(FORTUNE Magazine) – AMID BREATHLESS talk about the merging of telephones and cable TV, and ambitious visions of information superhighways that will carry movies and video phone calls and cross-country Nintendo tourneys, one small technical question nags at phone company executives: How are we supposed to sort and direct all this traffic? Video, which flows at a rate of several million bits of information per second, makes many more demands on a network than phone calls, which amount to only a few thousand bits per second each. Bell Atlantic thinks tiny BroadBand Technologies may hold the key to turning phone systems into video bazaars. The emerging superstar of the Baby Bells announced in February that it would buy $100 million of fiber-optic gear from the Durham, North Carolina, startup operation -- not a bad piece of business for a 200-employee company that in the most recent four quarters had only $6.2 million in sales. BroadBand went public on the strength of the order; the stock jumped $10 a share, to $48.25, the week Bell Atlantic announced its plan to buy Tele-Communications Inc. BroadBand had its genesis as a project at Siecor, a joint venture of Siemens and Corning for making fiber-optic cable. When Siecor decided to end the effort in 1988, a group of executives left to form BroadBand with Siecor's blessing. Chief Executive Salim Bhatia, 43, was on the scene only because he had been more rudely displaced two decades earlier. A native of Tanzania, he had been about to return home from college in England to run the family manufacturing businesses when the government expropriated them because of the family's Asian ancestry. He later went to Harvard business school and stayed in the U.S. To launch BroadBand, he and his colleagues put up $500,000, worked without pay for six months, and raised $4.5 million from T/A Associates, a Boston venture capital firm more willing than Siemens and Corning to wait for a payoff. Bhatia and his colleagues could see that phone companies would eventually need to lace neighborhoods with fiber-optic cable to supplant their low- capacity copper wire. The fiber will run from switching offices all the way to the curb; four to 24 households will share each double strand of fiber. Until recently most phone companies believed that big, expensive central- office switches would be needed to make sure each customer got the right videograms, movies, and phone calls. BroadBand found a way to decentralize the job. Relatively inexpensive neighborhood terminals will house computer cards, each programmed with data on households sharing a strand. The neighborhood terminal can take over certain central office tasks, such as program ordering and billing, and provide viewers with greater flexibility than today's cable and phone systems. Rather than having to subscribe to Showtime by the month, for example, a viewer who sees a coming attraction could punch in a credit card number via his remote control. The local unit would send the movie through. By distributing computing power to the neighborhoods, says BroadBand, a telephone company can cut the cost of installing video switching dramatically, from several hundred dollars per subscriber to less than $10. Bhatia says, ''Our mission is to transform the local networks from bicycle paths into fiber-based, interactive, digital-switched, broadband superhighways.'' Got that?

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: COMPANY REPORTS, WORLDSCOPE CAPTION: BROADBAND TECHNOLOGIES Durham, North Carolina