Compression Labs' stock soared on the news, up $3.50, to $13.75, in Nasdaq trading.

Short interest in Compression Labs climbed 7 percent in the period, to 4.1 million shares, making its short position the fifth largest over the counter.

A.T.& T. and Compression Labs will develop a device to deliver movies and other video services over telephone lines.

At present, Compression Labs equipment does not work with Picturetel systems, and neither manufacturer's gear can commune with Videotelecom's.

Compression Labs' algorithm edits the television signal down to 1.5 million bits, which is 78 times more than household lines can carry.

And in Nasdaq trading, Compression Labs was up 2, to 14 1/4, after signing a nonbinding agreement with Intel to develop videoconferencing products.

Compression Labs stock closed yesterday at $20.625, up 62.5 cents, in over- the-counter trading, solidly beyond its 52-week low for the year of $8.25.

Analysts caution, however, that while both Compression Labs and Picturetel have plenty of room to grow, both need to move cautiously.

And Compression Labs was the subject of a long-running battle between the shorts and the shareholders, but the shorts appear to have finally won.

The order backlog at Compression Labs, the largest manufacturer with $51.8 million in 1990 sales, has risen to $26 million.