and will result in an increase in the TCI Group's
Inter-Group Interest in the Telephony Group.

(9) Commitments and Contingencies

As a partner in certain partnerships, from time to time, the Telephony
Group is obligated to make cash payments, either in the form of equity
or loans, the most significant of which is the funding of Sprint
Spectrum. As previously described, the Partners are obligated to make
cash capital contributions to Sprint Spectrum in the aggregate amount
of approximately $1.9 billion during the two-year period that
commenced January 1, 1996.

(continued)

F-140
<PAGE> 288
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

The Telephony Group's commitment to fund partnerships (including the
aforementioned funding obligation to Sprint Spectrum) are estimated as
follows (amounts in thousands):

Certain of Telephony Group's affiliates are general partnerships and
any subsidiary of Telephony Group that is a general partner in a
general partnership is, as such, liable as a matter of partnership law
for all debts of that partnership in the event liabilities of that
partnership were to exceed its assets.

F-141
<PAGE> 289
"TELEPHONY GROUP"
(a combination of certain assets)

Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction
with Telephony Group's Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 1995
included herein. The following discussion focuses on material changes in
trends, risks and uncertainties affecting Telephony Group's results of
operations and financial condition.

(1) Material changes in financial condition:

On December 4, 1996, the Board of Directors of Tele-Communications,
Inc. (the "Board") authorized, subject to shareholder approval (the "Telephony
Stock Proposal"), the issuance of a new class of stock ("Telephony Group
Stock") which is intended to reflect the separate performance of the Telephony
Group. The Telephony Group would initially consist of TCI Group's interest in
TCI Telephony Services, Inc., an indirect wholly owned subsidiary of Tele-
Communications, Inc. ("TCI" or the "Company"), its subsidiaries, their
respective assets, and all assets and liabilities of the TCI Group (as defined
below) to the extent attributed to any of the foregoing assets, whether or not
such assets or liabilities are assets and liabilities of TCI Telephony
Services, Inc. (together with its consolidated subsidiaries (unless the context
indicates otherwise), "TCI Telephony"). The principal assets of TCI Telephony
are its non- consolidating investments in a series of partnerships formed to
engage in the business of providing wireless communications services, using the
radio spectrum for broadband personal communications services ("PCS"), to
residential and business customers nationwide under the "Sprint" brand (the
"PCS Ventures"), and its investment in Teleport Communications Group, Inc., a
Delaware corporation ("TCG" or "Teleport"). The PCS Ventures include Sprint
Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively, "Sprint
Spectrum"), the partners of each of which are subsidiaries of Sprint
Corporation ("Sprint"), Comcast Corporation ("Comcast"), Cox Communications,
Inc. ("Cox") and TCI, and PhillieCo, L.P. ("PhillieCo"), the partners of which
are subsidiaries of Sprint, Cox and TCI. TCI, through subsidiaries, has a 30%
interest as a partner in the Sprint Spectrum and a 35.3% interest as a partner
in PhillieCo. TCG is a competitive local exchange carrier that offers a wide
range of local telecommunications services in major metropolitan markets
nationwide, primarily to businesses, long distance carriers and resellers, and
wireless communications companies. The Company has a 31.1% equity interest
(which represents a 36.4% voting interest) in TCG. The Telephony Group would
also include such other assets of the TCI Group as the Board may in the future
determine to attribute to the Telephony Group and such other businesses, assets
and liabilities as TCI may in the future acquire for the Telephony Group, as
determined by the Board. It is currently the intention of TCI that any
businesses, assets and liabilities so attributed to the Telephony Group in the
future would be businesses, assets and liabilities of, or related to, the
interests of the TCI Group in the domestic wireless and wireline communications
businesses (the "Telephony Business").

(continued)

F-142
<PAGE> 290
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

As of the date of these financial statements, the only interests of
the TCI Group in the Telephony Business that are not attributed to the
Telephony Group are the business currently being conducted by a subsidiary of
the TCI Group which provides long-distance transport of video, voice, data
traffic and other telecommunications services primarily to inter-exchange
carriers on a wholesale basis using a digital broadband microwave network
located throughout a 14-state region in the western United States (the
"Microwave Business"), and the Company's business, which is in the development
stage, of providing wireline residential telephony services via TCI's cable
plant to residential and small business customers in certain of the geographic
areas served by the Company's cable television systems (the "ResTel Business").
The Company began offering residential telephony service commercially in October
1996 in Hartford, Connecticut. Telephony Group has the right, but not the
obligation, to acquire the ResTel Business from the Company in whole or in part
(by geographic area), at any time or from time to time, as applicable, provided
that Telephony Group is at the time a subsidiary of the Company and the Company
is then conducting such business.

The method of determining the purchase price for the ResTel Business,
and the arrangements between the Telephony Group and the TCI Group for the use
by TCI Telephony of the TCI Group's underlying cable plant to conduct the
ResTel Business, have not yet been determined. In making such determinations,
the Board will consider, among other things, the TCI Group's aggregate
investment (historically and through any upgrade for two-way service) in the
cable plant that TCI Telephony would use to conduct the ResTel Business; the
use of such plant by TCI's various subsidiaries or Groups (e.g., for cable,
telephony and Internet services), including the use by the Telephony Group of
the underlying plant for the ResTel Business and the use by the TCI Group of
the upgraded plant for other two-way services and, if developed in the future,
interactive television services), and the ongoing costs to maintain the plant.
The purchase price and other arrangements between the Groups determined by the
Board may or may not reflect the terms and conditions that either Group might
have obtained in an arm's-length negotiation with a third party. It is
currently anticipated that TCI Telephony, if it exercises its right to acquire
the ResTel Business, will enter into a long-term agreement with TCI for the use
of the cable plant via which it would conduct the ResTel Business and for the
payment by TCI Telephony of an allocated share of the costs to maintain such
plant. The portion of TCI's investment in the plant that the Board determines
to allocate to the Telephony Group may be included in the purchase price for
the ResTel Business or as a usage fee pursuant to such long-term agreement.

If TCI Telephony exercises its right to acquire the ResTel Business in
whole or in part, payment of the purchase price may be in funds generated by
the Telephony Group (whether through future operations or sales of assets), in
funds borrowed from TCI or through an increase in the Inter-Group Interest (as
defined below) of the TCI Group in the Telephony Group. Whether or not TCI
Telephony will exercise its rights to acquire the ResTel Business (in whole or
in part) will depend upon a number of factors, including the penetration rates
for the service in the geographic area or areas in which the service has been
commercially launched, the cost of providing the service at the penetration
rate achieved in that area, the price paid by TCI Telephony to acquire such
business from the TCI Group, and pursuant to its arrangement with the TCI Group
regarding the use of the cable plant, and the ability of TCI Telephony to fund
the continued development and ongoing operation of the ResTel Business in that
area.

(continued)

F-143
<PAGE> 291
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

(continued)

F-144
<PAGE> 292
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

TCI manages certain treasury activities for Telephony Group on a
centralized basis. Cash disbursements of Telephony Group are funded by TCI on
a daily basis. Prior to the implementation of the Liberty Group Stock Proposal
the net amounts of such cash activities are included in combined equity in the
accompanying combined financial statements. Subsequent to the implementation
of the Liberty Group Stock Proposal, such cash activities will be included in
borrowings from or loans to TCI Group or, if determined by the Board, as an
equity contribution to the Telephony Group.

(continued)

F-145
<PAGE> 293
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

Except as described above with respect to the Revolving Credit
Facility, loans from one Group to another Group would bear interest at such
rates and have such repayment schedules and other terms as are established from
time to time by, or pursuant to procedures established by, the Board. The
Board expects to make such determinations, either in specific instances or by
setting generally applicable polices from time to time, after consideration of
such factors as it deems relevant, including, without limitation, the needs of
the Company, the use of proceeds by and creditworthiness of the recipient
Group, the capital expenditure plans and investment opportunities available to
each Group and the availability, cost and time associated with alternative
financing sources.

(continued)

F-146
<PAGE> 294
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

Although any increase in the TCI Group's Inter-Group Interest in the
Telephony Group resulting from an equity contribution by the TCI Group to the
Telephony Group or any decrease in such Inter-Group Interest resulting from a
transfer of funds from the Telephony Group to the TCI Group would be determined
by reference to the market value of the Series A Telephony Group Stock as of
the date of such transfer, such an increase could occur at a time when such
shares could be considered undervalued and such a decrease could occur at a
time when such shares could be considered overvalued.

(continued)

F-147
<PAGE> 295
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

Subsidiaries of Telephony Group, Comcast, Cox and Sprint are partners
in Sprint Spectrum Holding Company, L.P. which was formed to engage in the
business of providing wireless communications services on a nationwide basis.
Telephony Group owns an indirect 30% interest in Sprint Spectrum. Sprint
Spectrum was the successful bidder for PCS licenses for 29 markets in an
auction conducted by the Federal Communications Commission that ended in March
1995. The aggregate license cost for these licenses was approximately $2.1
billion, all of which has been paid. Sprint Spectrum may elect to bid in
subsequent auctions of PCS licenses and/or acquire PCS licenses from other
holders, has invested in American PSC, L.P. ("APC") which holds the PCS license
for the Washington-Baltimore market, has agreed to invest in the entity that
will hold the PCS license for the Los Angeles-San Diego market, and may invest
in other entities that hold PCS licenses. Subsidiaries of Cox, Sprint and
Telephony Group are also partners in PhillieCo which holds a PCS license for
the Philadelphia market which was acquired at a license cost of $85 million.
Telephony Group has an indirect 35.3% interest in PhillieCo.
(continued)

F-148
<PAGE> 296
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

The capital that Sprint Spectrum will require to fund the construction
of the PCS systems, in addition to the license costs and investments described
above, will be substantial. Pursuant to the business plan adopted by the
partners in Sprint Spectrum for the build out of Sprint Spectrum's nationwide
network, the partners are obligated to make additional cash capital
contributions to Sprint Spectrum in the aggregate amount of approximately $1.9
billion during the two-year period that commenced January 1, 1996. Telephony
Group has agreed to contribute approximately $0.6 billion of such aggregate
amount, $0.2 billion of which was contributed during the nine months ended
September 30, 1996. The business plan contemplates that Sprint Spectrum will
require additional equity thereafter.

(continued)

F-149
<PAGE> 297
"TELEPHONY GROUP"
(a combination of certain assets)

(1) Material changes in financial condition (continued):

The Telephony Group's commitment to fund partnerships (including the
aforementioned funding obligation to Sprint Spectrum) are estimated as follows
(amounts in thousands):

Pursuant to an agreement entered into in connection with certain
financings by Sprint Spectrum, under certain circumstances the Partners may be
required to make additional contributions to Sprint Spectrum to fund projected
cash shortfalls to the extent that the amount of the Partners' aggregate
contributions to Sprint Spectrum (exclusive of certain amounts, including
amounts invested in certain affiliates of Sprint Spectrum), following December
31, 1995 are less than $1.0 billion; however, based on the currently expected
timing and use of the Partners' contributions to Sprint Spectrum, the Company
currently believes that such agreement will not result in the Company's being
required to make any incremental capital contributions in addition to its pro
rata portion of such $1.9 billion amount.

TCG has substantial business relationships with a few large customers,
including the major long distance carriers. During 1995, TCG's top 10
customers accounted for approximately 57% of TCG's total revenues on a pro
forma basis after giving effect to a reorganization described more fully in
note 4 to the combined financial statements of Telephony Group. AT&T Corp. and
Sprint each accounted for more than 10% of such revenues, although no customer
accounted for 15% or more of such revenue. A significant reduction in the
level of services TCG performs for any of these customers could have a material
adverse effect on Teleport's results of operations or financial condition.
Most of TCG's customer arrangements are subject to termination on short notice
and do not provide TCG with guarantees that service quantities will be
maintained at current levels, and there can be no assurance that such
arrangements will be continued at the same service quantity levels. TCG
believes that certain of the major long distance carriers are pursuing
alternative to their current practices with regard to obtaining local
telecommunications services, including construction of their own facilities.

(continued)

F-150
<PAGE> 298
"TELEPHONY GROUP"
(a combination of certain assets)

(2) Material changes in results of operations:

Certain corporate general and administrative costs are charged to
Telephony Group at rates set at the beginning of the year based on projected
utilization for that year. The utilization-based charges are set at levels
that management believes to be reasonable and that would approximate the costs
Telephony Group would incur for comparable services on a stand alone basis.
During the nine months ended September 30, 1996 and 1995, Telephony Group was
allocated $548,000 and $211,000, respectively, in corporate general and
administrative costs by TCI Group.

Telephony Group records compensation relating to stock appreciation
rights and restricted stock awards granted to certain employees involved in
Telephony Group matters by TCI. Such compensation is subject to future
adjustment based upon market value, and ultimately, on the final determination
of market value when the rights are exercised or the restricted stock awards
are vested.

Telephony Group's share of losses of affiliates of $111.3 million for
the nine months ended September 30, 1996 represents an increase of $79.5
million or 250%, when compared to the Telephony Group's share of losses of
$31.8 million for the nine months ended September 30, 1995. The increase is
directly attributable to the Telephony Group's share of losses in the PCS
Ventures, TCG and other affiliates accounted for under the equity method.

The share of losses from the Telephony Group's investment in the PCS
Ventures was $78.4 million for the nine months ended September 30, 1996 which
represents an increase of $67.6 million, as compared to the share of losses of
$10.8 million for the nine months ended September 30, 1995. The increase in
the share of losses is attributed primarily to general and administrative costs
associated with the start-up of operations and the PCS Ventures' share of
losses in American PCS L.P. The PCS Ventures are in the development start of
operations and generated no revenue during 1995.

The share of losses from the Telephony Group's investment in TCG was
$31.6 million for the nine months ended September 30, 1996 which represents an
increase of $11.7 million, as compared to the share of losses of $19.9 million
for the nine months ended September 30, 1995. The increase in the share of
losses is largely attributed to costs incurred by TCG in the expansion of their
local telecommunications networks, increased depreciation expense and increased
interest expense partially offset by an increase in telecommunications services
revenue attributed to increased sales of services in existing and new markets
and the growth of TCG's customer base.

Interest income decreased to $3.5 million from $4.3 million for the
nine months ended September 30, 1996 and 1995, respectively. The decrease is
largely attributable to the absence of interest for the three months ended
September 30, 1996 associated with the conversion of a portion of the note
receivable from TCG.

TCG conducted an initial public offering on July 2, 1996 in which it
sold 27 million shares of Class A common stock with net proceeds of
approximately $410 million. As a result of the initial public offering,
Telephony Group's ownership interest in TCG was reduced from approximately 35%
to 31%. Accordingly, Telephony Group recognized a gain amounting to $12
million (before deducting deferred income tax expense of approximately $5
million).

(continued)

F-151
<PAGE> 299
"TELEPHONY GROUP"
(a combination of certain assets)

(2) Material changes in results of operations (continued):

Telephony Group's net loss of $63.5 million for the nine months ended
September 30, 1996 represents an increase of $45.2 million, as compared to
Telephony Group's net loss of $18.3 million for the nine months ended September
30, 1995. Such increase is principally the result of the aforementioned
increase in share of losses from affiliates.

F-152
<PAGE> 300

"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------- -------------------
Assets amounts in thousands
- ------
<S> <C> <C>
Investments in Sprint Spectrum Holding Company, L.P. and MinorCo,
L.P. (and their respective predecessor) and PhillieCo
(collectively, the "PCS Ventures"), accounted for under the
equity method (note 3)
$ 816,355 689,062
Investments in Teleport Communications Group, Inc., TCG Partners
and certain local market partnerships (collectively, "TCG" or
"Teleport"), accounted for under the equity method, and related
receivables (note 4)
294,148 244,012
Other investments in affiliates, accounted for under the equity
method, and related receivables (note 5)
9,042 5,722
Deferred tax asset -- 4,857
---------------- ----------------

$ 1,119,545 943,653
================ ================

Deferred Tax Liability and Combined Equity
- ------------------------------------------

Deferred tax liability $ 21,251 --
Combined equity (note 6) 1,098,294 943,653
---------------- ----------------

Commitments and contingencies (notes 3 and 7)
$ 1,119,545 943,653
================ ================
</TABLE>

See accompanying notes to combined financial statements.

F-153
<PAGE> 301

"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Statements of Operations
(unaudited)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- -------- --------
amounts in thousands
<S> <C> <C>
Operating costs and expenses:
Charges from TCI Group (note 6) $ 183 84 548 211
Compensation relating to stock appreciation
rights (note 6) -- 12 -- 22
Adjustment to compensation relating to stock
appreciation rights (note 6) (69) -- (84) --
-------- -------- -------- --------
114 96 464 233
-------- -------- -------- --------

Operating loss (114) (96) (464) (233)

Other income (expense):
Share of losses of the PCS Ventures (note 3) (31,154) (8,039) (78,358) (10,841)
Share of losses of TCG (note 4) (11,011) (6,833) (31,591) (19,884)
Share of losses of other affiliates (note 5) (362) (412) (1,396) (1,062)
Interest income from affiliates (note 4) 626 1,546 3,527 4,293
Gain on sale of stock by TCG (note 4) 12,410 -- 12,410 --
-------- -------- -------- --------
(29,491) (13,738) (95,408) (27,494)
-------- -------- -------- --------

Loss before income taxes (29,605) (13,834) (95,872) (27,727)

Income tax benefit 9,956 4,766 32,338 9,477
-------- -------- -------- --------
Net loss $(19,649) (9,068) (63,534) (18,250)
======== ======== ======== ========
</TABLE>

See accompanying notes to combined financial statements.

F-154
<PAGE> 302

"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Statement of Equity

Nine months ended September 30, 1996
(unaudited)

<TABLE>
<CAPTION>
Combined
equity
---------------
amounts in thousands
<S> <C>
Balance at January 1, 1996 $ 943,653

Net loss (63,534)
Cost allocations from TCI Group 548
Adjustment to allocation of compensation relating to stock appreciation
rights (84)
Intergroup tax allocation from TCI Group (45,474)
Transfer of assets from TCI Group, net of deferred taxes 45,253
Net cash transfers from TCI Group 217,932
--------------

Balance at September 30, 1996 $ 1,098,294
==============
</TABLE>

See accompanying notes to combined financial statements.

F-155
<PAGE> 303

"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Combined Statements of Cash Flows
(unaudited)

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1996 1995
------------- -------------
amounts in thousands
(see note 2)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (63,534) (18,250)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Compensation relating to stock appreciation rights -- 22
Adjustment to compensation relating to stock appreciation
rights (84) --
Share of losses of affiliates 111,345 31,787
Gain on sale of stock by TCG (12,410) --
Intergroup tax allocation (45,474) (13,146)
Deferred income tax expense 13,136 3,794
------------- -------------
Net cash provided by operating activities 2,979 4,207
------------- -------------
Cash flows from investing activities:
Additional investments in and loans to affiliates (221,459) (726,698)
Repayments of receivables from affiliates -- 1,642
------------- -------------
Net cash used in investing activities (221,459) (725,056)
------------- -------------
Cash flows from financing activities -
Cash transfers to Telephony Group 218,480 720,849
------------- -------------
Net change in cash -- --

Cash at beginning of period -- --
------------- -------------

Cash at end of period $ -- --
============= =============
</TABLE>

See accompanying notes to combined financial statements.

F-156
<PAGE> 304
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

September 30, 1996
(unaudited)

(1) Basis of Presentation

On December 4, 1996 the Board of Directors of Tele-Communications,
Inc. (the "Board") authorized, subject to shareholders approval (the
"Telephony Stock Proposal"), a new class of stock ("Telephony Group
Stock") which is intended to reflect the separate performance of the
Telephony Group. The Telephony Group would initially consist of TCI
Group's interest in TCI Telephony Services, Inc., an indirect wholly
owned subsidiary of Tele-Communications, Inc. ("TCI" or the
"Company"), its subsidiaries, their respective assets, and all assets
and liabilities of the TCI Group (as defined below) to the extent
attributed to any of the foregoing assets, whether or not such assets
or liabilities are assets and liabilities of TCI Telephony Services,
Inc. (together with its consolidated subsidiaries (unless the context
indicates otherwise), "TCI Telephony"). The principal assets of TCI
Telephony are its non-consolidating investments in a series of
partnerships, the PCS Ventures, formed to engage in the business of
providing wireless communications services, using the radio spectrum
for broadband personal communications services ("PCS"), to residential
and business customers nationwide under the "Sprint" brand, and its
investment in TCG. The PCS Ventures include Sprint Spectrum Holding
Company, L.P. and MinorCo, L.P. (collectively, "Sprint Spectrum"), the
partners of each of which are subsidiaries of Sprint Corporation
("Sprint"), Comcast Corporation ("Comcast"), Cox Communications, Inc.
("Cox") and TCI, and PhillieCo, L.P. ("PhillieCo"), the partners of
which are subsidiaries of Sprint, Cox and TCI. TCI, through
subsidiaries, has a 30% interest as a partner in Sprint Spectrum and a
35.3% interest as a partner in PhillieCo. TCG is a competitive local
exchange carrier that offers a wide range of local telecommunications
services in major metropolitan markets nationwide, primarily to
businesses, long distance carriers and resellers, and wireless
communications companies. The Company has a 31.1% equity interest
(which represents a 36.4% voting interest) in TCG. The Telephony
Group would also include such other assets of the TCI Group as the
Board may in the future determine to attribute to the Telephony Group
and such other businesses, assets and liabilities as TCI may in the
future acquire for the Telephony Group, as determined by the Board.
It is currently the intention of TCI that any businesses, assets and
liabilities so attributed to the Telephony Group in the future would
be businesses, assets and liabilities of, or related to, the interests
of the TCI Group in the domestic wireless and wireline communications
businesses (the "Telephony Business").

The TCI Group is intended to reflect the performance of those
businesses of the Company not attributed to the Liberty Media Group
(which is intended to reflect the performance of TCI's business which
produces and distributes cable television programming services) and
the Telephony Group. Collectively, the TCI Group, the Liberty Media
Group and the Telephony Group are referred to as the "Groups" and
individually may be referred to herein as a "Group."

(continued)

F-157
<PAGE> 305
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

As of the date of these financial statements, the only interests of
the TCI Group in the Telephony Business that are not attributed to the
Telephony Group are the business currently being conducted by a
subsidiary of the TCI Group which provides long-distance transport of
video, voice, data traffic and other telecommunications services
primarily to inter-exchange carriers on a wholesale basis using a
digital broadband microwave network located throughout a 14-state
region in the western United States (the "Microwave Business"), and the
Company's business, which is in the development stage, of providing
wireline residential telephony services via TCI's cable plant to
residential and small business customers in certain of the geographic
areas served by the Company's cable television systems (the "ResTel
Business"). The Company began offering residential telephony service
commercially in October 1996 in Hartford, Connecticut. Telephony Group
has the right, but not the obligation, to acquire the ResTel Business
from the Company in whole or in part (by geographic area) at any time
or from time to time, as applicable, provided that Telephony Group is
at the time a subsidiary of the Company and the Company is then
conducting such business.

The method of determining the purchase price for the ResTel Business,
and the arrangements between the Telephony Group and the TCI Group for
the use by TCI Telephony of the TCI Group's underlying cable plant to
conduct the ResTel Business, have not yet been determined. In making
such determinations, the Board will consider, among other things, the
TCI Group's aggregate investment (historically and through any upgrade
for two-way service) in the cable plant that TCI Telephony would use
to conduct the ResTel Business; the use of such plant by TCI's various
subsidiaries or Groups (e.g., for cable, telephony and Internet
services), including the use by the Telephony Group of the underlying
plant for the ResTel Business and the use by the TCI Group of the
upgraded plant for other two-way services (such as Internet services
and, if developed in the future, interactive television services), and
the ongoing costs to maintain the plant. The purchase price and other
arrangements between the Groups determined by the Board may or may not
reflect the terms and conditions that either Group might have obtained
in an arm's-length negotiation with a third party. It is currently
anticipated that TCI Telephony, if it exercises its right to acquire
the ResTel Business, will enter into a long-term agreement with TCI
for the use of the cable plant via which it would conduct the ResTel
Business and for the payment by TCI Telephony of an allocated share of
the costs to maintain such plant. The portion of TCI's investment in
the plant that the Board determines to allocate to the Telephony Group
may be included in the purchase price for the ResTel Business or as a
usage fee pursuant to such long-term agreement.

If TCI Telephony exercises its right to acquire the ResTel Business in
whole or in part, payment of the purchase price may be in funds
generated by the Telephony Group (whether through future operations or
sales of assets), in funds borrowed from TCI or through an increase in
the Inter-Group Interest (as defined below) of the TCI Group in the
Telephony Group. Whether or not TCI Telephony will exercise its
rights to acquire the ResTel Business (in whole or in part) will
depend upon a number of factors, including the penetration rates for
the service in the geographic area or areas in which the service has
been commercially launched, the cost of providing the service at the
penetration rate achieved in that area, the price paid by TCI
Telephony to acquire such business from the TCI Group, and pursuant to
its arrangement with the TCI Group regarding the use of the cable
plant, and the ability of TCI Telephony to fund the continued
development and ongoing operation of the ResTel Business in that area.

(continued)

F-158
<PAGE> 306
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

TCI Telephony also has the right to acquire TCI's interests in the
Microwave Business at a price based on the fair market value of such
business (as determined by the Board). Such right may be exercised at
any time provided that at the time of exercise TCI Telephony is then a
subsidiary of TCI and TCI is then conducting such business.

The common stockholders' equity value of TCI attributable to the
Telephony Group that, at any relevant time, is attributed to the TCI
Group, and accordingly, not represented by outstanding Telephony Group
Stock is referred to as "Inter-Group Interest". Prior to the issuance
of any shares of Telephony Group Stock, the Inter-Group Interest of
the TCI Group in the Telephony Group is 100%. As any shares of
Telephony Group Stock are issued and distributed or sold, the TCI
Group's Inter-Group Interest in the Telephony Group will be reduced
accordingly.

Holders of Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock"), Series A Liberty Media Group and Series B Liberty
Media Group common stock ("Liberty Media Group Stock") and Telephony
Group Stock (when issued) will be common stockholders of TCI and will
be subject to risks associated with an investment in TCI and all of
its businesses, assets and liabilities.

Following approval by shareholders of the Telephony Stock Proposal,
subject to prevailing market and other conditions, the Company
currently proposes to offer shares of Series A Telephony Group Stock
for cash in an initial public offering, in which event the proceeds of
such offering would be allocated to the Telephony Group to be used to
fund a portion of its anticipated capital requirements and for general
corporate purposes. The timing and the size of any such public
offering and the price at which such shares would be sold will be
determined by the Board, without further approval of stockholders,
prior to such offering based upon the prevailing market and other
conditions.

Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among the Groups for the purpose of
preparing the combined financial statements of the TCI Group, the
Liberty Media Group and the Telephony Group, the change in the capital
structure of the Company contemplated by the Telephony Group Stock
Proposal will not affect legal title to such assets or responsibility
for such liabilities of the Company or any of its subsidiaries.
Holders of TCI Group Stock, Liberty Media Group Stock and Telephony
Group Stock will be common stockholders of the Company and will be
subject to risks associated with an investment in the Company and all
of its businesses, assets and liabilities.

(continued)

F-159
<PAGE> 307
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Financial effects arising from one Group that affect the Company's
consolidated results of operations or financial condition could affect
the combined results of operations or financial condition of the other
Groups and the market price of the TCI Group Stock, the Liberty Media
Group Stock and the Telephony Group Stock. In addition, any net
losses of any Group, dividends or distributions on, or repurchases of,
the TCI Group Stock, the Liberty Media Group Stock or the Telephony
Group Stock, and dividends on, or certain repurchases of, preferred
stock, will reduce funds of the Company legally available for the
payment of dividends on the TCI Group Stock, the Liberty Media Group
Stock and the Telephony Group Stock. The combined financial
statements of the TCI Group, the Liberty Media Group and the Telephony
Group should be read in conjunction with the consolidated financial
statements of the Company.

Dividends on the Telephony Group Stock will be payable at the sole
discretion of the Board out of the lesser of assets of TCI legally
available for dividends and the available dividend amount with respect
to Telephony Group, as defined. Determinations to pay dividends on
Telephony Group Stock are based primarily upon the financial
condition, results of operations and business requirements of
Telephony Group and TCI as a whole.

The accompanying interim combined financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These combined financial statements should be read in conjunction with
the audited combined financial statements of Telephony Group for the
year ended December 31, 1995.

(2) Supplemental Disclosures to Combined Statements of Cash Flows

There was no cash paid for interest for the nine months ended
September 30, 1996 and 1995, respectively. Cash paid for income taxes
was not material for the periods presented.

Noncash transfers of assets to the Telephony Group aggregated
$58,225,000 with associated deferred taxes of $12,972,000 for the nine
months ended September 30, 1996.

(continued)

F-160
<PAGE> 308
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(3) Investments in the PCS Ventures

Summarized unaudited results of operations for the PCS Ventures
accounted for under the equity method are as follows:

<TABLE>
<CAPTION>
Nine months ended
Combined Operations September 30,
------------------- --------------------------------
1996 1995
--------------- ---------------
amounts in thousands
<S> <C> <C>
Revenue $ 71 --
Operating expenses (164,028) (19,930)
Depreciation and amortization (1,847) (161)
-------------- -------------

Operating loss (165,804) (20,091)

Interest expense (297) --
Other, net (94,644) (15,892)
-------------- -------------

Net loss $ (260,745) (35,983)
============== =============
</TABLE>

Subsidiaries of Telephony Group, Comcast, Cox (together with the
Company and Comcast, the "Cable Partners") and Sprint are partners in
Sprint Spectrum Holding Company, L.P. which was formed to engage in
the business of providing wireless communications services on a
nationwide basis. Telephony Group owns an indirect 30% interest in
Sprint Spectrum. Sprint Spectrum was the successful bidder for PCS
licenses for 29 markets in an auction conducted by the Federal
Communications Commission that ended in March 1995. The aggregate
license cost for these licenses was approximately $2.1 billion, all of
which has been paid. Sprint Spectrum may elect to bid in subsequent
auctions of PCS licenses and/or acquire PCS licenses from other
holders, has invested in American PSC, L.P. ("APC") which holds the
PCS license for the Washington-Baltimore market, has agreed to invest
in the entity that will hold the PCS license for the Los Angeles-San
Diego market, and may invest in other entities that hold PCS licenses.
Subsidiaries of Cox, Sprint and Telephony Group are also partners in a
partnership ("PhillieCo") that holds a PCS license for the
Philadelphia market which was acquired at a license cost of $85
million. Telephony Group has an indirect 35.3% interest in PhillieCo.

The capital that Sprint Spectrum will require to fund the construction
of the PCS systems, in addition to the license costs and investments
described above, will be substantial. Pursuant to the business plan
adopted by the partners in Sprint Spectrum for the build out of Sprint
Spectrum's nationwide network, the partners are obligated to make
additional cash capital contributions to Sprint Spectrum in the
aggregate amount of approximately $1.9 billion during the two-year
period that commenced January 1, 1996. Telephony Group has agreed to
contribute approximately $0.6 billion of such aggregate amount, $0.2
billion of which was contributed during the nine months ended
September 30, 1996. The business plan contemplates that Sprint
Spectrum will require additional equity thereafter.

(4) Investment in TCG

(continued)

F-161
<PAGE> 309
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

TCG, a competitive local exchange carrier, conducted an initial public
offering (the "TCG IPO") on July 2, 1996 in which it sold 27,025,000
shares of Class A common stock at $16.00 per share to the public for
aggregate net proceeds of approximately $410,000,000. As a result of
the TCG IPO, Telephony Group's ownership interest in TCG was reduced
from approximately 35% to approximately 31%. Accordingly, Telephony
Group recognized a gain amounting to $12.4 million (before deducting
deferred income tax expense of approximately $5 million).

During 1992, the Telephony Group acquired a 30% ownership interest in
Teleport Communications Group, Inc., ("TCGI"). Subsequent to the
acquisition, the Telephony Group advanced funds to TCGI in the form of
notes receivable. Such notes receivable bore interest at a variable
rate (which approximated 7.0% at December 31, 1995). In conjunction
with the Reorganization (as defined below), $57.8 million of such
receivables were converted to equity of TCGI. The remaining note
receivables of $26 million was exchanged for a new note which bears
interest at 7.5% and is due in 2001. At September 30, 1996, the
amount outstanding (including accrued interest) was $26.3 million.

Summarized unaudited combined results of operations for TCG as of and
for the period ended September 30, 1996 and TCGI and TCG Partners as
of and for the period ended September 30, 1995 are as follows:

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
Combined Operations 1996 1995
------------------- ---------- ---------
amounts in thousands
<S> <C> <C>
Revenue $ 180,271 150,498
Operating expenses (161,403) (150,550)
Depreciation and amortization (51,984) (37,520)
---------- -----------

Operating loss (33,116) (37,572)

Interest expense (44,451) (22,223)
Other, net 5,428 (8,803)
---------- -----------

Net loss $ (72,139) (68,598)
========== ===========
</TABLE>

(continued)

F-162
<PAGE> 310
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

The acquisition by TCGI of TCG Partners in exchange for TCGI
Class B Common Stock issued to the Cable Stockholders.

The contribution to TCGI of $269 million in aggregate
principal amount of indebtedness, plus accrued interest from
May 1995, owed by TCGI to the Cable Stockholders in exchange
for Class B Common Stock issued to the Cable Stockholders.

F-163
<PAGE> 311
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(5) Investment in Other Affiliates

Summarized unaudited results of operations for other affiliates
accounted for under the equity method are as follows:

<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
Combined Operations 1996 1995
------------------- --------- ---------
amounts in thousands
<S> <C> <C>
Revenue $ 4,534 2,165
Operating expenses (3,807) (3,230)
Depreciation and amortization (2,494) (1,070)
--------- ---------

Operating loss (1,767) (2,135)

Interest expense (1,156) (275)
Other, net (85) (53)
--------- ---------

Net loss $ (3,008) (2,463)
========= =========

</TABLE>

(6) Combined Equity

General

Shares of Series B Telephony Group Stock will be convertible at any
time at the option of the holder only into the same number of shares
of Series A Telephony Group Stock.

Stock Options and Stock Appreciation Rights

(continued)

F-164
<PAGE> 312
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

Transactions with TCI Group and Other Related Parties

Certain TCI corporate general and administrative costs are charged to
Telephony Group at rates set at the beginning of the year based on
projected utilization for that year. The utilization-based charges
are set at levels that management believes to be reasonable and that
approximate the costs Telephony Group would incur for comparable
services on a stand alone basis. During the nine months ended
September 30, 1996 and 1995, Telephony Group was allocated $548,000
and $211,000, respectively, in corporate general and administrative
costs by TCI Group.

TCI manages certain treasury activities for Telephony Group on a
centralized basis. Cash disbursements of Telephony Group are funded
by TCI on a daily basis. Prior to the implementation of the Liberty
Group Stock Proposal the net amounts of such cash activities are
included in combined equity in the accompanying combined financial
statements. Subsequent to the implementation of the Liberty Group
Stock Proposal, such cash activities will be included in borrowings
from or loans to TCI Group or, if determined by the Board, as an
equity contribution to the Telephony Group.

If the Telephony Group Stock Proposal is approved by stockholders, all
debt incurred or preferred stock issued by the Company and its
subsidiaries following the issuance and sale of Telephony Group Stock
would (unless the Board otherwise provides) be specifically attributed
to and reflected on the combined financial statements of the Group
that includes the entity which incurred the debt or issued the
preferred stock or, in case the entity incurring the debt or issuing
the preferred stock is Tele-Communications, Inc., the TCI Group. The
Board could, however, determine from time to time that debt incurred
or preferred stock issued by entities included in a Group should be
specifically attributed to and reflected on the combined financial
statement of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such
other Group.

(continued)

F-165
<PAGE> 313
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

To the extent cash needs of one Group exceed cash provided by such
Group, one of the other Groups may transfer funds to such Group. The
TCI Group has provided and will continue to provide centralized cash
management functions under which cash receipts of certain entities
included in the other Groups are remitted to the TCI Group and certain
cash disbursements of the other Groups will be funded by the TCI Group
on a daily basis. Such transfers of funds between the Groups will be
reflected as borrowings or, if determined by the Board, in the case of
a transfer from the TCI Group to either the Liberty Media Group or the
Telephony Group, reflected as the creation of, or increase in, the TCI
Group's Inter-Group Interest in such Group or, in the case of a
transfer from either the Liberty Media Group or the Telephony Group to
the TCI Group, reflected as a reduction in the TCI Group's Inter-Group
Interest in such Group. There are no specific criteria for determining
when a transfer will be reflected as a borrowing or as an increase or
reduction in an Inter-Group Interest. The Board expects to make such
determinations, either in specific instances or by setting generally
applicable policies from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs
of the Company, the financing needs and objectives of the Groups, the
investment objectives of the Groups, the availability, cost and time
associated with alternative financing sources, prevailing interest
rates and general economic conditions. Generally, it is expected that
entities included in the Liberty Media Group will seek their own
long-term debt financing, whereas the Telephony Group is expected to
require additional advances from the TCI Group for some period of time.
To satisfy this need, TCI has agreed to provide a revolving credit
facility (the "Revolving Credit Facility") to the Telephony Group for a
period commencing December 1, 1996 and ending December 31, 2001. Such
facility would permit aggregate borrowings at any one time outstanding
of up to $500 million (subject to reduction or increase as described
below), which borrowings would bear interest at a rate per annum equal
to The Bank of New York's prime rate (as in effect from time to time)
plus 1% per annum, payable quarterly. A commitment fee equal to 3/8%
per annum of the average unborrowed availability under the Revolving
Credit Facility will be payable by the Telephony Group to the TCI Group
on a quarterly basis. The maximum amount of borrowings permitted under
the Revolving Credit Facility will be reduced on a dollar-for-dollar
basis (i) by the amount of the first $300 million of net proceeds of
any external debt or equity financings attributed to the Telephony
Group resulting in the reduction of the maximum amount of such
borrowings under the Revolving Credit Facility to an amount not less
than $200 million and (ii) below $200 million, if (but only to the
extent that) the net proceeds of any such external financings
attributed to the Telephony Group which are completed on or prior to
December 1, 1998 exceed $600 million (including the first $300 million
of such proceeds referred to above. The maximum amount of the
borrowings permitted under the Revolving Credit Facility will be
increased on a dollar-for-dollar basis by the dollar amount of any
borrowings thereunder, the proceeds of which are used by the Telephony
Group to pay a portion, if any, of the exercise price for the purchase
of all or part of the ResTel Business from the TCI Group.

Except as described above with respect to the Revolving Credit
Facility, loans from one Group to another Group would bear interest at
such rates and have such repayment schedules and other terms as are
established from time to time by, or pursuant to procedures
established by, the Board. The Board expects to make such
determinations, either in specific instances or by setting generally
applicable polices from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs
of the Company, the use of proceeds by and creditworthiness of the
recipient Group, the capital expenditure plans and investment
opportunities available to each Group and the availability, cost and
time associated with alternative financing sources.

(continued)

F-166
<PAGE> 314
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

The combined balance sheets of a Group would reflect its net loans to
or borrowings from the other Groups. Similarly, the respective
combined statements of operations of the Groups would reflect interest
income or expense, as the case may be, associated with such loans or
borrowings and the respective combined statements of cash flows of the
Groups would reflect changes in the amounts of loans or borrowings
deemed outstanding. In the historical financial statements, net
borrowings of the Telephony Group have been included as a component of
the Telephony Group's combined equity. Subsequent to the date of such
financial statements, a portion of such net borrowings was converted
into a $500 million investment in Telephony preferred stock as
described below. The balance of such net borrowings up to November
30, 1996 will continue to be reflected as a component of the Telephony
Group's combined equity. Amounts borrowed by the Telephony Group from
another Group on or subsequent to December 1, 1996, will be reflected
on the Telephony Group's financial statements as indebtedness to the
applicable lender.

On December 1, 1996, the TCI Group converted $500 million of it's
interest in the Telephony Group into a 6% cumulative compounding
redeemable preferred stock due from the Telephony Group. Such
preferred stock is due December 1, 2011.

In connection with its determination to recommend the Telephony Stock
Proposal to the Company's shareholders, the Board determined to
convert a portion of the amount invested by the Company in the
investments attributed to the Telephony Group into the aforementioned
$500 million preferred stock and a contractual right to use up to $500
million of tax benefits generated by Telephony Group (principally
arising from its partnership interest in the PCS Ventures) without
charge to the TCI Group. Such right can be satisfied only through and
to the extent of future income tax benefits generated by Telephony
Group.

Although any increase in the TCI Group's Inter-Group Interest in the
Telephony Group resulting from an equity contribution by the TCI Group
to the Telephony Group or any decrease in such Inter-Group Interest
resulting from a transfer of funds from the Telephony Group to the TCI
Group would be determined by reference to the market value of the
Series A Telephony Group Stock as of the date of such transfer, such
an increase could occur at a time when such shares could be considered
undervalued and such a decrease could occur at a time when such shares
could be considered overvalued.

(continued)

F-167
<PAGE> 315
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(continued)

F-168
<PAGE> 316
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

(7) Commitments and Contingencies

As a partner in certain partnerships, from time to time, the Telephony
Group is obligated to make cash payments, either in the form of equity
or loans, the most significant of which is the funding of Sprint
Spectrum. As previously described, the Partners are obligated to make
cash capital contributions to Sprint Spectrum in the aggregate amount
of approximately $1.9 billion during the two-year period that
commenced January 1, 1996.

(continued)

F-169
<PAGE> 317
"TELEPHONY GROUP"
(a combination of certain assets, as defined in note 1)

Notes to Combined Financial Statements

The Telephony Group's commitment to fund partnerships (including the
aforementioned funding obligation to Sprint Spectrum) are estimated as
follows (amounts in thousands):

Pursuant to an agreement entered into in connection with certain
financings by Sprint Spectrum, under certain circumstances the
Partners may be required to make additional contributions to Sprint
Spectrum to fund projected cash shortfalls to the extent that the
amount of the Partners' aggregate contributions to Sprint Spectrum
(exclusive of certain amounts, including amounts invested in certain
affiliates of Sprint Spectrum), following December 31, 1995 are less
than $1.0 billion; however, based on the currently expected timing and
use of the Partners' contributions to Sprint Spectrum, the Company
currently believes that such agreement will not result in the
Company's being required to make any incremental capital contributions
in addition to its pro rata portion of such $1.9 billion amount.

F-170
<PAGE> 318
ANNEX A

INDEX OF CERTAIN DEFINED TERMS

<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
IN THE
TERM PROSPECTUS
---- ----------
<S> <C>
1996 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Access Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Additional Capital Contributions . . . . . . . . . . . . . . . . . . . . . . 66
Adjusted Liberty Media Group Outstanding Interest Fraction . . . . . . . . 120
Adjusted Outstanding Shares of Liberty Media Group Common Stock . . . . . . 116
Adjusted Outstanding Shares of Telephony Group Common Stock . . . . . . . . 114
Adverse Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
AirTouch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
APC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Appraisal Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
AT&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
AT&T Wireless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Available Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Bell Atlantic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Bell Operating Company Affiliated Enterprise . . . . . . . . . . . . . . . . 73
BellSouth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
BizTel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Cable Parents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Cable Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Cable Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Cablevision Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CERFnet Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Class A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Class B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
CLEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Comcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Comcast Service Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Committed Acquisition Shares . . . . . . . . . . . . . . . . . . . . . . . . 98
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Earnings (Loss) Attributable to the Liberty Media Group . . . . . . 108
Continental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Contingency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Court of Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Cox Contributed Property . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Cox-California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>

A-1
<PAGE> 319
<TABLE>
<S> <C>
CTIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Cut-Off Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Deadlock Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Declining Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Defaulting Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Delinquent Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exclusive Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Executive Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
FAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Fifteen Year Treasury Rate . . . . . . . . . . . . . . . . . . . . . . . . 129
Final Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
First Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
HFC Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Higher Appraised Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Independent Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Inter-Group Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Interconnection Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Interested Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
International Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . 142
International Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
International Representatives . . . . . . . . . . . . . . . . . . . . . . . 142
International Underwriters . . . . . . . . . . . . . . . . . . . . . . . . 142
Intersyndicate Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 143
Junior Exchange Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Liberty Media Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Liberty Media Group Available Dividend Amount . . . . . . . . . . . . . . . 108
Liberty Media Group Common Stock . . . . . . . . . . . . . . . . . . . . . . 2
Liberty Media Group Common Stock Per Share Value . . . . . . . . . . . . . 116
Liberty Media Group Distribution . . . . . . . . . . . . . . . . . . . . . . 98
Liberty Media Group Inter-Group Interest Fraction . . . . . . . . . . . . . 100
Liberty Media Group Net Proceeds . . . . . . . . . . . . . . . . . . . . . 100
Liberty Media Group Optional Conversion Ratio . . . . . . . . . . . . . . . 115
Liberty Media Group Outstanding Interest Fraction . . . . . . . . . . . . . 100
Liberty Media Group Private Market Value . . . . . . . . . . . . . . . . . 115
Liberty Media Group Subsidiaries . . . . . . . . . . . . . . . . . . . . . 121
Liberty Stock Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 97
Liquidation Preference . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Lower Appraised Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Market Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Mutually Appraised Amount . . . . . . . . . . . . . . . . . . . . . . . . . 101
Mutually Designated Appraiser . . . . . . . . . . . . . . . . . . . . . . . 101
New York Franchise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
NJBPU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Nonresident Alien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>

A-2
<PAGE> 320
<TABLE>
<S> <C>
NYNEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
NYPSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Parents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Partnership Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PCIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PCS Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PhillieCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pioneer's Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Pre-Distribution Convertible Securities . . . . . . . . . . . . . . . . . . 103
Premium Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Premium Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
PrimeCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Purchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Qualifying Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Required Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ResTel Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Satco Spin-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Second Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Second Tranche Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selection Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Series A Liberty Media Group Common Stock . . . . . . . . . . . . . . . . . . 2
Series A TCI Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . 2
Series A Telephony Group Common Stock . . . . . . . . . . . . . . . . . . . . 1
Series B Liberty Media Group Common Stock . . . . . . . . . . . . . . . . . . 2
Series B TCI Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . 2
Series B Telephony Group Common Stock . . . . . . . . . . . . . . . . . . . . 2
Series D Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Series E Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Series F Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Series G Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Series H Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Series Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
share distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SNET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Special Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Sprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sprint Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Sprint PCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sprint PCS Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sprint Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sprint Spectrum Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Sprint Spectrum Registration Statement . . . . . . . . . . . . . . . . . . . 2
State PSCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
</TABLE>

A-3
<PAGE> 321
<TABLE>
<S> <C>
Stated Liquidation Value . . . . . . . . . . . . . . . . . . . . . . . . . 128
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TCG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TCG Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCI Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TCI Earnings (Loss) Attributable to the Telephony Group . . . . . . . . . . 108
TCI Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
TCI Group Available Dividend Amount . . . . . . . . . . . . . . . . . . . . 108
TCI Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TCI Telephony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TCI Telephony Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 19
TCIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TCNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Telephony Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Telephony Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Telephony Group Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Telephony Group Available Dividend Amount . . . . . . . . . . . . . . . . . 108
Telephony Group Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 2
Telephony Group Common Stock Per Share Value . . . . . . . . . . . . . . . 114
Telephony Group Inter-Group Interest Fraction . . . . . . . . . . . . . . . 106
Telephony Group Net Proceeds . . . . . . . . . . . . . . . . . . . . . . . 106
Telephony Group Optional Conversion Ratio . . . . . . . . . . . . . . . . . 113
Telephony Group Outstanding Interest Fraction . . . . . . . . . . . . . . . 107
Telephony Group Private Market Value . . . . . . . . . . . . . . . . . . . 113
Teleport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Teleport Class A Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Teleport Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TELRIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Total Mandatory Contributions . . . . . . . . . . . . . . . . . . . . . . . . 66
TTS--Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Representatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
U.S. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
U.S. Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
US WEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
VII Cable Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Voting Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Western . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Wireless Exclusive Services . . . . . . . . . . . . . . . . . . . . . . . . . 25
WTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
WTCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
WTCI Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
WTR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>

A-4
<PAGE> 322
ANNEX B

GLOSSARY OF SELECTED TERMS

Access Charges: The fees paid by long distance carriers for the local
connections between the long distance carriers' networks and the long distance
carriers' customers.

Analog: A method of transmission where the wave form of the output
signal is analogous to the wave form of the input signal.

ATM (Asynchronous Transfer Mode): A recently commercialized switching
and transmission technology that is one of a general class of packet
technologies that relay traffic by way of an address contained within the first
five bits of a standard fifty-three bit-long packet or cell. ATM-based packet
transport was specifically developed to allow switching and transmission of
mixed voice, data and video at varying rates. The ATM format can be used by
many different information systems, including LANs.

BOC (Bell Operating Company): A telephone operating subsidiary of an
RBOC; an incumbent local exchange carrier.

BTA: Basic Trading Area.

CAP (Competitive Access Provider): A company that provides dedicated
services (private line, local transport and special access) telecommunications
services as an alternative to the ILEC.

CDMA (Code Division Multiple Access): A digital spread-spectrum
wireless technology which allows a large number of users to access a single
frequency band that assigns a code to all speech bits, sends a scrambled
transmission of the encoded speech over the air and reassembles the speech to
its original format.

CLEC (Competitive Local Exchange Carrier): A company that provides
local exchange services in competition with the incumbent local exchange
carrier

CMRS: Commercial Mobile Radio Service.

Dedicated Lines: Telecommunications lines dedicated to, or reserved for
use by, a particular customer along predetermined routes (in contrast to links
which are temporarily established).

Digital: A means of storing, processing and transmitting information by
using distinct electronic or optical pulses that represent the binary digits 0
and 1. Digital transmission and switching technologies use a sequence of these
pulses to represent information as opposed to the continuously variable analog
signal. The precise digital numbers preclude any distortion (such as graininess
or snow in the case of video transmission, or static or other background
distortion in the case of audio transmission).

Digital Protocols: Technologies such as CDMA and TDMA which manage the
communication for digital signal transmission.

ESMR (Enhanced Specialized Mobile Radio): A radio communications system
that employs digital technology with a multi-site configuration that permits
frequency reuse but used in the SMR frequencies, offering enhanced dispatch
services to traditional analog SMR users.

FCC: Federal Communications Commission.

B-1
<PAGE> 323
Fiber Miles: The number of route miles of fiber optic cable installed
(excluding pending installations) along a telecommunications path multiplied by
the number of fibers in the cable. See the definition of "route mile"below.

Frequency: The number of cycles per second, expressed in hertz, of a
periodic oscillation or wave in radio propagation.

GSM (Global System for Mobile Communications): The standard digital
cellular telephone service in Europe and Japan, guided by a set of standards
specifying the infrastructure for digital cellular service, including the radio
interface (900 MHz), switching, signaling, and intelligent network.

Hand-Off: The act of transferring communication with a mobile unit from
one base station to another. A hand-off transfers a call from the current base
station to the new base station. A "soft" hand-off establishes communications
with a new cell before terminating communications with the old cell.

HFC (Hybrid Fiber Coaxial): A new technology consisting of fiber optic
distribution facilities and coaxial cable deployed to the home or business.
This technology enables the operator to offer a wide variety of two-way
broadband services, including telecommunications and entertainment.

ILECs (Incumbent Local Exchange Carriers): The local phone companies,
either a BOC or an independent (such as GTE) which provides local exchange
services.

Internet: The name used to describe the global open network of
computers that permits a person with access to the Internet to exchange
information with any other computer connected to the network.

ISDN (Integrated Services Digital Network): ISDN is an internationally
agreed standard which, through special equipment, allows two-way, simultaneous
voice and data transmission in digital formats over the same transmission line.
ISDN permits video conferencing over a single line, for example, and also
supports a multitude of value-added switched service applications such as
Incoming Calling Line Identification. ISDN's combined voice and data networking
capabilities reduce costs for end users and result in more efficient use of
available facilities. ISDN combines standards for highly flexible customer to
network signaling with both voice and data within a common facility.

IXC (Interexchange Carrier): a long distance carrier.

LANs (Local Area Networks): The interconnection of computers for the
purpose of sharing files, programs and peripheral devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routers.

LATA (Local Access and Transport Area): The geographical areas within
which a local telephone company may offer telecommunications services, as
defined in the divestiture order known as the Modified Final Judgment unless
and until redefined by the FCC pursuant to the Telecommunications Act of 1996.

LEC: Local Exchange Carrier.

LEO Satellite (Low Earth Orbit Satellite): A LEO satellite moves a few
hundred miles in orbit around the Earth. The primary advantage of LEOs is that
the terrestrial-based transmitting terminal does not have to be very powerful
because the LEO satellite is closer to the Earth than traditional geostationary
satellites which are placed in geosynchronous orbit (22,300 miles) directly
over the earth's equator.

Local Exchange: A geographic area defined by the appropriate state
regulatory authority in which telephone calls generally are transmitted without
toll charges to the calling or called party.

B-2
<PAGE> 324

Local Exchange Service/Local Exchange Telephone Service: Basic local
telephone service, including the provision of telephone numbers, dial tone and
calling within the local exchange area.

Local Transport Services: Dedicated lines between the ILEC's central
offices and long distance carrier Pops used to carry switched traffic.

Microwave Relocation: The transferral of the businesses and public
safety agencies which currently utilize radio spectrum within or adjacent to
the spectrum allocated to PCS licensees by the FCC.

MTA: Major Trading Area.

Nodes: An individual point of origination and termination or
intersection on the network, usually where electronics are housed.

Pops: A shorthand abbreviation for the population covered by a license
or group of licenses. Unless otherwise noted, as used herein Pops means the
Donnelley Marketing Service estimate of the December 31, 1995 population of a
geographic area.

POTS (Plain Old Telephone Service): The basic service supplying
standard single line telephones, telephone lines and access to the public
switched network.

Private line: A private, dedicated telecommunications link between
different customer locations (excluding long distance carrier Pops).

PUC (Public Utility Commission): A state regulatory body, established
in most states, which regulates utilities, including telecommunications
companies providing intrastate services. In some states this regulatory body
may have a different name, such as public service commission ("PSC").

RBOC (Regional Bell Operating Company): The holding company which owns
a BOC.

Reciprocal Compensation: An arrangement in which two local exchange
carriers agree to terminate traffic originating on each other's networks in
exchange for a negotiated level of compensation.

Redundant Electronics: A telecommunications facility that uses two
separate electronic devices to transmit a telecommunications signal so that if
one device malfunctions, the signal may continue without interruption.

RF: Radio Frequency.

Roaming: A service offered by mobile communications carriers which
allows subscribers to use their handset while in the service area of another
carrier. Roaming agreements are negotiated between carriers.

Route Mile: The number of miles along which fiber optic cables are
installed.

SMR (Specialized Mobile Radio): A two-way analog mobile radio telephone
system typically used for dispatch services such as truck and taxi fleets.

SONET (Synchronous Optical Network): A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed
in optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.

B-3
<PAGE> 325
Special Access Services: The lease of private, dedicated
telecommunications lines or circuits on an ILEC's or a CAP's network which run
to or from the long distance carrier's Pops. Special access services do not
require the use of switches. Examples of special access services are
telecommunications circuits running between Pops of a single long distance
carrier, from one long-distance carrier's Pop to another long distance
carrier's POP or from an enduser to its long distance carrier's Pop.

Switch: A mechanical or electronic device that opens or closes circuits
or selects the paths or circuits to be used for the transmission of
information. Switching is a process of linking different circuits to create a
temporary transmission path between users. Within this document, switches
generally refer to voice grade telecommunications switches unless specifically
stated otherwise.

Switched Access Services: The connection between a long distance
carrier's Pop and an end user's premises through the switching facilities of a
local exchange carrier.

TDMA (Time Division Multiple Access): A digital spread-spectrum
technology which allocates a discrete amount of frequency bandwidth to each
user in order to permit more than one simultaneous conversation on a single RF
channel.

B-4
<PAGE> 326
ANNEX C

ILLUSTRATION OF CERTAIN TERMS

The following illustrations demonstrate the method of calculation of the
Inter-Group Interest of the TCI Group in the Telephony Group and the
application of certain terms of the Telephony Group Common Stock based on the
assumptions set forth herein and using 825 million shares as the number of
authorized shares of Telephony Group Common Stock, 100 million shares as the
initial Number of Shares Issuable with Respect to the Telephony Group Inter-
Group Interest and 10 million shares as the number of shares of Series A
Telephony Group Common Stock sold in the Offerings, with the proceeds of such
sale being credited entirely to the Telephony Group, as diagramed below.
Unless otherwise specified, each illustration below should be read
independently as if none of the other transactions illustrated in this Annex C
had occurred. Actual calculations may be slightly different due to rounding.
The following illustrations are not intended to be complete and are qualified
in their entirety by the more detailed information contained in this Prospectus
and the other Annexes thereto. Capitalized terms used herein have the
respective meanings ascribed to them in this Prospectus. See Annex A--Index of
Certain Defined Terms.

<TABLE>
<CAPTION>
Before Offerings After Offerings
---------------- ---------------
<S> <C>
100 million Number of Shares Issuable with 100 million Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Respect to the Telephony Group Inter-Group
Interest Interest

725 million Available Shares 715 million Available Shares

10 million Outstanding Shares
</TABLE>

At any given time, the Telephony Group Outstanding Interest Fraction,
which represents the percentage interest in the equity value of TCI
attributable to the Telephony Group that is represented by the outstanding
shares of Telephony Group Common Stock, would be equal to:

OUTSTANDING SHARES OF TELEPHONY GROUP COMMON STOCK
- --------------------------------------------------------------------------------
OUTSTANDING SHARES OF TELEPHONY GROUP COMMON STOCK + NUMBER OF SHARES ISSUABLE
WITH RESPECT TO THE TELEPHONY GROUP INTER-GROUP INTEREST

The balance of the equity of the Telephony Group is represented by the
TCI Group's Inter-Group Interest in the Telephony Group and, at any given time,
the Telephony Group Inter-Group Interest Fraction, which represents the
percentage interest in the equity value of TCI attributable to the Telephony
Group that is attributed to the TCI Group, would be equal to:

NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE TELEPHONY
GROUP INTER-GROUP INTEREST
- --------------------------------------------------------------------------------
OUTSTANDING SHARES OF TELEPHONY GROUP COMMON STOCK + NUMBER OF SHARES ISSUABLE
WITH RESPECT TO THE TELEPHONY GROUP INTER-GROUP INTEREST

The sum of the Telephony Group Outstanding Interest Fraction and the
Telephony Group Inter-Group Interest Fraction would always equal 100%.

C-1
<PAGE> 327

THE OFFERINGS

o The following illustration assumes the initial issuance of 10
million shares of Series A Telephony Group Common Stock in the
Offerings. The Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest would be 100 million
shares immediately following the Offering. As a result, the
Telephony Group Inter-Group Interest Fraction would be 90.9%,
calculated as follows:

100 million
------------------------
10 million + 100 million

The Telephony Group Outstanding Interest Fraction would
accordingly represent an interest of 9.1% in the Telephony
Group.

o The shares sold in the Offerings would be entitled to vote and
in the aggregate would represent a percentage equity interest
in the Telephony Group equal to the Telephony Group
Outstanding Interest Fraction. The Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest would
not be issued, outstanding or entitled to vote.

o Immediately after the Offerings, TCI would have 815 million
authorized and unissued shares of Telephony Group Common Stock
remaining (825 million minus 10 million issued and
outstanding) of which 715 million represent Available Shares.
Authorized and unissued shares may be issued without further
action by shareholders and if issued from Available Shares
would result in the reduction of the percentage equity
interest of existing holders and may be issued at prices which
could dilute the equity interest of existing holders. The
issuance and sale of any of the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest, however,
would not dilute the percentage equity interest in the
Telephony Group of a holder of Telephony Group Common Stock
because the number of shares that would be used in the
denominator for such calculation would remain the same after
any such issue.

o In addition, with a Telephony Group Outstanding Interest
Fraction of 9.1% (and a Telephony Group Inter-Group Interest
Fraction of 90.9%), the financial statements of the Telephony
Group would be charged in respect of the Inter-Group Interest
with an amount equal to 999% (representing the ratio of the
Telephony Group Inter-Group Interest Fraction (90.9%) to the
Telephony Group Outstanding Interest Fraction (9.1%)) of the
aggregate amount of any dividend or other distribution paid on
the outstanding shares of Telephony Group Common Stock (other
than a dividend or other distribution payable in shares of
Telephony Group Common Stock or in certain other securities).
If, for example, a dividend of $1 per share were declared and
paid on the 10 million shares of Telephony Group Common Stock
outstanding (an aggregate of $10 million), the TCI Group would
be credited with $99.9 million, and the Telephony Group would
be charged with that amount in addition to the $10 million
dividend on the outstanding shares of Telephony Group Common
Stock (a total of $109.9 million). An example of the effects
of a distribution of Telephony Group Common Stock is set forth
below under the caption "TELEPHONY GROUP COMMON STOCK
DIVIDENDS."

C-2
<PAGE> 328
FUTURE OFFERINGS OF TELEPHONY GROUP COMMON STOCK

The following illustrations reflect the sale by TCI of 15 million
additional shares of Telephony Group Common Stock on a date on which the Number
of Shares Issuable with Respect to the Telephony Group Inter-Group Interest is
100 million.

OFFERINGS FOR THE TELEPHONY GROUP

Assume all such shares are identified as issued for the account of the
Telephony Group, with the net proceeds credited to the Telephony Group.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . 10 million
Newly issued shares . . . . . . . . . . . . . . . . . . 15 million
----------
Total shares issued and outstanding after offering . . 25 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest would not be changed by the
issuance of any shares of Telephony Group Common Stock for
the account of the Telephony Group.

o The Telephony Group Outstanding Interest Fraction would be
20%, calculated as follows:

25 million
------------------------
25 million + 100 million

The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 80% in the Telephony
Group.

o TCI would have 800 million authorized and unissued shares of
Telephony Group Common Stock remaining (825 million minus 25
million issued and outstanding).

OFFERING FOR THE TCI GROUP

Assume all of such shares are identified as issued for the account of
the TCI Group with respect to the Inter-Group Interest, with the net proceeds
credited to the TCI Group.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . 10 million
Newly issued shares . . . . . . . . . . . . . . . . . . . 15 million
----------
Total shares issued and outstanding after offering . . . 25 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Inter-Group Interest would decreased by the number of shares
of Telephony Group Common Stock issued for the account of the
TCI Group.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest prior to offering . . . . . . . . . . . . . . 100 million
Shares issued in offering . . . . . . . . . . . . . . . . . . . . . . 15 million
Number of Shares Issuable with Respect to the Telephony Group -----------
Inter Group Interest after offering . . . . . . . . . . . . . . . . 85 million
===========
</TABLE>

C-3
<PAGE> 329
o The Telephony Group Outstanding Interest Fraction would be
22.7%, calculated as follows:

25 million
------------------------
25 million + 85 million

The Telephony Inter-Group Interest Fraction would accordingly
represent an interest of 77.3% in the Telephony Group.

o TCI would have 800 million authorized and unissued shares of
Telephony Group Common Stock remaining (825 million minus 25
million issued and outstanding).

OFFERINGS OF CONVERTIBLE SECURITIES FOLLOWING THE OFFERINGS

If TCI were to issue any debt or preferred stock convertible into
shares of Telephony Group Common Stock, the Telephony Group Inter-Group
Interest Fraction and the Telephony Group Outstanding Interest Fraction would
be unchanged at the time of such issuance. If any shares of Telephony Group
Common Stock were issued upon conversion of such convertible security, however,
then the Telephony Inter-Group Interest Fraction and the Telephony Group
Outstanding Interest Fraction would be affected in a manner similar to that
shown above under "Offering for the Telephony Group," if such convertible
security were attributed to the Telephony Group, or under "Offering for the TCI
Group," if such convertible security were attributed to the TCI Group.

PURCHASES OF TELEPHONY GROUP COMMON STOCK

The following two illustrations reflect the purchase by TCI of 5
million shares of Telephony Group Common Stock, which are retired or otherwise
cease to be outstanding following their purchase. The illustrations assume
that there are 25 million shares outstanding prior to the purchase and that the
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest prior to such purchase is 85 million.

PURCHASE WITH TELEPHONY GROUP FUNDS

Assume all such shares are identified as having been purchased with
funds attributed to the Telephony Group, with the Telephony Group being charged
with the consideration paid for such shares.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . 25 million
Shares purchased . . . . . . . . . . . . . . . . . . . . 5 million
----------
Total shares issued and outstanding after purchase . . . 20 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest would not be changed by the
purchase of any shares of Telephony Group Common Stock which
are purchased with funds attributed to the Telephony Group.

o The Telephony Group Outstanding Interest Fraction would be
19%, calculated as follows:

20 million
-----------------------
20 million + 85 million

C-4
<PAGE> 330
The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 81% in the Telephony
Group.

o In this case, the TCI Group would be credited, and the
Telephony Group would be charged, with an amount equal to 426%
(representing the ratio of the Telephony Group Inter-Group
Interest Fraction (81%) to the Telephony Group Outstanding
Interest Fraction (19%)) of the aggregate amount of any
dividend or other distribution paid on the outstanding shares
of Telephony Group Common Stock (other than a dividend or
other distribution payable in shares of Telephony Group Common
Stock or certain other securities).

o TCI would have 805 million authorized and unissued shares of
Telephony Group Common Stock (825 million minus 20 million
issued and outstanding).

PURCHASE WITH TCI GROUP FUNDS

Assume all such shares are identified as having been purchased with
funds attributed to the TCI Group, with the TCI Group being charged with the
consideration paid for such shares.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . 25 million
Shares purchased . . . . . . . . . . . . . . . . . . . 5 million
----------
Total shares issued and outstanding after purchase . . 20 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest would be increased by the number of
shares of Telephony Group Common Stock which are so purchased
with funds attributed to the TCI Group.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest prior to purchase . . . . . . . . . . . . . 85 million
Shares purchased . . . . . . . . . . . . . . . . . . . . . . . . . 5 million
Number of Shares Issuable with Respect to the Telephony Group ----------
Inter-Group Interest after purchase . . . . . . . . . . . . . . . 90 million
==========
</TABLE>

o The Telephony Group Outstanding Interest Fraction would be
18.2% calculated as follows:

20 million
-----------------------
20 million + 90 million

The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 81.8 % in the Telephony
Group.

o In this case, the TCI Group would be credited, and the
Telephony Group would be charged, with an amount equal to 449%
(representing the ratio of the Telephony Group Inter-Group
Interest Fraction (81.8%) to the Telephony Group Outstanding
Interest Fraction (18.2%)) of the aggregate amount of any
dividend or other distribution paid on the outstanding shares
of Telephony Group Common Stock (other than a dividend or
other distribution payable in shares of Telephony Group Common
Stock or in certain other securities).

C-5
<PAGE> 331
o TCI would have 805 million authorized and unissued shares of
Telephony Group Common Stock (825 million minus 20 million
issued and outstanding).

TRANSFERS OF ASSETS BETWEEN THE TCI GROUP AND THE TELEPHONY GROUP

CONTRIBUTION OF ASSETS FROM THE TCI GROUP TO THE TELEPHONY GROUP

The following illustration reflects the contribution by the TCI Group
to the Telephony Group with respect to the Inter-Group Interest of $100 million
of assets attributed to the TCI Group on a date on which the Market Value of
the Telephony Group Common Stock is $20 per share.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . . . . 10 million
Newly issued shares . . . . . . . . . . . . . . . . . . . . . 0
----------
Total shares issued and outstanding after contribution . . . 10 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest would be increased to reflect the
contribution to the Telephony Group of assets theretofore
attributed to the TCI Group.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Telephony Inter-
Group Interest prior to contribution . . . . . . . . . . . . . . . 100 million
Adjustment to reflect contribution to the Telephony Group of
assets attributed to the TCI Group ($100 million divided by $20). . 5 million
Number of Shares Issuable with Respect to the Telephony Inter- -----------
Group Interest after contribution . . . . . . . . . . . . . . . . . 105 million
===========
</TABLE>

o The Telephony Group Outstanding Interest Fraction would be
8.7%, calculated as follows:

10 million
------------------------
10 million + 105 million

The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 91.3% in the Telephony
Group.

o In this case, the TCI Group would be credited, and the
Telephony Group would be charged, with an amount equal to
1049% (representing the ratio of the Telephony Group Inter-
Group Interest Fraction (91.3%) to the Telephony Group
Outstanding Interest Fraction (8.7%)) of the aggregate amount
of any dividend or other distribution paid on the outstanding
shares of Telephony Group Common Stock (other than a dividend
or other distribution payable in shares of Telephony Group
Common Stock or in certain other securities).

o TCI would have 815 million authorized and unissued shares of
Telephony Group Common Stock (825 million minus 10 million
issued and outstanding).

C-6
<PAGE> 332
TRANSFER OF ASSETS FROM THE TELEPHONY GROUP TO THE TCI GROUP

The following illustration reflects the transfer by the Telephony
Group to the TCI Group in reduction of the Inter-Group Interest of $100 million
of assets attributed to the Telephony Group on a date on which the Market Value
of Telephony Group Common Stock is $20 per share and the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest is $100
million.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . 10 million
Shares purchased . . . . . . . . . . . . . . . . . . . 0
----------
Total shares issued and outstanding after transfer . . 10 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest would be decreased to reflect the
contribution to the TCI Group of assets theretofore attributed
to the Telephony Group.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest prior to transfer . . . . . . . . . . . . . 100 million
Adjustment to reflect transfer to the TCI Group of assets
attributed to the Telephony Group . . . . . . . . . . . . . . . . 5 million
Number of Shares Issuable with Respect to the Telephony Group -----------
Inter-Group Interest after transfer . . . . . . . . . . . . . . . 95 million
===========
</TABLE>

The Telephony Group will not make transfers of assets to the TCI Group
in reduction of the Inter-Group Interest if the effect would be to
reduce the Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest to less than zero. The Telephony Group
cannot have an interest in the TCI Group corresponding to the Inter-
Group Interest.

o The Telephony Group Outstanding Interest Fraction would be
9.5%, calculated as follows:

10 million
-----------------------
10 million + 95 million

The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 90.5% in the Telephony
Group.

o In this case, the TCI Group would be credited, and the
Telephony Group would be charged, with an amount equal to 953%
(representing the ratio of the Telephony Group Inter-Group
Interest Fraction (90.5%) to the Telephony Group Outstanding
Interest Fraction (9.5%)) of the aggregate amount of any
dividend or other distribution paid on the outstanding shares
of Telephony Group Common Stock (other than a dividend or
other distribution payable in shares of Telephony Group Common
Stock or in certain other securities).

o TCI would have 115 million authorized and unissued shares of
Telephony Group Common Stock (825 million minus 10 million
issued and outstanding).

C-7
<PAGE> 333
TELEPHONY GROUP COMMON STOCK DIVIDENDS

The following illustrations reflect dividends of Telephony Group
Common Stock on outstanding Telephony Group Common Stock and outstanding TCI
Group Common Stock, respectively, on a date on which the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest is 100
million.

TELEPHONY GROUP COMMON STOCK DIVIDEND ON TELEPHONY GROUP COMMON STOCK

Assume TCI declares a dividend of one-half of one share of Telephony
Group Common Stock on each outstanding share of Telephony Group Common Stock.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . 10 million
Newly issued shares . . . . . . . . . . . . . . . . . . 5 million
----------
Total shares issued and outstanding after dividend . . 15 million
==========
</TABLE>

o The Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest would be increased proportionately
to reflect the stock dividend payable in shares of Telephony
Group Common Stock to holders of Telephony Group Common Stock.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest prior to dividend . . . . . . . . . . . . . 100 million
Adjustment to reflect dividend of shares on outstanding shares of
Telephony Group Common Stock . . . . . . . . . . . . . . . . . . 50 million
Number of Shares Issuable with Respect to the Telephony Group -----------
Inter-Group Interest after dividend . . . . . . . . . . . . . . . 150 million
===========

</TABLE>

o The Telephony Group Outstanding Interest Fraction would be
9.1%, calculated as follows:

15 million
-------------------------
15 million + 150 million

The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 90.9% in the Telephony
Group. The Telephony Group Outstanding Interest Fraction and
the Telephony Group Inter-Group Interest Fraction would be
unchanged from the corresponding percentages prior to the
dividend.

o TCI would have 810 million authorized and unissued shares of
Telephony Group Common Stock remaining (825 million minus 15
million issued and outstanding).

TELEPHONY GROUP COMMON STOCK DIVIDEND ON TCI GROUP COMMON STOCK

Assume an aggregate of 800 million shares of TCI Group Common Stock
are outstanding and TCI declares a dividend of one-tenth of one share of
Telephony Group Common Stock on each outstanding share of TCI Group Common
Stock.

<TABLE>
<S> <C>
Shares previously issued and outstanding . . . . . . . 10 million
Newly issued shares . . . . . . . . . . . . . . . . . . 80 million
----------
Total shares issued and outstanding after dividend . . 90 million
==========
</TABLE>

C-8
<PAGE> 334
o Any dividend of shares of Telephony Group Common Stock on the
outstanding shares of TCI Group Common Stock will be treated
as a dividend payable from the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest. As a
result, the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest would decrease by the
number of shares of Telephony Group Common Stock distributed
on the outstanding shares of TCI Group Common Stock as a
dividend.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest prior to dividend . . . . . . . . . . . . . 100 million
Shares distributed on outstanding shares of TCI Group Common Stock 80 million
Number of Shares Issuable with Respect to the Telephony Group -----------
Inter-Group Interest after dividend . . . . . . . . . . . . . . . 20 million
===========
</TABLE>

TCI will not distribute to holders of TCI Group Common Stock as a
dividend a number of shares of Telephony Group Common Stock exceeding
the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest.

o The Telephony Group Outstanding Interest Fraction would be
81.8%, calculated as follows:

90 million
-----------------------
90 million + 20 million

The Telephony Group Inter-Group Interest Fraction would
accordingly represent an interest of 18.2% in the Telephony
Group.

o TCI would have 735 million authorized and unissued shares of
Telephony Group Common Stock remaining (825 million minus 90
million issued and outstanding).

CERTAIN CONVERSION, REDEMPTION AND SPECIAL DIVIDEND PROVISIONS

The following illustrations reflect (a) conversion of the Telephony
Group Common Stock at the option of TCI, (b) mandatory dividend, redemption or
conversion of the Telephony Group Common Stock following the Disposition of all
or substantially all of the properties and assets of the Telephony Group and
(c) redemption of all of the Telephony Group Common Stock in exchange for
stock of a subsidiary holding all the assets and liabilities of the Telephony
Group, in each case assuming that (i) the number of outstanding shares of
Telephony Group Common Stock is 10 million and (ii) the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest is 100
million.

CONVERSION AT THE OPTION OF TCI

Assume that TCI elects to convert the Telephony Group Common Stock
into TCI Group Common Stock at the Telephony Group Optional Conversion Ratio,
the Telephony Group Private Market Value is determined to be $2.2 billion and
the number of shares of Telephony Group Common Stock deemed to be issued upon
the conversion, exercise or exchange of Convertible Securities that are
convertible into or exercisable or exchangeable for Telephony Group Common
Stock is 10 million.

o The Adjusted Outstanding Shares of Telephony Group Common
Stock would be 120 million (representing the sum of (i) the
number of outstanding shares of Telephony Group Common Stock,
(ii) the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest, and (iii)

C-9
<PAGE> 335
the number of shares of Telephony Group Common Stock deemed to
be issued upon the conversion, exercise or exchange of
Convertible Securities convertible into or exercisable or
exchangeable for Telephony Group Common Stock), calculated as
follows:

10 million + 100 million + 10 million

o The Telephony Group Common Stock Per Share Value would be
$18.33 (representing the quotient of the Telephony Group
Private Market Value ($2.2 billion) and the Adjusted
Outstanding Shares of Telephony Group Common Stock (120
million)).

o In this case, assuming that the average Market Value of the
Series A TCI Group Common Stock for the 20-Trading Day period
ending on the Trading Day preceding the date as of which the
Telephony Group Private Market Value is determined is $15, the
Telephony Group Optional Conversion Ratio would be 1.222
(representing the quotient of the Telephony Group Common Stock
Per Share Value ($18.33) and such average Market Value of the
Series A TCI Group Common Stock ($15)), and each outstanding
share of Telephony Group Common would be converted into 1.222
shares of TCI Group Common Stock.

MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF TELEPHONY GROUP COMMON
STOCK

Assume that a Disposition of all (not merely substantially all) of the
properties and assets of the Telephony Group occurs and the Net Proceeds from
such Disposition equal $2.2 billion.

o If TCI elected to redeem all outstanding shares of Telephony
Group Common Stock, the aggregate redemption price would be
$200 million (representing the product of the Telephony Group
Outstanding Interest Fraction and the Net Proceeds of such
Disposition), calculated as follows:

10 million
------------------------- x $2.2 billion
10 million + 100 million

In this case, each outstanding share of Telephony Group Common
Stock would be redeemed in exchange for $20 per share
(representing the quotient of the aggregate redemption price
($200 million) and the number of outstanding shares of
Telephony Group Common Stock (10 million)).

o If TCI elected to convert the Telephony Group Common Stock
into TCI Group Common Stock, assuming that the Market Value of
one share of Series A Telephony Group Common Stock on each
Trading Day during the ten-Trading Day period beginning on the
16th Trading Day following the consummation of such
Disposition is $20 and the Market Value of one share of Series
A TCI Group Common Stock on each Trading Day during such
period is $15, the Telephony Group Common Stock would be
converted into TCI Group Common Stock at a ratio of 1.467
(representing 110% of the average daily ratio during such
period of the Market Value of one share of Series A Telephony
Group Common Stock to the Market Value of one share of Series
A TCI Group Common Stock) shares of TCI Group Common Stock for
each share of Telephony Group Common Stock.

C-10
<PAGE> 336
Assume that a Disposition of substantially all (but not all) of the
properties and assets of the Telephony Group occurs and the Net Proceeds from
such Disposition equal $2.2 billion.

o If TCI elected to pay a dividend to the holders of Telephony
Group Common Stock, the aggregate amount of such dividend
would be $200 million (representing the product of the
Telephony Group Outstanding Interest Fraction and the Net
Proceeds of such Disposition), calculated as follows:

10 million
------------------------- x $2.2 billion
10 million + 100 million

In this case, the TCI Group would be credited, and the
Telephony Group would be charged, with $2 billion, an amount
equal to 999% (representing the ratio of the Telephony Group
Inter-Group Interest Fraction (90.9%) and the Telephony Group
Outstanding Interest Fraction (9.1%)) of the aggregate amount
of such dividend.

o If TCI elected to redeem shares of Telephony Group Common
Stock, the aggregate redemption price would be $200 million
(representing the product of the Telephony Group Outstanding
Interest Fraction and the Net Proceeds of such Disposition),
calculated as follows:

10 million
------------------------- x $2.2 billion
10 million + 100 million

In this case, assuming that the average Market Value of one
share of Series A Telephony Group Common Stock for the ten-
Trading Day period beginning on the 16th Trading Day following
the consummation of such Disposition is $25, an aggregate of 8
million (equal to the quotient of the aggregate redemption
price and such average Market Value) shares of Telephony Group
Common Stock would be redeemed in exchange for $25 per share.

o If TCI elected to convert the Telephony Group Common Stock
into TCI Group Common Stock, assuming that the Market Value of
one share of Series A Telephony Group Common Stock on each
Trading Day during the ten-Trading Day period referred to in
the preceding paragraph is $25 and the Market Value of one
share of Series A TCI Group Common Stock on each Trading Day
during such period is $15, the Telephony Group Common Stock
would be converted into TCI Group Common Stock at a ratio of
1.833 (representing 110% of the average daily ratio during
such period of the Market Value of one share of Series A
Telephony Group Common Stock to the Market Value of one share
of Series A TCI Group Common Stock) shares of TCI Group Common
Stock for each share of Telephony Group Common Stock.

REDEMPTION IN EXCHANGE FOR STOCK OF QUALIFYING SUBSIDIARY

Assume that TCI elects to redeem all of the outstanding shares of
Telephony Group Common Stock in exchange for shares of common stock of a
Qualifying Subsidiary and that the total number of outstanding shares of common
stock of the Qualifying Subsidiary owned by TCI is 220 million.

C-11
<PAGE> 337
o In this case, shares of Telephony Group Common Stock would be
redeemed in exchange for an aggregate number of shares of
common stock of the Qualifying Subsidiary equal to 30 million
(representing the product of the Telephony Group Outstanding
Interest Fraction and the number of shares of common stock of
the Telephony Group Subsidiary), calculated as follows:

10 million
------------------------- x 220 million
10 million + 100 million

In this case, each outstanding share of Telephony Group Common
Stock would be redeemed in exchange for 2 shares of common
stock of the Qualifying Subsidiary, and TCI would retain 200
million shares of common stock of the Qualifying Subsidiary.

C-12
<PAGE> 338
================================================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY TCI OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SERIES A TELEPHONY
GROUP COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF TCI SINCE THE DATE HEREOF.

---------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Documents by Reference . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Capitalization of TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Capitalization of Telephony Group . . . . . . . . . . . . . . . . . . . . . . 45
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Inter-Group Interest in the Telephony Group . . . . . . . . . . . . . . . . . 46
Description of the Telephony Group . . . . . . . . . . . . . . . . . . . . . 50
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Management and Allocation Policies . . . . . . . . . . . . . . . . . . . . . 93
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 97
Certain United States Tax Consequences to
Holders of Telephony Group Common Stock . . . . . . . . . . . . . . . . . 140
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-1
Index of Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . A-1
Glossary of Selected Terms . . . . . . . . . . . . . . . . . . . . . . . . B-1
Illustration of Certain Terms . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>

================================================================================

___SHARES

TELE-COMMUNICATIONS, INC.

TELE-COMMUNICATIONS, INC. SERIES A
TELEPHONY GROUP COMMON STOCK
($1.00 PAR VALUE)

---------------
PROSPECTUS
---------------

MERRILL LYNCH & CO.

MORGAN STANLEY & CO.
INCORPORATED

CREDIT SUISSE FIRST BOSTON

SALOMON BROTHERS INC

, 1997

================================================================================
<PAGE> 339

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 15, 1997
PROSPECTUS
____________ SHARES

TELE-COMMUNICATIONS, INC.

SERIES A TELEPHONY GROUP COMMON STOCK

Of the _____ shares (the "Shares") of Tele-Communications, Inc. Series
A Telephony Group Common Stock, par value $1.00 per share (the "Series A
Telephony Group Common Stock"), offered hereby, _____ shares initially are
being offered in the United States and Canada by the U.S. Underwriters (as
defined herein) (the "U.S. Offering") and _____ shares initially are being
offered in a concurrent offering outside the United States and Canada by the
International Underwriters (as defined herein) (the "International Offering"
and, together with the U.S. Offering, the "Offerings"). The public offering
price and the underwriting discount per share are identical for both Offerings.
See "UNDERWRITING."

The Series A Telephony Group Common Stock is common stock of Tele-
Communications, Inc. ("TCI" or the "Company") and is intended to reflect the
separate performance of the Telephony Group of TCI. The Telephony Group
presently consists principally of (i) TCI's investments in the PCS Ventures (as
defined herein), including TCI's 30.0% partnership interest in the Sprint PCS
Partnerships (as defined herein), and (ii) TCI's approximately 31.1% equity
investment in the common stock of Teleport Communications Group Inc.

Subject to certain conditions, TCI may at any time redeem all
outstanding shares of Telephony Group Common Stock (as defined herein) in
exchange for a proportionate interest in the shares owned by TCI of any one or
more Qualifying Subsidiaries (as defined herein) that hold all of the assets
and liabilities then attributed to the Telephony Group. Subject to certain
exceptions, if TCI disposes of all or substantially all of the properties and
assets of the Telephony Group (i.e., 80% on a current market value basis), TCI
will be required, at its option, either to (i) distribute to holders of the
Telephony Group Common Stock an amount in cash and/or securities or other
property equal to their proportionate interest in the Net Proceeds (as defined
herein) of such disposition, either by special dividend or by redemption of all
or part of the outstanding shares of Telephony Group Common Stock, or (ii)
convert each outstanding share of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock (as defined herein) into a number (or
fraction) of shares of Series A TCI Group Common Stock and Series B TCI Group
Common Stock (each, as defined herein), respectively, equal in each case to
110% of the average daily ratio over the ten-Trading Day Period (as defined
herein) beginning on the 16th Trading Day after consummation of the transaction
of the Market Value (as defined herein) of one share of Series A Telephony
Group Common Stock to the Market Value of one share of Series A TCI Group
Common Stock. Further, TCI may in the sole discretion of its Board of
Directors (the "Board of Directors" or "Board") at any time convert each
outstanding share of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock into a number (or fraction) of shares of Series A
TCI Group Common Stock and Series B TCI Group Common Stock, respectively, equal
to the ratio of the value (as determined on the basis of appraisals performed
by investment banking firms) of one share of Telephony Group Common Stock to
the average Market Value of one share of Series A TCI Group Common Stock.

TCI has filed an application for the quotation of the Series A Telephony
Group Common Stock on the Nasdaq National Market under the symbol " ".

(continued on following page)

SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.

--------------------

<TABLE>
<CAPTION>
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . $ $ $
- --------------------------------------------------------------------------------
Total (3) . . . . . . . . . . . . $ $ $
================================================================================
</TABLE>

(1) TCI has agreed to indemnify the several U.S. Underwriters and
International Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as
amended. See "UNDERWRITING."

(2) Before deducting estimated expenses of the Offerings of $ payable
by TCI.

(3) TCI has granted the U.S. Underwriters and the International
Underwriters options, exercisable within 30 days after the date
hereof, to purchase up to an aggregate of and
additional shares of Series A Telephony Group Common Stock,
respectively, at the Price to Public per share, less the
Underwriting Discount, solely to cover over-allotments, if any.
If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to TCI will be $ ,
$ and $ , respectively. See "UNDERWRITING."

--------------------

The Series A Telephony Group Common Stock is being offered by the
several Underwriters, subject to prior sale, when, as and if issued to and
accepted by them, and subject to approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of certificates for the shares
of Series A Telephony Group Common Stock will be made in New York, New York on
or about , 1997.

--------------------

MERRILL LYNCH INTERNATIONAL

MORGAN STANLEY & CO.
INTERNATIONAL

CREDIT SUISSE FIRST BOSTON

SALOMON BROTHERS INTERNATIONAL LIMITED

--------------------

The date of this Prospectus is January , 1997.
<PAGE> 340
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement
(the "International Purchase Agreement"), TCI has agreed to sell to each of the
underwriters named below (the "International Underwriters"), and each of the
International Underwriters, for whom Merrill Lynch International, Morgan
Stanley & Co. International Limited, Credit Suisse First Boston (Europe)
Limited and Salomon Brothers International Limited are acting as
representatives (the "International Representatives"), severally has agreed to
purchase, the aggregate number of shares of Series A Telephony Group Common
Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITER OF SHARES
------------- ----------- ---------
<S> <C>
Merrill Lynch International . . . . . . . . . . . . .
-----------
Morgan Stanley & Co. International Limited . . . . .
-----------
Credit Suisse First Boston (Europe) Limited . . . . .
-----------
Salomon Brothers International Limited . . . . . . .
-----------

----------------------------------------. . . . . . .
-----------
----------------------------------------. . . . . . .
-----------
----------------------------------------. . . . . . .
-----------
Total
===========
</TABLE>

TCI has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with Merrill Lynch Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated, Credit Suisse First Boston Corporation and
Salomon Brothers Inc acting as representatives (the "U.S. Representatives"),
and certain other underwriters in the United States and Canada
(collectively, the "U.S. Underwriters" and, together with the International
Underwriters, the "Underwriters"). Subject to the terms and conditions set
forth in the U.S. Purchase Agreement, TCI has agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase, an
aggregate of _______ shares of Series A Telephony Group Common Stock.

In the International Purchase Agreement and the U.S. Purchase Agreement,
the Underwriters named therein have agreed, subject to the terms and conditions
set forth in such Purchase Agreement, to purchase all of the shares of Series A
Telephony Group Common Stock being sold pursuant to each such agreement if any
of the shares of Series A Telephony Group Common Stock being sold pursuant to
such Purchase Agreement are purchased. Under certain circumstances, under the
Purchase Agreements, the commitments of non-defaulting Underwriters may be
increased. Each Purchase Agreement provides that TCI is not obligated to sell,
and the Underwriters named therein are not obligated to purchase, the shares of
Series A Telephony Group Common Stock under the terms of the Purchase Agreement
unless all of the shares of Series A Telephony Group Common Stock to be sold
pursuant to the Purchase Agreements are contemporaneously sold.

The International Representatives have advised TCI that the
International Underwriters propose to offer the shares of Series A Telephony
Group Common Stock offered hereby to the public initially at the offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $___ per share of Series A Telephony
Group Common Stock, and that the International Underwriters may allow, and such
dealers may reallow, a discount not in excess of $___ per share of Series A
Telephony Group Common Stock on sales to certain other dealers. After the
offering, the public offering price, concession and discount may be changed.
<PAGE> 341
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

The initial offering price per share of Series A Telephony Group Common
Stock and the underwriting discount per share of Series A Telephony Group
Common Stock are identical under the International Purchase Agreement and the
U.S. Purchase Agreement.

TCI has granted to the International Underwriters and the U.S.
Underwriters options to purchase up to an aggregate of _______ and ________
shares of Series A Telephony Group Common Stock, respectively, at the initial
public offering price, less the underwriting discount. Such options, which will
expire 30 days after the date of this Prospectus, may be exercised solely to
cover over-allotments. To the extent that the Underwriters exercise such
options, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase from TCI approximately the same percentage of
the option shares that the number of shares to be purchased initially by that
Underwriter is of the ________ shares of Series A Telephony Group Common Stock
initially purchased by the Underwriters.

TCI has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the International
Underwriters and the U.S. Underwriters are permitted to sell shares of Series A
Telephony Group Common Stock to each other.

TCI has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Series A Telephony Group Common Stock will not offer to sell or resell shares
of Series A Telephony Group Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, and the International Underwriters and
any bank, broker or dealer to whom they sell shares of Series A Telephony Group
Common Stock will not offer to sell or resell shares of Series A Telephony
Group Common Stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. persons or to Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement which, among
other things, permits the Underwriters to purchase from each other and to offer
to resell such number of shares of Series A Telephony Group Common Stock as the
selling Underwriter or Underwriters and the purchasing Underwriter or
Underwriters may agree.

TCI has agreed not to sell, offer to sell, grant any option (other than
employee stock options) for the sale of, or otherwise dispose of, any shares of
Telephony Group Common Stock or securities convertible into or exercisable or
exchangeable for Telephony Group Common Stock (except for the shares offered
hereby and the shares of Telephony Group Common Stock issuable by TCI pursuant
to the exercise of the Executive Options) for a period of 180 days after the
date of this Prospectus without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, subject to certain limited exceptions
included in the Purchase Agreements.

Prior to the Offerings, there has been no public market for the shares
of Series A Telephony Group Common Stock. The initial public offering price of
the Series A Telephony Common Stock was determined by negotiations between
TCI and the International Representatives and the U.S. Representatives. Among
the factors considered in such negotiations, in addition to prevailing market
conditions, were current market valuations of publicly traded companies that
TCI and the Underwriters believe to be reasonably comparable to the Telephony
Group, an assessment of TCI's results of operations in recent periods with
respect to the Telephony Group, estimates of the business potential and
earnings prospects of the Telephony Group, the current state of the Telephony
Group's development and the current state of the Telephony Group's industry and
the economies of the Telephony Group's principal markets as a whole. The
offering price set forth on the cover of the Prospectus should not, however, be
considered an indication of the actual value of the Series A Telephony Group
Common Stock. Such price will be subject to change as a result of market
conditions and other factors. There can be no assurance that an active trading
market will develop for the Series A Telephony Group Common Stock or that the
Series A Telephony Group Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price.

Each International Underwriter has agreed that (i) it has not offered or
sold, and it will not offer or sell, directly or indirectly, any shares of
Series A Telephony Group Common Stock offered hereby to persons in the United
Kingdom
<PAGE> 342
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

prior to the expiration of the period of six months from the closing date
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes
of their businesses or otherwise in circumstances which have not resulted and
will not result in an offer to the public within the meaning of the Public
Offers of Securities Regulations 1995, (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Series A Telephony Group Common Stock
in, from, or otherwise involving the United Kingdom, and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issuance of the
Series A Telephony Group Common Stock if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom the document may otherwise
lawfully be issued or passed on.

Certain of the Underwriters have provided various investment banking
services to TCI and certain of its subsidiaries.

Purchasers of the shares offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase, in addition to the offering price set forth on the cover
page hereof.
<PAGE> 343
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

================================================================================

--------------

================================================================================

____SHARES

TELE-COMMUNICATIONS, INC.

TELE-COMMUNICATIONS, INC. SERIES A
TELEPHONY GROUP COMMON STOCK
($1.00 PAR VALUE)

--------------
PROSPECTUS
--------------

MERRILL LYNCH INTERNATIONAL

MORGAN STANLEY & CO.
INTERNATIONAL

CREDIT SUISSE FIRST BOSTON

SALOMON BROTHERS INTERNATIONAL LIMITED

, 1997

================================================================================
<PAGE> 344
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

All of the expenses in connection with the distribution of the Shares
are set forth below and will be borne by the Registrant. Except for the
Commission registration fee, the NASD filing fee and additional listing fee,
all expenses are estimated.

<TABLE>
<S> <C>
Commission Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . $75,758.00
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Blue Sky Fees and Expenses (including counsel fees) . . . . . . . . . . . . . .
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Listing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . . . . .
Registrar and Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
===========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides, generally,
that a corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (except actions by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation against all expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. A corporation may similarly indemnify such person for
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of any action or suit by or in the right of the
corporation, provided such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of claims, issues and matters as to which such
person shall have been adjudged liable to the corporation, provided that a
court shall have determined, upon application, that, despite the adjudication
of liability but in view of all of the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper.

Section 102(b)(7) of the Delaware General Corporation Law provides,
generally, that the certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision may not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under section 174 of Title 8 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. No such provision may eliminate or limit the liability of a director
for any act or omission occurring prior to the date when such provision became
effective.

Article V, Section E of TCI's Restated Certificate of Incorporation
provides as follows:

II-1
<PAGE> 345
"1. Limitation on Liability.

To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a
director of the Corporation shall not be liable to the
Corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director. Any repeal or
modification of this paragraph 1 shall be prospective only and
shall not adversely affect any limitation, right or protection of
a director of the Corporation existing at the time of such repeal
or modification.

2. Indemnification.

(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable
law as it presently exists or may hereafter be amended, any
person who was or is made or is threatened to be made a party or
is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding")
by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise
or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such
person. Such right of indemnification shall inure whether or not
the claim asserted is based on matters which antedate the
adoption of this Section E. The Corporation shall be required to
indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part
thereof) was authorized by the Board of Directors of the
Corporation.

(b) PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any
proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director or
officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director
or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not
entitled to be indemnified under this paragraph or otherwise.

(c) CLAIMS. If a claim for indemnification or payment of
expenses under this paragraph is not paid in full within 60 days
after a written claim therefor has been received by the
Corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such
claim. In any such action the Corporation shall have the burden
of proving that the claimant was not entitled to the requested
indemnification or payment of expenses under applicable law.

(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this paragraph shall not be exclusive of any other
rights which such person may have or hereafter acquire under any
statute, provision of this Certificate, the Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.

(e) OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity
shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.

II-2
<PAGE> 346
3. Amendment or Repeal.

Any repeal or modification of the foregoing provisions of this
Section E shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification."

Article II, Section 2.9 of TCI's Bylaws also contains an indemnity
provision, requiring TCI to indemnify members of the Board of Directors and
officers of TCI and their respective heirs, personal representatives and
successors in interest for or on account of any action performed on behalf of
TCI, to the fullest extent provided by the laws of the State of Delaware and
TCI's Restated Certificate of Incorporation, as then or thereafter in effect.

TCI has also entered into indemnification agreements with each of its
directors (each director, an "indemnitee"). The indemnification agreements
provide (i) for the prompt indemnification to the fullest extent permitted by
law against any and all expenses, including attorneys' fees and all other
costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness or participating in (including on
appeal), or in preparing for ("Expenses"), any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation ("Claim"), related
to the fact that such indemnitee is or was a director, officer, employee, agent
or fiduciary of TCI or is or was serving at TCI's request as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
or by reason of anything done or not done by a director or officer in any such
capacity, and against any and all judgments, fines, penalties and amounts paid
in settlement (including all interest, assessments and other charges paid or
payable in connection therewith) of any Claim, unless the Reviewing Party (one
or more members of the Board of Directors or other person appointed by the
Board of Directors, who is not a party to the particular claim, or independent
legal counsel) determines that such indemnification is not permitted under
applicable law and (ii) for the prompt advancement of Expenses, and for
reimbursement to TCI if the Reviewing Party determines that such indemnitee is
not entitled to such indemnification under applicable law. In addition, the
indemnification agreements provide (i) a mechanism through which an indemnitee
may seek court relief in the event the Reviewing Party determines that the
indemnitee would not be permitted to be indemnified under applicable law (and
therefore is not entitled to indemnification or expense advancement under the
indemnification agreement) and (ii) indemnification against all expenses
(including attorneys' fees), and advancement thereof if requested, incurred by
the indemnitee in seeking to collect an indemnity claim or advancement of
expenses from TCI or incurred in seeking to recover under a directors' and
officers' liability insurance policy, regardless of whether successful or not.
Furthermore, the indemnification agreements provide that after there has been a
"change in control" in TCI (as defined in the indemnification agreements),
other than a change in control approved by a majority of directors who were
directors prior to such change, then, with respect to all determinations
regarding a right to indemnity and the right to advancement of Expenses, TCI
will seek legal advice only from independent legal counsel selected by the
indemnitee and approved by TCI.

The indemnification agreements impose upon TCI the burden of proving
that an indemnitee is not entitled to indemnification in any particular case
and negate certain presumptions that may otherwise be drawn against an
indemnitee seeking indemnification in connection with the termination of
actions in certain circumstances. Indemnitees' rights under the
indemnification agreements are not exclusive of any other rights they may have
under Delaware law, TCI's Bylaws or otherwise. Although not requiring the
maintenance of directors' and officers' liability insurance, the
indemnification agreements require that an indemnitee be provided with the
maximum coverage available for any director or officer of TCI if there is such
a policy.

TCI may purchase liability insurance policies covering its directors and
officers.

In addition, pursuant to Section of the U.S. Purchase Agreement and
of the International Purchase Agreement, the Underwriters will agree, under the
circumstances described in such sections, to indemnify and hold harmless TCI,
its directors and officers and each person, if any, who control TCI with the
meaning of either the Securities Act or the Exchange Act, against certain
liabilities, including civil liabilities under the Securities Act.

II-3
<PAGE> 347
ITEM 16. EXHIBITS.

*1.1 U.S. Purchase Agreement

*1.2 International Purchase Agreement

*4.1 Restated Certificate of Incorporation of TCI, dated August 4,
1994, as amended on August 4, 1994, August 16, 1994, October 11,
1994, October 21, 1994, January 26, 1995, August 3, 1995, August
3, 1995, January 25, 1996, January 25, 1996 and ____, 1997
(Incorporated herein by reference to Exhibit ___ of TCI's Current
Report on Form 8-K dated, ___, 1997 (Commission File No. 0-
20421)).

4.2 Bylaws of TCI as adopted June 16, 1994 (Incorporated herein by
reference to Exhibit 3.2 of TCI's Annual Report on Form 10-K for
the year ended December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-20421)).

*4.3 Specimen Stock Certificate for Tele-Communications, Inc. Series A
Telephony Group Common Stock, par value $1.00 per share.

*5 Opinion of Baker & Botts, L.L.P. regarding the validity of the
Shares.

*8 Opinion of Baker & Botts, L.L.P. regarding certain tax matters.

23.1 Consent of KPMG Peat Marwick LLP.

23.2 Consent of KPMG Peat Marwick LLP.

23.3 Consent of KPMG Peat Marwick LLP.

23.4 Consent of KPMG Peat Marwick LLP.

23.5 Consent of KPMG Peat Marwick LLP.

23.6 Consent of KPMG Audit plc.

23.7 Consent of KPMG Finsterbusch Pickenhayn Sibille.

*23.8 Consent of Price Waterhouse LLP.

*23.9 Consent of Baker & Botts, L.L.P. (included in Exhibits 5 and 8).

24 Power of Attorney (included on Page II-7).

*99.1 Form of Tax Sharing Agreement, dated as of December 1, 1996,
between TCI and TCI Telephony.

*99.2 Form of Revolving Credit Facility, dated as of December 1, 1996,
between TCI and TCI Telephony.

99.3 Amended and Restated Agreement of Limited Partnership of MajorCo,
L.P., dated as of January 31, 1996, among Sprint Spectrum, L.P.,
TCI Network Services, Comcast Telephony Services and Cox
Telephony Partnership (Incorporated herein by reference to
Exhibit 10.48 of TCI's Annual Report on Form 10-K for the year
ended December 31, 1995 (Commission File No. 0-20421)).

99.4 Parents Agreement, dated as of January 31, 1996, by and between
Tele-Communications, Inc. and Sprint Corporation (Incorporated
herein by reference to Exhibit 99.3 of TCI's Current Report on
Form 8-K, dated February 9, 1996 (Commission File No. 0-20421)).

99.5 Amended and Restated Stockholders' Agreement of Teleport
Communications Group Inc., dated as of June 26, 1996, by and
among Teleport Communications Group Inc., Cox Teleport Partners,
Inc., TCI Teleport, Inc. and Continental Teleport, Inc.

*To be filed by amendment.

II-4
<PAGE> 348
ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon rule 430A and contained in a
form of prospectus filed by the registrant pursuant to rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 349
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Greenwood Village, State of Colorado, on
January 15, 1997.

TELE-COMMUNICATIONS, INC.

By: /s/ Stephen M. Brett
-------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President

II-6
<PAGE> 350
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen M. Brett, Esq., and Elizabeth M.
Markowski, Esq., and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and re-substitution for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority, to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, to all intents and purposes and as fully as they might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitutes may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons (which
persons constitute a majority of the Board of Directors) in the capacities and
on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John C. Malone Chairman of the Board, Chief January 15, 1997
- ------------------------ Executive Officer, President and
(John C. Malone) Director (Principal Executive
Officer)

/s/ Donne F. Fisher Director January 15, 1997
- ------------------------
(Donne F. Fisher)

/s/ John W. Gallivan Director January 15, 1997
- ------------------------
(John W. Gallivan)

/s/ Kim Magness Director January 15, 1997
- ------------------------
(Kim Magness)

/s/ Robert A. Naify Director January 15, 1997
- ------------------------
(Robert A. Naify)

/s/ Jerome H. Kern Director January 15, 1997
- ------------------------
(Jerome H. Kern)

/s/ Tony Coelho Director January 15, 1997
- ------------------------
(Tony Coelho)

/s/ J.C. Sparkman Director January 15, 1997
- ------------------------
(J.C. Sparkman)

/s/ Paul Gould Director January 15, 1997
- ------------------------
(Paul Gould)

/s/ Bernard W. Schotters Senior Vice President of TCI January 15, 1997
- ------------------------ Communications, Inc.
(Bernard W. Schotters) (Principal Financial Officer)

/s/ Gary K. Bracken Senior Vice President of TCI January 15, 1997
- ------------------------ Communications, Inc.
(Gary K. Bracken) (Principal Accounting Officer)

</TABLE>

II-7
<PAGE> 351
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*1.1 U.S. Purchase Agreement

*1.2 International Purchase Agreement

*4.1 Restated Certificate of Incorporation of TCI, dated August 4,
1994, as amended on August 4, 1994, August 16, 1994, October 11,
1994, October 21, 1994, January 26, 1995, August 3, 1995, August
3, 1995, January 25, 1996, January 25, 1996 and ___, 1997
(Incorporated herein by reference to Exhibit __ of TCI's Current
Report on Form 8-K, dated _______, 1997 (Commission File No.
0-20421)).

*4.3 Specimen Stock Certificate for Tele-Communications, Inc. Series A
Telephony Group Common Stock, par value $1.00 per share.

*5 Opinion of Baker & Botts, L.L.P. regarding the validity of the
Shares.

*8 Opinion of Baker & Botts, L.L.P. regarding certain tax matters.

23.1 Consent of KPMG Peat Marwick LLP.

23.2 Consent of KPMG Peat Marwick LLP.

23.3 Consent of KPMG Peat Marwick LLP.

23.4 Consent of KPMG Peat Marwick LLP.

23.5 Consent of KPMG Peat Marwick LLP.

23.6 Consent of KPMG Audit plc.

23.7 Consent of KPMG Finsterbusch Pickenhayn Sibille.

*23.8 Consent of Price Waterhouse LLP.

*23.9 Consent of Baker & Botts, L.L.P. (included in Exhibits 5 and 8).

24 Power of Attorney (included on Page II-7).

*99.1 Form of Tax Sharing Agreement, dated as of December 1, 1996,
between TCI and TCI Telephony.

*99.2 Form of Revolving Credit Facility, dated as of December 1, 1996,
between TCI and TCI Telephony.

*To be filed by amendment.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We consent to the inclusion in the Registration Statement on Form S-3 of
Tele-Communications, Inc. of our report, dated March 18, 1996, relating to
the combined balance sheets of Telephony Group as of December 31, 1995 and
1994, and the related combined statements of operations, equity, and cash flows
for each of the years in the three-year period ended December 31, 1995, and to
the reference to our firm under the heading "Experts" in the registration
statement.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Denver, Colorado
January 13, 1997

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We consent to the inclusion in the registration statement on Form S-3 of
Tele-Communications, Inc. of our reports, dated March 18, 1996, relating to the
consolidated balance sheets of Tele-Communications, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, and all related financial statement
schedules, and to the reference to our firm under the heading "Experts" in the
registration statement.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Denver, Colorado
January 13, 1997

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Tele-Communications, Inc. of our report, dated March 18, 1996,
relating to the combined balance sheets of TCI Group as of December 31, 1995
and 1994, and the related combined statements of operations, equity, and cash
flows for each of the years in the three-year period ended December 31, 1995,
which report appears in the December 31, 1995 Annual Report on Form 10-K of
Tele- Communications, Inc. and to the reference to our firm under the heading
"Experts" in the registration statement. Our report covering the combined
financial statements refers to the effects of not consolidating TCI Group's
interest in Liberty Media Group for the periods subsequent to the mergers of
TCI Communications, Inc. and Liberty Media Corporation on August 4, 1994 and
refers to the effects of not consolidating the TCI Group's interest in the
Telephony Group for all periods.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Denver, Colorado
January 13, 1997

<PAGE> 1
EXHIBIT 23.4

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Liberty Media Corporation:

We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Tele-Communications, Inc. of our report, dated March 18, 1994,
relating to the consolidated statements of operations, stockholders' equity,
and cash flows of Liberty Media Corporation and subsidiaries for the year ended
December 31, 1993, which report appears in the December 31, 1995 Annual Report
on Form 10-K of Tele-Communications, Inc. and to the reference to our firm
under the heading "Experts" in the registration statement. Our report refers
to a change in the method of accounting for income taxes.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Denver, Colorado
January 13, 1997

<PAGE> 1
EXHIBIT 23.5

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Tele-Communications, Inc.:

/s/ KPMG Peat Marwick LLP
KPMG Peak Marwick LLP

Denver, Colorado
January 13, 1997

<PAGE> 1
EXHIBIT 23.6

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
TeleWest plc:

We consent to the incorporation by reference in the registration statement on
Form S-3 of Tele-Communications, Inc. of our report, dated March 6, 1996,
relating to the consolidated balance sheet of TeleWest plc and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
operations and cash flows for each of the years in the three year period ended
December 31, 1995, which report appears in the December 31, 1995 Annual Report
on Form 10-K of Tele-Communications, Inc. and to the reference to our firm
under the heading "Experts" in the registration statement.

/s/ KPMG Audit plc
KPMG Audit plc

London, England
January 13, 1997

<PAGE> 1
EXHIBIT 23.7

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
of Tele-Communications International, Inc.:

We consent to the incorporation by reference in the registration statement on
Form S-3 of Tele-Communications, Inc. of our report, dated March 24, 1995,
relating to the combined balance sheets of Cablevision (A combination of
certain cable television assets of Cablevision S.A., Televisora Belgrano S.A.,
Construred S.A. and Univent's S.A.) as of December 31, 1994 and 1993, and the
related combined statements of operations and deficit and cash flows for each
of the years in the three-year period ended December 31, 1994, which report
appears in the Current Report on Form 8-K of Tele- Communications, Inc., dated
April 20, 1995, as amended, and to the reference to our firm under the heading
"Experts" in the registration statement.

KPMG FINSTERBUSCH PICKENHAYN SIBILLE

/s/ Juan Carlos Pickenhayn
Juan Carlos Pickenhayn
Partner

Buenos Aires, Argentina
January 13, 1997

<PAGE> 1
EXHIBIT 99.5

AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT

TELEPORT COMMUNICATIONS GROUP INC.

June 26, 1996

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----

<S> <C> <C>
SECTION 1 DEFINITIONS AND OTHER GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Cross References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Voting; Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SECTION 2 BOARD OF DIRECTORS AND STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Composition of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Conflicting Charter or By-law Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

SECTION 3 TRANSFERS AND CONVERSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Restrictions on Transfer and Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Exceptions to Restrictions on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Conversion of Class B Common Stock to Class A Common Stock; Right of First Offer . . . . . . . 13
3.5 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6 Pre-IPO Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.7 Terms and Conditions of Sales Pursuant to Sections 3.4, 3.5 and 3.6 . . . . . . . . . . . . . . 26
3.8 Transferee Consenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.9 Continental Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.10 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

SECTION 4 REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.1 Demand Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2 Lockup Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.5 Preparation of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 5 ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.2 Issuance of Additional Class B Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>

<PAGE> 3
<TABLE>
<S> <C> <C>
5.3 Voting on Scope of Business Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

SECTION 6 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1 Expiration and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.8 Consent to Jurisdiction; Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>

- ii -
<PAGE> 4
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT

THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT is made as
of June 26, 1996, by and among TELEPORT COMMUNICATIONS GROUP INC., a Delaware
corporation (the "Company"), and the other parties listed on the signature page
hereof.

RECITALS:

The parties hereto other than the Company own all of the
issued and outstanding shares of Class B Common Stock of the Company. The
parties desire to set forth herein their agreement concerning the ownership of
the Common Stock of the Company and such other matters as are set forth herein.

AGREEMENTS:

In consideration of the foregoing and of the promises and
covenants contained in this Agreement, the parties agree as follows:

SECTION 1 DEFINITIONS AND OTHER GENERAL MATTERS

1.1 Definitions. The following terms shall be used in this
Agreement with the meanings set forth in this Section 1.1:

"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly through one or more intermediates controls,
is controlled by or is under common control with the first specified Person.
For purposes of this Agreement, neither the Company, nor any Person controlled
by the Company, shall be deemed to be an Affiliate of a Consenting Stockholder.

"Agreement" means this Amended and Restated Stockholders'
Agreement, as it may be amended, restated, modified or supplemented from time
to time in accordance with its terms.

"Board" means the Board of Directors of the Company.

<PAGE> 5
"Business Day" means any day (other than a day which is a
Saturday or Sunday) on which banks are permitted to be open for business in the
City of New York.

"CEO" means the officer elected by the Board as the chief
executive officer of the Company. Robert Annunziata is currently the CEO.

"Certificate of Incorporation" means, as of any date, the
Amended and Restated Certificate of Incorporation of the Company as in effect
on such date.

"Class A Common Stock" means the Class A Common Stock, par
value $0.01 per share, of the Company.

"Class B Common Stock" means the Class B Common Stock, par
value $0.01 per share, of the Company.

"Common Stock" means the Class A Common Stock and the Class B
Common Stock.

"Consenting Stockholder" means any owner of shares of Class B
Common Stock that is a party to this Agreement or becomes a party to this
Agreement pursuant to Section 3.3, Section 3.5(c) or Section 3.8(b).

"Continental" means Continental Teleport, Inc., a Delaware
corporation, and any permitted transferee of Continental that becomes a party
to this Agreement pursuant to Section 3.3 or Section 3.5(c), including the
Continental Trust.

"Continental Merger" means the merger of Continental's Parent
into U S West, Inc. as contemplated by the Continental Merger Agreement.

"Continental Merger Agreement" means the Agreement and Plan of
Merger dated as of February 27, 1996, with respect to the merger of
Continental's Parent into U S West, Inc., as the same may be amended from time
to time.

"Continental Trust" means any trust that is formed in order to
comply with any regulatory requirement imposed as a result of the U S West
Transaction for the sole purpose of

- 2 -
<PAGE> 6
holding and disposing of Continental's interest in the Company and of which
Continental is the sole beneficiary.

"control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person whether through the ownership of equity interests or voting securities,
by contract or otherwise.

"Controlled Affiliate," with respect to any Person as of any
relevant date, means the Parent of such Person and each Subsidiary of such
Parent.

"Designating Stockholder" means, as of any date, a Consenting
Stockholder that is included in a Consenting Stockholder Group that has,
pursuant to Section 2.1(b)(i), Section 2.1(b)(iv) or Section 2.3, designated an
Agreed Nominee who has been elected to and is then serving on the Board.

"Indirect Transfer" means a transfer of common stock or other
equity interests of a Consenting Stockholder or of a Person (other than the
Parent of such Consenting Stockholder) of which such Consenting Stockholder is
a direct or indirect Subsidiary to any Person after giving effect to which such
Consenting Stockholder is no longer a Subsidiary of the Person that was its
Parent prior to such transfer.

"Local Joint Venture" means a partnership, joint venture or
other Person created to conduct and operate local telecommunications systems in
a local market and in which the Company has a direct or indirect equity
interest which in the aggregate does not exceed 50% of the equity interests of
such partnership, joint venture or other Person.

"Market Price" means, with respect to any share of Class B
Common Stock as of any date, the average for the twenty full Trading Days
preceding such date of (i) the last reported sales prices, regular way, as
reported on the principal national securities exchange on which the Class A
Common Stock is listed or admitted for trading or (ii) if the Class A Common
Stock is not listed or admitted for trading on any national securities
exchange, the last reported sales prices, regular way, as reported on the
Nasdaq National Market or, if the Class A Common Stock is not listed on the
Nasdaq National Market, the average of

- 3 -
<PAGE> 7
the highest bid and lowest asked prices on each such Trading Day as reported on
the Nasdaq Stock Market, or (iii) if the Class A Common Stock is not listed or
admitted to trading on any national securities exchange, the Nasdaq National
Market or the Nasdaq Stock Market, the average of the highest bid and lowest
asked prices on each such Trading Day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization. For purposes of this definition, a "Trading Day" means
a day on which the principal national securities exchange on which the Class A
Common Stock is listed or admitted to trading, or the Nasdaq National Market or
the Nasdaq Stock Market, as applicable, if the Class A Common Stock is not
listed or admitted to trading on any national securities exchange, is open for
the transaction of business (unless such trading shall have been suspended for
the entire day) or, if the Class A Common Stock is not listed or admitted to
trading on any national securities exchange, the Nasdaq National Market or the
Nasdaq Stock Market, any Business Day.

"Parent," with respect to any Person as of any relevant date,
means such Person if it is its own ultimate parent entity (within the meaning
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder, as in effect on the date
hereof) or if it has no ultimate parent entity that is a corporation or
partnership; otherwise, "Parent" means such ultimate corporate or partnership
parent entity of such Person; provided, however, that, with respect to Comcast
Teleport, Inc., so long as Comcast Teleport, Inc. is a Subsidiary of Comcast
Corporation, "Parent" means Comcast Corporation.

"Person" means any individual, general partnership, limited
partnership, corporation, limited liability company, joint venture, trust,
business trust, cooperative or association, or any other legal entity.

"Public Offering" means an offering of Class A Common Stock in
compliance with Section 5 of the Securities Act pursuant to a registration
statement on a form applicable to the sale of securities to the general public.

- 4 -
<PAGE> 8
"Securities Act" means the Securities Act of 1933 and the
rules and regulations promulgated thereunder.

"SEC" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.

"Subsidiary" of any Parent means a Person (a) more than fifty
percent of the voting power of the outstanding shares or securities of which
(representing the right to vote for the election of directors or other managing
authority) are owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Parent or (b) which does not have outstanding shares or
securities, but more than fifty percent of the ownership interests of which
representing the right to make the decisions for such Person are owned or
controlled, directly or indirectly through one or more Subsidiaries, by such
Parent; provided, however, that in each case, such Person shall be deemed to be
a Subsidiary of such Parent only for so long as such ownership or control
exists.

"Supplemental Agreement" means the Supplemental Agreement,
dated as of the date hereof, among the parties to this Agreement.

"U S West Transaction" means the Continental Merger or any
other transaction upon the consummation of which Continental would be acquired
by or become a Subsidiary of U S West, Inc.

1.2 Cross References. For purposes of this Agreement, the
following terms have the meanings set forth in the sections indicated:

<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjusted Class B Percentage Section 2.1(b)(i)

Agreed Nominee Section 2.1(b)

Allocable First Offer Shares Section 3.4(a)(ii)

Company Indemnified Parties Section 4.6(a)

Company Notice Section 4.1(a)
</TABLE>

- 5 -
<PAGE> 9
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Consenting Stockholder Group Section 2.1(b)

Converting Stockholder Section 3.4(a)

Demand Notice Section 4.1(a)

Demand Registrations Section 4.1(a)

Electing Stockholder Section 3.4(a)(i)

Eligible Holder Section 4.1(a)

Excess Shares Section 3.7(a)

Excess Shares Stockholder Section 3.7(a)

First Appraiser Section 3.5(d)(i)

First Offer Electing Stockholder Section 3.4(a)(i)

First Offer Notice of Sale Section 3.4(a)

First Offer Shares Section 3.4(a)

First Refusal Electing Stockholder Section 3.5(a)(i)

First Refusal Notice of Sale Section 3.5(a)

First Refusal Shares Section 3.5(a)

First Refusal Stockholders Section 3.5(a)

Free-to-Convert Date Section 3.4(b)

Free-to-Convert Shares Section 3.4(b)

Independent Director Section 2.1(b)(iii)

Maximum Amount Section 4.1(f)

Minimum Condition Section 4.1(a)

Notices of Sale Section 3.6(a)

Offered Shares Section 3.6(a)

Pre-IPO Electing Stockholder Section 3.6(a)(i)

Pre-IPO Notice of Sale Section 3.6(a)
</TABLE>

- 6 -
<PAGE> 10
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Pre-IPO Offered Shares Section 3.6(a)

Pre-IPO Offeror Section 3.6(a)

Pre-IPO Period Section 3.6(a)

Qualifying First Offer Amount Section 3.4(a)

Reorganization Agreement Section 3.3(c)

Second Appraiser Section 3.5(d)(i)

Selling Stockholder Section 3.5(a)

Stockholder Indemnified Parties Section 4.6(b)

Third Appraiser Section 3.5(d)(iii)

Third Party Offer Section 3.5(a)

Third Party Offeror Section 3.5(a)
</TABLE>

1.3 Terms Generally. The definitions in Section 1.1 and
elsewhere in this Agreement shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The
words "include," "includes" and "including" shall be deemed to be followed by
the phrase "without limitation." The words "herein," "hereof," "hereto" and
"hereunder" and words of similar import refer to this Agreement in its entirety
and not to any part hereof unless the context shall otherwise require. All
references herein to Sections shall be deemed references to Sections of this
Agreement unless the context shall otherwise require. Unless the context shall
otherwise require, any references to any agreement or other instrument or
statute or regulation are to it as amended and supplemented from time to time
(and, in the case of a statute or regulation, to any corresponding provisions
of successor statutes or regulations). Any reference in this Agreement to a
"day" or number of "days" (without the explicit qualification of "Business")
shall be interpreted as a reference to a calendar day or number of calendar
days. If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then such action or
notice

- 7 -
<PAGE> 11
shall be deferred until, or may be taken or given on, the next Business Day.

1.4 Voting; Written Consent.

(a) Any agreement by a Consenting Stockholder
herein to vote its shares of Common Stock in a certain manner shall be deemed,
in each instance, to include an agreement by that Consenting Stockholder to use
its best efforts to take all actions necessary to call, or cause the Company
and the appropriate officers and directors of the Company to call, as promptly
as practicable, a special meeting of stockholders or to act by written consent.

(b) When any action is required to be taken by a
Consenting Stockholder pursuant to this Agreement, such Consenting Stockholder
shall take all steps necessary to implement such action, including executing or
causing to be executed, as promptly as practicable, a consent in writing in
lieu of an annual or special meeting of the stockholders pursuant to Section
228 of the General Corporation Law of Delaware or any successor statute thereto
to effect such stockholder action.

SECTION 2 BOARD OF DIRECTORS AND STOCKHOLDERS

2.1 Composition of the Board.

(a) The Board shall consist of thirteen directors.
Individuals to serve on the Board shall be nominated in accordance with this
Agreement and nomination procedures established by the Board, the Company's
By-Laws and the rules and regulations of the SEC and the principal stock
exchange or association, if any, on which the Common Stock is listed.
Directors shall be elected in accordance with the Company's Certificate of
Incorporation and By-Laws and the General Corporation Law of Delaware.

(b) No Consenting Stockholder shall nominate or
vote for any individual to serve as a director of the Company except an
individual designated pursuant to the provisions of this Section 2.1(b) or
Section 2.3. A Consenting Stockholder may nominate for election as a director
any individual designated by such Consenting Stockholder pursuant to Section
2.1(b)(i),

- 8 -
<PAGE> 12
Section 2.1(b)(iv) or Section 2.3 or any individual designated pursuant to
Section 2.1(b)(ii) if, in any such case, such individual was not duly nominated
in connection with such election by the Board or a nominating committee of the
Board pursuant to the Company's nomination procedures. Each Consenting
Stockholder hereby agrees to vote all shares of Common Stock owned by such
Consenting Stockholder to cause the election to the Board of the individuals
designated in accordance with this Section 2.1(b) and Section 2.3. For
purposes of this Agreement, an individual designated in accordance with this
Section 2.1(b) or Section 2.3 to which the foregoing covenants in this Section
2.1(b) apply is referred to as an "Agreed Nominee." For purposes of this
Agreement, each Consenting Stockholder none of the Controlled Affiliates of
which is also a Consenting Stockholder and each group of two or more Consenting
Stockholders that are Controlled Affiliates of each other shall constitute a
"Consenting Stockholder Group."

(i) Subject to Section 2.1(c), each
Consenting Stockholder Group shall have the right to designate a number of
Agreed Nominees equal to the largest integer that is less than or equal to its
Adjusted Class B Percentage divided by nine percent. A Consenting Stockholder
Group's "Adjusted Class B Percentage" equals the number, designated as a
percentage, determined by dividing (x) the aggregate number of shares of Class
B Common Stock owned by such Consenting Stockholder Group by (y) the aggregate
number of shares of Class B Common Stock outstanding (but excluding all shares
of Class B Common Stock owned by Continental and its Controlled Affiliates if
the Consenting Stockholder Group that includes Continental is not at such time
entitled to designate one or more Agreed Nominees pursuant to Section 2.1(c));

(ii) The CEO shall be an Agreed Nominee;

(iii) Two individuals nominated by the
Board or a nominating committee of the Board to be Independent Directors shall
be Agreed Nominees if (A) such individuals were nominated by the Board and all
individuals then serving on the Board who were Agreed Nominees pursuant to
Section 2.1(b)(i) voted for their nomination or (B) such individuals were
nominated by a nominating committee of the Board, the members of the nominating
committee included at least one Agreed Nominee

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<PAGE> 13
previously designated by each Consenting Stockholder Group pursuant to Section
2.1(b)(i) and each member of the nominating committee who was an Agreed Nominee
pursuant to Section 2.1(b)(i) voted for their nomination; as used herein, an
"Independent Director" means a director who is neither employed by nor
affiliated with the Company or any Consenting Stockholder; and

(iv) If the number of Agreed Nominees
designated by the Consenting Stockholder Groups pursuant to Section 2.1(b)(i)
and pursuant to any prior application of this Section 2.1(b)(iv) is less than
ten, the Consenting Stockholder Group (other than (A) the Consenting
Stockholder Group that includes Continental if such Consenting Stockholder
Group is not entitled to designate an Agreed Nominee as a result of Section
2.1(c) and (B) a Consenting Stockholder Group that designated an additional
Agreed Nominee pursuant to a prior application of this Section 2.1(b)(iv)) that
then has the smallest difference between its Adjusted Class B Percentage and
the next highest integral multiple of 9% shall designate an additional Agreed
Nominee.

(c) After the earlier to occur of a Public
Offering and the consummation of the U S West Transaction, the Consenting
Stockholder Group that includes Continental shall only be entitled to designate
one or more Agreed Nominees pursuant to Section 2.1(b) if:

(i) no Affiliate of Continental is a local
exchange carrier;

(ii) the Company shall have received an
opinion from a law firm reasonably acceptable to the Consenting Stockholders
(other than Continental) to the effect that such Consenting Stockholder Group's
designation of an Agreed Nominee and such person's serving as a director of the
Company would not violate any law, rule or regulation or any order, award or
decree of any governmental body or administrative authority, including the
Department of Justice; and

(iii) a majority of the Board (excluding
any director of the Company who was an Agreed Nominee designated by the
Consenting Stockholder Group that includes Continental) approves such
Consenting Stockholder Group's designation of one

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<PAGE> 14
or more Agreed Nominees in accordance with the provisions of Section 2.1(b).

(d) The Consenting Stockholder Groups shall
initially designate Agreed Nominees and the Consenting Stockholders shall cause
such Agreed Nominees to be elected as directors promptly following the date
hereof to serve until the next annual meeting of the stockholders of the
Company. Thereafter, the Consenting Stockholder Groups shall designate Agreed
Nominees prior to each annual meeting of the stockholders of the Company in a
manner that is consistent with the Company's nomination procedures and the
rules and regulations of the SEC and the principal stock exchange or
association, if any, on which the Common Stock is listed.

2.2 Removal of Directors.

(a) Each Consenting Stockholder shall vote all
shares of Common Stock owned by it for the removal (with or without cause) of
any director who was an Agreed Nominee designated by a Consenting Stockholder
Group pursuant to Section 2.1(b)(i), Section 2.1(b)(iv) or Section 2.3(c) if
the Consenting Stockholder Group that so designated such Agreed Nominee (i)
requests such removal by notice to the other Consenting Stockholders, (ii)
ceases to hold a number of shares of Class B Common Stock that entitle such
Consenting Stockholder Group to designate the number of Agreed Nominees
previously designated by such Consenting Stockholder Group pursuant to Section
2.1(b) (except that, upon any such reduction in its ownership of shares of
Class B Common Stock, such Consenting Stockholder Group shall be entitled to
identify a number of such directors who shall not be removed pursuant to this
clause (ii) equal to the number of Agreed Nominees that such Consenting
Stockholder is then entitled to designate pursuant to Section 2.1(b)(i) and
Section 2.1(b)(iv)), or (iii) is no longer entitled to designate any Agreed
Nominees pursuant to Section 2.1(c).

(b) Each Consenting Stockholder shall vote all
shares of Common Stock owned by it for the removal of an individual designated
as an Agreed Nominee pursuant to Section 2.1(b)(ii) and thereafter elected as a
director if such individual ceases to serve as CEO for any reason.

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<PAGE> 15
(c) An Independent Director may be removed in
accordance with the Company's Certificate of Incorporation and By-laws.

2.3 Vacancies. If, as a result of death, disability,
retirement, resignation, removal (with or without cause) or otherwise there
shall exist or occur any vacancies on the Board, individuals to fill such
vacancies shall be nominated and elected in the manner provided in this
Agreement and in the Company's Certificate of Incorporation and By-laws. Agreed
Nominees with respect to an election to fill any such vacancies shall be
designated as follows:

(a) in the case of the CEO, the successor CEO
shall be an Agreed Nominee;

(b) in the case of an Independent Director, an
individual nominated in the manner described in Section 2.1(b)(iii); and

(c) in all other cases, by the Consenting
Stockholder Group or Consenting Stockholder Groups that, under Section 2.1, are
then entitled to designate a greater number of Agreed Nominees than the number
of directors currently sitting on the Board who are Agreed Nominees designated
by such Consenting Stockholder Group (by each such Consenting Stockholder Group
according to the number of additional Agreed Nominees that each such Consenting
Stockholder Group is so entitled to designate).

2.4 Conflicting Charter or By-law Provisions. Each
Consenting Stockholder shall vote its shares of Common Stock, and shall take
all other actions necessary, to ensure that the Company's Certificate of
Incorporation and By-laws facilitate and do not at any time conflict with the
provisions of this Agreement.

SECTION 3 TRANSFERS AND CONVERSIONS

3.1 Restrictions on Transfer and Conversion.

(a) A Consenting Stockholder shall not offer,
sell, transfer, assign, grant a participation in or option with respect to,
pledge, encumber or otherwise dispose of, or convert

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<PAGE> 16
to Class A Common Stock, any of its shares of Class B Common Stock except in a
transaction that is expressly permitted by Section 3.3 or in compliance with
Section 3.4, 3.5 or 3.6, as applicable. Any attempt to sell, transfer, assign,
grant a participation in or option with respect to, pledge, encumber or
otherwise dispose of, or convert to Class A Common Stock, any shares of Class B
Common Stock in a manner that does not comply with this Agreement shall be
ineffective.

(b) Except as expressly permitted or required by
this Agreement, (i) each Consenting Stockholder shall be the record and
beneficial owner of such shares of Class B Common Stock indicated in the
Company's records as being owned by such Consenting Stockholder, in each case
free and clear of any pledge, lien, security interest, charge, claim, equity,
option or encumbrance of any kind, and (ii) no Consenting Stockholder shall
enter into any agreement or arrangement with respect to the exercise of its
rights to designate Agreed Nominees or to request the removal of a director
pursuant to this Agreement (other than an agreement or arrangement solely among
Consenting Stockholders that are included in the same Consenting Stockholder
Group); provided, however, that the foregoing shall not be construed to limit
the ability of a Consenting Stockholder to enter into agreements with respect
to the voting of its shares of Common Stock pending a sale of such stock
permitted by Section 3.1(a) or to enter into agreements not inconsistent with
this Agreement that restrict such Consenting Stockholder's ability to transfer
shares of Class B Common Stock.

(c) Each Consenting Stockholder agrees that no
Indirect Transfer shall occur with respect to such Consenting Stockholder
except for:

(i) an Indirect Transfer in connection
with the sale or other disposition to the transferee or its Controlled
Affiliate (including by merger, consolidation or share exchange) of (A) all or
substantially all of the assets of the Parent of such Consenting Stockholder or
(B) assets owned or controlled directly or indirectly by such Parent if the
aggregate value of the Class B Common Stock then owned by such Consenting
Stockholder represents less than thirty-five percent of the aggregate value of
the assets (including the stock of such Consenting Stockholder) being disposed
of; or

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<PAGE> 17
(ii) an Indirect Transfer permitted by
Section 3.5.

(d) The Company agrees not to record any transfer
or conversion of Class B Common Stock by any Consenting Stockholder in the
stock transfer books of the Company unless the transfer complies with all
provisions of this Agreement.

3.2 Legend. Each certificate evidencing outstanding shares
of Class B Common Stock held by a Consenting Stockholder shall bear the
following legend:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO,
AND TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF
AN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, DATED AS OF
JUNE 26, 1996, AS AMENDED, AMONG TELEPORT COMMUNICATIONS GROUP
INC. AND CERTAIN STOCKHOLDERS THEREOF. A COPY OF THIS
AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF
TELEPORT COMMUNICATIONS GROUP INC. AT TWO TELEPORT DRIVE,
STATEN ISLAND, NEW YORK 10311-1011.

All certificates evidencing shares of Class B Common Stock hereafter issued by
the Company to a Consenting Stockholder shall bear the legend set forth above.
Upon termination of this Agreement and surrender to the Company for such
purpose of any certificates bearing the legend set forth above, the Company
shall reissue such certificates to the owner thereof without such legend.

3.3 Exceptions to Restrictions on Transfers. The
restrictions contained in Sections 3.1, 3.4, 3.5 and 3.6 shall not apply to the
following (provided such transfers comply with applicable law):

(a) a transfer by a Consenting Stockholder to its
Parent or to any Subsidiary of its Parent of shares of Class B Common Stock if
the transferee assumes the obligations of the transferor under this Agreement
with respect to such shares and becomes a party to this Agreement;

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<PAGE> 18
(b) a transfer by Continental to the Continental
Trust of shares of Class B Common Stock if the Continental Trust assumes the
obligations of Continental under this Agreement with respect to such shares and
becomes a party to this Agreement;

(c) a sale by Continental of shares of Class B
Common Stock to the Company pursuant to Section 6 of the Reorganization
Agreement dated as of April 18, 1996, among the Company, Cox Communications,
Inc., TCI Communications, Inc., Comcast Corporation and Continental
Cablevision, Inc. (the "Reorganization Agreement"); or

(d) a transfer by TCI Teleport, Inc. of shares of
Class B Common Stock to the Company pursuant to Section 3.4 of the
Reorganization Agreement.

3.4 Conversion of Class B Common Stock to Class A Common
Stock; Right of First Offer.

(a) Except as expressly permitted pursuant to
Section 3.5(c) or Section 3.6, no Consenting Stockholder shall convert any
shares of Class B Common Stock to Class A Common Stock prior to the
consummation of the Company's initial Public Offering. After the consummation
of the Company's initial Public Offering, if a Consenting Stockholder (a
"Converting Stockholder") desires to convert all or any portion of its shares
of Class B Common Stock to Class A Common Stock, it shall first deliver to each
other Designating Stockholder a written notice (a "First Offer Notice of Sale")
of its intention to so convert such shares of Class B Common Stock (the "First
Offer Shares"). The Converting Stockholder shall not convert any of its shares
of Class B Common Stock to Class A Common Stock unless and until it has
delivered a First Offer Notice of Sale with respect to such shares to such
other Designating Stockholders pursuant to this Section 3.4 and otherwise
complied with the provisions of this Section 3.4 (except as expressly permitted
pursuant to Section 3.5(c) or Section 3.6). The First Offer Notice of Sale
shall contain the Converting Stockholder's offer to sell the First Offer Shares
to such other Designating Stockholders at a price per share equal to the Market
Price as of the date of the First Offer Notice of Sale (which price shall,
unless otherwise agreed by the Converting Stockholder and the Designating
Stockholders accepting such offer, be payable in cash). As used in this

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<PAGE> 19
Section 3.4, the "Qualifying First Offer Amount" means, with respect to any
First Offer Notice of Sale, the amount, if any, by which the number of First
Offer Shares specified in such First Offer Notice of Sale exceeds two percent
of the number of shares of Common Stock outstanding at the time such First
Offer Notice of Sale is delivered (or such lesser amount as may be specified in
the First Offer Notice of Sale or as may otherwise be agreed to by the
Converting Stockholder).

(i) If a Designating Stockholder desires
to accept all or any portion of the offer set forth in a First Offer Notice of
Sale, such Designating Stockholder (a "First Offer Electing Stockholder")
shall, within ten Business Days of receipt of such First Offer Notice of Sale,
notify the Converting Stockholder of its intention to acquire First Offer
Shares and the number of such shares it desires to acquire, and deliver a copy
of such notice to each other Designating Stockholder.

(ii) If, after giving effect to any
amendment to any First Offer Electing Stockholder's notice pursuant to Section
3.4(a)(iii), the First Offer Electing Stockholders desire to acquire, in the
aggregate, either (x) all the First Offer Shares, or (y) a number of First
Offer Shares that is not more than the Qualifying First Offer Amount, then the
First Offer Electing Stockholders shall have the right to acquire, in the case
of clause (x), all the First Offer Shares or, in the case of clause (y), the
number of shares that the First Offer Electing Stockholders desire to acquire
(such shares that the First Offer Electing Stockholders have the right to
acquire, the "Allocable First Offer Shares"), allocated among them as follows
(or in such other manner as the First Offer Electing Stockholders may agree):

(A) the Allocable First Offer Shares
shall be allocated among the First Offer Electing Stockholders pro rata (based
on the number of shares of Class B Common Stock owned by each of them) until
all of the Allocable First Offer Shares have been allocated or any First Offer
Electing Stockholder has been allocated the number of First Offer Shares that
it desires to acquire, as specified in its notice to the Converting
Stockholder, as it may have been amended pursuant to Section 3.4(a)(iii);

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<PAGE> 20
(B) if all Allocable First Offer
Shares are not allocated pursuant to paragraph (A) or any prior application of
this paragraph (B), any Allocable First Offer Shares that were not allocated
pursuant to paragraph (A) or any prior application of this paragraph (B) shall
be allocated among the First Offer Electing Stockholders (other than any First
Offer Electing Stockholder that has been allocated the number of First Offer
Shares that it desires to acquire, as specified in its notice to the Converting
Stockholder, as it may have been amended pursuant to Section 3.4(a)(iii)) pro
rata (based on the number of shares of Class B Common Stock owned by each of
them); and

(C) if all Allocable First Offer
Shares are not allocated pursuant to paragraph (A) and any prior application of
paragraph (B), any Allocable First Offer Shares that were not allocated
pursuant to paragraph (A) and any prior application of paragraph (B) shall be
allocated by continuing to apply paragraph (B) as required.

(iii) If the First Offer Electing
Stockholders desire to acquire, in the aggregate, less than all of the First
Offer Shares, then the Converting Stockholder shall so notify the First Offer
Electing Stockholders and:

(A) subject to Section
3.4(a)(iii)(B), each First Offer Electing Stockholder shall have the right, by
written notice sent to the Converting Stockholder (with a copy of such notice
to each other Designating Stockholder) within five days after its receipt of
the notice from the Converting Stockholder pursuant to this Section 3.4(a)(iii)
to amend the notice it delivered pursuant to 3.4(a)(i) to increase or decrease
the number of First Offer Shares that it desires to purchase;

(B) notwithstanding Section
3.4(a)(iii)(A), no notice by any First Offer Electing Stockholder pursuant to
this Section 3.4(a)(iii) shall constitute an amendment of the notice it
delivered pursuant to 3.4(a)(i) if the number of shares that the First Offer
Electing Stockholders originally desired to acquire, in the aggregate, as
specified in their notices pursuant to 3.4(a)(i) was less than or equal to the
Qualifying First Offer Amount and the number of shares that the First Offer
Electing Stockholders subsequently desired to acquire, in the aggregate, as
specified in their notices as

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<PAGE> 21
proposed to be amended pursuant to this Section 3.4(a)(iii), was greater than
the Qualifying First Offer Amount but less than all the First Offer Shares; if
this Section 3.4(a)(iii)(B) applies, the First Offer Electing Stockholders
shall have the right to acquire the number of shares that the First Offer
Electing Stockholders originally desired to acquire, allocated among them in
accordance with Section 3.4(a)(ii);

(C) if, after giving effect to any
amendment to any First Offer Electing Stockholder's notice pursuant to this
Section 3.4(a)(iii), the First Offer Electing Stockholders desire to acquire,
in the aggregate, either (x) all the First Offer Shares, or (y) a number of
First Offer Shares that is not more than the Qualifying First Offer Amount,
then the First Offer Electing Stockholders shall have the right to acquire, in
the case of clause (x), all the First Offer Shares or, in the case of clause
(y), the number of shares that the First Offer Electing Stockholders desire to
acquire, allocated among them in accordance with Section 3.4(a)(ii);

(D) if, after giving effect to any
amendment to any First Offer Electing Stockholder's notice pursuant to this
Section 3.4(a)(iii) (but subject to Section 3.4(a)(iii)(B)), the First Offer
Electing Stockholders desire to acquire, in the aggregate, a number of First
Offer Shares that is greater than the Qualifying First Offer Amount but less
than all the First Offer Shares, then the Converting Stockholder's offer of the
First Offer Shares shall be deemed rejected in full as of the last day for a
First Offer Electing Stockholder to amend its notice pursuant to this Section
3.4(a)(iii); and

(E) if, after giving effect to any
amendment to any First Offer Electing Stockholder's notice pursuant to this
Section 3.4(a)(iii), the First Offer Electing Stockholders desire to acquire,
in the aggregate, a number of First Offer Shares that is less than or equal to
the Qualifying First Offer Amount, then the Converting Stockholder's offer of
the First Offer Shares shall be deemed accepted as to the number of First Offer
Shares that the First Offer Electing Stockholders desire to acquire (and the
First Offer Electing Stockholders shall have the right to acquire such shares
as provided in Section 3.4(a)(iii)(C)) and shall be deemed rejected with
respect to that portion of the First Offer Shares that exceeds the number

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<PAGE> 22
of First Offer Shares that the First Offer Electing Stockholders desire to
acquire as of the last day for a First Offer Electing Stockholder to amend its
notice pursuant to this Section 3.4(a)(iii).

(iv) Notwithstanding the foregoing
provisions of this Section 3.4(a), the allocation of Allocable First Offer
Shares among the First Offer Electing Stockholders shall be subject to Section
3.7(a).

(b) If (i) the Converting Stockholder's offer of
the First Offer Shares is rejected (in whole or in part) as provided in Section
3.4(a), or (ii) the purchase of the First Offer Shares is not consummated
within the period set forth in Section 3.7(b) for any reason other than a
breach by the Converting Stockholder of any of its covenants, representations
or warranties that are a condition to consummation of such purchase, then,
beginning on the date that the Converting Stockholder's offer of the First
Offer Shares is deemed rejected or the day following the last day of the period
set forth in Section 3.7(b), as applicable (such applicable date, the
"Free-to-Convert Date"), the Converting Stockholder shall have the right to
convert the First Offer Shares with respect to which the Converting
Stockholder's offer was rejected or the First Offer Shares that were not
purchased within the period set forth in Section 3.7(b), as applicable (such
First Offer Shares, the "Free-to-Convert Shares"), to shares of Class A Common
Stock at any time prior to the later of (i) the ninetieth day after the
Free-to-Convert Date, or (ii) if prior to or within ten Business Days after the
Free-to-Convert Date the Converting Stockholder either delivers a Demand Notice
pursuant to Section 4.1 or submits a written request in response to a Company
Notice pursuant to Section 4.1 with respect to the registration of the shares
of Class A Common Stock into which the Free-to-Convert Shares may be converted,
either (A) the date on which the registration statement filed by the Company
with respect to such shares of Class A Common Stock becomes effective or (B)
the date on which such registration statement is withdrawn, as applicable. If
the Converting Stockholder does not convert the Free-to-Convert Shares into
shares Class A Common Stock during the applicable period, the procedure set
forth above with respect to the First Offer Notice of Sale shall be repeated
with respect to any subsequent proposed conversion of shares of Class B Common

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<PAGE> 23
Stock to shares of Class A Common Stock by the Converting Stockholder.

3.5 Right of First Refusal.

(a) If a Consenting Stockholder (a "Selling
Stockholder") or its Parent or other Controlled Affiliate shall receive at any
time a bona fide offer in writing, which the Selling Stockholder or its Parent
or other Controlled Affiliate proposes to accept (a "Third Party Offer"), from
a third party (the "Third Party Offeror") to acquire all or part of its shares
of Class B Common Stock (the "First Refusal Shares") or to effect an Indirect
Transfer (in which case the "First Refusal Shares" shall be all the shares of
Class B Common Stock owned by the Selling Stockholder), the Selling Stockholder
shall deliver to each other Designating Stockholder (the "First Refusal
Stockholders") a notice (a "First Refusal Notice of Sale") containing a copy of
the Third Party Offer, the identity of the Third Party Offeror and an offer to
sell the First Refusal Shares to the First Refusal Stockholders on the
following terms: (i) if the Third Party Offer contemplates a purchase of the
First Refusal Shares by the Third Party Offeror for consideration consisting
solely of cash, then the Selling Stockholder's offer shall be to sell the First
Refusal Shares for cash in an amount equal to the purchase price specified in,
and otherwise on the terms and conditions contained in, the Third Party Offer,
and (ii) if the Third Party Offer contemplates an acquisition of the First
Refusal Shares by the Third Party Offeror for consideration any portion of
which is not cash or if the Third Party Offer contemplates an Indirect
Transfer, then the Selling Stockholder's offer shall be to sell the First
Refusal Shares for cash in an amount equal to the fair market value of the
First Refusal Shares (as determined pursuant to Section 3.5(d)) and otherwise
on the terms and conditions contained in the Third Party Offer. The First
Refusal Notice of Sale shall specify the price at which the First Refusal
Shares are offered, as provided in the preceding sentence. No Consenting
Stockholder shall sell or assign, or offer to sell or assign, or otherwise
dispose of any of its shares of Class B Common Stock (other than a disposition
pursuant to Section 3.3, 3.4 or 3.6) or permit an Indirect Transfer to occur
with respect to such Consenting Stockholder (other than pursuant to Section
3.1(c)(i)), unless and until such Consenting Stockholder has delivered a First
Refusal Notice of Sale with

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<PAGE> 24
respect to such shares to the First Refusal Stockholders pursuant to this
Section 3.5 and otherwise complied with the provisions of this Section 3.5.
The First Refusal Stockholders shall enter into an appropriate confidentiality
agreement reasonably requested by the Selling Stockholder with respect to the
Third Party Offer.

(i) If a First Refusal Stockholder desires
to accept all or any portion of the offer set forth in a First Refusal Notice
of Sale as to any part of the First Refusal Shares, such First Refusal
Stockholder (a "First Refusal Electing Stockholder") shall, within ten Business
Days of receipt of such First Refusal Notice of Sale, notify the Selling
Stockholder of its intention to acquire First Refusal Shares and the number of
such shares it desires to acquire, and deliver a copy of such notice to each
other First Refusal Stockholder.

(ii) If the First Refusal Electing
Stockholders desire to acquire, in the aggregate, all of the First Refusal
Shares, then the First Refusal Electing Stockholders shall have the right to
acquire all the First Refusal Shares, allocated among them as follows (or in
such other manner as the First Refusal Electing Stockholders may agree):

(A) the First Refusal Shares shall
be allocated among the First Refusal Electing Stockholders pro rata (based on
the number of shares of Class B Common Stock owned by each of them) until all
of the First Refusal Shares have been allocated or any First Refusal Electing
Stockholder has been allocated the number of First Refusal Shares that it
desires to acquire, as specified in its notice to the Selling Stockholder, as
it may have been amended pursuant to Section 3.5(a)(iii);

(B) if all First Refusal Shares are
not allocated pursuant to paragraph (A) or any prior application of this
paragraph (B), any First Refusal Shares that were not allocated pursuant to
paragraph (A) or any prior application of this paragraph (B) shall be allocated
among the First Refusal Electing Stockholders (other than any First Refusal
Electing Stockholder that has been allocated the number of First Refusal Shares
that it desires to acquire, as specified in its notice to the Selling
Stockholder, as it may have been amended pursuant to

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<PAGE> 25
Section 3.5(a)(iii)) pro rata (based on the number of shares of Class B Common
Stock owned by each of them); and

(C) if all First Refusal Shares are
not allocated pursuant to paragraph (A) and any prior application of paragraph
(B), any First Refusal Shares that were not allocated pursuant to paragraph (A)
and any prior application of paragraph (B) shall be allocated by continuing to
apply paragraph (B) as required.

(iii) If the First Refusal Electing
Stockholders desire to acquire, in the aggregate, less than all of the First
Refusal Shares, then the Selling Stockholder shall so notify the First Refusal
Electing Stockholders and:

(A) each First Refusal Electing
Stockholder shall have the right, by written notice sent to the Selling
Stockholder (with a copy of such notice to each other Designating Stockholder)
within five days after its receipt of the notice from the Selling Stockholder
pursuant to this Section 3.5(a)(iii) to amend its notice to increase the number
of First Refusal Shares that it desires to purchase;

(B) if, after giving effect to any
amendment to any First Refusal Electing Stockholder's notice pursuant to this
Section 3.5(a)(iii), the First Refusal Electing Stockholders desire to acquire,
in the aggregate, all of the First Refusal Shares, then the First Refusal
Electing Stockholders shall have the right to acquire all the First Refusal
Shares, allocated among them in accordance with Section 3.5(a)(ii); and

(C) if, after giving effect to any
amendment to any First Refusal Electing Stockholder's notice pursuant to this
Section 3.5(a)(iii), the First Refusal Electing Stockholders desire to acquire,
in the aggregate, less than all of the First Refusal Shares, then the Selling
Stockholder's offer of the First Refusal Shares shall be deemed rejected as of
the last day for a First Refusal Electing Stockholder to amend its notice
pursuant to this Section 3.5(a)(iii).

(iv) Notwithstanding the foregoing
provisions of this Section 3.5(a), the allocation of the First

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<PAGE> 26
Refusal Shares among the First Refusal Electing Stockholders shall be subject
to Section 3.7(a).

(b) If (i) the Selling Stockholder's offer of the
First Refusal Shares is rejected as provided in Section 3.5(a), or (ii) the
purchase of the First Refusal Shares is not consummated within the period set
forth in Section 3.7(b) for any reason other than a breach by the Selling
Stockholder of any of its covenants, representations or warranties that are a
condition to consummation of such purchase, then the Selling Stockholder shall
have the right, at any time during the sixty-day period beginning on the date
that the Seller Stockholder's offer of the First Refusal Shares is deemed
rejected or the day following the last day of the period set forth in Section
3.7(b), as applicable, to enter into a binding agreement to sell all of the
First Refusal Shares to the Third Party Offeror, or to effect the Indirect
Transfer contemplated by the Third Party Offer, as applicable, in either case
on terms and conditions no less favorable in the aggregate to the Selling
Stockholder (and, in the case of an Indirect Transfer, its Parent) than those
set forth in the Third Party Offer, and thereafter (within the period specified
below in this Section 3.5(b)) to sell all of the First Refusal Shares to the
Third Party Offeror or effect the Indirect Transfer, as applicable, pursuant to
such agreement. The Selling Stockholder shall, as promptly as practicable and
prior to the closing of such sale or Indirect Transfer, provide to the First
Refusal Stockholders a copy of the agreement for the sale of the First Refusal
Shares so as to permit the First Refusal Stockholders to confirm for themselves
that the terms and conditions of such sale are not less favorable in the
aggregate to the Selling Stockholder (and, in the case of an Indirect Transfer,
its Parent) than those set forth in the Third Party Offer. If the Selling
Stockholder does not enter into such an agreement during such sixty-day period,
or does not close the sale thereunder within the period provided in Section
3.7(b), the procedure set forth above with respect to the First Refusal Notice
of Sale shall be repeated with respect to any subsequent proposed sale,
assignment or other disposition of shares of Common Stock by the Selling
Stockholder.

(c) If the First Refusal Shares include a
sufficient number of shares of Class B Common Stock to entitle the holder
thereof to designate at least one Agreed Nominee under

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<PAGE> 27
Section 2.1, then the Selling Stockholder shall have the right to sell to the
Third Party Offeror such shares of Class B Common Stock or permit the Indirect
Transfer, as applicable, without converting such shares to Class A Common Stock
so long as (i) in the case of a sale of the First Refusal Shares, the Third
Party Offeror assumes the obligations of the Selling Stockholder under this
Agreement and, if it is then in effect, the Supplemental Agreement with respect
to such shares and becomes a party to this Agreement and, if it is then in
effect, the Supplemental Agreement, and (ii) in the case of an Indirect
Transfer, the Third Party Offeror, upon taking control of the Selling
Stockholder, causes the Selling Stockholder to confirm in writing the
continuing validity and effectiveness of its obligations under this Agreement
and the Supplemental Agreement. If the First Refusal Shares do not include a
sufficient number of shares of Class B Common Stock to entitle the holder
thereof to designate at least one Agreed Nominee under Section 2.1, or if the
Third Party Offeror refuses to become a party to this Agreement or, if it is
then in effect, the Supplemental Agreement, then the Selling Stockholder shall,
prior to transferring the First Refusal Shares to the Third Party Offeror or
effecting the Indirect Transfer, as applicable, convert all shares of Class B
Common Stock included in the First Refusal Shares to Class A Common Stock and
shall not have the right to sell Class B Common Stock to the Third Party
Offeror or to permit the Indirect Transfer while the Selling Stockholder holds
shares of Class B Common Stock. The conversion of shares of Class B Common
Stock to Class A Common Stock pursuant to the foregoing sentence shall not be
subject to the provisions of Section 3.3, 3.4 or 3.6. If the Third Party
Offeror receives only shares of Class A Common Stock, then it shall not be
required to become a party to this Agreement and shall not become a party to
this Agreement except as provided in the following sentence. If the Third
Party Offeror receives only shares of Class A Common Stock and such shares
represent at least five percent of the number of shares of Common Stock then
outstanding, then it shall have the right, at its option, to become a party to
this Agreement.

(d) Before submitting a First Refusal Notice of
Sale pursuant to Section 3.5(a) in response to a Third Party Offer that
contemplates (i) a sale of the First Refusal Shares in conjunction with other
assets, (ii) an acquisition of the First Refusal Shares by the Third Party
Offeror for consideration any

- 24 -
<PAGE> 28
portion of which is not cash or (iii) an Indirect Transfer, the Selling
Stockholder and the other Designating Stockholders shall cause (A) if the Third
Party Offer contemplates a sale of the First Refusal Shares in conjunction with
other assets, the total consideration specified in the Third Party Offer to be
allocated between the First Refusal Shares and such other assets, (B) if the
Third Party Offer contemplates an acquisition of the First Refusal Shares by
the Third Party Offeror for consideration any portion of which is not cash or
if the Third Party Offer contemplates an Indirect Transfer, the fair market
value of the First Refusal Shares to be determined, in each case pursuant to
this Section 3.5(d):

(i) The Selling Stockholder shall deliver
to each other Designating Stockholder a notice stating that the Selling
Stockholder intends to deliver a First Refusal Notice of Sale to which this
Section 3.5(d) applies and identifying an appraiser (the "First Appraiser") who
has been retained by the Selling Stockholder to allocate the total
consideration specified in the Third Party Offer or to conduct an appraisal of
the First Refusal Shares, as applicable, pursuant to this Section 3.5(d).
Within ten Business Days after its receipt of the Selling Stockholder's notice
pursuant to the preceding sentence, the Designating Stockholder (other than the
Selling Stockholder) that, together with its Controlled Affiliates, owns the
greatest number of shares of Class B Common Stock, shall send a notice to the
Selling Stockholder and the other Designating Stockholders identifying a second
appraiser (the "Second Appraiser") who shall be retained by the Selling
Stockholder to make such allocation or conduct such appraisal, as applicable,
pursuant to this Section 3.5(d).

(ii) The First Appraiser and the Second
Appraiser shall submit their independent determinations of the amount of
consideration allocable to the First Refusal Shares or the fair market value of
the First Refusal Shares, as applicable, within thirty days after the date on
which the Second Appraiser is retained. If the respective determinations of
the First Appraiser and the Second Appraiser vary by less than ten percent of
the higher determination, the amount of consideration allocable to the First
Refusal Shares or the fair market value of the First Refusal Shares, as
applicable, for purposes of Section 3.5(a), shall be the average of the two
determinations.

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<PAGE> 29
(iii) If the respective determinations of
the First Appraiser and the Second Appraiser vary by ten percent or more of the
higher determination, the two Appraisers shall promptly designate a third
appraiser (the "Third Appraiser"), who shall be retained by the Selling
Stockholder to make an allocation or conduct an appraisal pursuant to this
Section 3.5(d). The First Appraiser and the Second Appraiser shall be
instructed not to, and no party to this Agreement or any Controlled Affiliate
of any party to this Agreement shall, provide any information to the Third
Appraiser as to the determinations of the First Appraiser and the Second
Appraiser or otherwise influence the Third Appraiser's determination in any
way. The Third Appraiser shall submit its determination of the amount of
consideration allocable to the First Refusal Shares or the fair market value of
the First Refusal Shares, as applicable, within thirty days after the date on
which the Third Appraiser is retained. If a Third Appraiser is retained, the
amount of consideration allocable to the First Refusal Shares or the fair
market value of the First Refusal Shares, as applicable, for purposes of
Section 3.5(a), shall equal the average of the two closest of the three
determinations, except that, if the difference between the highest and middle
determinations is no more than 105% and no less than 95% of the difference
between the middle and lowest determinations, then the amount of consideration
allocable to the First Refusal Shares or the fair market value of the First
Refusal Shares, as applicable, for purposes of Section 3.5(a), shall equal the
middle determination.

(iv) Any appraiser retained pursuant to
this Section 3.5(d) shall be nationally recognized as being qualified and
experienced in the appraisal of assets comparable to the First Refusal Shares
and, if applicable, any other assets proposed to be sold pursuant to the Third
Party Offer and shall not be an Affiliate of any party to this Agreement. All
fees and expenses of any appraiser retained pursuant to this Section 3.5(d)
shall be paid by the Selling Stockholder.

(v) In determining the fair market value
of the First Refusal Shares, if applicable, each appraiser retained pursuant to
this Section 3.5(d) shall: (A) assume that the fair market value of the
applicable asset is the price at which the asset would change hands between a
willing buyer and a willing

- 26 -
<PAGE> 30
seller, neither being under any compulsion to buy or sell and each having
reasonable knowledge of all relevant facts; (B) assume that the applicable
asset would be sold for cash; and (C) use valuation techniques then prevailing
in the relevant industry.

3.6 Pre-IPO Right of First Offer.

(a) If the Company's initial Public Offering has
not been consummated by September 30, 1996, then each Consenting Stockholder
shall have the right, at any time thereafter but prior to the consummation of a
Public Offering (the "Pre-IPO Period"), to deliver to the other Designating
Stockholders a notice (a "Pre-IPO Notice of Sale" and, together with the First
Offer Notice of Sale and the First Refusal Notice of Sale, the "Notices of
Sale") of such Consenting Stockholder's intention to sell, assign or otherwise
dispose of the shares of Class A Common Stock into which all or part of its
shares of Class B Common Stock may be converted (the "Pre-IPO Offered Shares,"
and, together with the First Offer Shares and the First Refusal Shares, the
"Offered Shares"). Such Consenting Stockholder (the "Pre-IPO Offeror") shall
not sell or assign, or offer to sell or assign, or otherwise dispose of any of
its shares of Class B Common Stock (other than a disposition pursuant to
Section 3.3, 3.4 or 3.5), or convert such shares into shares of Class A Common
Stock, unless and until it has delivered a Pre-IPO Notice of Sale with respect
to such shares to the other Designating Stockholders pursuant to this Section
3.6 and otherwise complied with the provisions of this Section 3.6. Such
Pre-IPO Notice of Sale shall contain the Pre-IPO Offeror's offer to sell the
Pre-IPO Offered Shares to the other Designating Stockholders, and shall specify
the terms and conditions of such sale, including the number of Pre-IPO Offered
Shares and the price per Pre-IPO Offered Share (which price shall, unless
otherwise agreed by the Pre-IPO Offeror and the Designating Stockholders
accepting such offer, be payable in cash).

(i) If any of the other Designating
Stockholders desires to accept all or any portion of the offer set forth in a
Pre-IPO Notice of Sale, such Designating Stockholder (a "Pre-IPO Electing
Stockholder" and, together with the First Offer Electing Stockholders and the
First Refusal Electing Stockholders, the "Electing Stockholders") shall, within

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<PAGE> 31
ten Business Days of receipt of such Pre-IPO Notice of Sale, notify the Pre-IPO
Offeror of its intention to acquire Pre-IPO Offered Shares and the number of
such shares it desires to acquire, and deliver a copy of such notice to each
other Designating Stockholder.

(ii) If the Pre-IPO Electing Stockholders
desire to acquire, in the aggregate, all of the Pre-IPO Offered Shares, then
the Pre-IPO Electing Stockholders shall have the right to acquire all the
Pre-IPO Offered Shares, allocated among them as follows (or in such other
manner as the Pre-IPO Electing Stockholders may agree):

(A) the Pre-IPO Offered Shares shall
be allocated among the Pre-IPO Electing Stockholders pro rata (based on the
number of shares of Class B Common Stock owned by each of them) until all of
the Pre-IPO Offered Shares have been allocated or any Pre-IPO Electing
Stockholder has been allocated the number of Pre-IPO Offered Shares that it
desires to acquire, as specified in its notice to the Pre-IPO Offeror, as it
may have been amended pursuant to Section 3.6(a)(iii);

(B) if all Pre-IPO Offered Shares
are not allocated pursuant to paragraph (A) or any prior application of this
paragraph (B), any Pre-IPO Offered Shares that were not allocated pursuant to
paragraph (A) or any prior application of this paragraph (B) shall be allocated
among the Pre-IPO Electing Stockholders (other than any Pre-IPO Electing
Stockholder that has been allocated the number of Pre-IPO Offered Shares that
it desires to acquire, as specified in its notice to the Pre-IPO Offeror, as it
may have been amended pursuant to Section 3.6(a)(iii)) pro rata (based on the
number of shares of Class B Common Stock owned by each of them); and

(C) if all Pre-IPO Offered Shares
are not allocated pursuant to paragraph (A) and any prior application of
paragraph (B), any Pre-IPO Offered Shares that were not allocated pursuant to
paragraph (A) and any prior application of paragraph (B) shall be allocated by
continuing to apply paragraph (B) as required.

(iii) If the Pre-IPO Electing Stockholders
desire to acquire, in the aggregate, less than all of the Pre-IPO

- 28 -
<PAGE> 32
Offered Shares, then the Pre-IPO Offeror shall so notify the Pre-IPO Electing
Stockholders and:

(A) each Pre-IPO Electing
Stockholder shall have the right, by written notice sent to the Pre-IPO Offeror
(with a copy of such notice to each other Designating Stockholder) within five
days after its receipt of the notice from the Pre-IPO Offeror pursuant to this
Section 3.6(a)(iii) to amend its notice to increase the number of Pre-IPO
Offered Shares that it desires to purchase;

(B) if, after giving effect to any
amendment to any Pre-IPO Electing Stockholder's notice pursuant to this Section
3.6(a)(iii), the Pre-IPO Electing Stockholders desire to acquire, in the
aggregate, all of the Pre-IPO Offered Shares, then the Pre-IPO Electing
Stockholders shall have the right to acquire all the Pre-IPO Offered Shares,
allocated among them in accordance with Section 3.6(a)(ii); and

(C) if, after giving effect to any
amendment to any Pre-IPO Electing Stockholder's notice pursuant to this Section
3.6(a)(iii), the Pre-IPO Electing Stockholders desire to acquire, in the
aggregate, less than all of the Pre-IPO Offered Shares, then the Pre-IPO
Offeror's offer of the Pre-IPO Offered Shares shall be deemed rejected as of
the last day for a Pre-IPO Electing Stockholder to amend its notice pursuant to
this Section 3.6(a)(iii).

(iv) Notwithstanding the foregoing
provisions of this Section 3.6(a), the allocation of the Pre-IPO Offered Shares
among the Pre-IPO Electing Stockholders shall be subject to Section 3.7(a).

(b) If (i) the Pre-IPO Offeror's offer of the
Pre-IPO Offered Shares is rejected as provided in Section 3.6(a), or (ii) the
purchase of the Pre-IPO Offered Shares is not consummated within the period set
forth in Section 3.7(b) for any reason other than a breach by the Pre-IPO
Offeror of any of its covenants, representations or warranties that are a
condition to consummation of such purchase, then the Pre-IPO Offeror shall have
the right, at any time during the sixty-day period beginning on the date that
the Pre-IPO Offeror's offer of the Pre-IPO Offered Shares is deemed rejected or
the day following the last

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<PAGE> 33
day of the period set forth in Section 3.7(b), as applicable, to convert all
Class B Common Stock included in the Pre-IPO Offered Shares to Class A Common
Stock and to enter into a binding agreement to sell all of such shares of Class
A Common Stock to a third party on terms and conditions no less favorable in
the aggregate to the Pre-IPO Offeror than those set forth in the Pre-IPO Notice
of Sale and thereafter (within the period specified below in this Section
3.6(b)) to sell all of such shares of Class A Common Stock to such third party
pursuant to such agreement. In no event shall the Pre-IPO Offeror have the
right to transfer any shares of Class B Common Stock pursuant to this Section
3.6 except to the Pre-IPO Electing Stockholders. The Pre-IPO Offeror shall, as
promptly as practicable and prior to the closing of such sale, provide to the
other Designating Stockholders a copy of the agreement for the sale of the
Pre-IPO Offered Shares so as to permit the Designating Stockholders to confirm
for themselves that the terms and conditions of such sale are not less
favorable in the aggregate to the Pre-IPO Offeror than those set forth in the
Pre-IPO Notice of Sale. If the Pre-IPO Offeror does not enter into such an
agreement during such sixty-day period, or does not close the sale thereunder
within sixty days after the execution of such an agreement (subject to
extension for a maximum of 180 additional days to the extent required to obtain
all required governmental, regulatory and other third party consents and
approvals), the procedure set forth above with respect to the Pre-IPO Notice of
Sale shall be repeated with respect to any subsequent proposed sale, assignment
or other disposition of shares of Common Stock by such Pre-IPO Offeror during
the Pre-IPO Period.

(c) If, during the sixty-day period after the
expiration of the relevant period set forth in Section 3.6(b), the Pre-IPO
Offeror receives a bona fide offer in writing from any third party to purchase
only a part of the shares of Class A Common Stock into which the Pre-IPO
Offered Shares may be converted or to purchase all of the shares of Class A
Common Stock into which the Pre-IPO Offered Shares may be converted on terms
and conditions less favorable in the aggregate to the Pre-IPO Offeror than
those set forth in the Pre-IPO Notice of Sale, and the Pre-IPO Offeror desires
to accept such offer, the Pre-IPO Offeror shall give notice of the terms of
such offer to the other Designating Stockholders and the procedure set forth
above with

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<PAGE> 34
respect to the initial Pre-IPO Notice of Sale shall be repeated with respect to
such offer.

3.7 Terms and Conditions of Sales Pursuant to Sections
3.4, 3.5 and 3.6.

(a) The acquisition by any Electing Stockholder
(the "Excess Shares Stockholder"), as a result of its election to exercise
rights granted pursuant to Section 3.4(a), 3.5(a) or 3.6(a), of any shares of
Class B Common Stock (the "Excess Shares") which, when added to the shares of
Class B Common Stock held by such Electing Stockholder immediately prior to
such election, would cause its percentage of the total outstanding Class B
Common Stock to exceed 49% shall be subject to the application of this Section
3.7(a). If, in connection with any offer made pursuant to Section 3.4(a),
3.5(a) or 3.6(a), any Electing Stockholder would, but for the application of
this Section 3.7(a), have the right to acquire Excess Shares, then (i) the
Excess Shares Stockholder shall have the right to acquire that number of Excess
Shares which, when added to the shares of Class B Common Stock held by the
Excess Shares Stockholder immediately prior to such election, would cause its
percentage of the total outstanding Class B Common Stock to equal 49% and (ii)
each Electing Stockholder other than the Excess Shares Stockholder shall have
the right to acquire its pro rata portion (based on the number of shares of
Class B Common Stock owned by it and the number of shares of Class B Common
Stock owned by all such Electing Stockholders other than the Excess Shares
Stockholder), or such other portion as such other Electing Stockholders may
agree among themselves, of the remaining Excess Shares; provided, however, that
if there are two Excess Shares Stockholders in connection with any election to
exercise rights granted pursuant to Section 3.4(a), 3.5(a) or 3.6(a), then each
Excess Shares Stockholder shall have the right to acquire that number of Excess
Shares which, when added to the shares of Class B Common Stock held by such
Excess Shares Stockholder immediately prior to such election, would cause its
percentage of the total outstanding Class B Common Stock to equal 49% and any
remaining Excess Shares shall be split equally between such Excess Shares
Stockholders. Each Excess Shares Stockholder shall have the right to acquire
any portion of the Excess Shares which the other Electing Stockholders have not
agreed to acquire.

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<PAGE> 35
(b) Any purchase and sale of Common Stock pursuant
to Section 3.4, 3.5 or 3.6 shall be subject to the following terms and
conditions:

(i) the selling Consenting Stockholder
shall represent and warrant that the buying Consenting Stockholders will
receive good and valid title to the Offered Shares, free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever except as set forth in this Agreement and except for governmental,
regulatory and other third party consents and approvals required for transfers
of shares of Common Stock generally;

(ii) closing of the purchase and sale
shall be subject to the satisfaction of following conditions:

(A) all applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder, shall have expired or been
terminated;

(B) all governmental approvals and
other third party consents expressly required with respect to the transactions
to be consummated at such closing shall have been obtained, to the extent the
failure to obtain such approvals or consents would prevent the Converting
Stockholder, the Selling Stockholder or the Pre-IPO Offeror, as the case may
be, from performing any of its material obligations under the transaction
documents or would result in any materially adverse change in, or materially
adverse effect on, the business, assets, results of operations, financial
condition or prospects of the Company and the Persons controlled by the Company
taken as a whole;

(C) there shall be no preliminary or
permanent injunction or other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of the transactions to
be consummated at such closing;

(D) the representation and warranty
of the Converting Stockholder, the Selling Stockholder or the Pre-IPO Offeror,
as the case may be, contemplated by clause (i) of

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<PAGE> 36
this sentence shall be true and correct at the closing of such sale with the
same force and effect as if then made; and

(iii) The closing of any purchase and sale
of Common Stock pursuant to Section 3.4, 3.5 or 3.6 shall take place as
promptly as practicable, but in any event within sixty days after the
acceptance of the applicable offer, subject to extension for a maximum of one
hundred eighty additional days to the extent required to obtain all required
governmental, regulatory and other third party consents and approvals.

(c) In furtherance of the rights set forth in
Sections 3.4, 3.5 and 3.6, the Company agrees that, on reasonable notice
following the delivery of a Notice of Sale, at reasonable times and without
interfering with the business or operations of the Company, it will assist the
Converting Stockholder, the Selling Stockholder or the Pre-IPO Offeror, as the
case may be, in obtaining all necessary consents to any disposition of the
Offered Shares.

3.8 Transferee Consenting Stockholders.

(a) A Consenting Stockholder shall remain a
Consenting Stockholder for so long as it owns any Class B Common Stock
regardless of the percentage of Class B Common Stock it may own from time to
time. Any transferee of a Consenting Stockholder required to become a party to
this Agreement pursuant to Section 3.3 or Section 3.5(c) of this Agreement
shall become a Consenting Stockholder by delivering to the Company (which shall
promptly send notice thereof to the Consenting Stockholders) a counterpart
signature page to this Agreement and, if it is then in effect, the Supplemental
Agreement. No further action by the Company or the Consenting Stockholders
shall be required for such person to become a party to this Agreement.
Following any Indirect Transfer permitted by this Agreement, the Consenting
Stockholder with respect to which such Indirect Transfer has occurred shall
confirm to the other Consenting Stockholders in writing the continuing validity
and effectiveness of its obligations under this Agreement and, if it is then in
effect, the Supplemental Agreement.

(b) If TCI Communications, Inc. elects in
accordance with Section 3.4(a) of the Reorganization Agreement to

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<PAGE> 37
cause shares of Class B Common Stock allocable to the Viacom Interests (as
defined in the Reorganization Agreement) to be issued to a Subsidiary of TCI
Communications, Inc. other than TCI Teleport, Inc., such Subsidiary shall
become a party to this Agreement and shall become a Consenting Stockholder by
delivering to the Company (which shall promptly send notice thereof to the
Consenting Stockholders) a counterpart signature page to this Agreement and, if
it is then in effect, the Supplemental Agreement.

3.9 Continental Waiver. Continental agrees to consent to
any request for a waiver from the transfer restrictions contained in this
Section 3 which is requested by Consenting Stockholders that hold at least
fifty percent of the outstanding shares of Class B Common Stock held by
Consenting Stockholders other than Continental, so long as Continental is
offered the same opportunity either (as determined by the Consenting
Stockholders that made such request):

(a) to participate in the transfer for which such
waiver is requested on a pro rata basis (based on the ratio that the number of
shares of Class B Common Stock subject to such request bears to the total
number of shares of Class B Common Stock held by all Consenting Stockholders
other than Continental), and on the same terms and conditions, as the proposed
transferor or transferors with respect to which such request is made; or

(b) to receive cash in exchange for shares of
Class B Common Stock in an amount equal to the fair market value of the
consideration that Continental would have been entitled to receive upon the
transfer of a like number of shares of Class B Common Stock had Continental
participated in the transfer for which such waiver is requested on a pro rata
basis as described in Section 3.9(a); for purposes of this Section 3.9(b), if
the transferors in a transaction with respect to which such a request is made
contribute their shares of Class B Common Stock to an entity and receive
capital contribution credit therefor in an amount determined by arms' length
negotiations between the transferors and one or more Persons that are not
Affiliates of the transferors, then the fair market value of the consideration
received by the transferors with respect to such contribution shall be equal to
the amount of such capital contribution credit

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<PAGE> 38
and the fair market value of the consideration that Continental would have been
entitled to receive had it participated in the transaction shall be
proportionate to that received by the transferors (based on the relative
numbers of shares of Class B Common Stock involved).

3.10 Cooperation. Each Consenting Stockholder shall use
commercially reasonable efforts to cooperate with any transferring Consenting
Stockholder in connection with its efforts to transfer any interest in its
Common Stock in accordance with the provisions of this Section 3, including
making qualified personnel available for attending hearings and meetings
respecting any consents, approvals and authorizations required for such
transfer and, at the request of the transferring Consenting Stockholder, making
all filings with, and giving all notices to, third parties and governmental
authorities that may be necessary or reasonably required to be made or given by
such of the Consenting Stockholders in order to effect the contemplated
transfers. Subject to the other provisions of this Section, no Consenting
Stockholder shall take any action to delay, impair or impede the receipt of any
required consents, approvals or authorizations. "Commercially reasonable
efforts" as used in this Section shall not require any party to undertake
extraordinary or unreasonable measures to obtain any consents, approvals or
other authorizations, including requiring such party to make any material
expenditures (other than normal filing fees or the like) or to accept any
material changes in the terms of the contract, license or other instrument for
which a consent, approval or authorization is sought.

SECTION 4 REGISTRATION RIGHTS

4.1 Demand Registrations.

(a) Requests for Registration. At any time after
the date which is six moafter the closing of the Company's initial Public
Offering, any stockholder of the Company which is a party to this Agreement (an
"Eligible Holder") may request that the Company effect the registration under
the Securities Act of all or part of its shares of Class A Common Stock
(including shares of Class A Common Stock issuable upon conversion of shares of
Class B Common Stock held by it) for sale in the manner specified in such
request. A stockholder that previously owned

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<PAGE> 39
shares of Class B Common Stock but ceased to be a Consenting Stockholder upon
the conversion of its shares of Class B Common Stock to shares of Class A
Common Stock shall continue to be a party to this Agreement so long as it owns
any shares of Class A Common Stock and therefore shall be an Eligible Holder.
Such request shall be made by furnishing written notice thereof (a "Demand
Notice") to the Company, setting forth the number of shares of Class A Common
Stock requested to be registered and such Eligible Holder's preferred method of
distribution. Within ten days after receipt of any Demand Notice, the Company
shall give written notice of such Demand Notice to all other Eligible Holders.
Following receipt of a Demand Notice from the Company (the "Company Notice"),
each such other Eligible Holder may give the Company a written request to
register any or all of such Eligible Holder's Class A Common Stock (including
shares of Class A Common Stock issuable upon conversion of shares of Class B
Common Stock held by it) in the registration described in the Company Notice,
provided that such written request is given within fifteen days after the date
on which the Company Notice is given (with such request stating (i) the number
of shares of Class A Common Stock to be so included, (ii) such other Eligible
Holder's preferred method of distribution of such shares and (iii) any other
information that the Company Notice reasonably requests be included in such
notice from such Eligible Holder). All registrations requested pursuant to
this Section 4.1(a) are referred to herein as "Demand Registrations." The
Company shall not be required to effect a Demand Registration unless the
aggregate number of shares of Class A Common Stock demanded to be so registered
is at least two percent of the number of shares of Common Stock then
outstanding (the "Minimum Condition"). If the Minimum Condition is met, then,
subject to Sections 4.1(b), 4.1(c) and 4.1(f) below, the Company shall, as soon
as practicable, file with the SEC and use all commercially reasonable efforts
to cause to become effective as promptly as practicable, a Registration
Statement which shall cover the shares of Class A Common Stock requested to be
registered pursuant to such Demand Notices.

(b) Number of Demand Registrations. Once a Demand
Registration has been effected, the Company shall not be obligated to register
Class A Common Stock pursuant to another Demand Registration prior to the
expiration of twelve months from the date on which the previous Demand
Registration was declared

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<PAGE> 40
effective; provided, however, that a registration will not count as a Demand
Registration unless it has become effective, and such effectiveness has been
maintained under the Securities Act (and not subject to any stop order,
injunction or other order or requirement of the SEC or other governmental
agency or court for any reason) for the period specified in Section 4.3(b).
Each Eligible Holder may, before any Registration Statement becomes effective,
withdraw its shares of Class A Common Stock from inclusion therein if the terms
of the proposed distribution are not satisfactory to such Eligible Holder. If
after giving effect to such withdrawal or withdrawals of shares from a Demand
Registration the Minimum Condition would no longer be satisfied, then such
Registration Statement shall be withdrawn. A registration that is withdrawn at
the request of the Eligible Holders that demanded such Demand Registration will
not count as a Demand Registration.

(c) Restrictions on Registrations. The Company
may postpone for up to three months after its receipt of a Demand Notice the
filing of a registration statement for a Demand Registration if the Company
reasonably believes that such Demand Registration would have a material adverse
effect on any proposal or plan by the Company or any of its Subsidiaries to
engage in any financing, acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or other
significant transaction and notifies the Eligible Holders in writing of such
postponement; provided that the Company shall have the right to so postpone
such filing or effectiveness only one time during any period of twelve
consecutive months; and provided, further, that the three-month limitation
contained above in this Section 4.1(c) and the limitation contained in the
first proviso to this Section 4.1(c) shall not apply if the shares proposed to
be registered by the Eligible Holder furnishing the applicable Demand Notice
could then be sold without restrictions (including any volume limitation) under
the Securities Act.

(d) Underwriting.

(i) Subject to Section 4.1(e), the
distribution of the Class A Common Stock covered by the Demand Registration
shall be effected by means of a firm commitment underwriting, and the right of
any Eligible Holder to

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<PAGE> 41
registration pursuant to this Section 4 shall be conditioned upon such Eligible
Holders' participation in such underwriting and the inclusion of such Eligible
Holder's Class A Common Stock in the underwriting (unless otherwise mutually
agreed by a majority in interest of the other Eligible Holders) to the extent
provided herein. The Company (together with all Eligible Holders proposing to
distribute their Class A Common Stock through such underwriting) shall enter
into an underwriting agreement in customary form with a managing underwriter of
nationally recognized standing selected for such underwriting by the Company
with the approval of the Eligible Holder that has included the largest number
of shares in the Demand Registration, such approval not to be withheld
unreasonably. No Eligible Holder may participate in any Demand Registration
unless such Eligible Holder (A) agrees to sell its Class A Common Stock on the
basis provided in such underwriting agreement and (B) completes and executes
all questionnaires, powers of attorney, indemnities and other documents
required under the terms of such underwriting agreement.

(ii) Notwithstanding any other provision
of this Section 4, if the managing underwriter advises the Company and the
Eligible Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the managing underwriter may exclude
shares requested to be included in such Demand Registration. The number of
shares of Class A Common Stock that may be included in the Demand Registration
and underwriting shall be allocated among the Eligible Holders who have
requested registration in accordance with the provisions of Section 4.1(f). No
Class A Common Stock excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such Demand
Registration.

(iii) If any Eligible Holder participating
in a Demand Registration disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the other Eligible Holders. If by such withdrawal a
greater number of shares of Class A Common Stock held by other Eligible Holders
may be included in such Demand Registration (up to the maximum of any
limitation imposed by the managing underwriter), then the Company shall offer
to all Eligible Holders participating in the

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<PAGE> 42
Demand Registration the right to include additional shares of Class A Common
Stock, which additional shares shall be allocated among the Eligible Holders
who have requested registration in accordance with the provisions of Section
4.1(f).

(e) Shelf Registration. If at the time of a
Demand Notice, the Company is eligible to file a registration statement on Form
S-3 (or any equivalent successor form), then Eligible Holders who hold at least
51% of the shares of Class A Common Stock which are to be included in a Demand
Registration may request that the Demand Registration be effected pursuant to a
shelf registration under Rule 415 of the Securities Act; provided, however,
that (i) if the Company shall reasonably determine, after consultation with an
independent investment banking firm of nationally recognized standing, that
such method of distribution would adversely affect the public market for the
Class A Common Stock, then the Company shall not be obligated to effect the
Demand Registration pursuant to such method of distribution, and (ii) during
the term of any such shelf registration, the Company may require from time to
time that the Eligible Holders refrain from selling pursuant to such
registration statement under the circumstances, in the manner and for the time
period described in Section 4.1(c).

(f) Allocation among Eligible Holders. If the
managing underwriter imposes a limit on the number of shares of Class A Common
Stock to be included in the Demand Registration, then each Eligible Holder
shall have the right to include in such Demand Registration up to its pro rata
share (based on the ratio that the number of shares of Class A Common Stock
proposed to be sold by it bears to the total number of shares of Class A Common
Stock proposed to be sold by all Eligible Holders who have elected to
participate in the Demand Registration) of the maximum number of shares
permitted by the managing underwriter to be included in the Demand Registration
(the "Maximum Amount"); provided, however, that, if and to the extent that
Continental is then subject to a regulatory requirement as a result of the U S
West Transaction that it reduce or eliminate its investment in the Company,
during the period ending on the date which is thirty months after the date of
the Company's initial Public Offering, Continental shall have the right (to the
extent it has elected to participate in such Demand Registration) to include in
the Demand Registration up to one-half of the Maximum Amount, and the

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<PAGE> 43
balance of the Maximum Amount shall be allocated among the other participating
Eligible Holders pro rata as provided in the main clause of this sentence; and
provided, further, that, if and to the extent that Continental is then subject
to a regulatory requirement as a result of the U S West Transaction that it
reduce or eliminate its investment in the Company, during the twelve-month
period commencing on the date which is thirty months after the date of the
Company's initial Public Offering, Continental shall have the right (to the
extent it has elected to participate in such Demand Registration) to include in
the Demand Registration all of the Maximum Amount, and any portion of the
Maximum Amount that exceeds the number of shares that Continental elects to
include in the Demand Registration shall be allocated among the other
participating Eligible Holders pro rata as provided in the main clause of this
sentence.

(g) Inclusion of Shares by Company. If the
managing underwriter has not limited the number of shares of Class A Common
Stock to be underwritten or if the number of shares which the Eligible Holders
have requested to be registered is less than the Maximum Amount, then the
Company may include securities for its own account or for the account of others
in such Demand Registration if the managing underwriter so agrees and if the
number of shares of Class A Common Stock held by Eligible Holders which would
otherwise have been included in such Demand Registration and underwriting will
not thereby be limited. The inclusion of such shares shall be on the same
terms as the registration of shares held by the Eligible Holders. In the event
that the managing underwriter excludes some of the securities to be registered,
the securities to be sold for the account of the Company and any other holders
shall be excluded in their entirety prior to the exclusion of any shares of
Class A Common Stock of the Eligible Holders.

4.2 Lockup Agreements. Each Eligible Holder agrees not to
effect any public sale or other distribution of Class A Common Stock during the
seven days prior to the effective date of any Public Offering or Demand
Registration or during the ninety-day period beginning on such effective date
(except in either case as part of such Demand Registration and except that
Continental shall not be prohibited from effecting any such public sale or
other distribution during such period after the effective date of a Public
Offering not being made pursuant to a

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<PAGE> 44
Demand Registration if it is required to sell within such period by any
regulatory requirement resulting from the U S West Transaction), unless the
managing underwriter otherwise agrees. The Company agrees not to effect any
public sale or other distribution of Class A Common Stock during the seven days
prior to the effective date of any Demand Registration or during the ninety-day
period beginning on such effective date (except in either case as part of such
Demand Registration or pursuant to registrations on Form S-8 or any successor
form), unless the managing underwriter otherwise agrees.

4.3 Registration Procedures. Whenever the Company is
obligated by the provisions of this Agreement to effect a registration of any
shares of Class A Common Stock under the Securities Act, the Company shall use
commercially reasonable efforts to effect such registration and the sale of the
shares of Class A Common Stock covered thereby in accordance with the intended
method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:

(a) prepare and file with the SEC a registration
statement with respect to such shares and use all commercially reasonable
efforts to cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed ninety days;

(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until the sooner to occur of the sale of all such shares or the
ninetieth day following the effective date of such registration statement and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;

(c) furnish to each Eligible Holder participating
in such Demand Registration and the underwriters such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration

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<PAGE> 45
statement (including each preliminary prospectus) and such other documents as
such seller or underwriters may reasonably request in order to facilitate the
sale of the shares being sold;

(d) use all reasonable efforts to register or
qualify the shares being sold under such other securities or blue sky laws of
such jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the shares owned
by such seller; provided, however, that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) conform its
capitalization or the composition of its assets to the securities or blue sky
laws of such jurisdictions or (iii) consent to general service of process in
any such jurisdiction;

(e) cause all such shares to be listed or
authorized for quotation on each securities exchange or automated quotation
system on which similar securities issued by the Company are then listed or
quoted;

(f) notify each seller of such shares, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;

(g) notify each seller of such shares of any
request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;

(h) prepare and file with the SEC, promptly upon
the request of any seller of such shares, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel selected
by the holders of a majority of the shares being registered, is required under
the Securities Act in connection with the distribution of shares by such
seller;

(i) prepare and promptly file with the SEC each
amendment or supplement to such registration statement or

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<PAGE> 46
prospectus as may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and

(j) advise each seller of such shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use commercially reasonable efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be issued.

4.4 Expenses. Each Eligible Holder that participates in a
Demand Registration (including a Demand Registration that is withdrawn prior to
becoming effective) shall pay all underwriting discounts and commissions and
any transfer taxes attributable to the sale of such Eligible Holder's shares,
the fees and expenses of counsel for such Eligible Holder, any other
out-of-pocket expenses of such Eligible Holder incurred in connection with its
participation in such Demand Registration and its pro rata share (based on the
ratio that the number of shares of Class A Common Stock to be sold by it bears
to the total number of shares of Class A Common Stock to be sold by all
Eligible Holders who have elected to participate in the Demand Registration) of
any out-of-pocket expenses incurred by the Company in connection with such
Demand Registration.

4.5 Preparation of Registration Statement. Each Eligible
Holder agrees to furnish to the Company such written information concerning
such Eligible Holder as may reasonably be requested by the Company which is
necessary in connection with any Demand Registration.

4.6 Indemnification.

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<PAGE> 47
(a) In the event that the Company effects a
registration of any shares owned by an Eligible Holder, such Eligible Holder
shall indemnify and hold the Company, and each of its directors and officers
and each person, if any, who controls the Company within the meaning of the
federal securities laws (the "Company Indemnified Parties") harmless against
all losses, liabilities and expenses of any nature whatsoever which the Company
Indemnified Parties may incur as a result of or arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
in the registration statement filed by the Company (including any prospectus
contained in such registration statement and any post-effective amendment or
supplement thereto) or as a result of or arising out of or based upon the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, which untrue statement or omission or
alleged untrue statement or omission was made in such registration statement
(including any prospectus contained in such registration statement and any
post-effective amendment or supplement thereto) in reliance upon and in
conformity with information furnished in writing by or behalf of such Eligible
Holder for inclusion therein; provided, however, that such Eligible Holder
shall not be liable to the extent that the losses, liabilities or expenses
arise out of or are based upon (i) the use by the Company or another Eligible
Holder of any prospectus after such time as the obligation of the Company to
keep the same effective and current has expired or (ii) the use by the Company
or another Eligible Holder of any prospectus after such time as such Eligible
Holder has advised the Company that the filing of a post-effective amendment or
supplement thereto is required with respect to any information contained in
such prospectus concerning such Eligible Holder, except such prospectus as so
amended or supplemented.

(b) In the event that the Company effects a
registration of any shares owned by an Eligible Holder, the Company shall
indemnify and hold such Eligible Holder, and each of its directors and officers
and each person, if any, who controls the Eligible Holder within the meaning of
the federal securities laws (the "Stockholder Indemnified Parties") harmless
against all losses, liabilities and expenses of any nature whatsoever which
such Stockholder Indemnified Parties may incur

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<PAGE> 48
as a result of or arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration statement
filed by the Company (including any prospectus contained in such registration
statement and any post-effective amendment or supplement thereto) or as a
result of or arising out of or based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, provided, however, that the Company will
not be liable in any such case to the extent that the losses, liabilities or
expenses arise out of or are based upon (i) any untrue statement or omission or
alleged untrue statement or omission made in such registration statement
(including any prospectus contained in such registration statement and any
post-effective amendment or supplement thereto) in reliance upon and in
conformity with information furnished in writing by or on behalf of such
Eligible Holder to the Company for inclusion therein in connection therewith,
(ii) the use of any prospectus after such time as the obligation of the Company
to keep the same effective and current has expired, or (iii) the use of any
prospectus after such time as the Company has advised the Eligible Holder that
the filing of a post-effective amendment or supplement thereto is required,
except such prospectus as so amended or supplemented.

(c) With respect to the indemnities provided above
in this Section 4.6, an indemnified party shall, with respect to any claim made
against such indemnified party, notify the indemnifying party in writing of the
nature of the claim as soon as practicable but not more than ten days after the
indemnified party shall have received notice of the assertion thereof before
any court or governmental authority. The failure by an indemnified party to
give notice as provided in the foregoing sentence shall not relieve the
indemnifying party of its obligations under this section except to the extent
that the failure results in the failure of actual notice to the indemnifying
party and the indemnifying party is damaged solely as a result of the failure
to give notice. Upon receipt of notice by an indemnifying party from an
indemnified party of the assertion of any such claim, the indemnifying party
shall employ counsel reasonably acceptable to the indemnified party and shall
assume the defense of such claim. The indemnified party shall

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<PAGE> 49
have the right to employ separate counsel and to participate in (but not
control) any such action, but the fees and expenses of such counsel shall be
the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by its counsel in writing that there
is a conflict of interest between the indemnifying party and the indemnified
party in the conduct of the defense of such action (in which case the
indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying party
shall not in fact have employed counsel to assume the defense of such action,
in each of which cases the fees and expenses of such counsel shall be at the
expense of the indemnifying party. An indemnifying party shall not be liable
for any settlement of an action effected without its written consent (which
consent shall not be unreasonably withheld). No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such action.

SECTION 5 ADDITIONAL AGREEMENTS

5.1 Confidentiality.

(a) Each Consenting Stockholder agrees that it
will not, directly or indirectly, without the prior written consent of the
Company, use or disclose to any person, firm or corporation, any information,
trade secrets, confidential customer information, technical data or know-how
relating to the products, processes, methods, equipment or business practices
of the Company or any of its Subsidiaries, except (a) to the extent any of the
foregoing is or becomes available to the public other than as a result of
disclosure by such Consenting Stockholder or any of its Affiliates or the
directors, officers, employees, agents, advisors and controlling persons of it
or any of its Affiliates, (b) as necessary to effect a transaction under and in
compliance with Section 3 or 4, (c) as may be required by law and (d) as any
Consenting Stockholder may disclose to its lenders, rating agencies and
business, legal and financial advisors. In the event any Consenting
Stockholder is required by applicable law or regulation or by legal process to
disclose any of the

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<PAGE> 50
foregoing, it will provide the Company and other Consenting Stockholders with
prompt notice thereof to enable them to seek an appropriate protective order.
The covenants made by a Consenting Stockholder in this Section 5.1 shall
continue to apply for a period of two years after such Consenting Stockholder
ceases to be a Consenting Stockholder.

(b) At any time that the Continental Merger
Agreement or any other agreement with respect to a U S West Transaction is in
effect, and at any time after the consummation of the U S West Transaction, the
Company shall not provide to Continental, and Continental shall not request from
the Company, any strategic or confidential information about the Company or any
of its Subsidiaries or Affiliates (other than annual and quarterly financial
statements prepared by the Company); provided, however, that, notwithstanding
this Section 5.1(b), a director of the Company who was an Agreed Nominee
designated by the Consenting Stockholder Group that includes Continental shall
be entitled to receive any information that is furnished to the directors of the
Company (in their capacities as directors of the Company) to the extent that a
director of a Delaware corporation is entitled to such information under the
General Corporation Law of Delaware.

5.2 Issuance of Additional Class B Common Stock. Without
the consent of each Designating Stockholder, the Company shall not issue any
additional shares of Class B Common Stock other than shares of Class B Common
Stock issued:

(a) in connection with a stock split;

(b) as a stock dividend with respect to issued and
outstanding shares of Class B Common Stock; or

5.3 Voting on Scope of Business Limitations. Continental
agrees that, so long as it holds any Class B Common Stock, it will vote in
favor of, or consent to, any proposal submitted for a vote of the holders of
the Class B Common Stock pursuant to Article IV.B.2.c of the Certificate of
Incorporation, if it is requested to do so by holders of a majority of the

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<PAGE> 51
shares of Class B Common Stock held by Consenting Stockholders other than
Continental.

SECTION 6 MISCELLANEOUS

6.1 Expiration and Termination. This Agreement (other than
any provision for which a different term is specified) shall terminate if and
when the aggregate voting power of the Class B Common Stock represents less
than 30% of the aggregate voting power of all the outstanding Common Stock.

6.2 Assignment. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. Notwithstanding the preceding sentence,
neither this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by the Company without the
prior written consent of all of the Consenting Stockholders, or by any other
party except as expressly provided herein.

6.3 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered by hand, by telecopier
device (confirmed by hand delivery or overnight courier service) or by
overnight courier service to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):

if to the Company, to:

Teleport Communications Group Inc.
Two Teleport Drive, Suite 301
Staten Island, NY 10311-1011
Attention: Robert Annunziata, Chairman and Chief
Executive Officer
(with a copy similarly addressed to the
attention of the Teleport Communications Group
Inc. Legal Department)

with copies to each other Consenting Stockholder and to:

Kevin F. Reed, Esq.
Dow, Lohnes & Albertson

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<PAGE> 52
1200 New Hampshire Ave., N.W., Suite 800
Washington, DC 20036-6802

if to Cox Teleport Partners, Inc., to:

Cox Teleport Partners, Inc.
c/o Cox Enterprises, Inc.
1400 Lake Hearn Drive
Atlanta, GA 30319
Attention: John R. Dillon
Senior Vice President and Chief Financial
Officer

with copies to:

Andrew A. Merdek, Esq.
Vice President, Legal Affairs
Cox Enterprises, Inc.
1400 Lake Hearn Drive
Atlanta, GA 30319

and

David D. Wild, Esq.
Dow, Lohnes & Albertson
1200 New Hampshire Ave., N.W., Suite 800
Washington, DC 20036-6802

if to TCI Teleport, Inc., to:

TCI Teleport, Inc.
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111-3000
Attention: Gerald W. Gaines
(with a copy similarly addressed to the
attention of the Tele-Communications,
Inc. Legal Department)

with a copy to:

Elizabeth M. Markowski, Esq.
Baker & Botts, L.L.P.

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<PAGE> 53
599 Lexington Avenue
29th Floor
New York, New York 10022-6030

if to Comcast Teleport, Inc., to:

Comcast Teleport, Inc.
1500 Market Street
Philadelphia, PA 19102-2148
Attention: General Counsel

if to Continental, to:

Continental Teleport, Inc.
c/o Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, MA 02110
Attention: Ronald H. Cooper

with copies to:

Howard B. Homonoff, Esq.
Director of Corporate Legal Affairs
Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, MA 02110

and

Patrick K. Miehe, Esq.
Sullivan & Worcester
One Post Office Square
Boston, MA 02109

6.4 Entire Agreement. As of the date hereof, this
Agreement, together with the Supplemental Agreement and the Reorganization
Agreement, represents the entire understanding of the parties with reference to
the matters set forth herein. This Agreement supersedes, from and after the
date hereof with respect to all periods commencing on or after the date hereof,
the Amended and Restated Stockholders' Agreement dated as of May 5,

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<PAGE> 54
1993, as amended, among the Company and the Consenting Stockholders, and all
prior negotiations, discussions, correspondence, communications and prior
agreements among the parties relating to the subject matter herein. Neither
the Company nor any Consenting Stockholder shall have any rights after the date
of this Agreement under the Amended and Restated Stockholders' Agreement dated
as of May 5, 1993, as amended.

6.5 Amendment and Waiver. Subject to Section 3.8, this
Agreement may not be amended or modified in any respect except by an instrument
in writing signed by all of the parties hereto. Any failure of any party
hereto to comply with any obligation, covenant, agreement or condition
contained herein may be waived by the party or parties entitled to the benefits
thereof, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.

6.6 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware (without
regard to its laws pertaining to conflicts of law) applicable to contracts
executed in and to be performed entirely in such state.

6.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the greatest extent
possible.

6.8 Consent to Jurisdiction; Specific Performance.

(a) Each Consenting Stockholder hereby irrevocably
submits to the non-exclusive jurisdiction of any

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<PAGE> 55
Delaware State or Federal court in any action or proceeding arising out of or
relating to this Agreement, and each Consenting Stockholder hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such Delaware State or Federal court. Each Consenting
Stockholder hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action
or proceeding.

(b) Nothing in this Section 6.8 shall affect the
right of any party to serve legal process in any other manner permitted by law
or affect the right of any party to bring any action or proceeding against any
other party or its property in the courts of any other jurisdictions. The
consents to jurisdiction set forth in this Section 6.8 shall not constitute
general consents to service of process in the State of Delaware, shall have no
effect for any purpose except as provided in this Section 6.8 and shall not be
deemed to confer rights on any Person other than the parties to this Agreement.

(c) Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto acknowledges
and agrees that a violation by such party of any term of this Agreement will
cause the other parties hereto irreparable injury for which an adequate remedy
at law is not available. Therefore, the parties hereto agree that each such
party shall be entitled to an injunction, restraining order or other form of
equitable relief from any court of competent jurisdiction restraining any other
party hereto from committing any breach or threatened breach of, or otherwise
specifically to enforce, any provision of this Agreement.

6.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement.

6.10 Headings. The section headings used in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of any term or provision of this Agreement.

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<PAGE> 56
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Stockholders' Agreement as of the date and year first above written.

TELEPORT COMMUNICATIONS GROUP INC.

By:
---------------------------
Name:
-------------------------
Title:
------------------------

COX TELEPORT PARTNERS, INC.

By:
---------------------------
Name:
-------------------------
Title:
------------------------

TCI TELEPORT, INC.

By:
---------------------------
Name:
-------------------------
Title:
------------------------

COMCAST TELEPORT, INC.

By:
---------------------------
Name:
-------------------------
Title:
------------------------

CONTINENTAL TELEPORT, INC.

By:
---------------------------
Name:
-------------------------
Title:
------------------------

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