New Competition for Cable Companies

The cable television industry has long eyed telephone companies warily, and now the Federal Communications Commission has given it ample reason for that concern. The FCC has granted phone companies the right to carry TV programming into millions of homes. The controversial decision is a major victory for phone operators, which will now be able to transmit TV shows, movies, sports and news formerly carried only by cable and broadcast networks. They will also be allowed to acquire a financial stake of up to 5% in programmers like cnn, Walt Disney and even cbs. The ruling is expected to pave the way for new consumer services, including interactive television and home shopping, and to lower cable rates by promoting more competition. In return for the new freedoms, phone carriers must open their networks to all comers.

The cable industry, which fears being run over by its much larger rivals, immediately attacked the FCC order. Cable companies complain that phone carriers can compete unfairly by drawing on ratepayer funds to subsidize new TV ventures and using their monopoly over local telephone lines to restrict access from competitors. Although the FCC vowed to guard against such practices, skeptics point out that the agency's resources are too limited for it to do so. Critics also note that any gains consumers realize from lower cable prices could be more than offset by the $100 billion to $500 billion they may end up paying to upgrade the telephone system to transmit high-speed video information.

While the plan is far-reaching, the FCC hopes to go even further. Federal law still prohibits phone companies from producing TV shows. And rules barring phone operators from owning cable-TV systems also remain intact. But the FCC intends to lobby Congress to waive both restrictions. The FCC also gave the - cable industry's push into telecommunications a boost by proposing that local phone companies be prohibited from offering a new pocket telephone service. Says Kenneth McGee, an analyst at the Gartner Group: "The FCC wants to redefine the communications industry in America." The risk is that the FCC may be unwittingly replacing two separate monopoly franchises with one supermonopoly.